A decision of Upper Tribunal Tax and Chancery Chamber on whether a Decision Notice issued by the Financial Conduct Authority prejudicially identified a third party was published. On April 23, 2015, the FCA issued Deutsche Bank AG with a Decision Notice (preceded by a Warning Notice and then subsequently a Final Notice) notifying the bank of the FCA's decision to impose on it a financial penalty of £226,000 as a result of serious misconduct. The finding of misconduct related to attempted manipulation of two benchmark interest rates. The Applicant, Mr. Vogt, was employed by the bank as a money market trader during the time of the alleged misconduct. The Applicant argued that the contents of the Decision Notice (and other relevant notices) prejudicially identified him. As the Applicant had not seen the Decision Notice he based his complaint on the contents of the Final Notice, assuming it was materially the same as the Decision Notice. The Applicant maintained that, in breach of its obligations under the Financial Services Markets Act, the FCA had failed to provide him with a copy of the Decision Notice at the time of issuance and prior to its publication.  FSMA provides certain rights to third parties in relation to Warning and Decision Notices given to another person by the FCA. The FCA took the view that the Applicant was not identifiable from the Final Notice. In dismissing the application and deciding that the Applica had not been prejudicially identified in the Final Notice, the Upper Tribunal found that the contents of the Final Notice and other material would not lead a person professionally acquainted with Applicant to conclude that Mr Vogt was the third party identified in the Final Notice. This follows the Upper Tribunal's recent decisions in Christopher Ashton v FCA; Christian Bittar v FCA; and the Court of Appeal's judgment in Achilles Macris v FCA.

View the Upper Tribunal's decision.

The Basel Committee on Banking Supervision published proposals to revise the standards for operational risk for internationally active banks. The Basel Committee consulted in 2014 on a revised Standardized Approach to operational risk and simultaneously undertook a review of the Advanced Measurement Approach for operational risk. The Basel Committee is proposing to replace the AMA from the Basel framework as well as the three existing Standardized Approaches with a Standardized Measurement Approach. The new SMA is not based on any modelling and would set a standardized approach for measuring operational risk for regulatory capital purposes which would include risk sensitivity by using a bank's financial statement information and its internal loss experience. The Basel Committee introduced the AMA for operational risk in 2006 as part of the Basel II framework. The AMA allows regulatory capital to be estimated using a range of internal modelling practices subject to approval by the bank's regulator. Comments on the proposals are due by June 3, 2016. The Basel Committee intends to provide further details on the timeline for withdrawal of the AMA and implementation of the SMA during the course of 2016. 

View th consultation paper. 

A Delegated Regulation on regulatory technical standards for publication of prospectuses and the dissemination of advertisements was published in the Official Journal of the European Union.  The RTS stipulates amendments to the EU Prospectus Regime, including: (i) arrangements for approval of prospectus by a regulator; (ii) arrangements for publication of a prospectus; (iii) the dissemination of advertisements relating to a public offering of securities or an admission to trading on a regulated market; and (iv) requirements regarding the consistency between information disclosed about an offer to the public, or admission to trading on a regulated market, and the information contained in the relevant prospectus.  The RTS enter into force on the March 24, 2016.

View the Delegated Regulation. 

The Prudential Regulation Authority published a consultation paper proposing amendments to the Depositor Protection Part of the PRA Rulebook and a new Statement of Policy in relation to the Financial Services Compensation Scheme and the calculation of firm contributions to the Scheme. The consultation is relevant to UK banks, building societies, credit unions, overseas firms with PRA deposit-taking permission, and the FSCS (UK's administrator of its Deposit Guarantee Scheme). Current PRA rules require the FSCS to calculate firm levies on the basis of covered deposits. The recast Deposit Guarantee Schemes Directive provides that contributions to a deposit guarantee scheme should also be adjusted relative to the risk incurred by each member of the scheme. The European Banking Authority issued Guidelines detailing methods for calculating contributions to schemes. In response to the EBA Guidelines the PRA has set out, in appendices to the consultation paper, the methodology for calculating risk-based levies and their application to the repayment of current and future compensations costs incurred by the FSCS. The methodology uses different calculations depending on the category of firm: Capital Requirements Regulated firm, Credit Unions and Non-European Economic Area branches. The consultation closes on June 3, 2016.
 
View the consultation paper.
 
View the EBA Guidelines.

President Obama sent nominations to the US Senate to fill the two vacant Commissioner seats at the US Commodity Futures Trading Commission. The nominees are Brian Quintenz, founder and managing principal of Saeculum Capital Management LLC and a former aide to Representative Deborah Pryce (R-OH), and Christopher Brummer, a professor at Georgetown University Law Center.

The Prudential Regulation Authority and the Financial Conduct Authority published final rules removing certain requirements under the Senior Manager and Certification Regimes. The regulators consulted earlier this year on the proposed amendments which are necessary as a result of the proposed changes to the regime that have been proposed by the UK Government, including extending the regime to all financial services firms, removing the obligation on a firm to notify the PRA or FCA when it knows or suspects that a senior manager or certified person has failed to comply with the conduct rules and replacing the presumption of responsibility with a duty of responsibility. It remains to be seen whether Parliament will approve the equivalent changes that have been proposed by the Government to legislation. An amending Order, published in December 2015, stops the above-mentioned notification requirement and the presumption of responsibility from coming into force on March 7, 2016 – the date when the remainder of the new Regime will come into effect. The regulators' rules and forms have been amended to reflect this position. The PRA has also made changes to the definition of 'significant risk taker' which sets the parameters of its Certification Regime. The amendment aims to align the definition of SRT with a 'material risk taker' under the Remuneration rules.
 
