A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation was published in the Official Journal of the European Union. The authorization process for existing CCPs established in the European Union is on-going but will not be completed by the June 15, 2016 deadline. There are still two CCPs established in the Union that await authorization. The implementing Regulation extends the transitional period by an additional six months to December 15, 2016. 

The implementing Regulation entered into force on June 11, 2016.

View the Regulation. 

The US Federal Financial Institutions Examination Council issued a statement to remind financial institutions to actively manage risks associated with interbank messaging and wholesale payments networks in light of recent terror attacks. The statement does not contain new regulatory expectations related to IT risk management, but rather, alerts financial institutions as to specific risk mitigation techniques to prevent such attacks. The statement encourages financial institutions to review their risk management practices and controls, including authentication, authorization, fraud detection, and response management systems and processes.

View the statement.

US House Financial Services Committee Chairman Jeb Hensarling provided remarks regarding proposed legislation to replace the Dodd-Frank Act. The Executive Summary and additional details were subsequently released, and the full bill is expected to be released later this month. Under the proposal, banks that maintain a leverage ratio of at least 10 percent and a composite CAMELS rating of 1 or 2 would be deemed well-capitalized and able to elect able to opt out of many regulatory requirements, including capital and liquidity requirements and limits on capital distributions and mergers or acquisitions.  The proposal would also repeal Title II of the Dodd-Frank Act (the orderly liquidation authority) and replace it with a new subchapter of the US Bankruptcy Code, remove the authority of the Financial Stability Oversight Council, to designate firms as systemically important and certain payments and clearing organizations as systemically important financial market utilities, and reform the Securities and Exchange Commission and Consumer Financial Protection Bureau. 

View the Executive Summary of the Financial Choice Act and Representative Hensarling’s speech. 

The Bank of England and Financial Services Act 2016 (Commencement No. 3) Regulations 2016 were made. The Regulations bring a majority of the provisions in The Bank of England and Financial Services Act 2016 into force. Such provisions cover topics such as financial stability strategy, Financial Policy Committee: status and membership, Monetary Policy Committee: membership and procedure, audit, activities indemnified by Treasury, appointment of Financial Conduct Authority chief executive, Treasury recommendations to the Financial Conduct Authority, administration of senior managers regime, rules of conduct, decisions causing a financial institution to fail: meaning of insolvency, enforceability of agreements relating to credit, illegal money lending and banks authorized to issue banknotes in Scotland and Northern Ireland. 

The provisions will enter into force on July 6, 2016.

View the Regulations.

The US Commodity Futures Trading Commission announced the signing of a Memorandum of Understanding with the European Securities and Markets Authority regarding cooperation with respect to recognized central counterparties. Pursuant to the MOU, derivatives clearing organizations established in the United States may apply to ESMA for recognition as central counterparties, known as “Recognized CCPs.”
 
View the text of the MOU.

The European Commission adopted a Delegated Regulation on RTS setting out the standards for non-discriminatory access for central counterparties and trading venues to licenses of, and information relating to, benchmarks. The Markets in Financial Instruments Regulation provides for such access so as to allow for the determination by a CCP or trading venue of the value of certain financial instruments for trading and clearing purposes. The adopted RTS provide the list of information to be provided by a benchmark owner to a trading venue or CCP requesting access. The information requested must be necessary for the CCP or trading venue to perform its clearing or trading function. The adopted RTS provide that, for trading venues, those functions are, at least: (i) an initial assessment of the characteristic of the benchmark, (ii) the marketing of the relevant product and (iii) the support of the price information process for contracts admitted or being admitted to trading. For CCPs, the relevant functions are (i) risk management of relevant open positions in exchange-traded derivatives, including netting, and (ii) compliance with the requirements under the European Market Infrastructure Regulation. The adopted RTS also set out the price and data feed information to be provided as well as the composition, methodology and pricing information required to allow a CCP or trading venue to understand how each benchmark value is created and the actual benchmark values. 

Read more.

The European Commission published a consultation paper on how the cross-border distribution of funds could be improved in the context of the Capital Markets Union. The CMU is intended to mobilize capital in Europe and channel it to companies and infrastructure projects to create jobs and economic expansion. The Commission believes that cross-border investment funds have an important role to play in achieving this aim. The consultation is aimed at stakeholders such as fund managers, investors and consumer representatives; the Commission also welcomes comments from investors to build a fuller picture of the barriers to distribution. 

