The European Securities and Markets Authority published an update on reporting obligations in relation to information on structured finance instruments which ESMA receives under the Credit Rating Agency Regulation. The CRA Regulation was originally based on the Code of Conduct Fundamentals for CRAs published by the International Organization of Securities Commissions. ESMA is required under the CRA Regulation to set up a website where information on SFIs can be published to enable reporting entities – originators, issuers and sponsor entities - to submit data files containing the relevant information in accordance with their reporting requirements. EMSA is required to issue technical instructions by July 1, 2016, to assist with the reporting obligations that will apply from July 1, 2017. ESMA has reported that it will not be in a position to receive information on SFIs from reporting entities by January 1, 2017, as it is currently unable to set up a website or issue the technical instructions. This is because there is no legal basis for funding the website. ESMA expects the new securitization legislation currently being finalized to provide clarity on the future obligations regarding reporting on SFIs.

View the update.

The SEC released a plan for a proposed national market system that would create a single database, the Consolidated Audit Trail, to track all US activity in the equity and options markets. The establishment of the CAT will allow regulators to be better positioned to identify and investigate market misconduct, and will increase the effectiveness of market research and monitoring. The CAT would be conducted through a Delaware limited liability company that the self-regulatory organizations would own jointly, and participating self-regulatory organizations and the SEC would have access to the data in the CAT for regulatory and oversight purposes. The plan sets out the record keeping and reporting information that SROs and broker-dealers would be required to submit at various stages in the lifecycle of an order or transaction. Public comments on the plan are due within 60 days of the plan’s publication in the Federal Register.
 

The OCC issued a bulletin reminding all OCC-supervised banks of their obligations to maintain and retain their records and the OCC’s authority to obtain prompt and complete access to each bank’s books and records and communicate freely with its employees, officers and directors. The guidance is being issued in response to the OCC’s discovery that certain communications technology being made available to banks contains data deletion and encryption features which could inhibit the OCC’s ability to access bank data and records. The guidance notes that the permanent deletion of internal communications is in conflict with the OCC’s expectations for sound governance, compliance, risk management and safety and soundness principles.

Jennifer Shasky Calvery announced that she will step down as Director of the US Treasury Department’s Financial Crimes Enforcement Network at the end of May. She has served as FinCEN Director since September 2012. FinCEN has not announced her successor.

The FDIC approved a final rule that amends how banks with less than $10 billion in assets that have been insured for a minimum of five years are assessed for deposit insurance. The rule updates the data and revises the methodology that the FDIC uses to determine the risk-based assessments for such institutions. FDIC Chairman Martin J. Gruenberg anticipates that more than 93% of small banks will pay lower rates under the revised framework. The final rule will be used for rate determinations once the FDIC’s insurance fund reaches 1.15%, but not before the third quarter of 2016.
 

The European Commission adopted a Delegated Regulation supplementing the Markets in Financial Instruments Directive with regard to organizational requirements and operating conditions for investment firms. The adopted Delegated Regulation outlines specific organizational requirements for investment firms performing investment services and ancillary services. In particular, the adopted Delegated Regulation provides procedures for compliance, risk management, complaints handling, personal transactions, outsourcing and conflicts of interest as well as the additional organizational requirements for underwriting and placing services and the production and dissemination of investment research. The adopted Delegated Regulation outlines the operating conditions for investment firms. It also specifies the rules which an investment firm must comply when providing services or ancillary services to clients. For example, it requires information to be provided to clients and potential clients on the costs and charges associated with investment services and financial instruments. The adopted Delegated Regulation further specifies that information, which is to include an explanation of the risks arising from the insolvency of the issuer and related events, such as a bail in, must also be provided. 

The European Banking Authority published a consultation paper on draft regulatory technical standards under the Capital Requirements Regulation on the disclosure of encumbered and unencumbered assets. The CRR requires the EBA to develop draft RTS to specify institutions’ disclosure of balance sheet value per exposure class broken down by asset quality and the total amount of the balance sheet value that is unencumbered. The draft RTS sets out the data required to be disclosed on encumbered and unencumbered assets, the format, and the timing of the publication. The EBA has developed the draft RTS to take into account the European Systematic Risk Board recommendations, which stated that the EBA and regulators should monitor the level, evolution and types of asset encumbrance. The EBA published its first report analyzing asset encumbrance in September 2015. The report revealed that there had been no increase in levels of asset encumbrance over the past four years. The ESRB further recommended that the EBA issue guidelines and harmonized templates and definitions on transparency requirements for credit institutions on asset encumbrance.  