View the FCA Policy Statement and final rules.
 
View the PRA Policy Statement and final rules.

The Financial Conduct Authority published a consultation paper on proposed changes to the FCA Handbook following the implementation of the EU Payment Accounts Regulation. The consultation is aimed at entities that provide payment account services in the UK, such as banks and building societies. The EU Payments Directive was implemented in the UK through the UK Payment Accounts Regulations which come into effect on September 18, 2016. The FCA is obliged, under the PAR, to submit data to HM Treasury relating to payment accounts. The consultation outlines the draft changes that the FCA has proposed to enable it to carry out its obligations under the PAR.  Proposals include: (i) issuance of guidance on the definition of a 'payment account' within the context of PAR; (ii) issuance of guidance on the implementation of the provisions on packaged accounts; (iii) the introduction of new regulatory requirements in relation to switching and payment accounts with basic features; and (iv) minor changes to the FCA Handbook to reflect the new PAR provisions regarding packaged accounts and switching of payment accounts. Responses to the consultation are due by May 3, 2016. The FCA aims to publish final guidance and changes to the FCA Handbook by the end of August 2016.

View the consultation paper.

View the response form. 

The US Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued interagency guidance on funds transfer pricing (FTP) practices related to funding risk and contingent liquidity risk for large financial institutions (i.e., domestic institutions with $250 billion or more in assets and foreign institutions with $250 billion or more in US assets). The interagency guidance describes four overarching principles that banks should use to develop, implement and maintain an effective FTP framework: (i) allocate FTP costs and benefits on funding risk and contingent liquidity risk; (ii) have a consistent and transparent FTP framework for identifying and allocating FTP costs and benefits on a timely basis and at a sufficiently granular level, commensurate with the firm’s size, complexity, business activities and overall risk profile; (iii) have a robust FTP governance structure including the production of a report on FTP and oversight from a senior management group and central management function; and (iv) align business incentives with risk management and strategic objectives by incorporating FTP costs and benefits into product pricing, business metrics and new product approval. The guidance notes that an institution’s FTP framework should be adequately tailored to its size, complexity, business activities and overall risk profile.

View interagency guidance.

The Banking Standards Board announced that Sir Brendan Barber had been appointed as its Deputy Chairman. The Banking Standards Board was established in April 2015 as an industry initiative. It aims to promote higher standards of behavior and competence in banks and building societies operating in the UK.
 
View the press release.

The European Commission announced that it had adopted a Delegated Regulation on the clearing obligation for credit derivatives. Under the European Market Infrastructure Regulation, the European Securities and Market Authority is required to develop draft Regulatory Technical Standards setting out the categories of OTC derivatives that should be subject to the clearing obligation, the date/s from which the obligation should apply and the minimum remaining maturity of OTC derivatives. ESMA provided its final draft RTS for the mandatory clearing of CDS to the European Commission in February 2015.  The Delegated Regulation, which does not substantively change the ESMA RTS, provides for untranched iTraxx Index CDS (Main, EUR,5Y) and untranched iTraxx Index CDS (Crossover, EUR,5Y) derivatives to be subject to the clearing obligation. The obligation will be phased in according to counterparty type to allow market participants time to determine whether the obligation applies to them and set up procedures to ensure compliance, in a similar way as was done for interest rate swaps. Counterparty classifications are established for these purposes, which are also the same as those set for the clearing obligation for interest rate swaps. The exact dates for when the clearing obligation will come into effect will be determined by the date of publication of the Delegated Regulation in the Official Journal of the European Union.
 
View the Delegated Regulation.
 
View the annex to the Delegated Regulation.
 
You may like to view our client note on interest rate swap clearing obligation. 

The European Banking Authority published its report on the functioning of supervisory colleges in 2015. The report sets out the EBA's annual assessment of how well the supervisory colleges have met the action plan for 2015. The EU supervisory colleges make joint decisions on capital, liquidity and recovery plans for EU cross-border banking groups. The EBA considers that, generally, there were significant improvements, particularly when it came to the reorganization of supervisory colleges following the introduction of the Single Supervisory Mechanism in 2014, the frequency of interaction and the quality of supervisory colleges. However, the EBA notes that some areas still require work, such as the joint decision processes, quality of joint decision documents and requests for individual recovery plans outside the joint decision process. The report also includes the EBA's action plan for supervisory colleges in 2016. The plan sets out the focus areas for supervisory colleges which are: on going balance sheet cleaning, reduction of non-performing loans for legacy portfolios, the sustainability of banks' business models, conduct risk and IT risk.
 
View the EBA's Report.