The Commission welcomes specific examples of barriers and quantitative and financial evidence on the financial impact of the barriers, including the impact of marketing rules, administrative arrangements imposed by host countries and distribution networks. This includes online platforms, regulatory fees and notification procedures and the most pertinent features of the tax environment. Eliminating unjustified barriers would support fund managers to engage in cross-border marketing of their funds, increase competition and choice and reduce costs for investors. The Commission will use information gathered in its assessment to address the barriers, supporting the development of the CMU and increasing choice.  

Responses to the consultation are due by October 2, 2016.

View the Consultation Paper. 

The US Consumer Financial Protection Bureau issued a lengthy proposed rule to regulate so-called “pay day loans.” Specifically, the proposed rule would impose restrictions on “covered loans,” defined as (i) loans with a term of 45 days or less and (ii) loans with a term greater than 45 days that (a) have an all-in annual percentage rate greater than 36% and (b) are either repaid directly from the consumer’s account or income or are secured by the consumer’s vehicle. For these covered loans, the proposed rules would deem it an abusive and unfair practice for a lender to make such a loan without “reasonably determining that the consumer has the ability to repay the loan.” In addition, the proposal would restrict lenders of covered loans from making such loans when a consumer has, or recently has had, certain outstanding loans (in general, certain loans that the consumer has had difficulty repaying). 

The European Banking Authority published a decision, dated May 31, 2016, on data for supervisory benchmarking under the Capital Requirements Directive. The CRD requires that regulators monitor the range of risk-weighted exposure amounts or own funds requirements, as applicable, except for operation risk, for the exposures or those relating to transactions in benchmark portfolios resulting from the internal approaches adopted by firms. Regulators are also required to assess, at least annually, the quality of the relevant approaches adopted by institutions. In performing this function, regulators receive benchmarking information and data in accordance with the Benchmarking Implementation Regulation. The EBA is required under the CRD to assist regulators in their assessment with regard to supervisory benchmarking. The Decision follows publication of the amended technical standards on benchmarking of internal approaches and requires regulators to submit data for the 2016 benchmarking. Following delay in the EU’s adoption of the Benchmarking Implementation Regulation, the EBA has repealed its previous decision on the topic and replaced it with this decision. 

The Federal Reserve Board announced that it would release results from the latest supervisory stress tests on Thursday, June 23, 2016. Results from the Comprehensive Capital Analysis and Review will be released on Wednesday, June 29, 2016. The stress tests, conducted pursuant to requirements in the Dodd-Frank Act, and the CCAR exercises aim to help large bank holding companies assess the sufficiency of their capital and capital planning processes, taking into account the unique risks of the institutions and the companies’ risk measurement and risk management procedures.

View the Federal Reserve Board’s press release regarding the stress testing and CCAR results.

The European Commission adopted a Delegated Regulation on RTS which set out the requirements for trading venues to provide pre- and post-trade transparency data. MiFIR requires data to be publicly available in an unbundled format. The adopted RTS set out the level of disaggregation by which trading venues should offer data - by asset class, by country of issue, by the currency in which the financial instrument is traded and whether the data comes from scheduled daily auctions or continuous trading. Market operators and investment firms operating a trading venue should also offer any combination of disaggregation on a reasonable commercial basis on request and may offer bundles of data. Where it is not possible to determine the asset class to which an instrument belongs unambiguously, market operators and investment firms operating a trading venue should determine which criteria the relevant financial instrument meets. 
 

The European Commission adopted a Delegated Regulation on Regulatory Technical Standards on the authorization and organizational requirements for, and publication of transactions by, Data Reporting Services Providers. The revised Markets in Financial Instruments Directive will introduce requirements for DRSPs to be authorized and supervised for their data reporting services, including the operation of Approved Publication Arrangements, Consolidated Tapes and Approved Reporting Mechanisms. The adopted RTS set out the requirements for authorization and ongoing supervision of DRSPs, including the provision of information to be provided to a national regulator when a DRSP is applying for authorization under MiFID II and the organizational requirements covering, amongst others, conflicts of interest, outsourcing, business continuity, IT security and connectivity. The adopted RTS also provide for the publication arrangements that a DRSP must have in place relating to machine readability, scope of data to be provided, non-discrimination and non-duplication. 