The US Government Accountability Office issued a report on the resolution plan review processes developed by the US Federal Deposit Insurance Corporation and the US Board of Governors of the Federal Reserve System. The report found that, although the resolution plan rule has improved the resolvability of large systemically important financial companies in the United States, the lack of transparency by US regulators regarding how the regulators assess and review plans could undermine public and market confidence in resolution plans.
Along with these findings, the GAO report issued a series of recommendations to improve the resolution review process. Among other recommendations, the GAO report encouraged the FDIC and Federal Reserve to publicly disclose information about their respective processes for assessing the credibility of resolution plans and revising the resolution plan rule’s filing requirements in order to provide companies with more time to respond to feedback and guidance from the regulators on their resolution plans.

View the GAO report.

The European Banking Authority published the first list of Other Systemically Important Institutions in the European Union. O-SIIs are institutions which have been deemed by national regulators to be systemically relevant in addition to the Global Systemically Important Institutions that have already been identified. The EBA has compiled the list based on the findings of the relevant national regulators across the EU. National regulators relied on the EBA Guidelines on the identification of O-SIIs, which included recommended uniform criteria, including size, importance (substitutability or financial system infrastructure), complexity (or cross-border activities) and interconnectedness of such institutions. The EBA’s guidelines on the identification of O-SIIs were developed in accordance with the Capital Requirements Directive and on the basis of internationally agreed frameworks established by the Financial Stability Board and the Basel Committee for Banking Supervision. The EBA will publish an updated list of O-SIIs annually along with a revised definition of any CET1 capital buffer requirements set by national regulators. 

View the list of O-SIIs.

View the EBA’s guidelines. 

The European Commission published a status report on progress made since the adoption of the Capital Markets Union Action Plan. The European Commission's Action Plan, published in September 2015, set out the steps for the medium and long term in five priority areas: (i) providing more funding choices to EU businesses; (ii) ensuring an appropriate regulatory framework for long term investment and financing of Europe's infrastructure; (iii) increasing investment and choices for retail and institutional investors; (iv) improving bank lending capacity; and (v) removing cross-border barriers and developing more harmonized capital markets for all Member States. The Commission's Status Report details the actions taken to date, the key steps planned for the rest of 2016 and measures that will be delivered in 2017-18. 

View the Status Report.

View the Action Plan. 

The Basel Committee on Banking Supervision published an erratum to its April 2016 consultation paper on proposed revisions to the Basel III leverage ratio framework. The proposals contained in the consultation paper include amendments to: (i) the measurement of derivative exposures by adopting a modified version of the standardized approach for measuring counterparty credit risk exposures; (ii) treatment of regular-way purchases and sales of financial assets so as to achieve consistency across accounting standards; (iii) treatments of provisions; and (iv) credit conversion factors for off-balance sheet items, by aligning them with the standardized approach to credit risk. In addition, the Basel Committee proposes to impose additional requirements on global systemically important banks, setting out various options, including whether the additional requirement should apply uniformly to all G-SIBs or be tailored and whether the form should be a higher minimum requirement or a buffer requirement. Responses to the consultation are still required by July 6, 2016. The Basel Committee intends to finalize the revised leverage ratio requirement in 2016 so as to allow time for its implementation by January 1, 2018. 

View the erratum.

View the amended consultation paper. 

The European Commission published three separate letters rejecting European Securities and Markets Authority draft technical standards and requesting amendments in accordance with the Markets in Financial Instruments Directive II. The first letter concerns draft regulatory technical standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives. The draft RTS submitted by ESMA lays down the criteria for whether bonds and structured finance products are considered to be liquid and further sets out the parameters and methods for the calculation of those thresholds above which waivers or deferrals may be granted. The Commission largely agreed with the approach taken by ESMA in drafting the standards, however, it stated that the definition of liquidity and the factors for determining the waiver threshold should be reviewed with a more cautious approach. The Commission concluded that it would not endorse the draft RTS until the approach to defining a liquid market for bonds is further aligned with the approach for all other non-equity instruments.  
 

