The US Treasury Secretary testified before the US House Financial Services Committee regarding the 2016 FSOC Annual Report. Secretary Lew’s remarks included a discussion of the forward-looking approach taken by FSOC and its efforts to engage with stakeholders and the public and to avoid “one-size fits all” regulations. Members of the House Financial Services Committee questioned Secretary Lew on a variety of topics, focusing on the categorization of “Too Big to Fail” and the designation of systemically important financial institutions. In addition, the committee asked Secretary Lew for his views on the joint Federal Reserve Board, FDIC, and OCC report to Congress which recommended repealing the authority for bank holding companies to engage in merchant banking activities. Secretary Lew distanced himself from the report, stating that the Treasury was not involved in its preparation.

View Secretary Lew's opening remarks.

The Financial Policy Committee of the Bank of England released a statement following its meeting on September 20, 2016. The FPC considers that the current outlook for financial stability in the UK remains challenging following the outcome of the referendum in June for the UK to leave the EU. The FPC has reaffirmed that it expects to maintain a countercyclical buffer rate of 0% until at least June 2017 unless any material changes warrant an amendment. The Prudential Regulation Authority's expectation is that banks should not increase dividends and other distributions as a result of the CCyB being maintained at 0%. 

View the statement.

The European Banking Authority published final draft Implementing Technical Standards on the common procedures, forms and templates for the consultation process between the relevant national regulators when carrying out the prudential assessment relating to proposed acquisitions of qualifying holdings in credit institutions.  The Capital Requirements Directive requires regulators to fully consult with each other when carrying out the assessment of a proposed acquirer of qualifying holdings. The final draft ITS supplements this requirement by setting out the requirements for the designation of contact points by regulators, as well as a timeframe and process for submitting the consultation notice and for providing the response. The final draft ITS provide templates for the response from the regulator from whom information has been requested. It also outlines language requirements and means of communication, as well as how mutual feedback would be carried out. The EBA has made certain amendments to the version of the ITS that it consulted on previously to take into account the final draft ITS prepared on a similar topic under the Markets in Financial Instruments Directive II, which was published by the European Securities and Markets Authority in March 2015. Those amendments seek to align the requirements across sectors. The final draft ITS must be submitted to the Commission for adoption before it can enter into force.  

View the final draft ITS.

The European Banking Authority published a consultation paper proposing draft Guidelines on how to stipulate the minimum monetary amount of professional indemnity insurance required for authorization under the Payment Services Directive II. PSD2 entered into force on January 12, 2016, and will apply from January 13, 2018. The PSD2 recognizes new types of payment services that have emerged in the area of internet payments, such as payment initiation services and account information services. The PSD2 sets out the criteria on how to stipulate the minimum monetary amount of professional indemnity insurance or other comparable guarantee to be held by regulated firms. The draft Guidelines also set out the criteria, indicators, calculation methods and a formula that regulators should use when granting authorization or registration. The consultation paper explains the EBA's proposal for the use of a formula to calculate the minimum monetary amount of professional indemnity insurance or any comparable guarantee, when and how the lowest tier (the default value) should be used when calculating the monetary amount, provides details on indicators for the criteria set out in the PSD2 and the proposed methodology for some of the indicators. Responses to the consultation are due by November 30, 2016. 

View the consultation page. 

The European Banking Authority published proposed draft technical standards on fee terminology and disclosure documents under the Payment Accounts Directive. The PAD aims to assist consumers to understand the fees of payment service providers and to make informed decisions about which account is most suitable for customers, by setting common standards for PSPs across EU Member States, harmonising the terminology used by PSPs and introducing fee information templates. The EBA is responsible for preparing draft Regulatory Technical Standards setting out the Union standardized terminology for the most common services linked to a payment account, as well as  Implementing Technical Standards on the standardized presentation format of the fee information document (FID) and the statement of fees (SoF). The EBA's consultation paper sets out its proposed RTS and ITS, the options it has considered and the rationale for choosing the proposed requirements and examples of completed FIDs and SoFs. Responses to the consultation are due by December 22, 2016. 

View the consultation paper.

The European Securities and Markets Authority published a discussion paper on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading on at least one trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. ESMA is required to prepare Regulatory Technical Standards setting out which derivatives (or a subset of derivatives) that have been declared subject to the clearing obligation (currently comprising only certain interest rate swaps and credit default swaps) will also be subject to the trading obligation and the date on which the obligation will take effect. ESMA is seeking feedback on its approach to implementing the trading obligation for derivatives, including its application to certain types of counterparties and the possibility of the obligation being phased in, and on its initial assessment of some classes of derivatives that might become subject to the obligation. The discussion paper also sets out how the trading obligation has been implemented in other jurisdictions, such as the US, Japan, Switzerland, Mexico, Argentina and China. 

