The Treasury Select Committee published three of the Financial Conduct Authority's internal audit reports dated October 2014. The Treasury Committee, on behalf of Parliament, has committed to scrutinize the FCA more rigorously since the financial crisis. In 2014, the Committee decided that its scrutiny would also extend to reviewing the FCA’s internal audit reports, to ensure that the audit reports are of a reasonable standard. The Treasury Committee published the FCA's audit reports from the first half of 2014 in October 2015. The latest audit reports are on: (i) the identification, handling and management of market sensitive information; (ii) the FCA’s incident response and crisis management capability; and (iii) the design and effectiveness of the FCA’s external communications strategy. Whilst the Treasury Committee is of the view that the FCA's processes are improving overall, it believes that there is still work to be done.
 
View the Treasury's February 2016 press release.
 
View the Treasury's October 2015 press release.

The Financial Conduct Authority published a Policy Statement on Fair, Reasonable and Non-Discriminatory access to regulated benchmarks, setting out the feedback it received to its consultation last year. The Policy Statement includes the FCA's final rules which affect the administrators of eight regulated benchmarks: the ICE London Inter Bank Offered Rate (ICE LIBOR), the Sterling Overnight Index Average (SONIA), the Repurchase Overnight Index Average (RONIA), the WM/Reuters London 4pm Closing Spot Rate, the ICE Swap Rate, the LBMA Gold Price, the LBMA Silver Price and the ICE Brent Index. The rules go beyond the general competition powers of the FCA and include specific requirements on benchmark administrators in relation to access. The FCA rules are changed from those in the initial consultation in being limited to users that are exchanges, clearing houses and multilateral trading facilities, consistent with EU regulations, in particular the Markets in Financial Instruments Regulation (which is due to apply from January 3, 2017). The FCA's final rules enter into force on April 1, 2016.
 
View the Policy Statement.

The US Board of Governors of the Federal Reserve System published a notice of proposed rulemaking to collect financial information from US intermediate holding companies of foreign banking organizations. The proposal would require all IHCs to commence reporting of the FR Y 9C (Consolidated Financial Statements for Holding Companies), FR Y 9LP (Parent Company Only Financial Statements for Large Holding Companies), FR Y 11 (Financial Statements of US Nonbank Subsidiaries of US Holding Companies), FR 2314 (Financial Statements of Foreign Subsidiaries of US Banking Organizations), FR Y 12 (Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies) and FR Y 15 (Banking Organization Systemic Risk Report) as of September 30, 2016, reporting of the FR Y 14A/M/Q (Capital Assessments and Stress Testing), FR Y 6 (Annual Report of Holding Companies) and FR Y 9ES (Financial Statements for Employee Stock Ownership Plan Holding Companies) as of December 31, 2016, and Reg Y 13 (Recordkeeping and Reporting Requirements Associated with Regulation Y (Capital Plans)) as of January 1, 2017. The notice of proposed rulemaking is open for comments until April 5, 2016.

View the final draft ITS.  
 

The European Securities and Markets Authority published a report providing an overview of its 2015 supervisory work relating to Credit Rating Agencies and Trade Repositories and setting out its workplan for 2016. ESMA's focus for 2016 includes: (i) improving the quality of credit ratings; (ii) improving trade repository quality data and data access; (iii) improving CRA governance and strategy; (iv) devoting resources to its enforcement work where it is aware of facts that may be infringing regulatory requirements; and (v) enhancing international cooperation with third country supervisors.
 
View the report.

The European Securities and Markets Authority published translations of its Guidelines for complex debt instruments and structured deposits under the Markets in Financial Instruments Directive II. MiFID II allows investment firms, under certain circumstances only, to provide clients with investment services that consist of execution, reception and transmission of orders only (known as execution-only orders), without the investment firm having to obtain any relevant client information to assess whether the service or product provided is appropriate for a particular client. Such products must be non-complex. ESMA's Guidelines identify those complex products for which execution-only services may not be provided, setting out a non-exhaustive list of examples of such products. National regulators have two months to notify ESMA whether or not they comply with the Guidelines. The Guidelines will apply from January 3, 2017.
 
View the Guidelines.

The European Banking Authority published an Opinion on the implementation of the regulatory review of the Internal Ratings-Based approach to calculating risk-weighted exposure amounts for credit risk. The Opinion sets out the general principles and timelines for implementation and aims to provide clarity for national regulators and relevant firms. The EBA has also published a report on the future of the IRB approach. Both the Opinion and Report aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms as well as identify the main drivers of variability in the implementation of IRB models. The IRB framework will be made up of Regulatory Technical Standards and Guidelines which will be introduced in 2016 and 2017 in four phases: (i) the IRB assessment methodology will be introduced in the first quarter of 2016; (ii) a definition of "default" will be introduced by mid-2016; (iii) estimation of risk parameters and treatment of defaulted assets will be introduced by mid-2017; and (iv) credit risk mitigation will be introduced by the end of 2017. The EBA expects that the effective implementation in all areas will be finalized by the end of 2020.
 
