In this newsletter, we provide a snapshot of the principal European, US and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
Our latest quarterly Governance & Securities Law Focus newsletter is available at: http://www.shearman.com/~/media/Files/NewsInsights/Publications/2014/07/Governance-and-Securities-Law-Focus-Europe-CM-071114.pdf.
DERIVATIVES
First EU Asset Classes for Central Clearing Obligation Proposed
On 11 July 2014, the European Securities and Markets Authority ("ESMA") launched its first consultation on asset classes of derivatives to be subject to mandatory clearing under the European Markets Infrastructure Regulation ("EMIR"). ESMA's consultation papers included draft regulatory technical standards ("RTS") for clearing of interest rate swaps and credit default swaps through central clearing houses authorized or recognized under EMIR. ESMA proposes four classes of IRS to be cleared: basis swaps, fixed-to-float IRS, forward rate agreements and overnight index swaps. For CDS, ESMA proposed European untranched Index CDS to be cleared. ESMA has decided that the clearing obligation for equity and interest rate futures and options is not currently appropriate. The IRS consultation is open until 18 August 2014, the CDS consultation is open until 18 September 2014.
The consultation papers are available at: http://www.esma.europa.eu/news/Press-release-ESMA-defines-central-clearing-interest-rate-and-credit-default-swaps?t=326&o=home.
CFTC Issues Time-Limited No-Action Relief to Futures Commission Merchants from CFTC Regulations Requiring Acknowledgement Letter from Certain Depositories
On 11 July 2014, the US Commodity Futures Trading Commission's ("CFTC") Division of Swap Dealer and Intermediary Oversight ("DSIO") issued a no-action letter announcing relief for futures commission merchants ("FCMs") from compliance with certain CFTC regulations.
Specifically, CFTC Regulations 1.20(d)(3)(i) and (ii), 1.26, 22.5, and 30.7(d)(3)(i) and (ii) require that FCMs deposit customer funds only with depositories that have provided the FCM with an acknowledgement letter in which such depositories agree to provide the DSIO Director (or such director's designees) with direct, read-only electronic access to transaction and account balance information for FCM customer accounts. Under the no-action letter, FCMs would not have to comply with these requirements until 17 October 2014.
The full text of the CFTC no-action letter is available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/14- 91.pdf.
REGULATORY CAPITAL
European Commission Seeks Views on Sensitive Information Disclosure Under CRD IV
On 11 July 2014, the European Commission published a consultation paper seeking views on the potential economic consequences of country-by-country reporting under the Capital Requirements Directive ("CRD") which requires banks and investment firms to disclose key information on their business, on a country-by-country basis. From 1 July 2014, firms were required to publish information on their name(s), nature of activities, geographical location, turnover and number of employees on a full time equivalent basis. From 1 January 2015 firms will be required to publish information on their profit or loss before tax, tax on profit or loss and public subsidies received ("sensitive information"). The Commission must report, before 31 December 2014, to the European Parliament and the Council of the EU on any potential negative consequences of the sensitive information disclosures, including any effects on competitiveness, investment and credit availability and the stability of the financial system. If any potential negative consequences are identified, the Commission may prepare a legislative proposal to amend CRD, including deferring the disclosure obligation. The consultation closes on 12 September 2014.
The consultation paper is available at: http://ec.europa.eu/internal_market/consultations/2014/country-by-country-crd4/docs/consultation-document_en.pdf.
EBA Considers Macro-prudential Rules under CRD IV
On 8 July 2014, the European Banking Authority ("EBA") published its opinion for the European Commission on the macro-prudential rules under the Capital Requirements Regulation ("CRR") and the CRD. The opinion analyses whether the rules are effective, efficient, transparent and consistent with global standards. The opinion considers the capital conservation buffer, the countercyclical buffer, the global systemically important institutions buffer, systemic risk buffer, higher risk weights, Pillar 2 measures (additional own funds, specific treatment of assets, limitation of operations, tightening of liquidity requirements, additional disclosure), liquidity coverage requirement and the net stable funding requirement. The European Commission must report, before 31 December 2014, to the European Parliament and the Council of the EU on the macro-prudential rules under CRD IV, including submitting a legislative proposal if amendments to the current rules are considered appropriate.
The opinion is available at: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-06+-+EBA+opinion+on+macroprudential+rules+in+CRR-CRD.pdf.
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