The Treasury Committee of the UK Parliament announced that Andrew Tyrie MP, Chairman of the Treasury Committee, had written to Financial Conduct Authority and the Prudential Regulation Authority requesting further information about the risks and opportunities presented by crowdfunding (also known as peer-to-peer lending). The letter to the FCA focuses on conduct risk and consumer protection and the letter to the PRA requests information about the resilience of crowdfunding platforms to economic stress.

View the letter to the FCA.

View the letter to the PRA.

A Commission Delegated Regulation further specifying the circumstances in which exclusion from the application of write-down or conversion powers is necessary under the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. Under the BRRD, the bail-in tool may be applied to all liabilities unless they fall within the list of liabilities explicitly excluded. The new Regulation provides that regulators may only exclude a liability if the obstacles invoked for such exercise do not allow for it to take place within a reasonable time. The BRRD only allows regulators to exclude a liability from bail-in, if it considers that it is not possible to bail-in the liability within a “reasonable time,” which is determined by assessing when the write-down amount ultimately has to be determined; and then assessing, the time by which all tasks needed to bail-in those liabilities would need to be performed in order to meet the resolution objectives. The new Regulation specifies that regulators may exclude liabilities on the basis of it being necessary and proportionate to preserve critical functions and core business lines under the BRRD. The Regulation will apply from June 21, 2016. 

View the delegated regulation.

A Commission Delegated Regulation was published in the Official Journal of the European Union correcting two Commission Delegated Regulations under the Capital Requirements Regulation and Capital Requirements Directive. The Regulation corrects a previous Commission Delegated Regulation supplementing the CRR with regard to the Regulatory Technical Standards for non-delta risk of options in the standardized market risk approach. Under the CRR, the EBA is empowered to develop a range of methods to reflect non-delta risks in the own funds requirements of firms in a manner proportionate to the scale and complexity of firms’ activities in options and warrants. One approach to measure non-delta risks of options and warrants is the “simplified approach”. The EBA developed draft RTS accordingly, under which institutions that exclusively purchased options and warrants were obliged to use the simplified approach and did not prevent other institutions from using this approach. The correction states that only institutions that exclusively purchase options and warrants may use the simplified approach, which removes the obligation on such firms to only use the simplified approach and prevents other firms from using it.

Read more.

The US Board of Governors of the Federal Reserve System adopted a proposal to extend various regulatory reporting requirements to US intermediate holding company (IHC) subsidiaries of foreign banking organizations. The final reporting requirements are generally the same as the proposal, with a few adjustments and clarifications.  Under the final requirements, the Federal Reserve noted that it will consider requests to modify the financial data for previous years that an IHC would be required to report, or extend the time period by which an IHC would have to report the historical data on the applicable Form FR Y-14. The FR Y-14 series of reports generally collects data for stress-testing purposes. The Federal Reserve Board also clarified that it is not requiring at this time that the FR Y-14 attestation requirement apply to IHC subsidiaries of US bank holding companies subject to the Large Institution Supervision Coordinating Committee. The Federal Reserve Board also extends the IHC’s first filing date of the FR Y-15 form to December 5, 2016 to allow institutions time to facilitate accurate reporting.  

View the Final Rule.

The US Securities and Exchange Commission approved a final rule, implementing a provision of the Fixing America’s Surface Transportation Act, amending Form 10-K disclosure requirements. The interim final rule allows Form 10-K filers to provide a summary of business and financial information contained in the annual report, provided that the summary also contains hyperlinks to the more detailed disclosure in the form. 
The SEC also requested comment on whether the interim rule should provide more guidance on the form and content of the summary as well as the applicability of the amended rule to other annual reporting forms. 

Comments on the interim final rule must be received on or before 30 days after publication in the Federal Register.
 
View the full text of the interim final rule.  