View the EBA's Opinion and Report.

The Financial Conduct Authority published a Policy Statement and final rules on the application of the Senior Manager and Certification Regimes to wholesale market activities, such as algorithmic and high-frequency trading. The SM&CR enters into force on March 7, 2016. The rules apply to banks, building societies, and investment firms designated by the Prudential Regulation Authority. The new rules extend the Certification regime to individuals who carry out two new significant harm functions: (i) the new "client dealing" function, which includes advising on investments other than non-investment insurance contracts and any associated dealing and arranging, acting as an investment manager or acting as a bidder's representative (this new function is subject to the FCA's new definition of "client" which aims to capture all clients including traditional retail clients); and (ii) "algorithmic trading". Under transitional rules, the Certification regime requires firms to identify the staff members that fall into the two new functions and train them on the new conduct rules by September 7, 2016. The commencement date for the requirement for firms to certify all staff that carry out significant harm functions remains March 7, 2017. 

Read more.

The US Board of Governors of the Federal Reserve System released a report providing an update on its progress in implementing efforts to improve the US Payments System as set out in its 2015 Strategies for Improving the US Payments System. The report also outlines additional steps the Federal Reserve anticipates taking going forward. Two task forces comprised of more than 500 industry participants have been formed and they have created a list of 36 criteria that describe the attributes of an enhanced payment system. Work has been done with respect to standards, directories and business to business improvements to enhance payment system efficiency. The report also notes that joint efforts with industry participants recently culminated in a plan to implement the financial messaging standard ISO 20022 for US wire transfer systems and advanced plans to implement widespread same day Automated Clearing House settlement.

View the progress report.
 

The European Securities and Markets Authority published a document comprising a set of Opinions on certain UK pension schemes that are to be exempt from centrally clearing OTC derivatives contracts under the European Market Infrastructure Regulation. The Opinions have been requested by the UK Financial Conduct Authority and relate to 16 different kinds of pension schemes. 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. The FCA has now granted exemptions and ESMA will publish the list of the types of entities that have been given exemptions in the near future. This follows on from the transitional exemption period for pension funds from the clearing obligation having been extended to August 16, 2017. Pension funds must comply with the EU clearing obligation by this date under EMIR.
 
View ESMA's press release and Opinions.

The European Securities and Markets Authority issued a statement, addressed to investors and fund managers, on some European collective investment funds that may potentially be "closet index tracking funds". Closet indexing can occur when fund managers claim to manage portfolios actively, but in reality, the fund stays close to its benchmark index. Such practices can mislead investors as they may not receive the service or risk/return profile that they expect, whilst possibly paying higher fees than those usually charged for passive management. ESMA carried out research using a sample of around 2,600 funds between 2012 and 2014 and found that 5% to 15% of Undertakings for the Collective Investment of Transferable Securities equity funds could potentially be closet indexers. ESMA recommends that UCITS management companies re-evaluate whether they provide accurate information to investors on the performance objectives of relevant funds so that investors can make informed investment decisions. ESMA has stated that it will take an active role in coordinating further analysis at national level and will assess whether any further steps are necessary to ensure that market participants wholly comply with disclosure obligations.  
 
View ESMA's statement.

The Financial Conduct Authority published a Policy Statement and final rules on the Implementation of the Undertakings for Collective Investment in Transferable Securities Directive V. The Policy Statement sets out final rules, guidance and changes made to the FCA Handbook that affect managers and depositaries of UCITS and Alternative Investment Funds. The Policy Statement also sets out comments on the feedback received to the FCA's Part I consultation on the implementation of UCITS V published in September 2015, including: (i) remuneration principles and requirements applicable to managers, including details on payments of proportions of variable remuneration in non-cash instruments; (ii) the applicable transparency obligations towards investors; and (iii) changes for depositaries including eligibility criteria and capital requirements for firms acting as depositaries of UCITS. The rules and guidance enter into force on March 18, 2016, the date on which the FCA is required to implement the UCITS V Directive. Certain requirements however are subject to transitional provisions. For example, UCITS managers will only have to comply with some of the remuneration requirements after the start of the first full performance period, post-March 18, 2016. Also, non-bank depositaries appointed before March 18, 2016 may continue to provide depositary services to UCITS clients until March 18, 2018, even if they have not yet met all new operational and prudential requirements applicable to them.
 
View the Policy Statement.
 
View the Consultation Paper.

