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.
DERIVATIVES
ESMA Consults on the Calculation of Counterparty Risk by UCITS
On 22 July 2014, the European Securities and Markets Authority ("ESMA") published a discussion paper seeking comments on its proposals for the calculation of counterparty risk by Undertakings for Collective Investment in Transferable Securities ("UCITS") for OTC derivative transactions subject to the clearing obligation under the European Market Infrastructure Regulation ("EMIR"). ESMA is concerned about the impact of a failing clearing member, or client of a clearing member, on a UCITS entering cleared OTC derivatives. UCITS are retail investment funds and are regulated across the EU to ensure investor protection. ESMA is seeking views on: (i) how a UCITS should calculate limits on counterparty risk in centrally cleared OTC derivative transactions; and (ii) whether the same rules should be applied by a UCITS for centrally cleared OTC transactions as for exchange-traded derivatives ("ETDs"). Under existing UCITS legislation, a UCITS' investments in OTC derivatives are subject to counterparty risk exposure limits. ETDs are not subject to the same limitation. The discussion paper is open until 22 October 2014.
The ESMA discussion paper is available at: http://www.esma.europa.eu/news/ESMA-consults-counterparty-risk-calculation-methods-UCITS-subject-central-clearing?t=326&o=home
CFTC Issues Time-Limited No-Action Relief from Certain Requirements in the OCR Final Rule
On 23 July 2014, the US Commodity Futures Trading Commission's ("CFTC") Division of Market Oversight issued a no-action letter that provides additional time for reporting parties to comply with certain reporting requirements under the ownership and control final rule ("OCR Final Rule"). The OCR Final Rule, which was adopted on 18 November 2014, requires reporting parties to submit electronically trader identification and market participation data.
In the no-action letter, the CFTC provides time-limited no-action relief from the new electronic reporting requirements of the OCR Final Rule, subject to certain terms and conditions outlined in the no-action letter, including the requirement that reporting parties must continue to report via non-automated submission methods during the period of the relief.
The full text of the CFTC no-action letter is available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/14-95.pdf
BANK PRUDENTIAL REGULATION & REGULATORY CAPITAL
Proposed Draft Technical Standards under Financial Conglomerates Directive
On 24 July 2014, the European Supervisory Authorities (ESMA, the European Banking Authority and the European Insurance and Occupational Pensions Authority, together, the "ESAs") published proposed draft regulatory technical standards ("RTS") under the Financial Conglomerates Directive. Pursuant to the Directive, financial conglomerates are subject to supplementary prudential supervision of any banking and insurance entities in the group. The draft RTS include proposals on (i) the reporting of information to national regulators and coordinators; (ii) the risk concentration and intra-group transactions at the level of the financial conglomerate that should be considered "significant" for the purpose of reporting obligations; (iii) the factors that national regulators and coordinators should consider when identifying types of significant risk concentration and setting thresholds for reporting requirements; and (iv) supervisory measures to assist in developing a harmonized approach to supervision of financial conglomerates. The consultation is open until 24 October 2014.
The proposed draft RTS are available at: http://www.eba.europa.eu/documents/10180/764919/JC-CP-2014-04+Joint+Consultation+Paper+draft+RTS+art+21a+1a+FICOD.pdf
UK FPC Consultation Period on Leverage Ratio Extended
On 22 July 2014, the Bank of England ("BoE") announced that the Financial Policy Committee's ("FPC") consultation period on the role of the leverage ratio within the capital framework had been extended to 12 September 2014 (from 14 August 2014). The consultation was originally published on 11 July 2014. The FPC's final review of the leverage ratio is expected to be published in November 2014.
Mark Carney, Governor of the BoE, confirmed in a letter to the Chair of the Treasury Select Committee, Andrew Tyrie, that the FPC will prepare a draft policy statement on the proposed leverage ratio direction powers in early 2015, which will include the FPC's views on calibration of the framework. The policy statement should inform the review of the FPC's powers on the leverage ratio framework.
The FPC's consultation paper is available here: http://www.bankofengland.co.uk/financialstability/Documents/fpc/fs_cp.pdf
The BoE letter is available here: http://www.bankofengland.co.uk/publications/Documents/news/2014/governorletter220714.pdf
RECOVERY & RESOLUTION
UK Government and PRA Consult on BRRD Transposition
The UK Government and the Prudential Regulation Authority ("PRA") have both launched consultation papers on the transposition of the Banking Recovery and Resolution Directive ("BRRD"), which member states are obliged to transpose into national laws by 31 December 2014 and apply from 1 January 2015. The consultations are relevant to banks, building societies, large investment firms, financial holding companies, mixed financial holding companies and mixed-activity holding companies. The HM Treasury consultation covers only some aspects of transposition, including recovery and resolution planning, intra-group support, valuation, bail-in and write-down of capital instruments. Draft legislation on certain issues is also included. HM Treasury proposes that the Bank of England will be the UK resolution authority (as per the UK Banking Act 2009), the PRA and the Financial Conduct Authority ("FCA") will be the designated national regulators and that HM Treasury will be the competent ministerial authority for the purposes of the BRRD. The Government's consultation closes on 28 September 2014.
The PRA is proposing changes to both its current rules and its supervisory statement (which sets out the PRA's expectations of firms), covering recovery plans, resolution packs, intra-group financial support agreements, notification of failure or likely failure and contractual recognition of bail-in. The PRA consultation closes on 19 September 2014 and the PRA intends to publish a policy statement with feedback, final rules and an updated supervisory statement before the end of the year. The PRA notes that any proposals may be affected by the technical standards and guidelines still being prepared at EU level.
The HM Treasury consultation paper is available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/335755/PU1678_final__1_.pdf
The PRA consultation paper is available at: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2014/cp1314.pdf
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