Latest news of financial regulation
The EC publishes responses on its consultation on a possible recovery and resolution framework for financial institutions other than banks
The European Commission (EC) published the responses received to its October 2012 consultation on a possible recovery and resolution framework for financial institutions other than banks. The EC also published a summary of the replies which aims to provide different interest groups’ views on the three categories of financial Institutions other than banks, as reflected in the Consultation: 1) financial market infrastructures; 2) insurance companies; 3) other non-bank entities and institutions.
Related documents
The EBA consults on technical standards for recovery plans
The EBA launched a consultation on Draft Regulatory Technical Standard (RTS) on the content of recovery plans. Recovery plans shall set out the arrangements and measures a bank would adopt to restore long-term financial viability in case of severe distress. According to the proposed draft RTS, recovery plans developed at group and individual level will need to include at least the following 5 key parts:
- summary of the recovery plan;
- governance, including the conditions and procedures necessary to ensure a timely implementation of the recovery options;
- strategic analysis, including a description of the institution’s core business lines and critical functions together with the different recovery options designed to respond to financial stress scenarios;
- communication plan, including external and internal communication arrangements;
- and preparatory measures taken or to be taken to improve the implementation and effectiveness of the plan.
Comments can be sent by 11 June 2013.
Related documents
Background
The proposed consultation paper is based on the draft Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the so-called Recovery and Resolution Directive - RRD) as proposed by the European Commission on 6 June 2012.
The regulatory oversight committee (ROC) publishes the first progress note on the global LEI initiative
The Regulatory Oversight Committee (ROC) published the first of a series of notes on the implementation of the Global Legal Entity Identifier (LEI) Initiative. The ROC has the responsibility to uphold the governance principles of, and to oversee, the Global LEI System, in the broad public interest, in accordance with the Global LEI System High Level Principles and FSB recommendations, as endorsed by the Heads of State and Government of the Group of Twenty.
Related document
The Federal reserve releases summary results of bank stress tests
The nation's largest bank holding companies have continued to improve their ability to withstand an extremely adverse hypothetical economic scenario and are collectively in a much stronger capital position than before the financial crisis, according to the summary results of bank stress tests announced by the Federal Reserve.
Related documents
Stress Test Methodology and Results
News & articles
All but one major U.S. bank pass Fed's stress test (Reuters)
The Fed's stress test may not be stressful enough (CNNMoney)
The EBA publishes good practices for ETF risk management
The EBA issued an opinion addressed to National Supervisory Authorities (NSAs) on good practices for the risk management of Exchange Traded Funds (ETFs). ETFs are generally securities that track a commodity, an index, or a basket of assets like an index fund, but trade like a stock on an exchange and therefore experience price changes throughout the day. The Good Practices attempt to ensure that potential risks associated with ETFs are managed adequately from the perspective of the credit institution – and indirectly from the perspective of its customers. They will ultimately contribute to the convergence of supervisory culture and practices in the EU.
Related documents
Opinion of the EBA on Good Practices for ETF Risk Management
The IASB publishes revised proposals for loan-loss provisioning
The IASB published for public comment a revised set of proposals for the impairment of financial instruments. Financial reporting requirements both internationally and in the US currently use an incurred loss model to determine when impairment is recognised on financial instruments. The incurred loss model requires that a loss event occurs before a provision can be made and was introduced to avoid the use of so-called ‘big bath’ general provisions that distorted the accurate reporting of financial performance to investors. However, during the financial crisis the incurred loss model was criticised for delaying the recognition of losses and for not reflecting accurately credit losses that were expected to occur.
Comments to be received by 5 July 2013.
Related documents
Financial Instruments: Expected Credit Losses
News & articles
Government publishes a consultation document on transferring responsibility for the regulation of consumer credit from the OFT to the new FCA
The Government announced that it would transfer responsibility for regulating consumer credit from the Office for Fair Trading (OFT) to the Financial Conduct Authority (FCA) by 1 April 2014. The Government also published a consultation on the legislative changes needed to transfer responsibility to the FCA. The consultation document sets out the high-level regulatory model and approach for regulation of the consumer credit market under the FCA, and also describes the secondary legislation the Government proposes to make to underpin the transfer.
Comments should be sent by 1 May 2013.