Two letters from Olivier Guersent DG FISMA of the European Commission to Andrea Enria, Chairperson of the European Banking Authority, on issues associated with its review of the Capital Requirements Regulation were published. The first letter, dated April 12, 2016, was in response to the EBAs report on net stable funding requirements under the CCR. The EBA report concluded that NSFR standards developed by the Basel Committee on Banking Supervision fit well with the European banking framework but also flagged some European specificities. By the end of 2016, the Commission, if it deems appropriate, should submit a legislative proposal on the NSFR to the European Parliament and Council relying on the EBA Report when assessing the provisions of the Basel NSFR standard to ensure that a possible NSFR proposal does not hinder the financing of the real economy. The purpose of the letter is to request additional guidance on two areas of the EBA Report. First, with regards to the treatment of derivatives in the NSFR, the Commission is of the view that more specific analysis is required. The Commission expressed concern that the 20% required stable funding factor applied to gross derivatives liabilities and the recognition of margin received as compared to margin posts have not been comprehensively analyzed or subjected to the necessary extensive public consultation. Furthermore, the EBA should provide a complementary assessment on the impact of the provisions and an analysis of the impact on the treatment and calibration of derivatives. 

The Financial Conduct Authority published its proposed changes to the Decision Procedure and Penalties Manual and the Enforcement Guide for implementation of the Market Abuse Regulation. The MAR will apply directly across the EU from July 3, 2016. The FCA must amend and update its rules and guidance to bring them in line with MAR. The FCA's proposals are based on draft secondary legislation which HM Treasury is expected to lay before Parliament in the coming weeks. The draft secondary legislation will, amongst other things, amend the scope of the FCA's powers to impose financial penalties and public censure as well as giving the FCA additional powers to impose sanctions for breaches of MAR or any of its underlying legislation. The new powers include the power to prohibit an individual from carrying out a management function or dealing in financial instruments on their account. The FCA has already consulted on amendments to its Handbook, including the Market Conduct handbook and the disclosure and transparency rules. Policy statements on those proposals are expected soon. The current consultation closes on May 22, 2016. The FCA intends to publish the policy statement in June 2016. 

View the consultation paper.

The Financial Conduct Authority published a consultation paper on its proposed rules and guidance for the secondary annuity market due to start in April 2017. The consultation is aimed at parties interested in pensions and retirement issues, including providers and distributors of annuities, retirement income and planning products, sponsors of occupational Defined Benefit and Defined Contribution Schemes and firms providing advice in this area. The consultation discusses how consumers will be able to sell their annuity incomes on the secondary market. The changes proposed will primarily affect consumers who hold or will hold annuities in their name and contingent beneficiaries with an interest in such annuities.  

FDIC Chairman Martin Gruenberg discussed improvements in cross-border cooperation with respect to the resolution of systemically important financial institutions. He highlighted ongoing conversations among leading financial jurisdictions at an FDIC-hosted high-level meeting of the heads of the finance ministries, central banks and leading financial regulatory bodies in the United States and the UK. Gruenberg also discussed the close working relationship between the FDIC and the EU’s Single Resolution Board as well as the regular meetings of the joint working group maintained by the FDIC and EC focused on resolution and deposit insurance issues. In addition to meetings with other regulatory authorities, he cited the importance of the cross-border crisis management groups for each of the global systemically important financial institutions. Significantly, he noted that in his opinion, should a systemically important financial institution in the United States experience severe financial distress today, it would be able to be resolved in an orderly manner under either the Orderly Liquidation Authority under Dodd-Frank Act, or under traditional bankruptcy law. Gruenberg concluded by noting the value of having a single agency, the FDIC, be responsible for both deposit insurance and resolution authority in the United States.

View Chairman Gruenberg’s speech.

The UK Government published an Action Plan for anti-money laundering and counter terrorism financing. The Government is aiming to overhaul the UK approach to AML and CTF by giving new capabilities and legal powers to law enforcement agencies, improving the effectiveness of the supervisory regime and addressing inconsistencies in the regime, improving information sharing between the public and private sectors and increasing the international reach of the UK law enforcement agencies and enhancing international information sharing. The Government published a Call for Information on the system of appointing supervisors for AML and CTF and the powers of supervisors to incentivize compliance and adoption of the risk-based approach. An annex to the Action Plan includes proposed legislative changes. The Action Plan includes a list of deliverables which includes the involvement of the Home Office, the National Crime Agency, HM Treasury and the British Bankers' Association. The shorter term deliverables include running the pilot Joint Money Laundering Intelligence Taskforce, which provides for information sharing between banks and the NCA, on a permanent basis, creating a register of banks' specialisms, exploring new powers to tackle money laundering and completing the review of the supervisory regime. Responses to the Call for Information and the consultation on legislative proposals should be submitted by June 2, 2016.