The European Securities and Markets Authority published a final report setting out possible systematic risk and cost implications of interoperability arrangements between central counterparties. The report focuses on the complexities of interoperable arrangements and the adequacy of risk management systems and models of CCPs. Interoperability arrangements, as defined in the European Markets Infrastructure Regulation, are arrangements between two or more CCPs which involve a cross-system execution of transactions. The Report details the general EU regulatory framework applicable to interoperability arrangements, as set out in the European Market Infrastructure Regulation, and related Guidelines and recommendations. The report provides a summary of interoperability arrangements for different products between EU CCP's, in relation to products such as EU equities, EU government bonds and EU Exchange Traded Derivatives.  The report identifies the main new risk as that arising between the two CCPs which are interoperating, but notes that some EU CCPs have set up mechanisms to mitigate the risks of under-collateralisation, including when reuse of collateral is permitted. The Report is to be submitted to the European Commission and European Parliament.  It will contribute to the report that the European Commission is responsible for submitting on the potential risks of interoperability.

View the press release and report.

The European Commission adopted a Delegated Regulation, in the form of Regulatory Technical Standards, detailing the content of the financial instrument reference data that must be supplied to regulators. The adopted RTS will be made under the Markets Abuse Regulation and Markets in Financial Instruments Regulation.  They establish requirements for regulated entities to provide instrument reference data to regulators, which are then transmitted by regulators to the European Securities and Markets Association. The adopted RTS details which financial instruments are to be included as part of the reported instrument reference data. The adopted RTS also outlines ESMA's responsibility to review, assess, consolidate and publish the data on its website using automated processes. This adopted RTS will apply from July 3, 2016. 

View the adopted RTS.

View the Annex.

The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve System and the US Federal Deposit Insurance Corporation jointly issued and requested public comment on interim final rules to implement section 83001 of the Fixing America’s Surface Transportation Act, or FAST Act, which permitted the agencies to expand the on-site examination schedule for qualifying insured depository institutions with less than $1 billion in total assets to once every 18 months from once every 12 months. The interim final rules make parallel changes to the regulations of the federal agencies regarding on-site examination cycles for US branches and agencies of foreign banks with total assets of less than $1 billion. Under the interim final rules, the number of institutions that may qualify for an expanded 18-month examination cycle increased by 617, to close to 5,000 banks and savings associations. In addition, the number of US branches and agencies of foreign banks that may qualify for the 18-month examination cycle increased by 26 branches and agencies to a 89 branches and agencies. The interim final rules are effective on February 29, 2016. Comments on the rules must be received by April 29, 2016.

View the full text of the rules.
 

The US Office of the Comptroller of the Currency published a bulletin summarizing its process for initiating and proceeding with any enforcement action for noncompliance with Bank Secrecy Act compliance program requirements or repeated or uncorrected BSA compliance problems. The OCC bulletin supplements the “Interagency Statement on Enforcement of Bank Secrecy Act/Anti-Money Laundering Requirements” and rescinds OCC Bulletin 2005-45, “Process for Taking Administrative Enforcement Actions Against Banks Based on BSA Violations,” dated December 23, 2005. The revised OCC bulletin describes the OCC’s process for conducting administrative enforcement actions based on BSAcompliance issues, which, in each case, begins with a cease-and-desist order issued by the OCC. Pursuant to the OCC bulletin, the enforcement action process now includes a provision which requires the OCC to give any bank investigated by the OCC for noncompliance with BSA or anti-money laundering requirements an opportunity to respond before the
decision to issue a cease-and-desist order is finalized. In each case, the OCC will notify the Financial Crimes Enforcement Network of all formal and informal enforcement actions.

View the OCC bulletin.
 

The Prudential Regulation Authority and Financial Conduct Authority jointly announced that they will comply with all aspects of the European Banking Authority's Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap. The Bonus Cap approach relates to provisions that establish that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval must be applied to all firms subject to the Capital Requirements Directive. The PRA and FCA favor a risk-based approach in the application of the Bonus Cap, which under CRD principles allows for firms to comply in a way that is proportionate and appropriate to the firm's size, internal organisation, nature, scope and complexity of business. As the EBA Guidelines represent an interpretation of the CRD with which the PRA and FCA do not agree, the PRA and FCA will continue to use the current approach which requires smaller firms to determine an appropriate ratio between fixed and variable remuneration. The Guidelines are applicable to banks and investment firms and cover all staff, with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines set out detailed requirements for remuneration policies and related governance arrangements for implementing remuneration policies and apply from January 1, 2017.
 
View the EBA's Guidelines on Sound Remuneration Policies.
 
View the PRA and FCA's joint statement.

The Financial Conduct Authority published good practices for liquidity management for investment management firms. The good practices are an outcome of the FCA's work with the Bank of England to assess the risks of open-ended investment funds investing in the fixed income sector, culminating in a collation of practices which the regulator has seen being used by investment firms to manage liquidity. The FCA hopes that by publishing the good practices, all investment management firms can improve their liquidity management. The good practices cover four areas: (i) good disclosure of liquidity risks to investors; (ii) good processes and tools for liquidity risk management, including continuous re-assessment and updating to keep track with market conditions; (iii) good practices for managing redemptions and costs relating to redemptions, including disclosing those practices to investors; and (iv) thorough preparation for implementation of exceptional liquidity tools and measures such as maintaining a procedure manual for implementation of each tool and testing implementation of tools to ensure that the measures work in practice.

View the good practices.