Read more.

HM Treasury published a consultation paper on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of “investment advice” set out in the Markets in Financial Instruments Directive. The consultation follows the Financial Advice Market Review, conducted by HM Treasury and the Financial Conduct Authority last year, which assessed how consumers could access advice on their finances more easily. The FAMR recommended that the government should consult on amending the definition of regulated advice in accordance with the MiFID definition, to the effect that only advice which makes a personal recommendation would be regulated. The consultation proposes a revised definition and seeks feedback on the costs and benefits of this change and any potential risks by November 15, 2016.

View the consultation page.

A Commission Delegated Regulation identifying high-risk third countries with strategic deficiencies under the Fourth Money Laundering Directive was published in the Official Journal of the European Union, based on deficiencies identified by Financial Action Task Force. 

The Regulation lists high-risk third countries which have provided a written high-level political commitment to address identified deficiencies and have developed an action plan with the FATF; countries listed: Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu and Yemen. The Regulation identifies Iran as a high-risk third country that has provided a written high-level political commitment to address identified deficiencies and has decided to seek technical assistance in the implementation of the FATF action plan. The Regulation also identifies the Democratic People's Republic of Korea (DPRK) as high-risk third country which presents ongoing and substantial money-laundering and terrorist-financing risks, having repeatedly failed to address identified deficiencies.

View the Regulation.

FDIC Chairman Martin Gruenberg issued a statement on the release of updated data regarding the FDIC’s Deposit Insurance Fund. (DIF) The DIF balance stood at almost $78 billion, leading to a reserve ratio of 1.17%, an eight-year high. Chairman Gruenberg’s statement noted that the FDIC still intends to reach the statutory minimum ratio of 1.35% set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, before September 30, 2020.

View text of Chairman Gruenberg’s statement.

The US Federal Deposit Insurance Corporation released the semi-annual report of the Global Capital Index. In a concurrent statement, Vice-Chairman Thomas M. Hoenig noted that while Global Systemically Important Banks did increase their equity capital, a beyond-proportionate increase in assets led to a net increase in the overall leverage of G-SIBs. Vice-Chairman Hoenig also noted that asset quality in Europe remains an issue in comparison to the United States, with more than three times as many non-performing loans, and that better-capitalized banks trade at a premium when compared to banks with weaker capital positions. Vice-Chairman Hoenig noted that, while banks are better capitalized now, with average leverage ratios of around 5%, such ratio remains inadequate should banks have to withstand losses similar to the last financial crisis.

View text of Vice-Chairman Hoenig’s statement.

View Global Capital Index.

The Center for Capital Markets Competitiveness of the US Chamber of Commerce wrote a letter to Scott Alvarez, General Counsel of the Federal Reserve Board, requesting that the Federal Reserve Board withdraw its report, issued pursuant to Section 620 of the Dodd-Frank Act, advocating for a repeal of merchant banking authority for financial holding companies.

The letter noted that there was no opportunity for stakeholders to comment on the proposed removal of merchant banking authority, and alleged that the Federal Reserve Board, by presenting the contents of the letter as a policy recommendation to Congress, “short-circuited” the notice-and-comment procedure. The Center also alleged that the Federal Reserve Board failed to identify the benefits of repealing merchant banking authority in the report, unjustly presenting a one-sided case for its recommendations to Congress.

The Center also took issue with the substance of the proposal, arguing that repealing merchant banking authority would deny companies access to capital at a time when credit is already difficult to access, particularly in light of what the Center characterized as “hypothetical” risks in comparison to the “real” benefits of merchant banking. The letter concludes by recommending that the Federal Reserve Board withdraw its report and hold a series of public meetings to develop a “more robust” recommendation on merchant banking policy.

View letter.

The Bank for International Settlements' Committee on Payments and Market Infrastructures announced that it had established a task force to review the security of wholesale payments that involve banks, financial market infrastructures and other financial institutions. The CPMI is tasked with setting global standards for payment, clearing and settlement services. The first phase will involve a review of current practices in the area, with future efforts to be determined based on the findings. The task force follows efforts by the CPMI on cyber security and operational risk, including publication of the Guidance on cyber resilience for financial market infrastructures, and the CPMI-IOSCO Principles for Financial Market Infrastructures.

View the press release. 

View the Guidance on cyber resilience.