View the Action Plan.

View the Call for Information on the AML Supervisory Regime.

View the Consultation Paper on Legislative Proposals.

The Basel Committee on Banking Supervision published a list of jurisdiction specific pre-announced buffer decisions.  In December, 2010, the Basel Committee published Basel III: a global regulatory framework for more resilient banks and banking systems. As required under Basel III, this document outlines details of global regulatory standards on bank capital adequacy and liquidity, including a countercyclical buffer. The countercyclical buffer regime will be phased-in in accordance with the capital conservation buffer between January 1, 2016, and December 31, 2018 becoming fully effective on January 1, 2019. To assist in bank compliance, jurisdictions can pre-announce buffer levels when raising the countercyclical buffer up to 12 months in advance.  A jurisdiction may also announce a decrease in the requisite countercyclical buffer, the effect of which is immediate. The list includes all Basel Committee member jurisdictions, their pre-announced buffer decisions, and the current buffers in place. Jurisdictions include Argentina, China, France, India, Indonesia and the United Kingdom. The updated list also includes buffer information on the non-member jurisdiction Norway. 

View the update. 

A Commission Delegated Regulation, which amends Regulatory Technical Standards on the time horizons for liquidation of different classes of financial instruments, was adopted by the European Commission. Under the European Markets Infrastructure Regulation, central counterparties are required to call and collect adequate initial margins to cover the risk stemming from a cleared contract. The proposed delegated regulation amends the margin period of risk for clients for EU CCPs from a two-day period for clients’ accounts (as under the original RTS) to a one-day gross basis. EU CCPs will therefore be able to offer both a two-day net margin model and a one–day gross margin model. The delegated regulation will come into force twenty days following publication in the Official Journal of the European Union. 

View the delegation regulation.

You might like to view our client note. 

HM Treasury published a consultation paper on the UK Government’s proposed secondary market due to be introduced in April 2017. The market would extend the recently introduced pension freedoms and flexibilities to individuals, who retired prior to April 2015. In December 2015, the Government announced that tax changes would come into effect from April 2017 which would allow individuals to receive all of the proceeds following the sale of an annuity as a taxable lump sum, arrange for the buyer to pay all of the proceeds into a flexi-access drawdown fund, or arrange for the proceeds to be used to buy a new ‘flexible’ annuity. The consultation invites comment on the draft secondary legislation which creates (i) new specified activities for firms intending to purchase annuities or act as intermediaries in the secondary market; and (ii) a new specified activity for annuity providers who are intending to buy back annuities that have been issued. The consultation also discusses proposed amendments to the Appointed Representative Regulations which would exempt appointed representatives, acting under the responsibility of an authorized principal, from needing regulatory authorization to act as intermediaries in the secondary market and to buy back annuities. The consultation also proposes amendments to the By Way of Business Order to make clear that those buying rights to annuity income streams will be subject to the requirements to be authorized or exempt under the Financial Services and Markets Act 2000 and the Regulated Activities Order. HM Treasury stated that regulation of the specified secondary market activities will enhance the Financial Conduct Authority’s supervisory oversight in this area. Responses to the consultation are due by June 2, 2016. 

View the consultation paper. 

The National Credit Union Administration re-proposed a rule that would establish incentive-based compensation restrictions on certain financial institutions. The OCC, the FDIC and the Federal Housing Finance Agency followed with their own versions of the proposed rule on April 26, 2016, and the Federal Reserve Board approved its version of the rule on May 2, 2016. The OCC, FDIC, FHFA and Federal Reserve Board proposed rules are substantially similar to the NCUA proposal. The proposed rule, issued pursuant to Section 956 of the Dodd-Frank Act, will ultimately take the form of a joint rulemaking among these agencies and the Securities and Exchange Commission, and replaces an earlier proposal issued in 2011. 

The Federal Reserve Board named Matthew J. Eichner as the director of its Division of Reserve Bank Operations and Payment Systems, effective May 1, 2016. Eichner has served as deputy director of the division since January 2015.

CFTC Chairman Timothy Massad and authorities for three Canadian provinces signed a March 2014 Memorandum of Understanding regarding (i) cooperation and coordination between the jurisdictions in respect of derivatives and securities markets and (ii) the exchange of information with respect to the supervision and oversight of regulated entities that operate on a cross-border basis in the United States and in Canada. Chairman Massad executed counterparts to the MOU along with the chairs of regulatory authorities of the provinces of New Brunswick, Saskatchewan and Nova Scotia. The MOU covers markets and organized trading platforms, central counterparties, trade repositories, and intermediaries, dealers and other market participants. Specifically, the MOU is intended to protect investors and customers, foster the integrity of financial markets and reduce systemic risk. The MOU previously only covered coordination between the CFTC and Alberta, British Columbia, Ontario and Quebec.