The European Securities and Markets Authority published an Opinion specifying the criteria for establishing, under the revised Markets in Financial Instruments Directive, when the activity of a firm is to be considered “ancillary” to the main business of the firm at a group level. Under the current MiFID, eligible firms trading commodity derivatives can rely on exemptions, for ancillary activities, avoiding the need to become regulated as an investment firm. MiFID II narrows the ancillary activity exemption considerably. ESMA is required to develop RTS to specify the criteria which must be taken into account for the revised exemption. They have specified at least the following two elements: (i) the need for ancillary activities to constitute a minority of activities at a group level; and (ii) the size of their ancillary trading activity compared to the overall market trading activity in that asset class. ESMA submitted draft RTS to the Commission on September 28, 2015. On March 14, 2016, the Commission indicated its intention to endorse the draft RTS, subject to a number of changes. In particular, the Commission requested that ESMA include, when proportionate and appropriate, a capital-based test for groups that have undertaken significant capital investments, relative to their size, in the creation of infrastructure, transportation or production facilities or groups that undertake activities or investments which cannot be hedged in financial instruments. The Opinion published is in response to the Commission’s request.

The European Securities and Markets Authority launched a consultation on its proposed technical advice to the European Commission on delegated acts due under the EU Benchmarks Regulation. ESMA consulted in February this year on its initial approach to the technical advice and the draft technical standards that it is required to prepare. The consultation on draft technical standards will be held separately in the second half of 2016. ESMA’s advice will cover: (i) certain definitions, including the definition of benchmarks and “use”; (ii) criteria for the identification of critical benchmarks; (iii) endorsement of a benchmark or family of benchmarks provided in a third country; (iv) the measurement of the use of critical and significant benchmarks; and (v) transitional provisions. 

Read more.

On May 27, 2016, the Financial Conduct Authority announced that Megan Butler had been appointed to the role of Director of Supervision for the Investment, Wholesale and Specialists team. Ms. Butler has been on secondment at the FCA from the Prudential Regulation Authority as Temporary Head of Supervision. Ms. Butler was previously Executive Director of the International Banks Directive at the PRA and has also worked at the Financial Services Authority and the London Stock Exchange.

View the FCA announcement.

The US Financial Crimes Enforcement Network, pursuant to authority contained in the USA PATRIOT ACT, found “reasonable grounds” to conclude that the Democratic People’s Republic of Korea is a jurisdiction of primary money laundering concern. In its notice, FinCEN cited several factors that contributed to this conclusion, including evidence that organized criminal groups, international terrorists or entities involved in the proliferation of weapons of mass destruction have transacted business in North Korea, evidence that North Korea has been found to have repeatedly failed to address the deficiencies in its AML regime and the extent to which North Korea has demonstrated high levels of institutional and official corruption. 

Read more.

The European Commission published a consultation paper on the implementation of the NSFR at European Union level. The Net Stable Funding Ratio measures the assumed degree of stability of liabilities and the liquidity of assets over a one-year horizon. The CRR introduced reporting requirements for the NSFR without setting any more detailed requirements. The EBA published a report in December 2015 on whether, and how, it would be appropriate to ensure that institutions use stable sources of funding, supporting the Basel Committee NSFR at a European level but with some specificities regarding its calibration. To supplement the Commission’s analysis of the EBA’s report and Call for Evidence published in September 2015, the Commission is calling for a more nuanced treatment of specific business models and some transactions.  The consultation seeks views on the treatment of specific aspects of the NSFR, derivative and short-term transactions (less than six months) with financial institutions and the application of the proportionality principle, in particular, the appropriate level of NSFR application and the criteria for defining institutions with a “low liquidity risk profile”. 

Responses to the consultation are due by June 24, 2016.

View the consultation on implementation of NSFR.

View the EBA report on NSFR.

The Financial Policy Committee published the final UK framework for the Systemic Rick Buffer for ring-fenced banks and large building societies (i.e. those that will be subject to the UK ring-fencing rules from 2019 with assets over £25 billion). The SRB, a discretionary buffer under the EU Capital Requirements Directive, aims to mitigate and prevent long-term non-cyclical macro-prudential or systemic risk.  

The Financial Conduct Authority published an Occasional Paper on the emerging issues and market contributions associated with market-based finance. The paper focuses on the more comprehensive concept of market-based finance, emphasizing the roles of markets and market-making mechanisms in the modern banking system. The FCA published the paper to better understand the impacts of market-based finance on the stability of the financial system as a whole. The FCA’s findings are based on a substantial review of existing literature on market-based finance, trade press and various web sources and discussions with internal and external stakeholders. 