View the Principles for Financial Market Infrastructures. 

As part of his keynote remarks at the 4th Annual OTC Derivatives Summit North America, US Commodity Futures Trading Commission Chairman Timothy Massad addressed the CFTC’s achievements in the past year and more specifically, the implementation of global rules setting margin for uncleared swaps and the de minimis threshold for swap dealers.

With respect to the rules on margin for uncleared swaps, Massad stressed the importance of harmonizing the substance of the rules with other regulators, including US domestic prudential regulators and international jurisdictions, as well as addressing the cross-border implications of transactions.  Massad pointed to the broad scope of substituted compliance with the rules of other jurisdictions as well as agreed timetables for implementation with international regulators. Massad maintained that despite his disappointment following the European Commission’s announcement of a delay in the implementation of their rules, it was appropriate to maintain the September 1, 2016 initial compliance date for transactions between the largest swap dealers.

Regarding the swap dealer de minimis threshold, Massad stated he will recommend a one-year delay in the scheduled reduction of the de minimis threshold for swap dealer registration in order for the CFTC to have more time to consider the issue.  The current de minimis threshold of $8 billion is scheduled to decrease to $3 billion in December 2017.  Massad also said that he has asked the other CFTC members to consider a reproposed rule setting capital requirements for swap dealers, noting that “[i]t makes sense to finalize this before turning to the threshold" and adding that he hopes it will be done “shortly.”

Chairman Massad Full Remarks.

The Comptroller of the Currency Thomas J. Curry addressed how the US federal banking system has progressed since the Great Recession and the 2008 financial crisis, the strength of US banks today and the need for continued vigilance to manage risks. Among other things, the Comptroller discussed leverage ratios and their role as an additional line of defense, or backstop, to the risk-based capital measures.  Curry criticized the proposals of some to “water down” the ratios by manipulating what is included or excluded from consideration and stressed the need for clear definitions that accurately and transparently capture the leverage of regulated banks.  Curry argued that “weakening the ratio through special exclusions only undermines our original intent and weakens the protection against excessive leverage.” He further noted that while some wish to exclude certain assets from measures of leverage on the grounds that it could affect certain business lines’ profitability, “the essence of assessing a bank’s leverage is about comparing its equity to its assets, and carving out various assets would cut against the very meaning of leverage.”

View the Comptroller's full remarks.

The Federal Reserve Bank of New York announced that Alberto G. Musalem, executive vice president and head of the Integrated Policy Analysis Group (IPA), will resign from the New York Fed effective January 6, 2017. On October 1, 2016, Mr. Musalem will assume the role of senior advisor to the president of the New York Fed, William C. Dudley.

A successor for Mr. Musalem will not be named. The work of IPA will continue, but as of October 1, 2016, its responsibilities and staff will be reassigned to the Markets, Research and Statistics, and Supervision Groups, as well as to the Executive Office.

View The New York Fed press release.

The UK Payment Systems Regulator published a decision designating the Current Account Switch Service operated by BACS Payment Schemes Limited as an alternative arrangement under the Payment Accounts Regulations 2015. This follows an application from BACS to the PSR on June 9, 2016, for the Current Account Switch Service to be designated as an alternative arrangement pursuant to the PARs.  The PARs make provision for the switching of a consumer’s payment account to a new account at the consumer’s request. Switching services must meet certain requirements, unless the PSR designates the service as an alternative arrangement. In order to be designated as an alternative arrangement, the scheme must meet certain criteria set out in the PARs, such as clearly being in the interests of consumers. 

View the Decision.

The US Office of the Comptroller of the Currency released its bank supervision operating plan for fiscal year (FY) 2017.  The plan sets forth the foundation for policy initiatives and for supervisory strategies applicable to individual banks. OCC staff members will use this plan to guide their supervisory priorities, planning and resource allocations.

Of note, the agency indicated that it will focus on Bank Secrecy Act/anti-money laundering compliance management in 2017.  Additional supervisory strategies for FY 2017 will focus on: (i) commercial and retail loan underwriting; (ii) business model sustainability and viability; (iii) operational resiliency; and (iv) change management processes to address new regulatory requirements.

The OCC will provide periodic updates about supervisory priorities through the Semiannual Risk Perspective in the spring and fall of 2017, and with a mid-cycle operating plan status report in the third quarter of FY 2017.

View the OCC's Fiscal Year 2017 Operating Plan.