The US Federal Deposit Insurance Corporation published “A Framework for Cybersecurity” as part of the agency’s Winter 2015 issue of “Supervisory Insights”. The article addresses the current state of cyber threats and how financial institutions’ information security programs can be modified to meet evolving cybersecurity risks. The publication also provides a summary of actions taken by the FDIC individually and with other regulators in response to the increase in cyber threats.

The latest issue of “Supervisory Insights” also includes articles on marketplace lending, recent lending conditions and risks as reported through the FDIC’s Credit and Consumer Products/Services Survey, and an overview of recently released FDIC regulations and supervisory guidance. 

View the journal. 

The European Securities and Markets Authority published a final report setting out draft Regulatory Technical Standards on settlement discipline as required under the Central Securities Depository Regulation. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism, and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails such as a mechanism for cash penalties and a buy-in process. ESMA has submitted the final draft RTS to the European Commission for endorsement.
 
View the Final Report and RTS.

The European Court of Auditors published a report on the role of the European Securities and Markets Authority as the single supervisor of Credit Rating Agencies in the European Union. The report covers the period from when ESMA took over the role of supervisor for CRAs from national regulators in July 2011 until September 2015.  It aims to assess whether ESMA has effectively established itself as the CRA supervisory body for the EU. The report states that ESMA has set good foundations in a short amount of time, but that significant risks still need to be addressed in the future. The ECA recommends, amongst other things, that ESMA should: (i) document its assessment of all regulatory requirements for credit rating methodologies throughout the registration process; (ii) update its supervisory manual and handbook on a regular basis so as to take into account the knowledge and experience it has gained; (iii) contemplate developing further guidance on disclosure requirements to improve the methods of disclosure of CRAs; (iv) examine certain possible conflicts of interest in a structured manner, regarding rating analysts’ trading activities and financial transactions, so as to mitigate the risk of insider trading; and (v) enhance the traceability of the risk identification process, documenting changes to risk level as well as the prioritization of risks and following up on high-risk areas that could benefit from further supervisory attention.
 
View the report.

The US Board of Governors of the Federal Reserve System extended the comment period to March 21, 2016, for the proposed policy statement describing the Federal Reserve Board’s framework in setting the Countercyclical Capital Buffer. The original deadline for submission of comments was February 19, 2016. The Federal Reserve Board first announced it was soliciting public comment on the proposed policy statement on December 21, 2015. The CCyB is a macro-prudential tool that raises capital requirements on internationally active banking institutions when the risk of above-normal losses in the future is elevated. The proposed policy statement describes various financial-system vulnerabilities as well as issues for Federal Reserve Board consideration in setting the buffer. 

View the proposed policy statement.

View the appendix to the proposed policy statement.

The US Board of Governors of the Federal Reserve System extended the comment period to February 19, 2016, for its proposed rule to strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance. The original deadline for submission of comments was February 1, 2016. The proposed rule requires US Global Systemically Important Banks and the US operations of foreign GSIBs to meet a long-term debt requirement, a “Total Loss-Absorbing Capacity” requirement and a requirement that the parent holding company of a domestic GSIB avoid entering into various financial arrangements that would create obstacles to an orderly resolution. These requirements would strengthen the ability of those banks to withstand financial stress and failure without imposing losses on taxpayers. The proposed rule also includes regulatory capital deductions for firms regulated by the Federal Reserve Board that hold unsecured debt of the parent holding companies of domestic GSIBs.

View the Federal Register notice. 

The Competition and Markets Authority announced that it is likely to extend the timetable for its investigation into the retail banking market. A decision on the extension is expected to be taken in March 2016, when a timetable for publication of the final report will also be published. The report was originally scheduled for publication in February 2016. A 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) small numbers of customers switching to different bank accounts, due to banks not being under sufficient competitive pressure to attract customers; (ii) new banks and new products not attracting new customers; and (iii) high numbers of SMEs holding their business accounts in the same banks as their PCAs, with low levels of switching. The CMA states that, further to its provisional findings, a number of new suggestions have been made for achieving better outcomes for current account customers and that it wishes to ensure that there is enough time to hear from interested parties so that all of the proposals can be considered properly.
 
View the press release.
 
View the CMA's provisional report.

The Prudential Regulation Authority published final rules amending the Pre-Issuance Notification regime. The PIN regime applies to banks, building societies, insurers and PRA-designated investment firms. Under the amended rules, banks, building societies and PRA-designated investment firms will have to give the PRA one month's notice before issuing a Common Equity Tier 1 instrument and complete the CET1 Compliance Template, which may be used instead of providing a legal opinion on the quality of capital requirement. The advance notification requirement will not apply where certain capital instruments are issued on substantively similar terms to prior issued instruments. Insurers will be required to submit legal opinions for instruments issued, other than ordinary share capital, on the quality of capital requirement and must also provide the PRA with one month's notice prior to amending capital instruments. Insurers will also be subject to certain conditions in the event that they make use of the advance notification exemption for drawdowns from note issuance programs. All relevant firms will be required to submit accounting opinions when issuing Additional Tier 1 Capital instruments or Restricted Tier 1 Capital instruments, as applicable.
 
