The European Banking Authority published translations of its final guidelines on product oversight and governance arrangements for retail banking products. The retail banking products included are mortgages, personal loans, deposits, payment accounts, payment services and electronic money. The guidelines are addressed to EU national regulators and financial institutions and require the establishment of product oversight and governance arrangements for the design, bringing to market and review of retail banking products over their lifecycle. The guidelines will apply from January 3, 2017, to all products brought to market after that date as well as to existing products that are significantly changed after that (the EBA has not provided clarification on the meaning of "significantly changed").

View the Translated Guidelines. 

The European Banking Authority published a consultation paper on standardised methods to compute capital requirements for general interest rate risk under the Capital Requirements Regulation. The CRR provides for two standardised methods, the so-called Maturity-Based calculation for general interest risk and the Duration-Based calculation of general risk. The Duration-Based calculation uses the concept of Modified Duration which is valid only for instruments not subject to repayment risk. Modified Duration is used to measure the sensitivity in price for a unit change in its internal rate of return of any financial asset that consists of fixed cash flows. A correction to the duration is necessary to reflect the repayment risk. The CRR provides the mandate for the EBA to issue guidelines on how the Modified Duration for debt instruments which are subject to repayment risk should be corrected. The EBA proposes two approaches to correct the Modified Duration calculation: (i) treat the debt instrument with repayment risk as if it was a combination of a plain vanilla bond and an embedded bond; or (ii) calculate directly the change in value of the whole instrument subject to repayment risk resulting from a 100 basis point movement in Interest Rates. Submissions to the consultation are due by June 22, 2016.

View the Consultation Paper. 

The European Securities and Markets Authority published translations of its guidelines on the assessment of the knowledge and competence of individuals providing investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of investment firms. Under the revised Markets in Financial Instruments Directive, an investment firm is required to ensure that individuals giving investment advice or providing information about financial instruments, investment services or ancillary services to clients have the necessary knowledge and competence to do so and satisfy the firm's obligations on suitability, appropriateness and reporting and provision of information to clients. Where requested by its national regulator, an investment firm may be requested to demonstrate that these requirements have been met. National regulators must publish the criteria that will be used to assess such knowledge and competence. ESMA's guidelines, which apply to national regulators and investment firms, specify criteria for the assessment of knowledge and competence, establishing the minimum standards that staff providing the relevant services should meet. The guidelines will come into effect on January 3, 2017.
 

The UK Payments Systems Regulator published its final Guidance for designated representative bodies making so-called "super complaints" under the Financial Services (Banking Reform) Act 2013. The representatives can issue complaints to the Payments Systems Regulator when one or more features of a UK operated market (or a market that operates only in part in the UK) for services provided by payment systems are, or appear to be, significantly damaging the interests of payment service users. Super complaints are complaints made on behalf or as a result of issues affecting a large number of users. The list of designated representative bodies published by HM Treasury in February will become effective on April 1, 2016. The first designated representative bodies are: (i) the National Association of Citizens Advice Bureaux; (ii) the General Consumers’ Association; (iii) the Consumer Council for Northern Ireland; (iv) the National Federation of Self Employed and Small Businesses; and (v) Age UK.
 

The Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, National Credit Union Administration, Office of the Comptroller of the Currency and Financial Crimes Enforcement Network issued guidance for certain banks, savings associations, credit unions and US branches and agencies of foreign banks (collectively, “banks”) clarifying the applicability of the customer identification program (CIP) regulations implementing Section 326 of the USA PATRIOT Act to prepaid cards.

According to the guidance, a bank’s CIP should apply to the holders of certain prepaid cards issued by the institution as well as to holders of such cards purchased from third-party program managers that design, manage and operate prepaid card programs on the bank’s behalf. The guidance clarifies when, under the CIP rule, the bank should obtain information in order to verify the identity of the cardholder, including obtaining the name, date of birth, address and identification number (e.g., the Taxpayer Identification Number) of the cardholder.

Since prepaid cards have become mainstream financial products, US regulators have emphasized the implementation of strong and effective controls to mitigate money laundering and other financial crime risks associated with the issuance of prepaid cards and the processing of prepaid card transactions. Some controls have already been put in place, including limits on card value and the frequency and number of transfers permitted, as well as due diligence on third parties and cardholders. 

View the interagency guidance. 

The US Board of Governors of the Federal Reserve System approved the application by Goldman Sachs Bank USA under the Bank Merger Act to assume substantially all (approximately $17 billion) of the deposit liabilities and certain assets of GE Capital Bank, a subsidiary of General Electric Corporation, including assets GE Bank uses to manage its online deposit-taking platform. The acquisition was announced in August 2015, and the Federal Reserve Board extended processing of GS Bank’s application in light of numerous public comments that challenged the transaction on various grounds, including that GS is already too big to fail. In approving the transaction, among other findings, the Federal Reserve Board concluded that the transaction would have a negligible impact on the systemic footprint of GS (which has approximately $860 billion in total assets) and would improve the stability of funding available to GS Bank by diversifying its sources of funding.