The European Commission established a task force to prepare and conduct negotiations with the United Kingdom. The Task Force will assist the Commission on all strategic, operational, legal and financial issues related to the negotiations. Sabine Weyand, currently Deputy Director-General in the Commission's trade department (DG TRADE) will become the Deputy Chief Negotiator as of 1 October 2016.  The announcement follows the appointment of Michel Barnier as Chief Negotiator on July 27, 2016. Mr. Barnier will commence his role from October 1, 2016. The Commission noted that once the UK triggers the process to leave the EU, Mr. Barnier will then make the necessary contacts with the UK authorities. 

View the press release.

You might like to view our Brexit resource page, which is available here. 

The OCC issued a proposed rule setting forth a framework for placing uninsured national banks regulated by the OCC into receivership.  While the National Bank Act and Federal Deposit Insurance Act specify the Federal Deposit Insurance Corporation as receiver for insured banks and savings associations, the law grants the Comptroller of the Currency broad authority to choose a receiver for uninsured national banks. The proposal would not apply to federal savings associations, all of which are insured, or to uninsured US branch offices of foreign banks.

The proposed rule describes:  (i) the appointment of a receiver and required federal notice; (ii) the process for submitting claims against the receivership; (iii) the order of priorities for payment of administrative expenses and claims; (iv) the powers and duties of the receiver; (v) the payment of dividends on claims; (vi) the sources of funds for payments and claims; and (vii) the status of fiduciary and custodial assets and accounts.

While the OCC has not appointed a receiver for an uninsured national bank in many years, the agency believes that clarifying the framework, process and authority promotes the orderly resolution of such institutions if required and contributes to the broader stability of the federal banking system.

All uninsured national banks are currently trust banks.  However, the OCC noted that it retains discretion to grant new charters for uninsured banks, and the OCC specifically stated that an uninsured federal bank charter may be an appropriate entity for delivering banking procedures in a new way in light of technological innovations in financial services.

The deadline to submit comments on the proposed rule is November 14, 2016.

View the proposed rule.


 

Implementing Technical Standards listing the main indices and recognized exchanges for the use of eligible collateral in accordance with the Capital Requirements Regulation was published in the Official Journal of the European Union.
 
The CRR states that equities or convertible bonds included in a main index may be used by institutions as eligible collateral for credit risk mitigation purposes. One of the eligibility criteria for collateral is that it should be sufficiently liquid. To be considered as main indices for the purposes of the CRR, equity indices should consist mainly of equities that can reasonably be expected to be realizable when an institution needs to liquidate them. Equity indices listed include STOXX Asia/Pacific 600, TSX60, Hang Seng Mainland 100 Index (China), FTSE Europe Index, S&P BMI France, Nikkei 300 and the OMXS60. The convertible bond indices listed as main indices are Exane ECI-Europe, Jefferies JACI Global and Thomson Reuters Global Convertible. 

Read more.

The New York State Department of Financial Services proposed regulations requiring banks, insurance companies and other NYDFS-regulated institutions to promptly adopt a cybersecurity program and setting forth certain minimum standards with respect to such program. As part of the establishment of a cybersecurity program, each covered entity would be required to, among other things, adopt a written cybersecurity policy, designate a chief information security officer responsible for implementing, overseeing and enforcing its new program and policy and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties.  Institutions would also be required to comply with additional requirements in order to protect the confidentiality, integrity and availability of information systems.  The proposed regulations would also require senior management of covered entities to file an annual certification confirming compliance with the regulations, beginning in January 2018.

The NYDFS notes that while these regulatory minimum standards are warranted, it is not the intention that such standards be overly prescriptive so that cybersecurity programs can match the relevant risks and keep pace with technological advances. The proposed regulations are subject to a 45-day notice and public comment period before their final issuance.

View proposed regulations.

As part of the inaugural Marketplace Lending Policy Summit 2016, US Comptroller of the Currency Thomas J. Curry discussed marketplace lending’s risks and associated policy questions. Of note, Comptroller Curry addressed the OCC’s work around responsible innovation and feedback it has received to date on potentially granting federal banking charters to fintech firms.  Curry noted that if the OCC does decide to grant limited-purpose charters in this area, the institutions who receive the charters will be held to the same strict standards of safety, soundness and fairness that other federally chartered institutions must meet.

View Comptroller Curry's remarks.

The Bank of England announced the departure of Minouche Shafik, Deputy Governor for Markets and Banking. Ms. Shafik will relinquish her position in February 2017, taking up the role of Director at the London School of Economics in September 2017. Ms. Shafik's successor has not yet been named. 

View the news release.