View the PRA's Policy Statement and final rules.

The Bank of England's Financial Policy Committee published its proposed framework for the UK Systemic Risk Buffer for ring-fenced banks and large building societies (i.e. those that will be subject to the UK ring-fencing rules from 2019 with assets over £25 billion). The SRB, a discretionary buffer under the EU Capital Requirements Directive, aims to mitigate and prevent long-term non-cyclical macro-prudential or systemic risk. 
 
The FPC is proposing that the SRB rate would be calibrated according to a firm's total Risk-Weighted Assets so that firms with RWA: (i) less than £175 billion will have a 0% SRB; (ii) between £175 and £320 billion will have a 1% SRB; (iii) between £320 and £465 billion will have a 1.5% SRB; (iv) between £465 and £610 billion will have a 2% SRB; (v) between £610 and £755 billion will have a 2.5% SRB; and (vi) over £755 billion will have a 3% SRB.
 
Firms subject to the SRB will also be subject to a 3% minimum leverage ratio requirement as well as an additional leverage ratio buffer of 35% of the applicable SRB rate. The Prudential Regulation Authority will apply the SRB to individual firms from 2019, which is when the ring-fencing rules will become applicable. Comments to the consultation are due by April 22, 2016. The FPC intends to finalize the rules by May 31, 2016.
 
View the FPC's consultation paper.

The European Securities and Markets Authority published its Opinion on draft Implementing Technical Standards on Main Indices and Recognized Exchanges under the Capital Requirements Regulation. The Opinion sets out proposed updates to the draft ITS further to requirements under the CRR to define main indices and recognized exchanges. The definitions are required because the terms have been used in the specification of eligible collateral which is used for the calculation of credit risk by banks and investment firms subject to the CRR. ESMA provided the final draft ITS to the Commission in January 2015 for endorsement. The Commission notified ESMA that it intended to endorse the ITS with amendments by adding the Hang Seng Composite Index and the Russell 3000 Index. In ESMA's Opinion, the Hang Seng Composite Index and the Russell 3000 Index should not be added to the list of main equity indices. Instead, ESMA suggests adding the Russell 1000 Index, the Shanghai Shenzhen CSI 300, the S&P BSE 100 Index and the FTSE Nasdaq Dubai UAE 20 Index to that the list. ESMA also undertook a full review of the ITS and suggests replacing the Nikkei 225 with the Nikkei 300 and the NZSE 10 with the S&P NZX 15 Index. ESMA recommends that the European Commission consider amending the current procedure used to update the list of indices and exchanges to a less burdensome and more speedy process, as the long timeframes required to update a legislative instrument such as an ITS are not appropriate for the frequency with which indices or exchanges are created or merged.
 
View the Opinion.

The European Systemic Risk Board published Recommendations and Decisions relating to setting Countercyclical Buffer Rates for exposures to third countries and the assessment of cross-border effects of and voluntary reciprocity for macro-prudential measures. The ESRB is responsible for macro-prudential oversight within the European Union. In respect of CBRs, the ESRB recommends that national designated authorities: (i) inform the ESRB as soon as a third county sets a CBR in excess of 2.5%; (ii) identify material third countries on an annual basis taking into account the ESRB Decision on the assessment of materiality of third countries for recognizing and setting CBRs; and (iii) consider and coordinate on whether a lower CBR should be set for exposures to a third country in the event that the third country authority sets a lower CBR. In respect of the assessment of cross-border effects of macro-prudential measures, the ESRB recommends that national designated authorities: (i) assess the cross-border effects, prior to adoption, of the implementation of their own macro-prudential measures on other Member States and on the Single Market, including the risk of regulatory arbitrage; (ii) reciprocate the macro-prudential measures adopted by other Member States where such reciprocation is recommended by the ESRB; and (iii) notify the ESRB of any macro-prudential measure implemented, including an assessment of the effect of the measure and whether any reciprocation by other Member States may be necessary. The ESRB has also established a website which sets out the CRB rates set by national designated authorities.
 
View the ESRB Recommendations and Decisions.
 
View the CBR rate website.