Related documents
The FSA published a consultation on how it plans to introduce a strong and flexible regime to regulate consumer credit. The regime is tailored to address the risks that face consumers without putting undue burdens on firms.
Comments should be sent by 1 May 2013.
Related documents
High-level proposals for an FCA regime for consumer credit
FSA publishes its Internal Audit Report on the London Interbank Offered Rate (LIBOR)
The FSA published its Internal Audit Report on LIBOR, a review of the extent of awareness within the FSA of inappropriate LIBOR submissions. It concludes that: 1. the FSA’s focus on dealing with the financial crisis, together with the fact that contributing to and administering LIBOR were not ‘regulated activities’, led to the FSA being too narrowly focused in its handling of LIBOR related information; 2. taking the information cumulatively, the likelihood that lowballing was occurring should have been considered; 3. the information received should have been better managed.
The Report draws out six lessons to be learned for the future regulatory authorities, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), to consider:
I. Activities outside the regulatory perimeter and their implications;
II. Roles and responsibilities;
III. Culture of the regulatory authorities;
IV. How the regulatory authorities use and record information and intelligence;
V. Circulating and escalating information;
VI. Record keeping
Related documents
News & articles
UK watchdog sees no major failure over Libor (Reuters)
FSA report to offer explanation on missed Libor warnings (Bloomberg)
Bank capital rules: Council endorses agreement with EP
The Economic and Financial Affairs Council broadly endorsed the outcome of the most recent political trilogue of 27 February 2013 with the European Parliament on stricter capital requirements for banks ("CRD IV" package). The CRD IV package will turn into EU law a comprehensive set of international standards known as the Basel III agreement.
The Council deliberation focussed on six key issues as set out in a report by the Irish Presidency, including bankers' bonuses.
The Irish Presidency concluded the discussion by noting a broad majority in favour of the compromise package. On that basis it mandated the Permanent Representatives Committee to finalise the negotiations with the Parliament. "There are some outstanding technical points, including the date of entry into force and some details of how the remuneration cap is to be implemented, which we will try to iron out with the Parliament over the coming weeks," said Finance Minister of Ireland Michael Noonan, who chaired the meeting.
The final adoption of the package requires a qualified majority in the Council, in agreement with the Parliament.
Related document
News & articles
ECOFIN: no changes to caps on bankers bonus - EU Barnier (Fox Business)
Suggested links
FSA publishes discussion paper on transparency
The FSA published a discussion paper looking at how transparency and more effective disclosure could improve the accountability of the regulator and the financial services industry, and help consumers make more informed decisions.
Comments should be sent by 26 April 2013.
Related documents
IOSCO publishes principles of Liquidity Risk Management for CIS
The IOSCO published the final report on principles of liquidity risk management for collective investment schemes, which contains a set of principles against which both the industry and regulators can assess the quality of regulation and industry practices concerning liquidity risk management for CIS.
Good liquidity risk management is a key feature of the correct operation of a CIS. Its fundamental requirement is to ensure that the degree of liquidity that the open-ended CIS manages will allow it, in general, to meet redemption obligations and other liabilities. The principles of liquidity risk management provide details on how compliance with this requirement can be achieved.
Related documents
Principles of liquidity risk management for collective investment schemes
Irish EU Council Presidency publishes new compromise texts on the Commission proposals on MiFIR and MiFID II
The Irish EU Council Presidency published new compromise texts on the Commission proposals on MiFIR and MiFID II.
Related documents
Presidency compromise on MiFIR
Presidency compromise on MiFID II
Next steps
EC + EP + Council of the EU: Trilogue
Council of the EU: Agreement on a general approach
EP: Vote in plenary on 08 October 2013
News & articles
Council proposes dark MTF threshold, targets bond transparency (The Trade News)
Suggested links
European Commission extends deadline for ESMA advice on equivalence of non-EU rules with EMIR
On February 27, the European Commission extended for four months the deadline for ESMA advise on the equivalence between non-EU legal and supervisory frameworks and EMIR, the European Markets Infrastructure Regulation. According to the letter from the Commission, ESMA shall now deliver its advice on Japan and the USA by 15 June 2013 and, for the remaining countries specified in the request by 15 July 2013.