View the Federal Reserve Board order.  

The European Securities and Markets Authority published three letters from it to the European Commission concerning certain Regulatory Technical Standards under the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together known as MiFID II. The Commission wrote to ESMA on March 14, 2016, notifying ESMA that amendments are required to the RTS on position limits for commodity derivatives, non-equity transparency requirements and on the exemption from licence requirements under MiFID II for commodity trading firms (the ancillary activities exemption). ESMA has confirmed that it will act swiftly in preparing its Opinions on the proposed amendments. It is as yet unknown whether the other RTS produced by ESMA last year have been accepted by the European Commission.
  
View the letters.

The European Banking Authority published a final Decision setting out the formula to be used by creditors when calculating the benchmark rate under the Mortgage Credit Directive. The MCD requires creditors to provide consumers with certain pre-contractual personalized information, including calculated illustrations of the annual percentage rate of charge and of the maximum instalment amount based on the highest value of any external reference rate used in calculating the borrowing rate, or, where the creditor does not use an external reference rate, the highest value of a benchmark rate as specified by a national regulator or the EBA. The EBA has therefore developed a formula for creditors to use to calculate such a rate which uses the underlying rate of the European Central Bank for Eurozone countries, or the Member State's central bank rate for non-Eurozone countries. The Decision will come into effect once it is published in the Official Journal of the European Union.

View the Decision.

US Comptroller of the Currency Thomas J. Curry delivered remarks before the National Community Reinvestment Coalition, where he addressed how banks are adapting to financial technology changes and the Office of the Comptroller of the Currency’s role in supporting responsible bank innovation. Among other things, Comptroller Curry noted that the OCC will soon publish a paper outlining its views on financial services innovation that will enable the agency to “evaluate innovative products, services, or processes that require regulatory approval and identify potential risks associated with adoption.”

View the Comptroller’s speech.  

The European Commission adopted a Delegated Regulation on the classes of arrangements to be protected in a partial property transfer or where a contract is forcibly modified by a resolution authority. The EU Bank Recovery and Resolution Directive provides for certain types of arrangements to be protected during the partial transfer of assets, rights and liabilities of a bank under resolution as well as when a resolution authority requires a contract to which the bank is a party to be modified. The objective is to prevent assets, rights and liabilities that are linked to each other from being split. The Delegated Regulation sets out in detail the conditions that security, set-off, netting and structured finance arrangements (including securitizations and investments used for hedging) must meet to benefit from the protection.The Delegated Regulation reminds creditors that they will need to review and modify the terms of their credit exposures to EU banks and investment firms so as to ensure that they maximize their rights to determine a net exposure to that entity and avoid their credit exposure increasing if assets and liabilities are not transferred together. The Delegated Regulation must still be approved by the European Parliament and the Council of the European Union. When it enters into force, it will apply directly in all member states across the EU.

View the Delegated Regulation.

As part of the Federal Reserve Bank of New York’s Conference on Bank Supervision, senior officials of several US bank regulatory agencies delivered remarks regarding the effectiveness of bank supervision and key components of the bank supervisory process. In the conference’s opening remarks, NY Fed President William Dudley noted the importance of distinguishing between effective and ineffective supervision, particularly given the confidential nature of the bank supervisory process. Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig subsequently noted several critical features of successful oversight of financial institutions including: (i) subjecting commercial banks of all sizes to full-scope examinations, (ii) having regulators require that the largest banks disclose important supervisory findings to allow the public to better understand their financial condition and (iii) recognition by supervisors of their limits and emphasizing that banks hold sufficient capital to backstop management mistakes and bad luck.

View President Dudley’s speech.

View Vice Chairman Hoenig’s speech.   

The Financial Stability Board published its second Thematic Review on Resolution Regimes. The report considers the range and nature of resolution powers in FSB member jurisdiction for resolution authorities in the banking sector. The FSB has found that: (i) not all jurisdictions have implemented a bank resolution regime with a comprehensive set of powers which aligns with the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions and that those jurisdictions that do are primarily the home jurisdictions of global systemically important banks; (ii) the powers that are most often not included in regimes are those relating to bail-in, the imposition of temporary stays on the exercise of early termination rights and the power to ensure continuity of essential services during a bank resolution; and (iii) more progress has been made in implementing processes for recovery planning than for resolution planning and resolvability assessments. The FSB is recommending that the identified gaps in powers are addressed. FSB member countries must report to the FSB by December 2016 on the actions that they have taken or intend to take to address the issues for their bank resolution regime. 

View the FSB's report.

Thomas C. Baxter, general counsel and executive vice president of the Federal Reserve Bank of New York, announced his decision to retire from the New York Fed in September, 2016, after 36 years of service. Mr. Baxter also serves on the New York Fed’s Management Committee and as deputy general counsel for the Federal Open Market Committee. Mr. Baxter will step down in June, but will continue to advise the New York Fed president and assist in the legal group’s transition until September. The New York Fed will immediately begin the search for Mr. Baxter’s successor.

View the New York Fed press release.   