View the CFTC press release. 

View the Memorandum of Understanding.

The European Banking Authority published a report, including final Guidelines, on how confidential information collected under the EU Bank Recovery and Resolution Directive should be disclosed. The BRRD restricts the disclosure of confidential information by recipients of such information in the course of their professional activities unless certain conditions are met. One of these conditions is that the information is in summary or collective form such that the relevant entity cannot be identified. The EBA's Guidelines stipulate that confidential information should be provided either in a brief statement or on an aggregate basis, in anonymized form, taking into account the number of institutions, specific patterns and the context of the disclosure. Regulators of EU member states have six months from when the translated versions are published by the EBA to implement the Guidelines.
 
View the report and Guidelines.

A Commission Delegated Regulation on central clearing for credit default swaps supplementing the European Markets Infrastructure Regulation was published in the Official Journal of the European Union. Under the Regulation, two classes of credit default over-the-counter derivatives are subject to the clearing obligation under EMIR: iTraxx Europe Main and iTraxx Europe Crossover.

Read more. 

US Treasury Secretary and chairman of the Financial Stability Oversight Council, Jacob Lew, provided remarks at a meeting of the FSOC regarding the release of the FSOC’s review of the asset management industry. The statement released by the FSOC is not a rulemaking but rather, reflects the assessment of the FSOC on key areas of focus and risk in the asset management industry. Lew highlighted two key findings that are the focus of the statement—liquidity and leverage risk. With respect to liquidity, the FSOC found that financial stability concerns may arise from liquidity and redemption risks in pooled investment vehicles, including mutual funds in particular. The statement includes a number of policy recommendations for mitigating such risks, including the implementation of robust liquidity management practices and disclosures for mutual funds, and clearer guidelines that would limit a fund’s ability to hold assets having limited liquidity. With respect to leverage, Lew’s statement notes that while leverage does not generally appear high in all hedge funds, risk may still be present in these funds. He stated that regulators need to better understand the risks being taken by such funds and to engage in further analysis and information sharing in order to reach conclusions as to whether the use of leverage by private funds presents significant financial stability risk.
 

New York Fed President William Dudley discussed the importance to the global economy of economic growth and prosperity in the United States and the European Union. He applauded progress that has been made to date towards strengthening global banking systems, including increased capital and liquidity standards for international banks. However, he noted that more needs to be done in order to solve the so-called “too big to fail” problem. Specifically, Dudley stated that impediments to an orderly cross-border resolution need to be fully identified and dismantled, and cross-border regulatory cooperation needs to be further enhanced, including through greater exchange of confidential supervisory information. Moreover, he noted the importance of establishing a level playing field across jurisdictions in respect of cross-border resolution, so that the regulatory focus would be on safety and soundness rather than “trying to protect, favor, or shield national champions.”

The US Securities and Exchange Commission, in its ongoing effort to regulate the over-the-counter security-based swap markets, adopted final rules under Title VII of the Dodd-Frank Act implementing comprehensive business conduct standards and chief compliance officer requirements for security-based swap dealers and major security-based swap participants (collectively, security-based swap entities). As a general matter, the SEC’s final rules impose upon security-based swap entities (i) an obligation to facilitate informed customer decision-making, (ii) requirements to enhance transparency with customers and (iii) supervision and chief compliance officer requirements, among other enhanced professional standards of conduct. The rules also address their cross-border application and the availability of substituted compliance.

The final rules become effective 60 days after publication in the Federal Register. The compliance date for the customer protection rules will be based on the compliance date of the registration rules for security-based swap dealers and major security-based swap participants.

View the SEC final rules.

The Financial Conduct Authority published an Occasional Paper which assesses whether high frequency traders, on a systematic basis, foresee when trading orders are going to arrive at different trading venues and trade in advance of other traders by using their speed to their advantage. The FCA used a novel dataset with full order-book data on 120 stocks traded on lit venues in the UK in 2013. The results show that HFTs cannot systematically trade ahead of other market participants at a millisecond frequency but that HFTs are able to anticipate order flow over longer time periods (seconds and tens of seconds). However, it is uncertain whether HFTs are able to react quicker to new information due to their lower latency, or are able to better anticipate order flow (because, for example, other market participants are predictable when placing orders).