Related documents
FSA publishes a letter on what firms need to do to be ready for ‘legal cutover’ (LCO)
The FSA published a letter on what firms need to do to be ready for ‘legal cutover’ (LCO) on 1 April 2013. The letter provides an update on these following aspects: 1. Changes in policy; 2. Interaction with the PRA; 3. Publication of the PRA Handbook; 4. The consultation on the PRA's approach to enforcement. Attached is a set of updated FAQs and additional information.
Related document
MEPs cap bankers' bonuses and step up bank capital requirements
Bankers' annual bonuses must not normally exceed their annual salaries and banks must hold more high quality capital to increase stability in the sector, says a deal reached by European Parliament and Council negotiators on Wednesday evening.
The only possible exception, allowing bonuses of up to twice annual salary, would have to be authorised by holders of a half of a bank's shares. MEPs fought for a 1:1 ratio from the outset.
Related document
Next steps
The political agreement must be approved by member states (ECOFIN, 05 March 2013) and the European Parliament (plenary session, 15 - 18 April 2013). Once approved, member states would need to include the rules in their national laws by 1 January 2014.
News & articles
EU strikes deal to cap banker bonuses (Reuters)
EU officials agree to cap bankers’ bonuses at annual base salary, banks must increase capital (The Washington Post)
London mayor says EU bank bonus cap helps New York, Singapore (Reuters)
Suggested links
ESMA and the EBA warn investors about contracts for difference
The ESMA and the EBA published a warning to retail investors about the dangers of investing in contracts for difference (CFDs). The two authorities are concerned that during the current period of low investment returns, inexperienced retail investors across the EU are being tempted to invest in complex financial products, which they may not fully understand and which can end up costing them money they cannot afford to lose.
Related documents
Bank of England publishes a consultation paper on proposed rules for recognised clearing houses and approved operators
The Bank of England published a consultation paper on proposed rules for recognised clearing houses and approved operators. This consultation seeks comments on five rules that the BoE as future supervisor of central counterparties and securities settlement systems is proposing to make for:
(a). Recognised Clearing Houses (RCHs) under the Financial Services and Markets Act 2000 (FSMA);
(b). persons approved to operate a system for dematerialised settlement under the Uncertificated Securities Regulations (USRs).
Comments should be sent by 21 March 2013.
Related document
Proposed rules for recognised clearing houses and approved operators
Bank of England publishes a consultation paper on proposed statutory statements of policy in respect of its supervision of financial market infrastructures
The Bank of England published a consultation paper on proposed statutory statements of policy in respect of its supervision of financial market infrastructures. Under the Financial Services and Markets Act 2000 (FSMA), as amended by the Financial Services Act 2012, responsibility for the supervision of Recognised Clearing Houses (RCHs) will be transferred to the BoE from the FSA. This transfer will take effect on 1 April 2013.
The Bank is already responsible for the oversight of recognised payment systems under the Banking Act 2009. The Bank is required by FSMA to publish statements of policy relating to its powers over ‘qualifying parent undertakings’ of UK RCHs, and its use of penalties. This consultation paper sets out the Bank’s intended approach to these matters.
Comments should be sent by 21 March 2013.
Related document
EIOPA recommends a coordinated supervisory response to the longlasting low interest rates
The EIOPA published an opinion on supervisory response to a prolonged low interest rate environment. Persistent low interest rates affect insurers in different ways. On the liabilities side, they lead to an increase in firms’ obligations in today’s terms and, consequently, to a deterioration of their financial position. On the assets side, low interest rates have an adverse impact on investment results and increase the reinvestment risk of assets.
This problem is even more pronounced where guaranteed rates of returns have been offered to policyholders.
Related documents
Opinion on supervisory response to a prolonged low interest rate environment
FSA announces temporary prohibition of short selling
The FSA announced temporary prohibition of short selling, following a decision by the Italian Competent Authority (CONSOB), in the following financial instruments: Banco Popolare shares; Mediolanum shares; Banca Carige shares and INTESA shares. The FSA decided to assist the CONSOB by temporarily prohibiting the short selling of the above financial instruments on all UK trading venues on which they are traded.
Related document
News & articles
- Last Update: Tuesday 21 May 2013, 16:36.
