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.
COMPENSATION
EBA Report on EU Remuneration Trends
On 13 June 2014, the European Banking Authority ("EBA") published a report on remuneration practices across the EU. The report, which is based on data collected on a consolidated basis from 2010 to 2012, illustrates the diversity in quantity and structure of pay across the EU financial sector. The report highlights that practices vary on the deferral of variable remuneration depending on the application of the proportionality principle by Member States and individual firms. The EBA is analyzing an emerging practice on the use of "position or role-based allowances" and intends to provide guidance criteria on the allocation of those elements of pay to either fixed or variable remuneration because it is concerned that the practice may lead to the cap between variable and fixed remuneration being thwarted.
The EBA report is available at: http://www.eba.europa.eu/documents/10180/534414/EBA+Remuneration+benchmarking+report+2010+to+2012.pdf.
CAPITAL AND PRUDENTIAL REGULATION
Further Secondary Legislation under CRD IV Published
On 13 June 2014, secondary legislation under the Capital Requirements Regulation ("CRR") and the Capital Requirements Directive was published in the Official Journal of the European Union. The legislation comprised regulatory technical standards ("RTS"), setting out the requirements for investor, sponsor, original lenders and originator institutions relating to exposures to transferred credit risk, and implementing technical standards ("ITS") on the information exchange between home and host Member State regulators.
The legislation is available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2014_174_R_0006&from=EN and http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2014:172:FULL&from=EN.
EBA Consults on Draft Guidelines for Pillar 3 Disclosure Waivers
On 13 June 2014, the EBA published a consultation on proposed Guidelines for banks and investment firms wishing to utilize the Pillar 3 disclosure waivers available under the CRR. The draft Guidelines cover the process that banks and investment firms should follow and the criteria that should be applied when firms assess whether to use any waiver relating to the materiality, proprietary or confidentiality of disclosures or the frequency of disclosures. The draft Guidelines also set out the information that firms making use of a waiver should provide. The EBA anticipates that the Guidelines will be finalized by 31 December 2014 at the latest. Responses to the consultation are due by 13 September 2014.
The consultation paper is available at: http://www.eba.europa.eu/documents/10180/726375/EBA-CP-2014- 09+Consultation+paper+on+Guidelines+Article+432+and+Article+433+CRR+dis closures.pdf.
EBA Announcement on Supervisory Reporting Templates
The EBA announced, on 11 June 2014, that there were issues with the supervisory reporting templates included in the adopted ITS on supervisory reporting. The EBA and the European Commission have agreed that firms should use the liquidity templates published by the EBA on 2 December 2013 or the templates published by the European Commission on 16 April 2014 for liquidity reporting under the CRR until such time as the issue is corrected.
The EBA announcement is available at: http://www.eba.europa.eu/-/eba-informs-onliquidity-reporting-templates.
EBA Consults on Draft RTS Relating to Advanced Measurement Approaches for Operational Risk
On 12 June 2014, the EBA launched a consultation on draft RTS that set out the criteria for national regulators to consider before granting a firm permission to use advanced measurement approaches for calculating its capital requirements for operational risk, including the minimum conditions that a firm must meet. The draft RTS are required under the CRR. Responses to the consultation are due by 12 September 2014.
The consultation paper is available at: http://www.eba.europa.eu/documents/10180/724762/EBA-CP-2014- 08+CP+on+draft+RTS+on+AMA+assesment.pdf.
FDIC Releases Proposed Rulemaking to Amend Annual Stress Test Rule
On 16 June 2014, the Federal Deposit Insurance Corporation ("FDIC") announced that it is seeking comment on a notice of proposed rulemaking amending the FDIC's Annual Stress Test rule, following similar actions by the Board of Governors of the Federal Reserve System ("Federal Reserve Board") and the Office of Comptroller of the Currency ("OCC") on 12 June 2014. This proposed rule would shift back the timing of the annual stress testing cycle by approximately 90 days, and clarify that institutions covered by the Annual Stress Test rule will not have to calculate their regulatory capital ratios using the Basel III advanced approaches until the stress testing cycle begins on 1 January 2016.
The full text of the proposed rule is available at: http://www.fdic.gov/news/news/press/2014/pr14046a.pdf.
Federal Reserve Board Invites Comment on Proposal to Modify Regulations for Capital Planning and Stress Testing
On 12 June 2014, the Federal Reserve Board issued a proposal to modify the regulations for capital planning and stress testing. The proposed rule would shift the start date of the capital plan and stress test cycles from 1st of October of a calendar year to 1st of January of the following calendar year. Under the proposed rule, a bank holding company with total consolidated assets of $50 billion or more would be required to submit its capital plan and stress test results to the Federal Reserve by 5 April, three months later than under the current rulemakings.
Comments on the proposed rule will be accepted until 11 August 2014.
The full text of the proposed rule is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20140612a1.pdf.
Federal Banking Regulators Finalize Joint Supplemental Guidance on Income Tax Allocation Agreements
On 13 June 2014, the Federal Reserve Board, the FDIC and the OCC issued final supplemental guidance on income tax allocation agreements involving holding companies and insured depository institutions. One aim of the guidance is to reduce confusion regarding ownership of tax refunds. The guidance supplements an interagency policy statement on income tax allocation issued by the regulators in 1998 which said that a holding company that receives a tax refund from a taxing authority obtains these funds as agent for its subsidiary insured depository institutions and other affiliates. The guidance supplements the policy statement by instructing insured depository institutions and their holding companies to review their tax allocation agreements to ensure the agreements expressly acknowledge that the holding company receives any tax refunds as an agent. In addition, all banking organizations are asked to insert specific language in their tax allocation agreements to further clarify tax refund ownership.
Institutions and holding companies should implement the guidance as soon as reasonably possible, which the regulators expect would not be later than 31 October 2014.
The full text of the interagency guidance is available at: http://www.fdic.gov/news/news/press/2014/pr14045a.pdf.
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