The Bank for International Settlements published the Phase 1 materials for a global Code for the FX market. The Code is a set of principles providing common guidelines to promote the integrity and effectiveness of the global wholesale FX markets and has been prepared as a result of the recent spate of misconduct cases in the FX markets. The Code covers governance, risk management and compliance, ethics, information sharing, execution and confirmation and settlement processes. The final Code is expected to be published in May 2017. In the meantime, the authors hope that market participants will begin to embed the Code into their day-to-day activities. The Code does not impose any legal or regulatory obligations on market participants and is intended to supplement local laws, rules and regulations by identifying global good practices and processes.

View the Code.

View the update on adherence to the Code.

The European Commission adopted two Delegated Regulations with Regulatory Technical Standards which will supplement the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The first RTS, relevant to MiFIR, set out the criteria that the European Securities and Markets Authority must use to assess whether derivatives that have been declared subject to the clearing obligation (under the European Market Infrastructure Regulation) have sufficient third-party buying and selling interest to be considered sufficiently liquid for the trading obligation to apply. MiFIR will introduce a trading obligation, whereby standardized volumes of sufficiently liquid non-equity instruments must be traded on a regulated market, multilateral trading facility, organised trading facility or equivalent third country platform (and not OTC).

Read more.

A Commission Implementing Regulation containing Implementing Technical Standards on the information to be provided to national regulators by investment firm and market operators of multilateral trading facilities and organized trading facilities was published in the Official Journal of the European Union. The ITS supplements the revised Markets in Financial Instruments Directive, setting out the information that the operator of a MTF or OTF will need to provide to its national regulator on the specific functionality of the trading system so that its national regulator can assess whether the system fits within the definition of an MTF or OTF and also assess compliance with the requirements under MIFID II for an MTF or OTF. The information to be provided includes, amongst other things, the asset classes of financial instruments traded on the platform, the rules and procedures that ensure non-discriminatory access to the platform, arrangements for market making and rules on suspension or removal from trading of a financial instrument. MTFs or OTFs will also need to notify their regulators of any material changes to the information previously submitted. The RTS also sets out the format for the provision of this information. An OTF is a new category of trading platform that the MiFID II Directive and Markets in Financial Instruments Regulation will introduce. The ITS will apply from the date that the MiFID II Directive applies from.

View the ITS.

The European Commission published a consultation paper on proposed options for implementing principles of proportionality in the upcoming capital requirements framework, to review the Original Exposure Method and replace the current standardized approached for counterparty credit risk with a new standardized approach.  The consultation looks at the potential introduction of new standards for market risks in the prudential framework as it provides an opportunity to reassess the issue of proportionality for smaller or simpler financial institutions. The current risk framework contained in the CRR establishes some principles of proportionality but there is no derogation for small trading book businesses which would allow firms with non-significant trading activities to use a simplified prudential framework to calculate requirements for their trading exposures. The proposed Basel Committee for Banking Supervision standardized approach would bring significant modifications to the current approach in the CRR, making it more risk sensitive and better suited for complex financial instruments. The Commission is considering whether to implement a simplified version of the new standardized approach or to keep the current standardized approach. 

The CFTC issued for public comment a supplement to the CFTC’s December 2013 position limits proposal. The supplement would permit exchanges to recognize, subject to CFTC review, certain positions in commodity derivative contracts as non-enumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt from federal position limits certain spread positions. 

In a statement issued concurrently with the proposed rule, CFTC Chairman Timothy Massad noted that the proposed supplemental rule was a critical piece of the CFTC’s effort to finalize rules on position limits in 2016.

CFTC Commissioner Christopher Giancarlo also voiced support for the proposal in a separate statement, stating his belief that the proposal reflects practical realities by recognizing that most exchanges do not have access to sufficient swap position information to effectively monitor swap position limits. 
 
If adopted, the proposed supplement would relieve designated contract markets and swap execution facilities from setting and monitoring exchange limits on swaps until DCMs and SEFs have access to data that would enable them to do so. 

View the full text of the proposed supplemental rule. 