The New York State Department of Financial Services announced that it is extending the comment period to March 31, 2016, for its proposed anti-terrorism and anti-money laundering regulation, known as the Transaction Monitoring and Filtering Program.
The regulation, proposed on December 1, 2015, requires maintenance by each regulated institution of: (i) a transaction monitoring program for the purpose of monitoring transactions after their execution for potential BSA/AML violations and suspicious activity reporting; and (ii) a watch list filtering program to prevent transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists and internal watch lists. The proposed regulation also includes an annual certification requirement under which senior financial executives must certify that their institutions have necessary systems in place to identify and prevent illicit transactions.

View the proposed Transaction Monitoring and Filtering Program regulation. 

The US Office of the Comptroller of the Currency released economic and financial market scenarios to be used by certain financial companies, including national banks and federal savings associations with total consolidated assets of more than $10 billion, to conduct upcoming stress tests. The supervisory scenarios include baseline, adverse and severely adverse scenarios, as described in the OCC’s final rules that implement annual stress test requirements under Section 165(i)(2) of the Dodd-Frank Act.

View the OCC press release.

View the 2016 scenario information. 

The US Board of Governors of the Federal Reserve System released supervisory scenarios for the 2016 Comprehensive Capital Analysis and Review and Dodd-Frank Wall Street Reform and Consumer Protection Act stress test exercises. The Federal Reserve Board also issued instructions to firms participating in CCAR. CCAR assesses the capital planning processes and capital adequacy of the largest US-based bank holding companies, including the firms’ planned capital actions. The Dodd-Frank Act stress tests are a forward-looking component to help evaluate whether firms have sufficient capital. Firms are required to use the supervisory scenarios in both the stress tests conducted as part of CCAR and those required by the Dodd-Frank Act. The outcomes are measured under three scenarios: severely adverse, adverse and baseline. This year, CCAR will include 33 bank holding companies with $50 billion or more in total consolidated assets, all of which are required to submit their capital plans and stress testing results to the Federal Reserve Board on or before April 5, 2016. The Federal Reserve Board will announce the results of its supervisory stress tests by June 30, 2016, with the exact date to be announced later.

View the Federal Reserve Board press release.

View the CCAR summary instructions. 

View the Dodd-Frank Act stress exercises.

View the 2016 macro scenario tables. 

 
The European Securities and Markets Authority announced that it appointed Ms. Anneli Tuominen as its Vice Chair, replacing Mr. Carlos Tavares, who has completed his term.
 
View the press release.

 
The European Banking Authority published a letter dated December 18, 2015 addressed to the European Commission in which the EBA requests delays to the dates by which the EBA is required to prepare technical standards and reports under the Capital Requirements Directive, the Capital Requirements Regulation, the EU Bank Recovery and Resolution Directive, the European Market Infrastructure Regulation and the Credit Rating Agencies Regulation. The EBA states that for the most part it has not been able to deliver its mandates according to deadlines due to a persistent shortage in resources and the need to prioritize other workstreams. The EBA invites the Commission to request the EBA to fulfil its mandates  within new time limits.
 
View the EBA's letter.

The European Securities and Markets Authority published proposed Guidelines under the Market Abuse Regulation. The consultation paper covers proposed Guidelines addressed to persons receiving a market sounding and Guidelines for issuers and emission allowance market participants on delaying disclosure of inside information. The MAR will apply directly across the EU from July 3, 2016.

Read more.

Regulatory Technical Standards and Implementing Technical Standards on the operational functioning and general conditions for the functioning of colleges of supervisors under the Capital Requirements Directive were published in the Official Journal of the European Union. Colleges bring together different national and European regulatory authorities that supervise a banking group and provide a framework for coordinating and performing supervisory duties within the EU banking sector. The College of Supervisors is established for EEA banks with subsidiaries or significant branches in other EEA countries and includes national regulators from the EU as well as non-EU areas when necessary. The Regulations deal with matters including: (i) the mapping of group institutions; (ii) the designation of members and observers of a college; and (iii) participation in college meetings and activities. The Regulations enter into force on February 17, 2016.
 
View the RTS.
 
View the ITS.

A Regulation was published in the Official Journal of the European Union, setting out Implementing Technical Standards on the joint decision process for the application for certain prudential permissions under the Capital Requirements Regulation. The ITS deal with matters including: (i) the involvement of third country supervisory authorities in the assessment process; (ii) the steps and procedures for joint decision processes; (iii) the preparation of assessment reports and arriving at and communicating joint decisions; and (iv) resolution of disagreements and decisions taken in the absence of a joint decision. The Regulation enters into force on February 17, 2016.
 
View the ITS on the joint decision process for the application for certain prudential permissions.

A Regulation setting out Regulatory Technical Standards for prudent valuations under the Capital Requirements Regulation was published in the Official Journal of the European Union. The RTS relate to firms applying the CRR standards to assets measured on a fair value basis. The RTS deal with matters including: (i) the methodology for calculating Additional Valuation Adjustments; (ii) consideration to be given to available market data; and (iii) the simplified and core approaches for the determination of AVAs. The Regulation enters into force on February 17, 2016.
 