The Financial Stability Board published its letter, dated February 22, 2016, to the G20 Finance Ministers and Central Bank Governors in advance of the G20 meeting in Shanghai. The letter sets out the FSB's priorities for 2016 which are: (i) to support the full and consistent implementation of the agreed regulatory reforms by reporting on progress  and assessing whether reforms result in their intended outcomes; (ii) analyzing structural vulnerabilities in asset management activities, including developing policy responses on liquidity mismatch in funds, leverage within funds, operational risks in transferring investment mandates and securities lending activities of funds and asset managers; (iii) to publish a peer review on the implementation of the shadow banking framework; (iv) reducing misconduct risk, in particular, the role of incentives in preventing misconduct; (v) addressing the decline in correspondent banking (about which the FSB published a four-point plan in 2015); (vi) disclosure of climate-related financial risks; (vii) CCP resilience and recovery; (viii) assessing macro-prudential policy frameworks and tools; (ix) completing the regulatory capital framework for banks; (x) assessing implementation of resolution reforms including the total loss absorbing capacity (TLAC) framework published at the end of 2015; (xi) removing legal and regulatory barriers to reporting of derivatives trades; and (xii) assessing the implications of financial technology for financial stability. The G20 published a Communiqué following the Shanghai meeting which refers to the FSB's work and notes the progress made on implementing financial regulatory reforms.
 
View the FSB letter.

View the G20 Communique.

The US Office of the Comptroller of the Currency published revisions to its policy for assessing civil money penalties as set forth in its Policies and Procedures Manual. The revised PPM, titled “Civil Money Penalties,” replaces the PPM of the same title issued in June 1993. The revised PPM sets forth the OCC’s policies and procedures when assessing civil money penalties against entities such as institution-affiliated parties, national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers.

View the full text of the OCC PPM.
 

The Prudential Regulation Authority published a final Policy Statement, Supervisory Statement and Rules for the internal governance of branches of non-EEA banks and PRA-designated investment firms. The PRA consulted in 2015 on its proposed changes, which centre around creating a separate PRA Rulebook. These changes follow the split of the Financial Services Authority into the PRA and the FCA, after which the PRA inherited materials from the FSA to create a Rulebook which contains only PRA rules. The new Rules and Supervisory Statement set out how third country branches should comply with PRA requirements for internal governance of third country branches and cover general organizational requirements, responsibility of personnel, skills, knowledge and expertise of individuals, risk control, outsourcing and record keeping. The PRA has also aligned the final Rules and Supervisory Statement with the requirements for third country branches under the Senior Manager and Certification Regimes.  The Rules on internal governance of third country firms will apply from March 7, 2016, the same date from which the SM&CR applies for all firms.
 
View the PRA's Policy Statement.
 
View the PRA's Supervisory Statement.

The International Organization of Securities Commissions published its Second Review of the Implementation of IOSCO's Principles for Financial Benchmarks by Administrators of the Euro Inter-Bank Offer Rate, the London Inter-Bank Offer Rate and the Tokyo Inter-Bank Offer Rate. The IOSCO Principles were first published in 2013 to enhance the reliability of benchmark determinations. The first review on the implementation of the Principles was published in 2014 and included remedial recommendations for the administrators of EURIBOR, LIBOR and TIBOR. The Second Review reports on progress made in implementing the recommendations set out in the 2014 review report. IOSCO found that the three administrators – European Money Markets Institute, ICE Benchmark Administration and JBA TIBOR Administration – have all taken steps to implement the recommendations and that most of the recommendations have already been implemented or steps taken to implement them.

Read more.

The Payment Systems Regulator published an interim report following its market review into bank ownership and payment infrastructure competitiveness in the UK. The PSR's motivation to conduct the review stems from its statutory objective to promote competition and innovation in the market for payment systems and the services that the systems provide. The Report outlines the PSR's provisional finding that there is no effective competition in the central payment infrastructure market.

Read More.

HM Treasury published the Undertakings for Collective Investment in Transferable Securities Regulations 2016 together with an explanatory memorandum. The Regulations implement the provisions of the European UCITS V Directive and relate to depositaries, remuneration as well as sanctions for breaching the Directive. The Regulations also set out certain requirements for the Financial Conduct Authority relating to information that is provided and reported to the European Securities and Markets Authority. The Regulations include: (i) amendments to the Financial Services and Markets Act 2000, which allows for the disciplinary powers that may be taken under FSMA against authorised persons, approved persons and senior managers, also being exercisable in the case of contravention of these Regulations; (ii) provisions enabling the FCA to exercise powers to cancel an authorised person’s permission to carry on regulated activities in cases where there have been serious breaches of the requirements imposed by the Regulations; and (iii) provisions requiring the FCA to establish procedures for receiving and following up on reports on infringements under the Directive and providing ESMA with aggregated information on all penalties and measures that have been imposed under the Directive, on an annual basis. The Regulations enter into force on March 18, 2016.
 
View the Regulations.
 
View the Explanatory Memorandum.

The US House of Representatives’ Financial Services Committee’s Capital Markets Subcommittee held a hearing on legislation that would clarify the name-sharing provision of the Volcker Rule. Specifically, the Financial Services Committee discussed provisions of H.R. 4096, the Investor Clarity and Bank Parity Act, which would “correct a statutory error” in the Volcker Rule which restricts the ability of a banking entity to sponsor a covered fund, specifically by prohibiting name-sharing between a banking entity’s affiliates and a covered fund. The bill would permit investment adviser affiliates to share a name with a covered fund if the investment adviser is not (or does not control) an insured depository institution or is not treated as a bank holding company under Section 8 of the International Banking Act of 1978. The Financial Services Committee will consider a markup of the bill in a hearing scheduled on March 2, 2016.