Comptroller of the Currency Thomas J. Curry announced the appointment of Grace Dailey as Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner. Comptroller Curry also announced that Grovetta Gardineer will fill the newly created position of Senior Deputy Comptroller for Compliance and Community Affairs. Ms. Dailey will succeed Jennifer Kelly, who is retiring at the end of April after 37 years of service to the OCC. Ms. Gardineer assumes her new title and responsibilities immediately.

View the OCC press release.    

Commission Implementing Regulation on implementing technical standards on the timing, format and template of notifications to regulators by trading venues of financial instruments was published in the Official Journal of the European Union. In accordance with Market Abuse Regulations trading venues are required to notify regulators daily with information relating to the trade of financial instruments. The ITS required trading venues to report to their national regulators on the financial instruments which were subject to a request for admission to trading or admitted to trading or traded on the trading venue and set out, in accordance with the MAR, the required format and details of trading activity that must be provided. The information required for example, for the trade of Derivatives, includes the expiry date, price multiplier and underlying issuer. The full list of requirements are contained in the Annex to the ITS. It is intended that the related reporting obligations under the Markets in Financial Instruments Regulation will align with the obligations under these ITS. The ITS will apply from July 3, 2016.

View the ITS.

Commission Implementing Regulation on the implementation of technical standards regarding the timing, format and template of notifications to regulators by trading venues of financial instruments was published in the Official Journal of the European Union. In accordance with the Market Abuse Regulation, trading venues are required to notify national regulators daily with certain transaction information. The ITS sets out the required format and details of trading activity that must be provided. With regards to derivatives trading, for example, information relating to the expiry date, price multiplier, and underlying issuer must be disclosed. The full list of requirements is contained in the Annex to the ITS. It is intended that the related reporting obligations under the Markets in Financial Instruments Regulation will align with the obligations under these ITS. The ITS will apply from July 3, 2016.

View the ITS.
 

The Commodity Futures Trading Commission approved a final rule that removes certain reporting and recordkeeping requirements for trade option counterparties that are neither swap dealers nor major swap participants (Non-SD/MSPs), such as commercial end-users that transact in trade options in connection with their businesses.  The final rule became effective on March 21, 2016.

The final rule eliminates the Form TO annual notice reporting requirement for otherwise unreported trade options in CFTC regulation 32.3(b). Furthermore, Non-SD/MSPs will not be subject to part 45 reporting requirements in connection with their trade options. The CFTC did not impose a proposed reporting requirement that a commercial participant would need to provide notice to the CFTC of its trade options activities if such activities had a value of more than $1 billion in any calendar year.

The final rule also eliminates the swap-related recordkeeping requirements for Non-SD/MSPs in connection with their trade option activities.  However, Non-SD/MSPs transacting in trade options with SDs or MSPs must obtain a legal entity identifier and provide it to their SD/MSP counterparties.

CFTC No-Action Letter 13-08, which has provided conditional relief for Non-SD/MSPs from certain swap-related reporting and recordkeeping requirements, has been withdrawn.  Also, given the elimination of the Form TO reporting requirement, CFTC staff is of the view that a trade option counterparty that is a Non-SD/MSP is not required to report its otherwise unreported trade options for calendar year 2015 on Form TO.

The final rule will become effective upon publication in the Federal Register. 

View the final rule. 

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 was made. The Order amends legislation relating to the regulation of activities connected with lending, primarily the Financial Services Act and Markets Act (2000). The Order extends the scope of regulated activities for certain types of activities which previously did not qualify as a regulated activity, for the purpose of the FSMA, are now deemed a regulated activity. For example, it provides amendments to the regulated activity of operating electronic systems in relation to lending. The amend states that the activity is regulated whether the operation collects interest or not under the lending agreement, and where a person carrying on that activity, facilitating another person transferring their rights under an agreement to a third party, is a regulated activity. The Order also serves partly to implement the Mortgage Credit Directive Order. For example, the Order extends the scope of the regulated activities of arranging and advising on regulated mortgage contracts so that mortgages entered into before October 31, 2004 (which are regulated as consumer credit agreements before March 21, 2016) are included within the activities from that date. The Order came into force on March 17, 2016.

View the Order. 

An equivalence Decision on the derivatives regulatory regimes for derivatives clearing organisations in the United States was published in the Official Journal of the European Union. The Decision follows the announcement by the European Commission and the Commodity Futures Trading Commission of a common approach on the supervision of CCPs operating in the US and EU. The Decision declares that the legal and supervisory arrangements of the CFTC for DCOs that have been declared systemically important derivatives clearing organisations by the Financial Stability Oversight Council or DCOs that have opted into additional standards similar to the SIDCO regime (so-called “Subpart C DCOs”) are equivalent to the EU requirements under EMIR, provided that the DCO’s internal rules and procedures meet the following requirements: (i) for derivatives contracts executed on regulated markets, a minimum liquidation period of two days for initial margin is applied to clearing members’ proprietary positions; (ii) for all derivative contracts, measures are in place to limit procyclicality which are equivalent to the options under EMIR; and (iii) the DCO has sufficient pre-funded available resources enabling it to withstand the default of at least two clearing members to which it has the largest exposures under extreme conditions. 
 