The Financial Conduct Authority published a consultation paper on proposed updates to the current appropriate qualification examination standards.  Individuals within regulated firms that, for example, advise on securities, derivatives or retail investment products, are required to have appropriate qualifications. The FCA will seek to amend the appropriate exams standards to ensure that exam content is current and reflects the knowledge that the FCA considers necessary for individuals to perform their roles competently. The proposed changes do not alter the FCA's policy on appropriate qualification requirements, introduce new appropriate qualification requirements or change the level of achievement required to meet the FCA rules on appropriate qualifications. The FCA is also proposing amendments to the Training and Competence Sourcebook of its Handbook to clarify how to read and use the appropriate qualification tables as well as seeking views on a standalone equity release qualification which relates to the UK mortgage market and the provision of advice on alternative sale and lease back arrangement (home reversions) accounts. Responses to the consultation are due by December 13, 2016.
 
View the consultation paper.

The European Central Bank published proposed draft Guidance on non-performing loans. The proposed Guidance addresses the main aspects of strategy, governance and operations for resolving NPLs. Once finalized, the Guidance will apply to all Eurozone Significant Institutions supervised by the ECB in the Single Supervisory Mechanism as well as their international subsidiaries. Eurozone banks will be expected to apply the Guidance proportionately with those banks that have a high level of NPLs taking greater actions. The ECB Banking Supervision emphasizes that an NPL strategy should outline the bank’s approach and objectives regarding the effective management and ultimate reduction of NPL stocks in a clear, credible and feasible manner for each relevant portfolio. The ECB also published the results of a survey which it undertook with eight national supervisory authorities. The survey assesses the legal and supervisory practices of eight of the Eurozone countries. The ECB considers that some of those countries should revise and strengthen the legal framework on NPLs. Responses to the consultation are due by November 15, 2016.
 
View the draft Guidance and related information.
 
View the draft Guidance. 

The European Commission published a Communication calling for implementation of the Capital Markets Union to be accelerated. The CMU is part of the third pillar of the Commission Investment Plan for Europe. The CMU Action Plan was published in September 2015.  It outlined a program for implementation by 2019 and set out changes to strengthen EU capital markets. The Commission stated that due to the changing political context in the EU, it would be taking forward priority areas to complete the CMU and undertaking a mid-term review in 2017.  Priorities include proposals to reduce differences in European insolvency regimes, the removal of withholding tax barriers, simplification of the EU personal pension products, improving the use of European savings and increasing the performance of the EU economy.  The Commission called for European Parliament and Member States to do everything within their power to deliver the measures proposed under the CMU Action Plan as soon as possible.

View the Commission press release.

View the Communication.

View the Action Plan.

The US Federal Financial Institutions Examination Council issued a revised Information Security booklet, which is part of the FFIEC’s IT Examination Handbook. The Information Security booklet summarizes the factors necessary to an effective information security program. The booklet sets forth updated guidelines for examiners evaluating the adequacy of information security programs of financial institutions and describes the following aspects of effective information security operations, which include (i) effective threat identification, assessment and monitoring and (ii) incident identification assessment and response. In addition, the booklet discusses assurance reports (addressing IT system design and operation) and testing of information security programs as methods to assess and achieve the effectiveness of such programs.

View FFIEC's IT Handbook.

The European Banking Authority published a report analyzing the core funding ratio across the EU. The report comes in response to a call for advice from the European Commission to explore the possibilities of the core funding ratio as a potential alternative metric for the assessment of EU banks’ funding risk, taking into account proportionality. 

Read more.

The U.S. Commodity Futures Trading Commission approved a final rule instituting system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories and derivatives clearing organizations. In addition, the CFTC also issued a comparability determination for certain of Japan’s margin requirements for uncleared swaps. The CFTC’s determination would permit substituted compliance with Japan’s uncleared swap margin rules in place of the uncleared swap margin provisions of Title VII of the Dodd-Frank Act.

View full text of CFTC final rule on system safeguards testing requirements.

View full text CFTC comparability determination.

On September 8, 2016, the US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation and the OCC jointly issued, pursuant to a requirement under Section 620 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a study on the scope of permissible activities and investments engaged in by banking entities, and the associated risks of those activities. The banking entities covered in the study include insured depository institutions and any company that controls an insured depository institution or is treated as a bank holding company.

The report recommends changes to mitigate risks associated with banking activities, including (i) repealing the authority of financial holding companies to engage in merchant banking and commodities activities, (ii) reviewing certain activities to determine whether changes in regulations are needed and (iii) clarifying certain prudential rules and regulations.  If enacted, the Federal Reserve Board’s recommendations relating to merchant banking and commodities activities would significantly restrict the permissible activities of FHCs established under the Gramm-Leach-Bliley Act in 1999.  The Federal Reserve Board also recommended the repeal of exemptions available to owners of industrial loan companies and grandfathered savings and loans.