View the full text of the markup.
 

The International Swaps and Derivatives Association published a paper which analyzes the regulatory frameworks in the US and EU for the supervision and oversight of trading platforms and aims to provide principles for the recognition of EU trading platforms by the US Commodity Futures Trading Commission. Both the US and the EU have introduced rules which require certain derivatives to be traded on trading platforms. The US rules, which came into force in October 2013, provide that US persons may only trade the relevant derivatives on platforms that have registered as a Swap Execution Facility and that are subject to the oversight of the CFTC. The EU Markets in Financial Instruments Regulation, which is currently due to come into force on January 3, 2017 unless proposed legislation is passed to delay it for a year, requires certain derivatives to be traded on EU trading venues. ISDA considers that the CFTC should be able to make comparability decisions, deeming EU trading platforms comparable with those in the US, by focusing on the outcomes and core objectives of the EU regime, thereby recognizing EU trading platforms as SEFs. This would allow US persons to trade on an EU trading venue in compliance with the US trade execution rules.
 
View ISDA's paper.

The Financial Action Task Force published final Guidance on a Risk-Based Approach for Money or Value Transfer Services. This non-binding guidance is applicable to the entire MVTS sector but is primarily aimed at non-banking MVTS providers. The purpose of the guidance is to assist MVTS providers and associated banks, financial institutions and competent authorities in the development of a common understanding of a risk-based approach to anti money laundering and combating the financing of terrorism. The risk-based approach assists in the implementation of the revised FATF International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation published in 2012. The Guidance outlines key elements in the application of a risk-based approach to AML and counter-terrorist financing in the context of MVTS.

View the FATF Guidance.

View the FATF Recommendations.

The European Banking Authority has launched the next round of EU-wide bank stress tests and released the associated methodology and macroeconomic scenarios for its application. The test will involve a sample of 51 EU banks, covering 70% of the region's banking sector. The purpose of the test is to provide a common analytical framework for supervisors, banks and other market participants to assess and compare the stress of EU banks when faced with economic shocks. The common methodology of the test is to assess solvency and the main types of risk faced by EU banks: credit and securitization, market, sovereign, funding and operational and conduct risk. The adverse scenario posed by the test highlights the most material threats to the stability of the EU banking sector: (i) sudden increased risk compounded by a reduction in secondary market liquidity; (ii) weak profitability prospects; (iii) low nominal growth and rising debt sustainability concerns; and (iv) stress in the growing shadow banking sector fueled by liquidity risk. An EU-wide asset quality review will not be conducted before the 2016 test, as was the case in 2014. National regulators regularly assess asset quality as part of their supervisory work. The EBA has not set a single capital threshold. The EBA expects the results of the stress test to be published in the third quarter of 2016. The results will be used to assist the Supervisory Review and Evaluation Processes when determining appropriate capital resources. National regulators will review the results and determine whether any supervisory measure is necessary to address any capital shortfall. 

View the EBA press release and related documents.

The US Federal Deposit Insurance Corporation issued the “Quarterly Banking Profile” which summarized financial results for the fourth quarter of 2015 for commercial banks and savings institutions insured by the FDIC. As a general matter, FDIC-insured institutions reported aggregated net income of $40.8 billion in the fourth quarter of 2015, an increase of 11.9% (or $4.4 billion) from the previous year. In a statement, FDIC Chairman Martin J. Gruenberg noted that the banking industry improved on both revenue and income from the previous year, but noted that banks should remain vigilant to continued interest-rate risk, credit risk and evolving market conditions.

View more information on the FDIC Quarterly Banking Profile.

View the full text of Chairman Gruenberg’s statement.
 

The Financial Stability Board published proposals for the identification of data elements for monitoring non-cash collateral re-use and for the development of a measure of non-cash collateral re-use. The proposals are part of the FSB's global securities financing data collection initiative, the Standards for which were published in November 2015. The Standards identify a data element on collateral re-use eligibility to be collected for collateral received or posted for securities financing transactions by national regulators for provision to the FSB.  The FSB is proposing to add possible measures of non-cash collateral re-use and related data elements into the Standards to help evaluate global trends on collateral re-use and to assess financial stability risks. Comments on the FSB's proposals are requested by April 22, 2016. The FSB intends to develop recommendations by the end of 2016.
 
View the FSB proposals.
 
View the FSB Standards for securities financing data collection.

HM Treasury published the Financial Services (Banking Reform) Act 2013 (Designated Representative Bodies) Order 2016 together with an explanatory memorandum. Under the Financial Services (Banking Reform) Act 2013, representatives designated by the Treasury can issue complaints to the Payments Systems Regulator (which was itself established under the Act) when one or more features of a UK operated market (or a market that operates only in part in the UK) for services provided by payment systems are, or appear to be, significantly damaging the interests of payment service users. The Order is the first to designate representatives that are able to issue complaints under the Act and aims to ensure that misconduct or market failure in the payment system sector is brought to the attention of the PSR and investigated. The Order designates five representatives: (i) the National Association of Citizens Advice Bureaux; (ii) the Consumers’ Association; (iii) the Consumer Council for Northern Ireland; (iv) the National Federation of Self Employed and Small Businesses; and (v) Age UK. The Order comes into force on April 1, 2016.
 