The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight announced that certain banking entities subject to Appendix B of Part 75 of the CFTC’s regulations, which implements section 619 of the Dodd-Frank Act known as the “Volcker Rule,” should submit their CEO attestations through the following email address: VolckerAttestation@cftc.gov. Appendix B includes requirements that a CEO attestation be submitted to the CFTC regarding the banking entity’s Volcker Rule compliance program.

View the CFTC press release.  

The Federal Deposit Insurance Corporation adopted a final rule to increase the Deposit Insurance Fund to the statutorily required minimum level of 1.35 percent. Subject to certain minor changes, the rule largely mirrors the proposed rule, which was published for comment in November.

The primary purposes of the DIF are to protect the depositors of insured banks and to resolve failed banks. The Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the fund to insured deposits, from 1.15 percent to 1.35 percent and required that the ratio reach that level by September 30, 2020. The reserve ratio at the end of 2015 was 1.11 percent, with a DIF balance of $72.6 billion.

The DIF is funded mainly through quarterly assessments on insured banks. Pursuant to a 2011 FDIC rule, regular assessment rates for all banks will decrease when the reserve ratio reaches 1.15 percent, which the FDIC anticipates will occur in the first half of 2016. Banks with total assets of less than $10 billion will have substantially lower assessment rates under the 2011 rule. The final rule will impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The FDIC expects the reserve ratio will likely reach 1.35 percent after approximately two years of payments of the surcharges.

The final rule will become effective on July 1. If the reserve ratio reaches 1.15 percent before that date, surcharges will begin July 1. If the reserve ratio has not reached 1.15 percent by that date, surcharges will begin the first quarter after the reserve ratio reaches 1.15 percent.

View the final rule. 

At an American Bankers’ Association Conference in Washington, DC, US Senate Banking Committee Chairman Richard Shelby and US House of Representatives Financial Services Committee Chairman Jeb Hensarling both raised concerns regarding the current regulatory regime and certain requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, Chairman Shelby addressed the costs and burdens of financial regulation under the Dodd-Frank Act, specifically criticizing the $50 billion threshold for identifying systemically important financial institutions, and noted plans to continue to push his regulatory relief bill, The Financial Regulatory Improvement Act of 2015, through the Senate. Chairman Hensarling also outlined proposed legislation that would reform the Dodd-Frank Act, including eliminating certain Dodd-Frank Act and Basel III requirements for banks that hold higher levels of capital.

View Chairman Shelby’s remarks.

View coverage of Chairman Hensarling’s remarks.   

The Serious Fraud Office announced that it had closed its investigation relating to allegations of fraudulent conduct in the foreign exchange market. The SFO has concluded there was insufficient evidence for a realistic prospect of conviction, based on the information and material from the Financial Conduct Authority. The SFO stated that there were reasonable grounds to suspect fraud had been committed. However, the available evidence was considered not to satisfy the evidential tests for prosecution under English law. The SFO considers that the evidential deficiency could not be remedied by extending the investigation.

View the SFO press release. 

The Payment Systems Regulator published a consultation paper on the application of the Payment Account Regulations 2015 to alternative arrangements for switching accounts, including draft guidance on its approach to designating alternative switching schemes and monitoring of the PSR's compliance under the PAR. The EU Payment Accounts Directive was transposed into UK law through the PARs. The Payment Accounts Directive outlines the mandatory regulatory standards for EU Member States for matters such as facilitating current account switching and ensuring access to bank accounts with basic features. Provisions in the PAR relating to the role of the PSR will come into effect on September 18, 2016. The PSR's proposed guidance explains how to apply for designation as an "alternative arrangement" for switching, how the PSR will assess applications for designation, and how the PSR will monitor and enforce compliance of alternative arrangements for switching. Comments on the proposals are required by April 12, 2016.

View the PSR consultation paper. 

View the PSR draft guidance.

The Prudential Regulation Authority published proposals to amend its rules on contractual recognition of bail-in. Under the EU Bank Recovery and Resolution Directive, EU banks and large investment firms are required to include clauses in certain contracts with non-EU counterparties by which the creditor agrees to recognise that the liability may be bailed in by the national resolution authority. In November 2015, the PRA issued a Modification by Consent which disapplies the requirement for unsecured liabilities that are not debt securities (known as "phase 2 liabilities") where compliance would be impracticable. The Modification by Consent expires on June 30, 2016. The aim of the PRA's amendment is to make permanent the Modification by Consent.

Read more.

The US Office of the Comptroller of the Currency issued a notice of proposed rulemaking that would remove outdated or unnecessary provisions of certain OCC rules to reduce the regulatory burden on national banks and federal savings associations subject to the rules. The proposed rulemaking is part of the OCC’s review of its rules required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) every ten years. The proposed rule was developed following outreach to the industry conducted by the OCC individually and in connection with other US banking regulators. The proposed rule would make the following changes to OCC rules, among others: remove notice and approval requirements for certain changes in permanent capital involving national banks; remove certain financial disclosure requirements for national banks and remove certain unnecessary regulatory reporting, accounting and management policy requirements for federal savings associations. The proposed rule is open for comment for 60 days.