View the text of the Report.
 

The Federal Reserve Board issued a policy statement setting forth the framework for setting the Countercyclical Capital Buffer for private-sector credit exposures in the United States. The CCyB is a macroprudential tool that is intended to assist banking organizations in absorbing shocks associated with fluctuations in credit conditions. As a general matter, the CCyB applies to large internationally active banking organizations that are subject to the advanced approaches capital rules (i.e., those with more than $250 billion in assets or $10 billion in on-balance-sheet foreign exposures), and to any depository institution subsidiary of such banking organizations. The policy statement describes the types of financial system vulnerabilities and other factors that the Federal Reserve Board may take into account as it evaluates settings for the buffer, which may include: leverage in the nonfinancial and financial sectors, maturity and liquidity transformation in the financial sector and asset valuation pressures.  However, the range of indicators and models that may be considered will likely change over time. Once activated, the CCyB imposes heightened capital requirements on such covered institutions, which heightened requirements may be removed or reduced by the Federal Reserve Board upon determination that financial conditions that led to the activation of the CCyB have abated or lessened. In addition, the policy statement notes that the Federal Reserve Board will provide notice and seek comment from the public on the proposed level of the CCyB as part of making any final determination to change the CCyB.

View Federal Reserve Board policy statement.

The US Board of Governors of the Federal Reserve System adopted revisions to the FR Y-9C reporting form, a standardized financial statement for consolidated bank holding companies. The Federal Reserve Board revised the FR Y-9C to, among other things, delete existing data items, increase existing thresholds for certain data items, and clarify certain instructional items. The changes were originally proposed to take effect on March 31, 2016.  In response to comments, the Federal Reserve Board is generally delaying the effective date for implementation for certain changes to September 30, 2016, while others will become effective March 31, 2017.

View the text of adopting release

A Commission Delegated Regulation amending the Regulatory Technical Standards specifying the methodology for the identification by national regulators of global systemically important institutions and the definition of subcategories of GSIIs was published in the Official Journal of the European Union. The RTS specify quantifiable indicators forming the five categories to be used when measuring the systemic significance of a bank. The RTS is based on international standards developed by the Basel Committee on Banking Supervision to assess global systemically important banks and on the higher loss absorbency requirement. This methodology is regularly updated. The Amending Regulation updates the reporting templates and reporting instructions for the data collection for 2016 as well as the current values of the indicators that are to be determined.
 
The Amending Regulation entered into force on September 9, 2016. 
 
View the Regulation.

View the original RTS.

As it indicated it would do in the Joint Report on Banking Activities and Investments, the OCC issued a proposed rule that would prohibit national banks and federal savings associations from dealing and investing in industrial or commercial metal. If finalized, the prohibition would cover metal, including alloy, in a physical form primarily suited to industrial or commercial use (including, for example: copper cathodes, aluminum T-bars and gold jewelry).  The proposal states that such metals do not constitute “exchange, coin, and bullion” under 12 USC 24(Seventh), nor would buying or selling such metals for the purpose of dealing or investing in that metal be part of or incidental to the business of banking.  By operation of various federal laws, the prohibition would also apply to FDIC-insured state banks and to US branches and agencies of foreign banks.  Comments must be submitted 60 days from the date of the proposed rule’s publication in the Federal Register.

View Text of OCC Proposed Rule

The Joint Committee of the European Supervisory Authorities published an Opinion on the European Commission's proposed amendments to the final draft Regulatory Technical Standards on risk mitigation techniques for uncleared OTC derivatives under the European Markets Infrastructure Regulation. The Joint Committee is made up of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The Opinion includes a revised version of the final draft RTS.

Read more.

US Federal Reserve Bank Presidents Esther George (Kansas City) and Dr. Jeffrey Lacker (Richmond) testified before the US House of Representatives Financial Services Subcommittee on Monetary Policy and Trade, in a hearing entitled “Federal Reserve Districts: Governance, Monetary Policy, and Economic Performance.” Addressing the appearance of conflicts of interest arising from the presence of bankers on Reserve Bank boards of directors, President George noted that the Federal Reserve Board in Washington, D.C. is ultimately responsible for bank supervision and that Reserve Bank directors do not participate of bank supervisory matters.  President Lacker noted that Reserve Bank directors have no formal role in crafting banking regulations.  Each president also addressed the structure of the Federal Reserve System in the context of the role played by monetary policy in the economy.