View the Order.
 
View the Explanatory Memorandum.

The Single Resolution Board announced that it had started to collect data for the purposes of resolution planning and the determination of the Minimum Requirement for Own Funds and Eligible Liabilities (known as MREL) for banking groups within its remit. The SRB is the resolution authority for all banking groups and entities as well as cross-border groups that are subject to direct prudential supervision by the European Central Bank (i.e., for banks within the Banking Union). The Single Resolution Mechanism Regulation requires the SRB to set the MREL during 2016. The SRB published a Liability Data Template for firms to provide it with the required information, prioritizing the minimum data required by EU legislation and requesting that other data be provided on a priority or best efforts basis in 2016.

View the SRB announcement.

The Federal Reserve Bank of New York announced the reappointment of William C. Dudley and Michael Strine as president and first vice president of the New York Fed, respectively. Eligible members of the New York Fed’s board of directors voted unanimously to reappoint Mr. Dudley and Mr. Strine, and the Federal Reserve Board approved that decision. Their new five-year terms begin March 1, 2016.

View the New York Fed press release.    

US Securities and Exchange Commission Chairwoman Mary Jo White addressed the annual “SEC Speaks” program, noting the critical role capital markets play in the US economy and the importance of risk-taking as part this process. White argued that regulators should not seek to eliminate risk altogether but rather safeguard the investment and capital raising process from unacceptable risks that dilute, distort or disable the fair playing field that is integral to robust free financial markets.

View the speech. 

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly issued interim final rules that will allow certain well-capitalized and well‑managed insured depository institutions with less than $1 billion in total assets to qualify for an 18-month examination cycle, rather than a 12-month cycle. Institutions are considered to be well-capitalized and well-managed if they have a composite examination rating of 1 or 2—the top ratings in the five-point scale indicating the safety and soundness of a bank or savings association. 

The rules are estimated to increase the number of institutions that may qualify for an 18-month examination cycle by approximately 617, to nearly 5,000 insured depository institutions. In addition, the rules increase the number of US branches and agencies of foreign banks that may qualify for an 18-month examination cycle by 26 branches and agencies, to a total of 89. The changes are intended to reduce regulatory compliance costs for smaller institutions, while still maintaining safety and soundness protections. Comments to the rules will be accepted for 60 days from publication in the Federal Register.

View the interim final rules and request for comments. 

The Prudential Regulation Authority published policy statement outlining approach to identifying other systematically important institutions (i.e. institutions that are not classed as globally systematically important financial institutions but whose failure would have a significant negative effect on the UK financial system). The PRA is required to identify O-SIIs pursuant to the Capital Requirements Directive which implements the framework for domestic systemically important institutions developed by the Basel Committee for Banking Supervision.

Read More.

The Financial Conduct Authority published proposed guidance on the FCA's updated view on enforcing security under the Consumer Credit Act and when a default notice is required to be issued. The guidance is aimed at firms that provide consumer credit services and products. The proposed guidance invites comment on "what is enforcement" in the context of when a firm could breach the CCA. The proposed guidance relates to the requirement under the CCA to serve a default notice, following the breach of a regulated agreement, before taking certain enforcement actions. In a previous feedback statement published in September 2015, the FCA stated that a default notice was not required when taking or demanding payment from guarantors following a default because this was deemed to be enforcement of a security. This guidance provides the updated view that this statement made in the feedback statement was incorrect. The guidance provides specific circumstances where a default notice would be required in the context of guarantor loans. One such circumstance is where a creditor wishes to request or take payment from a guarantor following non-payment by a debtor. The FCA has taken the view that a creditor cannot take payment from the guarantor where it has failed to serve a valid default notice. Comments on the consultation may be submitted until March 18, 2016.

View the Proposed Guidance.

The European Central Bank launched a consultation on its proposed guide to the recognition of institutional protection schemes for prudential purposes. Under the Capital Requirements Regulation an IPS is a contractual or statutory liability arrangement of a group of banks which protects member institutions, in particular, by ensuring their liquidity and solvency. Certain waivers or relaxation of capital requirements are available for IPS member institutions under CRR.  In particular, CRR provides that the ECB may, subject to certain exceptions, allow credit institutions to apply a 0% risk weight to exposures to other counterparties whichare members of the same IPS. The ECB directly supervises the largest Eurozone banks for prudential purposes and overseas the prudential supervision by national regulators of the smaller Eurozone banks. The ECB's proposed guidelines set out how it intends to assess compliance of an IPS and its members with the requirements set out in the CRR. Responses to the consultation should be submitted by April 15, 2016. Once finalized, the final guidelines will be incorporated into the ECB Guide on options and discretions available in Union law (which is currently being finalized).
 
View the proposed guide.
 
View the ECB's consultation webpage.

