United States: Financial Regulatory Developments Focus - August 5, 2014

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.


Interim Solution for FX Derivatives Definition Proposed by European Commission

On 31 July 2014, the European Securities and Markets Authority ("ESMA") published a letter (dated 23 July 2014) from the European Commission regarding the definition of derivatives for the purposes of reporting under the European Market Infrastructure Regulation ("EMIR"). Derivatives are defined by reference to the list set out in the Markets and Financial Instruments Directive ("MiFID I") which, because it has been transposed into national laws by member states, has resulted in no common definition of a derivative or derivative contract in the EU, particularly for FX forwards and physically settled commodity forwards. ESMA had requested the Commission, in February of this year, to clarify the position using powers granted under MiFID I so as to provide certainty to market participants. The Commission's letter to ESMA last week clarifies that the power referred to by ESMA ceased to apply in 2012. The definition will be able to be clarified in the Level 2 legislation required under the Markets in Financial Instruments Directive ("MiFID II"). However, that legislation is still pending and MiFID II only comes into effect on 1 January 2017. The Commission considers that the best way forward would be for ESMA to provide guidance in the interim period on the meaning of a FX contract. Such guidance may lead to a change in the practice and laws in some member states which may, by 2017, need to be amended again. The letter also sets out the current 'broad consensus' on the definition of FX spot contracts. The Commission consulted earlier this year on the definition of FX financial instruments and FX spot contract, the results of which are available at:


The Commission's letter is available at: http://www.esma.europa.eu/content/EC-letter-ESMA-classification-financial-instruments.


Proposed Amendments to the UK Remuneration Code

On 30 July 2014, the Financial Conduct Authority ("FCA") and the Prudential Regulation Authority ("PRA") published a joint consultation "Strengthening the Alignment of Risk and Reward: New Remuneration Rules." The consultation sets out proposed changes to the Remuneration Code and seeks to address the issues raised in the final report (published in June 2013) of the Parliamentary Commission on Banking Standards. The consultation was published alongside the combined consultation to implement proposals on the senior management regime (about which, see below under Financial Services). The consultation on changes to the Remuneration Code, which will affect all banks, building societies and PRA-designated investment firms, includes proposals: (i) to extend the deferral period for variable remuneration; (ii) to provide for an option for the clawback period to be extended for senior managers; (iii) to clarify the presumption against payment or vesting of discretionary payments for senior managers of a bank that has failed; (iv) on the possibility of introducing rules on buy-outs; (v) to introduce a requirement for all UK-regulated firms to calculate profit by deducting a prudential valuation adjustment figure from fair value accounting profit when calculating profit for the purpose of determining the size of the annual bonus pool; and (vi) introducing a rule that non-executive directors should not receive variable remuneration (in line with current practice). The PRA and FCA confirm that they do not intend to introduce further disclosure requirements at this time. The FCA also confirms that it will review financial incentive schemes for sales staff during its work to implement MiFID II.

The consultation paper is available at: http://www.fca.org.uk/news/pra-and-fca-consulton-proposals-to-improve-responsibility-and-accountability-in-the-banking-sector.

Recovery & Resolution

Single Resolution Mechanism Regulation Enacted

On 30 July 2014, the EU Regulation establishing rules and procedures for the resolution of Eurozone banks and investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (the "SRM Regulation") was enacted. The SRM Regulation, for the most part, will be applicable from 1 January 2016.

The SRM Regulation is available at: http://eur-lex.europa.eu/legal-content/ EN/TXT/?uri=uriserv:OJ.L_.2014.225.01.0001.01.ENG.

FCA Consults on Draft Recovery & Resolution Rules for Investment Firms

On 1 August 2014, the FCA published proposals for changes to its Handbook required for transposition of the Bank 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. Both HM Treasury and the PRA launched consultations on the transposition of the BRRD last week. The FCA will be the competent authority for investment firms and certain group entities which it prudentially regulates. The PRA will be the competent authority for banks and larger investment firms. The FCA paper, which includes draft rules, covers: (i) requirements for recovery plans; (ii) requirements and conditions for notification of failure or likelihood of failure; (iii) information for resolution planning; (iv) intra-group financial support agreements; (v) contractual recognition of bail-in; and (vi) early intervention. Responses to the consultation are due by 1 October 2014.

The FCA paper is available at: http://www.fca.org.uk/static/documents/consultation-papers/cp14-15.pdf.

Bank Prudential Regulation and Regulatory Capital

EBA Proposes Revised Draft ITS on Supervisory Reporting

On 30 July 2014, the European Banking Authority ("EBA") published final draft implementing technical standards ("ITS") to amend the current standards on supervisory reporting under the Capital Requirements Regulation. The amended ITS, which will need to be adopted by the European Commission, are expected to be applicable for reporting as of December 2014. The EBA is proposing to delete the validation rules and the Data Point Model. In April 2014, the EBA detected that certain validation rules included in the current ITS were inaccurate following tests based on real data from reporting firms as well as answers submitted via the EBA's Q&A tool. The deletion of the rules and model from the ITS will obviate the need for further revised ITS as a result of these issues. The EBA is proposing to publish the validation rules and Data Point Model on its website (expected in August).

The EBA announcement is available at: http://www.eba.europa.eu/-/eba-issues-amendedtechnical-standards-on-supervisory-reporting-for-institutions.

Federal Reserve Board Releases FOMC Statement On 30 July 2014, the Board of Governors of the Federal Reserve System ("Federal Reserve Board") issued a statement from the June meeting of the Federal Open Market Committee ("FOMC"). The FOMC statement indicated growth in economic activity in the second quarter along with improvement in labor market conditions. In addition, the FOMC reaffirmed its view that an accommodative stance of monetary policy remained appropriate and will continue to assess how long to maintain the current 0 to ¼ percent target range for the federal funds rate.