View proposed rule. 

The Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter extending the time period for relief from the requirement in CFTC Regulation 37.6 that a SEF obtain documents incorporated by reference in a trade confirmation issued by the SEF prior to issuing the confirmation. SEFs are also relieved from the requirement in CFTC Regulations 37.1000, 37.1001 and 45.2(a) to maintain such documents as records. Finally, the no-action letter states that SEFs are relieved from the requirement in CFTC Regulation 45.3(a) to report confirmation data contained in the documents incorporated by reference in a confirmation.

The letter extends the relief previously provided in CFTC Staff Letter 15-25, which expires on March 31, 2016.  The letter extends relief to the earlier of: (i) 11:59 pm (Eastern Time) March 31, 2017 or (ii) the effective date of revised CFTC regulations that establish a permanent solution to the confirmation matters raised by the current regulations. The relief is subject to terms and conditions in the letter.

A SEF must continue to report all swap data that the SEF is reporting as of the time of the issuance of the letter, as required by part 45 of the CFTC’s regulations, even if such data is contained in the documents that the SEF incorporates by reference in a confirmation. 

View the CFTC press release.

View the CFTC Staff Letter 16-25. 

View the CFTC Staff Letter 15-25.

The US Financial Industry Regulatory Authority released a report evaluating the NASD Rule 1010 Series which rules govern FINRA’s Membership Application Program (MAP). The MAP rules are used by FINRA to evaluate the proposed business activities of member firms, including the applicant’s financial, operational, supervisory and compliance systems. FINRA staff conducted a comprehensive assessment of the rules, including seeking input from, and conducting a survey of, firms that are subject to the rules and non-member firms that assist in MAP submissions. FINRA staff concluded that the rules are generally effective in achieving their objectives of protecting investors. The report notes areas for improvement or clarification that FINRA will consider addressing through a combination of guidance, proposed rule modifications, process and administrative changes and technological updates to enhance the effectiveness and efficiency of the rules.

View press release.

View report.

The European Securities and Markets Authority published a discussion paper on its approach to developing technical standards required under the Securities Financing Transactions Regulation. The SFTR mostly came into effect on January 12, 2016. One exception is a new reporting obligation which is being phased in according to counterparty type. The aim of the SFTR is to improve the transparency of securities lending, repurchase transactions, reverse repurchase transactions, buy-sell back or sell-buy back transactions and margin lending transactions. The new regulations are thought to help reduce the likelihood of such activities moving to the shadow banking sector. 

Read More.

Commission Implementing Regulation on implementing technical standards on the precise format of insider lists under the EU Market Abuse Regulation was published in the Official Journal of the European Union. The ITS set out the requirements for issuers, emission allowance market participants, auction platforms, auctioneers and auction monitors, or any person acting on their behalf, to create and maintain insider lists. MAR extends the scope of the requirements on insider lists to impose the obligation on a wider range of persons as well as in relation to a wider scope of financial instruments. The ITS include template insider lists which aim to ensure the harmonization of information being collated in insider lists across the EU and require a greater amount of detail on insiders so that regulators may easily identify them if they need to. The ITS will apply from July 3, 2016, the same date that MAR will come into effect.

View the ITS.

The Basel Committee on Banking Supervision launched a proposed consolidated and enhanced framework for Pillar 3 disclosures under Basel III. The Basel Committee announced in June 2014 that it was undertaking a review of Pillar 3.  In January, it issued its revised Pillar 3 disclosure requirements, completing the first phase of the review. 
 

US Board of Governors of the Federal Reserve System Governor Lael Brainard provided an outlook on US economic conditions, an overview of the importance of financial market liquidity and the resilience and resolvability of large interconnected banks. With respect to liquidity, Brainard noted that day-to-day liquidity has not declined notably but that there have been changes to the characteristics of liquidity, including increased segmentation. She also noted the importance of recent proposals by the Commodity Futures Trading Commission and the Securities and Exchange Commission to understand the use of algorithmic trading and its impact on trading markets. With respect to improving the resilience and resolvability of systemic banking organizations, she noted that as a result of capital and liquidity regulations and stress tests, US banking organizations are now holding $800 billion more in high-quality liquid assets than they were in 2011. She noted the capital surcharge for global systemically important banks and that she would hope to see it eventually integrated into the Federal Reserve’s Comprehensive Capital Analysis and Review. Governor Brainard noted that the Federal Reserve will be reviewing comments to its proposed rule on total loss-absorbing capacity, and that the long-term debt requirement in the proposed rule is a critical component of ending “too big to fail.”

View speech.