The Financial Conduct Authority published the findings of its review into the research and due diligence processes that firms undertake on the products and services they recommend to retail clients. The FCA assessed 13 advisory firms and also visited seven external research and due diligence consultancy firms. Key findings that emerged from the thematic review were that most firms seek to achieve positive outcomes for their clients when undertaking research and due diligence and that there is some evidence of good practice. However, many firms do not demonstrate good practice consistently across all products and services. The FCA found that a corporate culture of challenge was a key driver of good research and due diligence. Those firms that did not have a corporate culture of challenge: (i) did not try to understand or challenge their own inappropriate bias towards products, services or providers; and (ii) inadequately managed conflicts of interest. The FCA has taken steps to address the issues found, instructing three firms to improve their research and due diligence process. The FCA has also asked one firm to complete a past business review. The FCA intends to provide firms with further communications that set out its expectations in this area in greater detail. In addition, the FCA's second consultation paper on implementing the Markets in Financial Instruments Directive, due to be published later this year, will cover requirements for research on products.

View the FCA's review report.

The US Commodity Futures Trading Commission’s Division of Market Oversight issued a no-action letter providing time-limited relief for end users from the Form TO filing requirement under CFTC Regulation 32.3(b)(2), which the CFTC has proposed to amend.  The regulation currently requires counterparties to trade options that are not required to be reported to a swap data repository to submit a Form TO filing by March 1 following the end of any calendar year during which they entered into one or more unreported trade options. While the CFTC is considering the proposed amendment to the Trade Options Rule, DMO will not recommend that the CFTC take enforcement action against a market participant that is neither a swap dealer nor a major swap participant for failing to report its otherwise unreported trade options entered into during 2015 on Form TO by April 1, 2016.

View the CFTC press release.

View CFTC Staff Letter 16-10.  

View the CFTC regulation.  

The US Commodity Futures Trading Commission’s Division of Market Oversight and Office of Data and Technology staff extended the comment period on the draft technical specifications for certain prioritized swap data elements and associated questions to March 7, 2016.  The draft technical specifications include certain swap data elements that are reportable under Part 45 and related provisions of the CFTC’s regulations, as well as certain swap data elements that are not currently reportable under the CFTC’s regulations, but which have been identified as data elements that may assist the CFTC in fulfilling its regulatory mandates.  Specifically, the request for comment seeks public input on 80 questions addressing 120 data elements for various swap data reporting topics including counterparty-related elements, price, clearing, product, periodic reporting, orders, package transactions, options, additional fixed payments, notional amount, events, rates and foreign exchange. 

View the CFTC press release. 

View the draft technical specifications.    

The US Board of Governors of the Federal Reserve System approved the reappointment of 10 Federal Reserve Bank presidents and 10 first vice presidents by their respective boards of directors. Each individual has been approved to serve a new five-year term beginning March 1, 2016. The recently named presidents of the Federal Reserve Banks of Minneapolis and Dallas, as well as the recently appointed first vice presidents of the Federal Reserve Banks of Philadelphia and Chicago, were approved for terms through February 28, 2021, at the time of their initial appointments.

View the list of presidents and first vice presidents, by Federal Reserve District.  

The US Board of Governors of the Federal Reserve System issued an interim final rule amending Regulation I to implement provisions of the Fixing America’s Surface Transportation Act. The FAST Act reduced the dividend rate applicable to certain Reserve Bank depository institution stockholders that have total consolidated assets of more than $10 billion to the lesser of (i) 6 percent or (ii) the most recent 10-year Treasury auction rate prior to the dividend payment. The dividend rate for other member banks remains at 6 percent. Typically, Reserve Banks pay dividends to member banks twice each year in June and December.

The interim final rule also adjusts the treatment of accrued dividends when a Reserve Bank issues or cancels capital stock owned by a large member bank. Comments to the interim final rule will be accepted for 60 days from publication in the Federal Register.

View the Federal Reserve Board press release. 

View the interim final rule. 

The US Consumer Financial Protection Bureau finalized a policy, first proposed in October 2014, establishing a process for companies to apply for a no-action letter from CFPB staff that would reduce regulatory uncertainty for a new product or service that offers the potential for significant consumer-friendly innovation. This letter would indicate that CFPB staff reviewed the company’s application and have no present intention to recommend enforcement or supervisory action with respect to the particular aspects of the company’s product under the specifically-identified provisions and applications of statutes or regulations that are the subject of the no-action letter.

The new policy was created as part of the CFPB’s Project Catalyst initiative, which was designed to encourage consumer-friendly developments in markets for consumer financial products and services. The CFPB views this initiative as an important aspect of fulfilling its mandate under the Dodd-Frank Act to provide all consumers access to fair, transparent, effective, and innovative markets. The policy also builds on a trial disclosure waiver policy issued by the CFPB in 2013, which allows financial services providers to take advantage of new technologies in designing and testing improved alternative federal consumer disclosures. 

View the CFPB press release.

View the policy. 

 

The Financial Conduct Authority issued a Call for Input on the retained provisions of the Consumer Credit Act. Responsibility for regulating consumer credit markets was transferred to the FCA in April 2014. The aim of the review is to simplify the regime and provide appropriate protection for consumers without burdening firms disproportionately. The FCA is seeking input on three key areas: (i) whether any specific retained provisions should be prioritized for review; (ii) the timeline of the review; and (iii) the manner in which the review should be undertaken. Responses to the Call for Input are due by May 18, 2016. The FCA is expected to establish a stakeholder's consultative group and to finalize the scope of the review in the next few months. The regulator will publish an update on progress in the fourth quarter of 2016. The FCA is required to report its recommendations to the Treasury by April 1, 2019. The report could outline legislative change and whether repealing any of the retained provisions in the CCA could have an adverse effect on the appropriate level of consumer protection. The report must also consider whether any of the retained provisions of the CCA could be replaced by FCA rules. In making the review the FCA must have regard to the principle that a burden imposed in relation to the carrying on of an activity should be proportionate to the benefits.