The Financial Stability Board published its thematic review on the implementation of the FSB Framework for Shadow Banking Entities. The objective of the review was to evaluate the progress made by FSB jurisdictions in implementing the FSB’s Policy Framework, in particular, evaluating efforts by entities based on economic functions and participation in the FSB information-sharing exercise. The FSB found that, despite progress having been made, the peer review findings indicated that implementation remains at a relatively early stage. The FSB concluded that more work is required to ensure that application of the Framework is sufficiently rigorous and that jurisdictions are able comprehensively to assess and respond to risks potentially posed by non-bank financial entities.

Read more.  

A Commission Implementing Regulation which amends the Implementing Technical Standards on uniform formats and dates for the disclosure of values used to identify global systemically important institutions under the CRR was published in the Official Journal of the European Union. The ITS supplement CRR provisions that require regulators to identify G-SIIs, based upon the templates issued by the Basel Committee on Banking Supervision. The amended ITS take into account revisions proposed by the European Banking Authority in January 2016. G-SIIs are now required to report the information used to identify G-SIIs (such as indicators, ancillary data and memorandum items) to the regulator in electronic format, using a template annexed to amending ITS. The amended ITS provides that G-SIIs publicly disclose the values of the indicators used for determining the score of G-SIIs in accordance with the Commission Delegated Regulation on the methodology for the identification of G-SIIs. Information required in the template includes general information such as bank name and reporting dates. The template will also include monetary values on indicators such as payments made in the reporting year, assets under custody and underwritten transaction in debt and equity markets. The amending ITS entered into force on May 26, 2016. 

View the amending ITS.

The European Banking Authority published guidelines for upcoming stress tests of deposit guarantee schemes under the Deposit Guarantee Schemes Directive. The Directive introduced a number of measures to improve the resilience of deposit guarantee schemes in Europe and the EBA is required to perform stress tests every three years; the first is to take place by July 3, 2017. The purpose of the stress test is to verify whether the operation and funding capabilities of the DGS are sufficient to ensure deposit protection, within the conditions of the Directive, during times of increased pressure.  The EBA has decided to produce guidelines for consistency across the European Union and to ensure that the stress test is a credible assessment tool. 

Read more.

The US Commodity Futures Trading Commission issued a rule implementing a cross-border approach to the CFTC’s margin requirements for uncleared swaps. The CFTC’s margin rule applies to CFTC-registered swap dealers and major swap participants for which there is no prudential regulator (collectively, Covered Swap Entities or CSEs) but these rules are closely aligned with the cross-border margin requirements already adopted by the prudential regulators. 

Read more.

A Commission Delegated Regulation outlining the Regulatory Technical Standards on when financial instruments should be removed or suspended from trading was adopted by the European Commission. The adopted RTS will supplement the revised Markets in Financial Instruments Directive, which requires a market operator of a regulated market, multilateral trading facility or organized trading platform to suspend or remove from trading financial instruments which no longer comply with the rules of the trading platform. 

Read more.

A Commission Delegated Regulation outlining the Regulatory Technical Standards for the admission of financial instruments to trading on regulated markets was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive which requires a regulated market to have clear and transparent rules regarding the admission of financial instruments to trading. Such rules must ensure that any instruments admitted to trading are capable of being traded in a fair, orderly and efficient manner (and in the case of transferable securities, are freely negotiable).
 

The European Commission adopted Regulatory Technical Standards on criteria relating to the methodology for setting the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL is the European equivalent of US TLAC. There are some differences between the adopted RTS and the final draft RTS submitted by the European Banking Authority with its Opinion published in February 2016 which expressed disagreement with certain of the European Commission's proposed amendments to the final draft RTS submitted in July 2015.

As part of his remarks at a global economic symposium in Paris, US Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig stated his objections to the Basel Committee on Banking Supervision’s recently proposed revisions to the Basel III leverage ratio framework. In his speech, Hoenig noted that the banking industry has begun to lobby for special treatment or exemptions from capital requirements for a host of assets included in the leverage ratio calculation. Hoenig argued that if accepted, the effect of such proposed revisions would be to again lower acceptable industry capital standards.

Read more.