The UK Payment Systems Regulator published its interim report relating to its market review into the supply of indirect access to payment systems. The PSR considers that competition in the supply of indirect access is going in the right direction for indirect payment services providers. However, the regulator has concerns about choice, service quality and the ability of indirect payment services providers to switch providers. Responses to financial crime regulation is limiting the provision of indirect access. The PSR does not intend to take regulatory action at this stage but will monitor developments in the industry to assess whether its concerns are addressed. The PSR is seeking feedback on its interim findings and its approach and comments are due by May 5, 2016.

View the PSR's interim report.

Commission Implementing Regulation was published in the Official Journal of the European Union, which amends the Implementing Technical Standards on supervisory reporting by providing for significant changes to the existing Liquidity Coverage Ratio reporting requirements under the Capital Requirements Regulation. The amending ITS introduce the templates and a large number of new data items necessary following the LCR requirements being implemented for credit institutions in January 2015. The European Banking Authority published its final draft amending ITS in June 2015. The changes include new templates and instructions for banks on capturing and reporting all necessary LCR items. The new templates cover liquid assets, outflows, inflows, collateral swaps and calculation of the LCR. The new instructions will only apply to banks; investment firms will continue to use current instructions and templates, at least for now. The amended ITS on supervisory reporting will apply from September 10, 2016. 

View the amending ITS.

The European Commission has adopted regulatory technical standards under the Market Abuse Regulation on: (i) arrangements, systems and procedures for preventing, detecting and reporting abusive practices or suspicious orders or transactions; (ii) conditions for buy-back programs and stabilization measures; and (iii) investment recommendations. The RTS on preventing market abuse and reporting suspicious transactions impose requirements on operators of trading venues and persons professionally arranging or executing transactions for monitoring for and reporting on insider dealing or market manipulation and include a requirement to provide adequate training for their staff involved in such activities. The RTS on buy-backs and stabilization set out the criteria which must be met for trades to become exempt from the market abuse ban, including requiring certain disclosure and reporting, conditions for trading and trading restrictions. The RTS on investment recommendations set out disclosure and distribution requirements for investment recommendations. All of the adopted RTS are subject to approval by the European Parliament and Council of the European Union, following which they will be published and come into force. The adopted version shows that it is intended that they will apply from July 3, 2016 when MAR comes into effect. 

View the RTS on preventing market abuse.

View the RTS on buy-backs and stabilization. 

The Financial Conduct Authority issued a discussion paper on client money rules (CASS 7) and the Special Administration Regime Review. The discussion paper is relevant to all regulated firms that hold client assets or money for investment business. Client money rules govern how client assets are to be distributed by an insolvency practitioner managing a failed investment firm. The discussion paper is in response to the recommendations made in the Bloxham Final Report which aims to improve the speed of return of client assets and minimize the market impact of a failed firm's entry into special administration.

Read More. 

The US Office of Financial Research (OFR) published a working paper using data on the credit default swap (CDS) market to assess the impact of a counterparty default on banks and the financial system as a whole. Using data from the Depository Trust & Clearing Corporation, the paper applies the supervisory scenarios of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) to CDS markets as a proxy for banks’ trading books. The working paper finds that the indirect effects of the default of a bank’s largest counterparty on the bank’s other counterparties are more significant than the impact on the bank itself. Moreover, the paper finds that, when looking at the financial system as a whole, banks may realize greater losses from the failure of a counterparty shared by the industry when compared to losses from the failure of the individual bank’s largest counterparty. The report concludes that CCAR does not take into account the losses that occur to other counterparties of a banking organization as a result of the default of its largest counterparty, nor does it take into account the large counterparty exposures that exist for the core financial system as a whole.

View working paper.

The Banking Standards Board published its first annual review report. The BSB was launched in April 2015 to help raise standards of behavior and competence in the banking sector. The report discusses the assessment exercise that the BSB ran during 2015 with 10 banks on how each firm was performing against its objectives on behavior, competence and culture. The BSB aims to gather information collected from the assessment and create an evidence based picture of concerns and developments at industry and individual firm level. It is intended that the 2016 exercise will be more comprehensive and will be scaled up to include a wider number of member firms.The 2016 assessment will also include quantitative factors to help firms benchmark themselves against their peer firms.   

View the report.

The European Supervisory Authorities published final draft regulatory technical standards on risk-mitigation techniques, including details on specific operational procedures, for OTC-derivative contracts not cleared by a Central Counterparty. Under the European Market Infrastructure Regulation, counterparties to uncleared OTC derivative transactions are required to implement risk mitigation techniques to reduce counterparty credit risk. These draft RTS prescribe the regulatory margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated. 

Read more.

The European Banking Authority published final draft Implementing Technical Standards to amend the ITS on supervisory reporting under the Capital Requirements Regulation. The amending ITS make changes to the reporting templates and instructions in Annexes I to VII and IX of the ITS on supervisory reporting which cover financial reporting, solvency (own funds requirements), large exposures and losses resulting from lending collateralized by immovable property. Given the scope of the changes, the EBA is proposing to replace entirely the affected annexes. The EBA considers that the amendments are necessary to align the ITS with the answers in the Single Rulebook Q&As, to correct legal references and a few clerical errors. There has been no public consultation on the proposed changes. The amending ITS will need to be approved by the European Commission, European Parliament and Council of the European Union before they can come into effect. The EBA expects that the amendments will be applicable from the December 31, 2016 reporting reference date.