View the RTS for prudent valuation.

The US Office of Financial Research issued its 2015 Annual Report to Congress. Among other things, the report states that threats to US financial stability have “edged higher” since last year’s report, but remain in the moderate range. According to the OFR, that assessment has not changed since the Federal Reserve Board incrementally increased short-term interest rates in December. Additional OFR findings highlighted in the report include how policymakers have taken important steps to eliminate implied taxpayer support for large, complex financial institutions whose serious distress could threaten financial stability. Furthermore, the report notes that while clearing derivatives trades through central counterparties has significant benefits in reducing the risks to counterparties of default, a CCP can also be a single point of vulnerability for failure and creates the potential for propagation of risks.

View the OFR Annual Report to Congress. 

The US Commodity Futures Trading Commission announced the signing of a Memorandum of Understanding with the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and Deutsche Bundesbank (Bundesbank) regarding cooperation and the exchange of information in the supervision and oversight of clearing organizations that operate in the United States and in Germany.

The MOU signifies a willingness among the CFTC, the BaFin, and the Bundesbank to collaborate in order to fulfill their respective regulatory mandates with respect to cross-border clearing organizations in the United States and Germany. The MOU accompanies the CFTC’s decision to grant Eurex Clearing AG registration as a derivatives clearing organization. 

View the MOU.
 

The European Supervisory Authorities published a letter, dated January 26, 2016,  from their Chairpersons to the European Commission on issues arising in the regulation and supervision of cross-selling financial products in the EU. The ESAs – the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority – are responsible for preparing guidelines on the supervision of cross-selling of financial products for each of the securities, banking and insurance sectors. However, due to discrepancies between EU primary legislation which governs such cross-selling practices across the different sectors, the ESAs are unable to provide harmonized guidelines. The primary legislation includes the Mortgage Credit Directive, the Payment Accounts Directive, the Insurance Mediation Directive and the revised Markets in Financial Instruments Directive.  Differences identified relate to the formal wording of the legislation, scope, level of granularity and date of application. The ESAs consider that a more harmonized approach across the sectors would be beneficial for consumers, financial institutions engaged in cross-selling and national regulators supervising the practice. The ESAs therefore urge the Commission to consider reviewing the underlying legislation, including within the Commission's current consultations on Retail Financial Services in the Banking and Insurance Sectors and/or its Call for Evidence on the regulatory framework in financial services.
 
View the ESA's letter.

The Financial Conduct Authority published a statement on the application of the Senior Manager Regime to a firm's legal function. The SMR will come into effect on March 7, 2016. Firms are required, by February 8, 2016, to notify the FCA and the Prudential Regulation Authority of the individuals, currently Approved Persons, that will be transitioning to the new regime as Senior Managers. The FCA has become aware of significant uncertainty amongst firms as to whether an individual responsible for the firm's legal function would need to be approved as a Senior Manager. Where heads of legal are responsible for compliance, there is a clear need to register, but the position is less clear for heads of legal who do not hold this additional function. The FCA intends to consult further on this issue. In the interim, the FCA advises that firms that have sought to make decisions in good faith about whether an individual needs approval in their firm for this responsibility, based on the current rules and guidance, should not need to change their approach.
 
The PRA is encouraging firms to submit their grandfathering notifications in advance of the February 8 deadline on the basis that some firms that have already submitted the forms have had to re-submit their applications.
 
View the FCA statement.
 
View the PRA website.

 
The Payment Systems Regulator announced that it appointed Mr. Paul Smith as its Head of Policy from February 1, 2016.
 
View the press release.

The European Banking Authority issued a press release announcing the launch of an impact assessment of the forthcoming implementation of the new financial instruments standard, the International Financial Reporting Standards 9, on a sample of around 50 regulated firms across the EU. The new standards supersede the reporting standards for financial instruments in force in the EU since 2005 and change the way financial instruments are accounted for. The new standards will apply to: (i) banks that are required to prepare consolidated financial statements in accordance with the IFRS; (ii) banks that are required to use the IFRS for the determination of own funds; and (iii) certain investment firms. IFRS also apply to listed issuers as a result of the Transparency Directive. The EBA will assess the impact of the new standards on regulatory own funds, the interaction between the standards and prudential requirements as well as how firms are preparing for the implementation of the new standards.
 
View the press release.

The Bank of England issued a press release announcing that Mr. Andrew Bailey has been appointed as the new Chief Executive Officer of the Financial Conduct Authority. In his new role at the FCA, Mr. Bailey will be a member of the Prudential Regulation Authority Board and Financial Policy Committee. Mr Bailey will remain in his role at the PRA as CEO and Deputy Governor and will leave his role as Deputy Governor of Prudential Regulation at the BoE only once a successor has been appointed.
 