An Order was published implementing provisions in the Banking Act 2009, providing powers to HM Treasury to make regulations about financial collateral arrangements. The relevant provisions come into force on May 25, 2016.  Financial collateral arrangements are arrangements under which financial collateral is used as security in respect of a loan or other liability, such as cash and securities. The scope of regulation HM Treasury can make is not restricted purely to provisions required in order to implement the Financial Collateral Directive. This is presumably a prelude to restating the Financial Collateral Arrangements (No. 2) Regulations 2003 in light of recent Supreme Court decision, The United States of America v Nolan, expressing doubt as to its enforceability owing to such regulations arguably going beyond EU laws in some respect and therefore not being made validly under the European Communities Act 1972. The relevant provisions of the Banking Act provide that HM Treasury can make any provision it deems necessary or desirable for the purpose of enabling financial collateral arrangements, whether or not with an international element, to be commercially useful and effective. The regulations may in particular make provision for the enforcement of financial collateral arrangements, and includes matters relating to the rule of law about formalities or evidence, insolvency, administration and receivership. 

View the Order.

View the Supreme Court Decision. 

The European Commission adopted Regulatory Technical Standards on the valuation of derivatives for the purpose of bailing-in derivative liabilities. The Bank Recovery and Resolution Directive provides that a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions, including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine the value of those derivative liabilities at the moment of exercise of the resolution power. The adopted RTS provide a methodology for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in, principles for determining the point in time at which the value of a derivative should be established and measures for establishing the value of classes of derivatives.  The Commission has adopted the final draft RTS submitted by the European Banking Authority without any substantive amendments. The adopted RTS will now be considered by the European Parliament and Council of the European Union. 

View the adopted RTS.

The FDIC extended the comment period for proposed recordkeeping requirements for FDIC-insured institutions with at least 2 million deposit accounts. The purpose of the proposed recordkeeping requirements is to facilitate rapid payment of insured deposits to customers if large institutions were to fail. The proposed requirements would not apply to smaller institutions, including community banks.

Read more.

The European Banking Authority published translations of its Guidelines on business reorganization plans following a bail-in. The Bank Recovery and Resolution Directive requires a firm that has been recapitalized through a bail-in to produce a reorganization plan that sets out how the firm will be restored to long-term viability and to submit progress reports twice annually throughout the reorganization period. The EBA's Guidelines provide the minimum criteria that the business reorganization plan must fulfil for approval by a resolution authority and set out how national regulators and resolution authorities should assess whether the business reorganization plan is credible, realistic and consistent with other business plans prepared by the firm in parallel. The Guidelines will apply to resolution authorities and national regulators from August 20, 2016.

View the Guidelines. 

Commission Delegated Regulation on deferral of extraordinary ex post contributions to a resolution financing arrangement and the criteria for determining critical functions was published in the Official Journal of the European Union. The Regulation sets out the assessment that a resolution authority should undertake of a firm's application for deferral from the obligation to contribute to extraordinary ex post contributions to a resolution financing arrangement, including an assessment of the impact on the firm's financial position. The Regulation also provides the criteria for determining whether a function is a critical function. The BRRD requires firms to identify all of the critical functions within the firm or its group in the firm's recovery plan to aid the assessment of how a critical function could be continued when the firm is under financial stress. The Regulation applies from June 9, 2016. 

View the Regulation.

The Financial Conduct Authority published a consultation paper outlining proposed changes to the rules and guidance in the Client Assets sourcebook and the Collective Investment Schemes sourcebook (COLL), following the adoption of the UCITS V (the Undertakings for Collective Investment in Transferable Securities V Level 2 Regulation).   The consultation paper also proposes minor changes to the Senior Management Arrangements Systems and Controls sourcebook (SYSC) and consequential amendments in COLL and the Investment Funds sourcebook (FUND) to reflect certain measures in the Securities Financing Transactions Regulation. The UCITS V Level 2 Regulation sets out additional, detailed requirements for UCITS management companies and depositaries and will apply to UCITS management firms from October 13, 2016. Requirements include, for example, minimum terms in the contract between a management company and depositary, detailed oversight, cash monitoring and safe-keeping requirements for depositories, and requirements for independence between management companies and the depositaries. 

Read more.

The Office of the Comptroller of the Currency issued a bulletin to highlight actions that national banks and federal savings associations should take and factors that banks should consider based on the US Securities and Exchange Commission's revised money market fund rules. Although these rules directly apply only to MMFs, the rules indirectly affect: (i) banks that make MMFs available to their customers through their fiduciary and custody activities; (ii) bank programs that automatically sweep funds between deposit accounts and MMFs; and (iii) banks that invest in MMFs. The MMF rules were revised in 2010 and again in 2014, and the 2014 rules are currently being phased in with a final compliance date of October 14, 2016.