View Details regarding the hearing.

The G20 Leaders published the Communiqué from the Hangzhou Summit. The G20 Leaders reiterated their commitment to finalizing the remaining elements of the financial sector reform agenda, including, for example, finalization of Basel III by the end of 2016, full implementation of the OTC derivatives reforms and removing legal and regulatory obstacles to the reporting of OTC derivatives trades, developing effective cross-border resolution regimes and implementing the total loss absorbing capacity (TLAC) standard. The G20 Leaders also noted the importance of monitoring emerging systemic risks including those derived from shadow banking and asset management. For the continued protection of the global financial system, and with a focus on anti-money laundering, counter terrorism and tax evasion, the G20 have asked the Financial Action Task Force and the Global Forum to prepare initial proposals by October 2016 to improve implementation of transparency standards in the international financial system, including the collection of beneficial ownership information of legal persons and legal arrangements and international information sharing arrangements.

View the Communiqué.

The US CFTC requested public comment on proposed amendments to the Whistleblower Rules found in Part 165 of the CFTC’s regulations. The amendments would improve the process for reviewing whistleblower claims and clarify staff authority to administer the whistleblower program. The proposal would also strengthen the CFTC’s authority to protect whistleblowers from retaliation through CFTC enforcement action under the Commodity Exchange Act.

The amendments would also make changes to eligibility requirements, the award claims process (and review of that process), whistleblower identifying information and the treatment of employer confidentiality provisions. Comments to the proposed amendments were due on September 29, 2016.

View proposed Whistleblower Rule Amendments.

The Financial Stability Board published a second progress report on its workplan to reduce misconduct risk. The workplan was first agreed in May 2015 and the FSB published its first progress report in November 2015. The workplan involves: (i) reviewing the effectiveness of reforms to compensation tools in reducing the risk of misconduct; (ii) examining whether the global standards of conduct in the fixed income, commodities and currency (FICC) markets need to be improved; and (iii) reforming the major financial benchmarks. The FSB's second progress report sets out the progress made to date as well as the expected dates for finalization of some of the work. By the end of 2016, the International Organization of Securities Commissions will publish final guidance for benchmark administrators on the content of the statements of compliance that administrators will be conducting a follow-up review of WM/Reuters 4 pm London Closing Spot Rate. The report also noted current reforms to the key IBOR benchmarks with a final report to be released in the course of 2017. Other items that are in the pipeline include publishing recommendations on the application of regulatory compensation tools to reduce misconduct risk by the end of 2017 and a wide-ranging FX Global Code for the wholesale foreign exchange market is expected to be finalized by May 2017. 

View the progress report.

The SEC proposed rule and form amendments that would require certain registrants to include a hyperlink to exhibits in their filings, thereby making it easier to locate documents attached to company filings. The proposed amendments would require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of the filings. The public comment period will remain open for 45 days following publication in the Federal Register.

View the proposed rule.

The US CFTC extended the comment period to September 20, 2016, on its proposed amendments to Regulation 4.22 with respect to the annual report that each commodity pool operator registered or required to be registered with the CFTC must distribute for each commodity pool that it operates.

View proposed amendments.

The US Department of Treasury, the US Federal Reserve Board, the US FDIC, the US OCC and the National Credit Union Administration released a joint fact sheet on foreign correspondent banking that sets forth supervisory and enforcement processes with respect to anti-money laundering and sanctions in the area of correspondent banking. Among other things, the fact sheet notes that while US depository institutions that maintain correspondent accounts for foreign financial institutions (FFIs) are not required to conduct due diligence on an FFI’s customers, US depository institutions must establish appropriate, specific and risk-based due diligence policies, procedures and processes that are reasonably designed to assess and manage the risks inherent with these relationships. The release further provides that while the regulators are not adopting a zero tolerance philosophy that mandates the strict imposition of formal enforcement action regardless of the facts and circumstances of the situation, the regulators are taking the threats posed by criminals, money-launderers and terrorist financers very seriously and continue to use their authorities to safeguard the US financial system against abuse.

View fact sheet.

The SEC adopted amendments to a rule that requires security-based swap data repositories to make data available to regulators and other authorities, allowing them to share information and more effectively oversee the security-based swap market.

The Dodd-Frank Act establishes provisions for regulators to access security-based swap data from data repositories. Building on a proposal from September 2015, the final rule amendments implement these provisions and, among other things: (i) require either a memorandum of understanding or other arrangement between the SEC and the recipient of the data to address the confidentiality of the security-based swap data provided to the recipient; (ii) identify the five prudential regulators named in the statute, as well as the Federal Reserve banks and the Office of Financial Research, as being eligible to access data; and (iii) address factors that the SEC may consider in determining whether to permit other entities to access data.