View the Occasional Paper.

The US Federal Deposit Insurance Corporation’s Systemic Resolution Advisory Committee held a meeting to discuss the latest updates and advice on issues related to the resolution of systemically important financial companies pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. At the meeting, the committee covered topics including, the “living will” updates, orderly liquidation updates, and developments in resolution planning in the European Union.

View the agenda for the Systemic Resolution Advisory Committee meeting.

A divided US Court of Appeals for the Ninth Circuit ruled that the Director of the US Consumer Financial Protection Bureau had the authority and standing to bring a civil enforcement claim against a California attorney and provider of home loan modification services. The decision addressed the issue of whether Director Cordray was authorized to act during the period following his recess appointment as director of the CFPB, but prior to the Senate’s confirmation of his appointment. In the majority opinion, the court stated that Director Cordray was empowered to bring actions in federal court to enforce certain consumer protection statutes and regulations notwithstanding any deficiency in Director Cordray’s appointment process, and further, that the subsequent ratification of Director Cordray’s appointment by the Senate cured any such deficiencies.

View the Ninth Circuit opinion.

Federal Reserve Board Governor Lael Brainard, in a speech given at the Institute of International Finance Blockchain Roundtable, discussed the key challenges involved in the use of distributed ledger technologies in payment, clearing and settlement. In her comments, Governor Brainard discussed some key concerns inherent in distributed ledger technologies, including the challenge of balancing confidentiality and security of firm and client records with the effort to effectively manage access to transaction records for faster and more efficient clearance and settlement, and stressed the importance of fully understanding how different distributed ledger technologies interoperate with each other and with legacy systems.

View the full text of Governor Brainard’s speech.

The Financial Conduct Authority and Prudential Regulation Authority published a joint consultation paper on proposals to implement certain aspects of the recommendations set out in HM Treasury's Review of Enforcement Decision-making at the Financial Services Regulators (known as the Enforcement Review), published in December 2014, and the report by Andrew Green QC in the enforcement actions following the failure of HBOS (known as the Green Report), published in November 2015. 
 

The Basel Committee on Banking Supervision published a consultation document on guidelines for the prudential treatment of problem assets focusing on credit categorization definitions. In the context of the financial crisis, the Basel Committee noted that credit categorization terms used by firms were not always clear and made it difficult to compare financial information. This contributed to increased uncertainty at the height of the crisis and undermined investor ability to assess bank performance and risk. Credit risk categorization is a tool used by banks when assessing the solvency and riskiness of banks’ credit risk exposures.

The European Securities and Markets Authority announced it will publish its first EU-wide stress tests for EU Central Counterparties. Under the European Markets Infrastructure Regulation ESMA is mandated to conduct stress tests for CCPs. The stress test will evaluate the resilience and safety of the European CCP sector and identify any vulnerabilities. The focus of the exercise is to test counterparty credit risk that CCPs would face in the event of multiple clearing member default combined with simultaneous market price shocks. The results of the stress test will be published on an anonymized and aggregated basis on April 29, 2016. 

View the announcement.

The US Treasury Department’s Office of Financial Research published a paper analyzing data on global systemically important banks, based on data released in 2013 and 2014 by the Basel Committee on Banking Supervision. The OFR research report analyzed data regarding 30 banks across the world identified by the Basel Committee as G-SIBs, including eight US bank holding companies. The analysis found, among other things, an increase in the systemic importance scores by Chinese banks, while the systemic importance scores of US G-SIBs generally reflected little change and continued to be among the highest amongst global banks.

View the full text of the OFR report.
 

The US Federal Reserve Board and Federal Deposit Insurance Corporation jointly determined that the 2015 resolution plans of the following five US domestic global systemically important banking organizations are not credible: Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street and Wells Fargo. The agencies also jointly identified weaknesses in the resolution plans of Goldman Sachs and Morgan Stanley, but did not make joint determinations as to the plans and their deficiencies. Neither agency found that Citigroup’s resolution plan was not credible, although the agencies did identify certain shortcomings that Citigroup must address.

Under Section 165(d) of the Dodd-Frank Act, bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the FSOC for supervision by the Federal Reserve Board must periodically submit resolution plans to the Federal Reserve Board and the FDIC. The five firms receiving a joint notice of deficiencies must remediate those deficiencies by October 1, 2016, to avoid imposition of more stringent prudential requirements on the firm until it remediates the deficiencies. Such prudential requirements could include more stringent capital, leverage or liquidity requirements, as well as restrictions on growth, activities or operations of the firm, or its subsidiaries.