View the amending ITS.

View the revised annexes and the annexes in tracked changes. 

James J. McAndrews, executive vice president of the Research and Statistics Group and Director of Research of the Federal Reserve Bank of New York, announced that he will be retiring from the FRBNY in June after 28 years at the Federal Reserve System. The FRBNY noted that it will immediately begin the search for McAndrew’s successor.

US Federal Deposit Insurance Corporation Chairman Martin Gruenberg discussed the improved financial condition of US banks, supervisory challenges that the FDIC is focused on, and developments in cross-border cooperation with respect to the resolution of systemically important financial institutions. Chairman Gruenberg noted the overall increase in FDIC-insured institutions’ earnings in 2015 and that 2015 saw the fewest bank failures since before the financial crisis. Supervisory challenges that the FDIC and other banking supervisors are focused on for 2016 include interest rate risk, credit risk, including lending in higher risk categories and exposure to energy producers, and cybersecurity. With respect to resolution plans, Chairman Gruenberg noted that the 2015 plans submitted by the wave 1 filers in July 2015 are currently under review by the FDIC and the Board of Governors of the Federal Reserve System. Moreover, he noted that the FDIC has worked closely with other major financial jurisdictions including the UK, EU, Switzerland and Japan, to understand how cross-border resolution of a large systemically important financial institution would unfold. Specifically, the FDIC is working with the new Single Resolution Board and is part of a joint working group with the European Commission that works bilaterally to focus on resolution and deposit insurance issues. Additionally, cross-border crisis management groups have been formed for each of the global systemically important financial institutions. Finally, Chairman Gruenberg noted the revised ISDA resolution stay protocol and the total loss absorbing capacity standards issued by the Financial Stability Board and proposed by the Federal Reserve as examples of how cross-border cooperation is improving resolution capabilities.

View speech.

US Comptroller of the Currency Thomas Curry discussed the importance of international cooperation and comprehensive cross-agency, cross-border approaches to cybersecurity and the fight to prevent money laundering. Comptroller Curry also addressed the issue of risk re-evaluation, commonly known as de-risking, which involves banks evaluating the BSA/AML risks posed by their customers and foreign correspondent banks. He noted that while these relationships may pose legitimate risks, there may be important reasons to preserve such relationships, a decision that the OCC does not dictate but leaves to the banks. Comptroller Curry noted that the OCC is in the process of gathering information through the supervisory process as to how banks conduct re-evaluation, including how they implement policies and procedures for evaluating customer risks, whether banks have policies on risk re-evaluation and how decisions to terminate such relationships are made and reviewed. He noted that the OCC may issue guidance upon completing this review.

View speech.

An open letter from Mark Carney, Governor, Bank of England, to Andrew Tyrie, Chairman, Treasury Select Committee, on the effect of UK's EU membership on the Bank of England's statutory objectives was published. The letter was in response to the Committee's request for comment on the recent settlement agreement between the UK and the EU. The letter summarizes the findings that were made in a BoE report and the possible future impact of the settlement agreement. The BoE's primary objectives are monetary and financial stability. The three main areas in which the BoE's objectives are currently effected by EU membership are: (i) it provides dynamism in the UK economy through increased economic and financial openness; (ii) it increases the UK’s exposure to economic and financial shocks from other nations, in particular the EU; and (iii) the BoE is required to implement EU law, regulations and directives in its regulations and policy instruments. Mr Carney concludes that the settlement agreement provides a number of protections and additional tools that would protect the BoE's ability to achieve its statutory objectives. Implementation of the settlement agreement, through changes to various EU regulations and directives, is proposed to take place only if the outcome of the UK referendum on EU membership (so called "Brexit") is a vote to remain. The referendum is scheduled for June 23, 2016.

View the letter.

View the settlement agreement. 

View the report. 

The Competition and Markets Authority has extended the timetable for its investigation into the retail banking market to August 12, 2016 and published for consultation revised proposals to remedy the adverse effects on competition identified in its provisional report. The CMA's report was originally scheduled for publication in February 2016. The provisional report, published in October 2015, identified several competition issues in the Personal Current Accounts and Small and Medium-sized Enterprises banking market, including: (i) a lack of transparency making comparison of different providers difficult; (ii) due to (i) and the perception that it is burdensome / the lack of confidence in switching services, small numbers of customers switching to different bank accounts; (iii) new banks and new products not attracting new customers, leading to the established banks having incumbency advantages; and (iv) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The CMA also noted the general disadvantage faced by SMEs in terms of limited choice compared to larger customers. Following that report, the CMA proposed certain remedies, including (i) requiring banks to prompt customers to review the service they receive by receiving individual messages at certain "trigger points"; (ii) encouraging consumers and businesses to compare bank products by using Midata, an industry online tool, that allows consumers to easily access their banking data and compare it with other services; and (iii) creating a price comparison service for SMEs. Feedback to the initial consultation on the proposed remedies was that they would not sufficiently redress the adverse effects on competition. The revised remedy proposals seek to address those weaknesses. Feedback on the revised proposals are due by March 21, 2016.
 