View The final rule.

The Basel Committee on Banking Supervision published a report to the G20 leaders, providing an update on implementation of the Basel III regulatory reforms since the Basel Committee’s last progress report in November 2015. The Basel Committee concluded that the Basel III capital and liquidity standards have generally been transposed into domestic regulations within the time frame set by the Committee. Since the last report, key components such as the risk-based capital standards and the Liquidity Coverage Ratio have now been enforced by all member jurisdictions, while the global systematically important banks framework has been enforced by all member jurisdictions that are home jurisdictions to G-SIBs. The Basel Committee highlighted the ongoing efforts of member jurisdictions to adopt other Basel III standards such as the leverage ratio and the Net Stable Funding Ratio. 

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The US Federal Reserve Board issued a notice that it had adopted the “ORSOM” rating system for its review of FMIs over which the Federal Reserve Board has jurisdiction, including financial market utilities designated as systemically important by the Financial Stability Oversight Council. The ORSOM system judges FMIs on five categories which the Federal Reserve Board noted highlight the issues FMIs face: Organization, Risk management, Settlement, Operational risk and IT, and Market support, access and transparency. The Federal Reserve Board’s notice also specifies particular regulations and guidance that would be examined under each ORSOM category. The rating scale runs from 1, strong, to 5, unsatisfactory, in each category, with the FMI receiving a 1-5 aggregate overall rating as well.

View The Federal Reserve Board’s release.

The Financial Stability Board published its eleventh progress report on the implementation of reforms by standard-setting bodies, national and regional authorities and market participants to the over-the-counter derivatives market as agreed by the G20. Such reforms include the trade reporting of OTC derivatives, central clearing of standardized OTC derivatives and higher capital and minimum margin requirements for non-centrally cleared derivatives. The FSB concluded that the progress of implementing reforms is continuing, but that regulators have noted challenges to implementation.

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The US Financial Crimes Enforcement Network issued a notice of proposed rulemaking pursuant to Section 326 of the USA PATRIOT Act that would lay out minimum standards for anti-money laundering programs and remove the AML program exemption for banks that lack a Federal functional regulator. The proposed rule would amend 31 CFR Chapter X to broaden the application of the AML requirements, customer identification programs and beneficial ownership requirements to cover all banks, not just those subject to regulation by a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions and certain trust companies. Comments must be submitted to FinCEN by October 24, 2016.

View FinCEN’s release.

The SEC published a final rule adopting amendments to Form ADV and several rules under the Investment Advisers Act of 1940 aimed at enhancing disclosure of information by investment advisers. The amendments will require investment advisers to provide additional information about various aspects of their businesses, including separately managed account business, branch operations, and their use of social media. The amendments will also facilitate streamlined registration and reporting by groups of funds and require advisers to maintain additional records related to adviser performance information. The amendments will become effective 60 days after their publication in the Federal Register, and advisers will be required to comply with the amended rules on October 1, 2017.

View the SEC’s final rule.

The SEC issued a request for comment on Subpart 400 of Regulation S-K, which requires certain disclosures about management, certain security holders and corporate governance of the disclosing firm. The request is part of a broader initiative to improve the disclosure requirements of Regulation S-K. The review will also inform the study mandated by the Fixing America’s Surface Transportation Act which requires the SEC to study Regulation S-K requirements in order to best modernize and simplify the substance of the disclosure requirements as well as the manner of the presentation of disclosed information. Input may include comments on existing requirements as well as potential disclosure issues that commenters believe Regulation S-K should address. The comment period is open for 60 days after the publication of the release in the Federal Register.

The SEC’s request for comment.

The International Organization of Securities Commissions published a final report outlining good practices on fees and expenses for collective investment schemes. The report is aimed only at CISs whose shares or units are permitted to be sold to retail investors. IOSCO states that appropriate information about fees and expenses should be available so that an investor can take them into account when making an investment decision rather than relying purely on past performance. IOSCO’s Committee on Investment Management reviewed existing practices with respect to fees and expenses in collective investment schemes in 2004 and again in 2015, with good practices published as a result of the review in 2004. The latter review reflected a wider range of regulatory approaches towards markets at different stages of maturity, as well as taking account more recent developments in its member jurisdictions, in light of the natural evolution of best practices since the 2004 report as regulators adapted their approach.  

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