The Federal Reserve Board is releasing the feedback letters issued to each firm. The agencies are also issuing “Resolution Plan Assessment Framework and Firm Determinations (2016),” which provides further information on the determinations and the agencies’ processes for reviewing the plans. Additionally, the agencies are releasing new guidance for the July 2017 submissions for all covered companies. The deadline for the next full plan submission for the eight US GSIBs is July 1, 2017. 

View the Federal Reserve Board press release.

The European Securities and Markets Authority published Opinions, dated April 7, 2016, on certain Denmark-based pension schemes that are to be exempted from the clearing obligation under the European Market Infrastructure Regulation. The Opinions were requested by Finanstilsynet and relate to three different kinds of pension schemes, Life insurer occupational schemes, Labour market related life insurer and Multi employer pension fund. Transitional exemptions from the clearing obligation can be granted to pension scheme arrangements that meet certain criteria, essentially, when OTC derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator. Under EMIR, the national regulator must seek an Opinion from ESMA before making a final exemption decision. ESMA, in turn, must consult with the European Insurance and Occupational Pensions Authority before issuing its Opinion. This follows the extension of the transitional exemption period for pension funds from the clearing obligation to August 16, 2017 which is the revised date by which pension funds must comply with the EU clearing obligation under EMIR.

View ESMA's Opinions.

The Financial Conduct Authority published its interim report on the investment and corporate banking market study, which includes proposed remedies to the deficiencies identified. The FCA proposals include removing the practice of banks using contractual clauses to restrict client choice, reducing barriers to entry for non-universal banks without undermining the efficiency benefits of cross-selling and improving the credibility of league tables for investment and corporate banking. The FCA also intends to investigate further whether individual banks whether there are any issues in conflicts management in the allocation of Initial Public Offerings. 

The International Swaps and Derivatives Association published an updated ISDA European Markets Infrastructure Regulation Classification Letter. The purpose of the Classification Letter is to assist market participants in their management of regulatory obligations under the EMIR. The obligations imposed by EMIR differ depending on the counterparties to each transaction. The Classification Letter sets out a number of questions that derivative counterparties can reply to and send to their counterparty in order to allow their counterparty to determine their status under EMIR taxonomy. The letter not only provides a means by which entities can make known their own classification, but also gain access to other entities’ classifications according to the EMIR taxonomy. The letter has been updated to take into account the forthcoming clearing obligation for interest rate swaps which will be phased in from September 1, 2016, and the credit default swaps clearing obligation which comes into force on April 19, 2016, and is subject to approval by the European Parliament and Council of the European Union.

View the Classification Letter.

View the Explanatory Memorandum.  

A form of information statement for usage by collateral takers was jointly published by five industry associations.  This is aimed at facilitating compliance with disclosure requirements under the European Union's Securities Financing Transaction Regulation. The relevant industry associations are the Association for Financial Markets in Europe, the International Capital Market Association, the International Swaps and Derivatives Association and the International Securities Lending Association. The SFTR will affect all existing and future title transfer and security collateral arrangements from July 13, 2016 and require disclosure to collateral providers where a collateral taker uses title transfer or has a right of use, with respect to a security financing transaction, such as a repo or margin loan. The purpose of the statement is to outline the general risks and consequences that may be involved in consenting to a right of use of collateral provided under a security collateral arrangement or of concluding title transfer arrangements.
 
View the information statement. 

The Bank of England announced that effective April 25, 2016, it would become the administrator of the Sterling Overnight Index Average interest rate benchmark. SONIA provides bank and building societies’ overnight funding rates in the sterling unsecured market. It is designated as a specified benchmark under UK legislation. The Wholesale Market Brokers’ Association is currently the administrator of SONIA and is regulated by the Financial Conduct Authority. Under the new arrangements, the WMBA will be the calculation and publication agent for the SONIA benchmark, with the Bank of England assuming overall responsibility and providing governance and oversight. The Bank of England has been working to reform SONIA since March 2015 and intends to broaden the range of transactions supporting SONIA to include bilaterally negotiated and brokered transactions. The Bank of England's new money market data collection, announced in July 2015, will be used as the data source once it is properly established. The full transition is expected to be completed by Q2 2017. 