View the revised remedy proposals.
 
View the revised timetable.

Commission Implementing Regulation was published in the Official Journal of the European Union, which amends the Implementing Technical Standards on supervisory reporting by providing for additional monitoring metrics for liquidity reporting.  Under the Capital Requirements Regulation, banks are subject to liquidity reporting requirements.  To increase effective liquidity supervision, the amended ITS provide for additional monitoring metrics to enhance regulator's view of a bank's liquidity position, proportionate to the nature, scale and complexity of the bank's activities. Additional monitoring metrics to be reported now include those metrics based on the concentration of funding by counterparty and product type and metrics based on the concentration of counterbalancing capacity by issuer or counterparty. In addition, the frequency of reporting can be reduced, depending on the nature of the bank. The amended ITS enters into force on March 25, 2016.

View the Regulation. 

The US Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Securities and Exchange Commission and Commodity Futures Trading Commission (VR Agencies) issued a Frequently Asked Question (FAQ) to clarify the capital treatment of certain collateralized debt obligations backed by trust preferred securities (TruPS CDOs). Specifically, the FAQ clarified that a banking entity is not required to deduct from its tier 1 capital a qualifying TruPS CDO that is retained under section 248.16(a) of the January 2014 interim final rule published by the VR Agencies. The January 2014 interim final rule provides an exemption that would permit a banking entity to retain an interest in, or act as sponsor of, a covered fund that issues TruPS CDOs subject to certain requirements, including that the issuer must have been established prior to May 19, 2010, and the banking entity’s interest must have been acquired on or before December 10, 2013. However, a banking entity would be required to deduct from tier 1 capital its interests in qualifying TruPS CDOs when it acts as a market maker for the interests of such TruPS CDOs and investments in TruPS CDOs that are covered funds but are otherwise not qualifying TruPS CDOs.

View the FAQ.

The US Board of Governors of the Federal Reserve System re-proposed rules that would establish single counterparty credit limits for domestic and foreign bank holding companies, as well as US intermediate holding companies, with $50 billion or more in total consolidated assets. The Federal Reserve also released a quantitative impact study that sets out the conceptual and quantitative foundations for the tighter limits on exposures between systemically important financial institutions. The proposed rule implements section 165(e) of the Dodd-Frank Act which authorizes the Federal Reserve to establish limits on the amount of credit exposure that large domestic banking organizations, foreign banking organizations and US intermediate holding companies (covered institutions) can have to a single unaffiliated counterparty in order to limit the risks in the event of a failure at any such individual firm. The proposed rule builds on earlier proposals for single counterparty credit limits for domestic and foreign banking organizations issued by the Federal Reserve in December 2011 and December 2012 and the Basel Committee on Banking Supervision’s 2014 large exposures framework. Comments on the proposed rule are due by June 3, 2016.

View proposed rule.

View quantitative impact study.

The Prudential Regulation Authority published its Policy Statement on feedback to its consultation on the PRA's approach to ring-fencing transfer schemes together with the PRA's final Statement of Policy. The Financial Services (Banking Reform) Act 2013 introduced requirements for UK banking groups that have more than £25 billion of core deposits to ring-fence the entity/ies that accept deposits – called ring-fenced bodies. To assist firms subject to the ring-fencing requirements and restructure their business, provisions were made for transfer of businesses by a RFTS. The PRA's Policy Statement sets out the regulator's responses to questions raised during the consultation, including on the certificate as to financial resources of the transferee, new bank authorizations, alternative group arrangements and immunity of the skilled person. The PRA's Statement of Policy sets out its approach to RFTS, noting that the PRA expects firms to nominate a skilled person to prepare the scheme report which nomination would be subject to the PRA's approval. The Financial Conduct Authority published finalized guidance on its approach to the implementation of the ring-fencing requirements and RFTS.  The ring-fencing regime is due to come into effect on January 1, 2019.  
 
View the PRA Policy Statement.
 
View the PRA Statement of Policy.
 
View the FCA Guidance.

The European Banking Authority launched a consultation on proposed amendments to the Implementing Technical Standards on supervisory reporting to incorporate the new requirements for prudent valuation reporting and supplementary requirements for reporting of credit risk information. Under the Capital Requirements Regulation, firms are subject to requirements on prudent valuation adjustments of fair-valued positions. The Regulatory Technical Standards on prudent valuation came into force on February 16, 2016 and cover the methodology for calculating Additional Valuation Adjustments, consideration to be given to available market data and the simplified and core approaches for the determination of AVA. According to the EBA, the entry into force of the RTS justifies more detailed reporting requirements for prudent valuation than have been required to date. In addition, the EBA is proposing that firms report credit risk on a total level as well as on a country level only. Responses to the consultation are due by March 30, 2016. 

View the EBA consultation paper.
 
View the ITS on supervisory reporting.
 
View the RTS on prudent valuation.