View the press release.

The Financial Conduct Authority announced that it has appointed four new non-executive FCA Board members as of April 1, 2016. The new members are Mr. Bradley Fried, Ms. Ruth Kelly, Baroness Sarah Hogg and Mr. Tom Wright CBE.
 
View the press release for Mr. Bradley Fried.
 
View the press release for Ms. Ruth Kelly.
 
View the press release for Baroness Sarah Hogg.
 
View the press release for Mr. Tom Wright CBE.

 
The Chartered Banker Professional Standards Board issued a press release stating that over the past year, over 187,000 bankers achieved the CBPSB's Foundation Standard, meeting the desired target for 2015. The CBPSB is a programme that was launched in October 2011 by eight UK banks together with the Chartered Banker Institute, aiming to encourage professionalism in banking and restore public confidence in the banking industry. The CBPSB includes a Board, consisting of senior industry leaders, as well as a Professional Standards Committee, which engages in standard-setting activities. The CBPSB's standards set out the conduct and expertise required of all professional bankers, as well as the benchmarks against which professional competence can be measured. The Foundation Standard, which is one of three professional standards (the others being the Intermediate Standard and the Advanced Standard) sets out the skill requirements and professional and technical knowledge required by all those working in the banking industry.
 
View the press release.
 
View the Foundation Standard.

The European Securities and Markets Authority published the Memoranda of Understanding it entered into with the Financial Services Board of South Africa and the Comisión Nacional Bancaria y de Valores of Mexico. The MoUs are established further to the European Markets Infrastructure Regulation, under which ESMA is required to set out cooperation arrangements with non-EU authorities whose legal and supervisory framework for non-EU CCPs are deemed to be equivalent to European requirements. The MoUs provide ESMA with the tools to monitor the ongoing compliance of non-EU CCPs with the recognition conditions under EMIR. The MoUs are effective from November 30, 2015 and January 25, 2016 respectively.
 
View the South African MoU.
 
View the Mexican MoU.

The European Commission published a report on the appropriateness of the definition of "eligible capital" under the Capital Requirements Regulation. The definition of "eligible capital" is used for defining large exposures, setting large exposure limits, determining the prudential treatment of qualifying holdings outside the financial sector and setting the capital requirements for investment firms with limited investment services. 

Read more.

The US Commodity Futures Trading Commission granted permanent registration to 18 Swap Execution Facilities that trade interest rate swaps and credit default swaps, all of which were previously operating under temporary registration status. The SEFs approved for registration are: 360 Trading Networks Inc.; BGC Derivatives Markets, L.P.; Bloomberg SEF LLC; Chicago Mercantile Exchange Inc.; DW SEF LLC; GFI Swaps Exchange LLC; ICAP Global Derivatives Limited; ICAP SEF (US) LLC; ICE Swap Trade, LLC; Javelin SEF, LLC; LatAm SEF, LLC; MarketAxess SEF Corporation; SwapEx, LLC; Thomson Reuters (SEF) LLC; tpSEF Inc.; Tradition SEF, Inc.; trueEX LLC; and TW SEF LLC. The CFTC continues to review the registration of five remaining SEFs that are currently operating under temporary registration status. 

View more information regarding the CFTC-registered SEFs. 

Ms. Maria T. Vullo was nominated by New York Governor Mr. Andrew M. Cuomo to serve as the Superintendent of the New York State Department of Financial Services.

View the press release. 

The US Commodity Futures Trading Commission launched a new website to provide the public with information about whistleblower rights and protections, and to allow the public to submit tips about potential violations of the Commodity Exchange Act via the website. The website guides users through filing a tip and applying for an award and contains accessible information about the rules and regulations governing the CFTC’s Whistleblower Program and related updates.

View the CFTC press release. 

View the program website. 

The Board of Directors of the Federal Deposit Insurance Corporation released a revised notice of proposed rulemaking that would amend the manner in which banks with less than $10 billion in assets that have been insured by the FDIC for at least five years are assessed for deposit insurance. The rule reflects comments received on the initial proposed rule on small bank assessments that the FDIC released in June 2015 on topics such as calculation of asset growth and treatment of reciprocal deposits and Federal Home Loan Bank advances. Specifically, the new proposed rule, among other things: (i) uses a brokered deposit ratio as a measure in the financial ratios method for calculating assessment rates for established small banks (instead of the previously proposed core deposit ratio); (ii) removes the existing brokered deposit adjustment for established small banks; and (iii) revises the previously proposed one-year asset growth measure. The new proposed rule, like the June 2015 proposal, seeks to ascertain appropriate assessments that accurately reflect the risks taken by smaller banks. Comments may be submitted for 30 days, following the publication of the proposed amendments in the Federal Register.