View the Bank of England's announcement. 

The Financial Conduct Authority announced that acting Chief Executive Officer, Tracey McDermott, would leave the regulator on July 1, 2016. Andrew Bailey, currently Deputy Governor for Prudential Regulation at the Bank of England and Chief Executive Officer of the Prudential Regulation Authority, will take up the position of CEO of the FCA from July 1, 2016. 

View the FCA's announcement.

The European Banking Authority published a report on supervisory measures taken by national regulators in 2014 on compliance by credit institutions and investments firms with securitization risk retention, due diligence and disclosure requirements under the Capital Requirements Regulation. The EBA is required to assess regulators' measures to ensure compliance. The report notes that firms are generally undertaking actions to comply with the requirements. Since the introduction of the requirements under the Capital Requirements Directive II in 2011, ten firms have been deemed non-compliant, with one firm receiving a sanction of an additional risk weight. The report provides analysis of how the EBA's recommendations on regulation of risk retention rules, due diligence and disclosure in the EU, as specified in a 2014 EBA report, have been taken on board in the legislative proposals for the new securitization framework issued by the European Commission as part of its Capital Markets Union initiative. 

Read more. 

The European Banking Authority published an Opinion on the application of customer due diligence measures to customers who are asylum seekers from higher-risk third countries or territories. The Opinion, addressed to national EU regulators, outlines the EBA’s view on the application of customer due diligence measures by credit and financing institutions when entering into a business relationship with customers who are asylum seekers from higher-risk third countries. Firms are required under the EU's anti money laundering legislation (to be transposed into national law by June 27, 2017) to prevent financial systems being exploited for the purpose of money laundering or terrorist financing. 
 

The US Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig issued the semi-annual update of the Global Capital Index, an index showing the capital ratios for global systemically important banks. Upon release of the update, Vice Chairman Hoenig noted that the loss-absorbing tangible capital levels of the largest US banks are increasing relative to their foreign counterparts. Vice Chairman Hoenig emphasized however that, although the update indicated the overall health of US banks, compared to foreign banks, progress must still continue to a point where banks maintain sufficient levels of tangible capital to effectively move the cost of downside risk from the public to the firms.

View the updated Global Capital Index.

The US Office of the Comptroller of the Currency released its Risk Appetite Statement, which documents the OCC’s overall conservative risk appetite in carrying out its supervisory mission. The Risk Appetite Statement provides that the OCC will accept more risk in some areas in order to adapt to the changing needs of supervised national banks and federal savings associations. OCC management and employees will use the statement to evaluate their decisions in overseeing national banks and federal savings associations as well as the execution of agency management functions, such as human resources, procurement and information technology.

Comptroller of the Currency Thomas J. Curry noted that by clearly articulating acceptable levels of risks within the OCC’s operations, agency personnel have “clearer signposts by which to guide their decisions and external stakeholders can better understand OCC actions in the context of the risks facing the agency.” The OCC plans to update its Risk Appetite Statement periodically as the federal banking system and its supervision evolve.

View the OCC’s Risk Appetite Statement. 

The European Securities and Markets Authority published an Opinion setting out key principles for a European framework on loan origination by funds. The Opinion is in response to the European Commission's request that ESMA assist in developing points for its forthcoming consultation on an European framework. The potential framework is part of the Commission's Capital Markets Union Action Plan. 

Read more.

The Economic Secretary to the UK Treasury, Harriett Baldwin, gave a speech at the 2016 Innovate Finance Global Summit in London. The Economic Secretary announced certain policies that the UK Government had adopted to support the FinTech sector, including establishing a FinTech panel, the delivery of a support function to set an overarching UK FinTech strategy and establishing ‘FinTech Bridges’ to work with priority global markets to assist UK FinTechs to grow internationally.

View HM Treasury's press release. 

The UK Government launched a consultation on a draft innovation plan for financial services. The innovation plan covers the work of each of the financial services regulators – the Financial Conduct Authority, the Payment Systems Regulator, the Prudential Regulation Authority and the Bank of England – setting out the steps that each regulator has taken or intends to take to adapt to new technologies and disruptive business models to encourage competition and growth and to better utilize technologies to reduce burdens on business and create efficiency savings. The consultation seeks feedback on the UK's regulatory environment for financial services supporting innovation, whether the regulators understand innovation and where new technologies might emerge, if there are any gaps that the regulators should focus on and if there are ways that the regulators could better utilize technologies. Responses are requested by May 6, 2016.