The bulletin describes how the SEC's MMF rules are likely to affect banks and addresses the product and process changes that affected banks should consider. The bulletin also highlights how banks that are involved in any of these activities will likely be affected by compliance, liquidity, operational and strategic risks related to the SEC's revised rules.

View the OCC bulletin.

The UK Payment Systems Regulator published a consultation paper on the application of provisions in the Interchange Fee Regulation, which take effect in the UK from June 9, 2016. The Regulation sets a limit on interchange fees on debit and credit card transactions where both the issuer and acquirer are located in the European Economic Area and outlines a number of business rule provisions that require affected parties to amend their business practices. The consultation paper is Phase II of the PSR’s consultation on the Regulation; the previous Phase I paper outlined the PSR’s powers and procedures as the designated regulator for monitoring and compliance of the Regulation. The Regulation came into effect on December 9, 2015. This consultation concerns the PSR’s approach to the remaining provisions which will come into effect on June 9, 2016, focusing on three areas: (i) business rules; (ii) monitoring and enforcement of the business rules; and (iii) amendments to the Phase I Guidance. 

Responses to the consultation were due by July 8, 2016.

View the consultation paper. 

View further information on Phase I guidance.

The Financial Conduct Authority published initial feedback on the recovery plans submitted by investment firms regulated by it. Recovery plans are required to be submitted by banks and certain investment firms to national regulators under the EU Bank Recovery and Resolution Directive. The FCA regulates those investment firms in the UK that are not designated by the Prudential Regulation Authority. The FCA identifies key areas for improvement in recovery plans, including identifying and analyzing internal and external interconnectedness, identifying and calibrating recovery plan indicators, demonstrating that recovery plan options are comprehensive and credible, capturing the minimum range of scenarios or properly explaining why certain scenarios are not applicable, correctly defining core business lines and critical functions and designing appropriate communication strategies for crisis management. 

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The Consumer Financial Protection Bureau issued a semiannual update of its rulemaking agenda which provides an overview of the agency’s major current initiatives. Among other initiatives, the CFPB notes that it expects to issue a final rule this summer to create a comprehensive set of consumer protections for prepaid financial products, such as general purpose reloadable cards and other similar products. The CFPB issued a proposed rule in November 2014 to bring prepaid products expressly within the realm of the Electronic Fund Transfer Act and its implementing Regulation E as prepaid accounts and to create new provisions specific to such accounts. The agency also proposed to amend Regulation E and Regulation Z (which implements the Truth in Lending Act) to regulate prepaid accounts with overdraft services or credit features. The CFPB had previously announced Spring 2016 for the release of the final prepaid account rule, but the current rulemaking agenda now lists July 2016.

View the CFPB's Spring rule making agenda.

View the proposed rule. 

The US Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the OCC and the Consumer Financial Protection Bureau issued interagency guidance regarding supervisory expectations on how financial institutions should handle consumer deposit discrepancies. In some instances, when a consumer makes a deposit, the sum the bank credits to the account may be different from the total amount deposited. These deposit discrepancies can occur if the amount written on a deposit slip does not match the cash transferred into the bank or as a result of encoding errors or a poor image capture by the bank when it scans or reads a deposit slip. The interagency guidance calls on banks to avoid or reconcile, or resolve deposit discrepancies and to adopt policies that treat consumers fairly when they make deposits and do not violate laws and regulations that apply to deposit discrepancy practices. If a financial institution fails to comply with applicable laws and regulations, including prohibitions against unfair, deceptive and abusive practices, it could open itself up to liability and possible action by an agency.

View the interagency guidance.

A Commission Delegated Regulation, outlining the Regulatory Technical Standards on ratios of unexecuted orders to transactions, was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive on algorithmic trading for both investments firms and trading venues. 

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The UK Payment Systems Regulator published a Policy Statement and final Guidance on the application of the Payment Accounts Regulations 2015 in respect of alternative arrangements for switching accounts. The final guidance sets out the approach under the PSR to designating alternative switching schemes and is relevant to operators of alternative switching schemes, payment service providers, consumers and regulators.