View the FDIC press release. 

View the notice of proposed rulemaking. 

US Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg and US Comptroller of the Currency Thomas J. Curry announced interim final rules expanding the examination cycle for institutions with less than $1 billion in assets that meet certain standards, under statutory power granted by the Fixing America’s Surface Transportation Act which was enacted on December 4, 2015. Specifically, the rule will permit institutions with total assets of $200 million or greater and not exceeding $1 billion that receive a composite CAMELS or ROCA rating of “1” or “2,” and that meet other qualifying criteria, to qualify for an 18-month examination cycle. Previously, the longer, 18 month exam cycle was only available to certain insured depository institutions with less than $500 million in assets. Comments on the interim final rule may be submitted for 60 days, following the publication of the proposed amendments in the Federal Register. 

View the FDIC Chairman's statement. 

View the OCC press release.

View the Comptroller's statement. 

View the interim final rule. 

The Financial Conduct Authority issued a consultation paper on loan-based crowdfunding platforms and the segregation of client money. Current FCA client money rules (CASS 7) require that investor monies held by a firm under a Peer-to-Peer agreement (i.e. money that is to be lent or received in repayments) is segregated from the firm’s own money. Money relating to unregulated Business-to-Business lending (i.e. B2B agreements) must also be segregated from investor monies held by a firm (but not from the firm's own money). The FCA's proposals would allow firms to hold client monies in relation to both P2P and B2B agreements together. This change would be less burdensome to firms, as some do not have systems in place that can distinguish between monies held for P2P and B2B agreement purposes. Firms would then be able to segregate P2P and B2B monies from the firm's money, but keep them together, without breaking the FCA rules. Responses to the consultation are due by February 11, 2016.
 
View the consultation paper.

Two international central bank committees published reports on the structure and liquidity of fixed income markets. The Committee on the Global Financial System's report is on fixed income market liquidity whilst the Markets Committee paper is on electronic trading in fixed income markets. The CGFS report identifies liquidity conditions to be prone to disruptions, with signs of fragility, as fixed income markets are seen to be in a period of transition following the effects of ongoing regulatory, technology and market structure changes. The report states that whilst it is difficult to identify the drivers of such fragility, the changes could be due to: (i) a rise in algorithmic trading in fixed income markets; (ii) banks reducing their trading-related exposures in response to lower risk appetite; and (iii) crowded trades and one-sided risk expectations for market participants. The Markets Committee report focuses on the rise in algorithmic trading, which tends to facilitate the matching of buyers and sellers and in turn usually improves market quality, but can also result in liquidity conditions that are less resilient in times of stress.
 
View the CGFS report.
 
View the Markets Committee report.

US Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig gave a speech to the Peterson Institute for International Economics, during which he challenged the Federal Reserve Board’s proposal on TLAC. While agreeing that converting debt is often part of a reorganization or recovery strategy, Hoenig discussed the risks of increased debt levels on the stability of the banking system. The proposed TLAC rule requires GSIBs to maintain sufficient long-term debt to facilitate a Single Point of Entry resolution approach, wherein only the top-tier holding company would be put into receivership and through conversion of debt to equity the operating subsidiaries would be recapitalized. Hoenig noted that the proposed rule estimates that to meet a collective $680 billion long-term debt requirement, GSIBs will need to issue approximately $100 billion in new debt. Hoenig also discussed the negative consequences of the proposal, notably the leverage that it would add to an already highly-leveraged industry, as well as the fact that it may encourage firms to adopt an SPOE resolution strategy and otherwise change their business models even where their Title I resolution plans do not currently contemplate an SPOE plan. The Vice Chairman suggested that “(t)he long-term debt requirement would place added earning demands on the banking system and could be counter-productive, especially during a period of financial stress”. Hoenig also suggested that rather than imposing a rule that facilitates only the SPOE strategy, regulators may want to adopt an approach that is tailored to the business model and resolution plan of each individual institution, even where the approach might call for varying debt and equity requirements. 

View the Vice Chairman's speech. 

The European Banking Authority published proposed Guidelines on implicit support for securitization transactions (i.e. support provided by a firm where it is not contractually obliged to do so), as required by the Capital Requirements Regulation. Examples of implicit support include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR restricts the provision of implicit support, because it does not result in significant risk transfer to third parties, by requiring firms to hold a minimum of own funds against all of the securitized exposures as if they had not been securitized. A transaction is not considered to provide support if it is executed under arm's length conditions and is taken into account in the assessment of significant risk transfer. The EBA's proposed Guidelines cover what constitutes arm's length conditions and when a transaction is not structured to provide support. 

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