View the Call for Input.

The US Board of Governors of the Federal Reserve System sent a letter to firms participating in the upcoming Dodd-Frank Act Stress Test (DFAST) and Comprehensive Capital Analysis Review (CCAR) notifying them of certain enhancements to aspects of its operational risk and capital models. Among the enhancements to operational risk models are losses from expenses related to put‑back mortgages, as well as potential costs form unfavorable litigation outcomes. For DFAST 2016, the Federal Reserve Board notes that it will use historically-based loss projections (with two new modifications) using an average of two models, while dropping the loss distribution approach. Changes to capital models include incorporating greater precision in the adjustments to the regulatory capital ratio denominators, as well as modifying assumptions regarding the relationship between mortgage servicing assets and associated deferred tax liabilities.

View the letter.    

The US Federal Deposit Insurance Corporation issued a proposal that would require certain insured depository institutions to maintain certain books and records in order to facilitate the payment of insured deposits to customers in the event such institutions were to fail. The proposed rule applies to insured depositary institutions with a large number of deposit accounts (more than 2 million). Based on current data, 36 insured depository institutions would be covered by the rule. The recordkeeping requirements would require the institutions covered by the rule to maintain complete and accurate data on each depositor and would require such institutions to ensure that their information technology systems have the ability to calculate the amount of insured money for each depositor within 24 hours of a failure. Comments on the proposed rule must be received within 90 days after the date of publication in the Federal Register.

View the text of the FDIC proposed rule.

The US Federal Deposit Insurance Corporation and the US Securities and Exchange Commission jointly issued a proposed rule to implement provisions for the orderly liquidation of covered brokers and dealers as required under Title II of the Dodd Frank Wall Street Reform and Consumer Protection Act. Specifically, Title II provides for federal receivership proceedings of qualifying financial companies, including covered broker-dealers, with the FDIC serving as receiver. The proposed rule defines a covered broker or dealer as any covered financial company that is registered with the SEC as a broker or dealer and is a member of the Securities Investor Protection Corporation. A covered financial company is generally one that is in danger of default and whose failure would have serious adverse effects on US financial stability, as determined by the Secretary of the Treasury. In the case of covered broker dealer, the FDIC will serve as receiver, but the SIPC will serve as trustee. 

Comments on the proposed rule must be received within 60 days after the date of publication in the Federal Register.

View the full text of the proposed rule.

A Commission Implementing Decision was published in the Official Journal of the European Union, updating the list of third countries with equivalent regulatory arrangements in relation to prudential requirements for banks and investment firms for the purpose of the treatment of exposures. The Decision lists the countries whose arrangements for supervision and regulation of banks and investment firms are deemed by the European Commission to be equivalent to the standards of the EU as set out in the Capital Requirements Regulation. The assessments reviewed the supervisory and regulatory arrangements in each country for: (i) banks; (ii) investment firms; and (iii) exchanges. The following nations are now equivalent across all three categories: Australia, Brazil, China, Mexico, Saudi Arabia, Singapore, South Africa and the United States. This Decision will enter into force on March 8, 2016.

View the list of equivalent third countries and territories.

The US Government Accountability Office released a report that examines the potential illicit uses of remittances and analyzes the benefits of requiring remittance senders to provide certain types of identification at a threshold below the current $3,000 level for US anti-money laundering efforts. Among other things, the report examines: (i) BSA remittance requirements for remittance providers and related challenges that remittance providers face in complying with these requirements; (ii) money laundering risks that remittances pose; and (iii) views of relevant stakeholders’ (including the Financial Crimes Enforcement Network, regulators, remittance providers, law enforcement, and industry and other associations) on the extent to which requiring remittance providers to verify identification and collect information at a lower dollar transaction amount than is currently required, or adding a requirement to verify legal immigration status, would assist US federal agencies’ AML efforts.

View the report. 

In a speech at the Brookings Institution in Washington, DC, Federal Reserve Bank of Minneapolis President Neel Kashkari argued that banks are still too big to fail and remain a significant, ongoing risk to the US economy. Kashkari noted that the Dodd-Frank Act did not go far enough and that regulators should consider breaking up large banks into smaller entities, turning them into public utilities by forcing them to hold higher levels of capital (as high as 25% of total assets), and taxing leverage throughout the financial system. According to Kashkari, the Minneapolis Fed will launch an initiative to consider transformational options through policy symposiums and policy briefs and create an actionable plan to end too big to fail that will be released by year-end for consideration by legislators, policymakers, and the public.

Kashkari’s predecessor at the Minneapolis Fed, Narayana Kocherlakota, responded to Kashkari’s proposals, noting that such measures, particularly imposing higher capital standards, would have “adverse macroeconomic consequences.”

View Kashkari’s speech.  

View Kocherlakota’s response.