The full FOMC statement is available at: http://www.ny.frb.org/markets/opolicy/operating_policy_140730.html.

Financial Market Infrastructure

ICE Benchmark Administration New ISDAFIX Administrator

On 4 August 2014, Intercontinental Exchange announced that ICE Benchmark Administration Limited ("IBA") had, from 1 August 2014, taken over the role of administrator for the ISDAFIX, the benchmark for swap rates for four currencies (Euro, British pound, Swiss franc and US dollar).

The announcement is available at: http://ir.theice.com/investors-and-media/press/press-releases/press-release-details/2014/ICE-Benchmark-Administration Completes-ISDAFIX-Transition/default.aspx.

Financial Services

UK Regulators Consult on Rules for Senior Manager Accountability and New Conduct Rules

On 30 July 2014, the FCA and the PRA launched a combined consultation, "Strengthening Accountability in Banking: a new regulatory framework for individuals," to implement changes made to the Financial Services and Markets Act 2000 by the Financial Services (Banking Reform) Act 2013. The consultation was published alongside the combined consultation on proposals to amend the UK Remuneration Code (discussed above under Compensation). The consultation on strengthening accountability, which includes proposals to implement the senior managers regime, the certification regime and the new set of conduct of rules, set out how the regulators will implement the requirements to make it easier for firms and regulators to hold individuals in relevant firms to account. Senior managers located in the UK or overseas will be affected and the conduct rules will apply to most employees of relevant firms if they are located in the UK or deal with customers in the UK. Relevant firms are UK banks, building societies, credit unions and investment firms regulated by the PRA. The proposals do not currently include UK branches of firms headquartered outside of the UK, however, the UK Government has indicated that it intends to extend the scope (which it can only do through further legislation) to all firms that operate in the UK, including branches of foreign firms. In addition, under European law, the PRA and FCA do not assess the competence of individuals working in a UK branch of an EEA bank or investment firm. The FCA intends to consult further on this issue in the future. The PRA and FCA intend to publish a technical consultation in due course covering forms, consequential changes and transitional arrangements. The regulators are expected to publish final rules towards the end of the year. Responses to the consultation are due by 31 October 2014.

The consultation paper is available at: http://www.fca.org.uk/news/pra-and-fca-consulton-proposals-to-improve-responsibility-and-accountability-in-the-banking-sector.

Next Steps Set Out for the Fair and Effective Markets Review

On 30 July 2014, the terms of reference of the Fair and Effective Markets Review were published by HM Treasury, the Bank of England and the FCA. The Review will focus on the regulated and unregulated wholesale markets where misconduct issues have recently arisen (fixed income, currency and commodity markets, including related derivatives and benchmarks). The scope of the Review will cover trading practices, the regulatory perimeter, impact of recent and forthcoming regulation and supervision. The Review will be led by HM Treasury, the Bank of England and the FCA but will also include a separate market practitioner panel which will feed into the Review. The terms of reference of the market practitioner panel were also published. The terms state that the Review will, by June 2015, recommend: (i) principles to govern the operation of fair and effective financial markets; (ii) reforms to address standards of behavior; (iii) tools to strengthen the supervision of market conduct; (iv) whether the regulatory perimeter should be extended; and (v) any additional reforms to those already in play that may be necessary. In the interim, the Review must recommend a list of additional benchmarks that should be supervised under UK legislation.

A consultation on the issues and proposals is expected in autumn. Information about the Review is available at: http://www.bankofengland.co.uk/publications/Pages/news/2014/107.aspx.

FCA: Firms Are Failing to Deliver Best Execution

On 31 July 2014, the FCA announced that following a review, it found that firms were failing to deliver best execution for both retail and professional clients when trading on their behalf. The FCA found that many firms do not: (i) understand the rules properly; (ii) control client costs when executing orders; or (iii) have sufficient managerial oversight of staff delivering best execution. The FCA expects all firms to review their best execution arrangements and take action to ensure that they comply with the rules. The FCA best execution rules will be amended once MiFID II is applicable in 2017. Under MiFID II, firms will be subject to a range of new requirements including disclosure of the top five most frequently used venues by the firm, disclosure of the costs of execution venues used by the firm, a ban on remuneration for routing client orders and stricter criteria for order execution policies.

The FCA announcement is available at: http://www.fca.org.uk/news/fca-finds-firms-failto-deliver-best-execution.

Proposed Changes to Guidance on Money Laundering for the Financial Sector

On 25 July 2014, the Joint Money Laundering Steering Group ("JMLSG") published proposed amendments to its Money Laundering Guidance for the Financial Sector. The JMLSG is made up of financial industry trade associations and aims to assist in the interpretation of anti-money laundering requirements. The proposals do not include any specific changes as a result of the proposed Fourth Money Laundering Directive (which is still going through the EU legislative process). Responses to the consultation are due by 15 September 2014.

The consultation information is available at: http://www.jmlsg.org.uk/news/proposed-amendmentsto-jmlsg-guidance.

SEC Modifies Municipalities Disclosure Initiative

On 31 July 2014, the Securities and Exchange Commission's ("SEC") Enforcement Division announced modifications to its Municipalities Continuing Disclosure Cooperation Initiative (the "Initiative"). Under the Initiative, announced on 10 March 2014, the SEC's Enforcement Division agreed to recommend standardized settlement terms for municipal issuers and underwriters who self-report inaccurate statements made in bond offerings about their prior compliance with continuing disclosure obligations under the Securities Exchange Act of 1934. The SEC announced that it would extend the deadline for smaller municipal securities underwriter firms and municipal issuers to self-report potential violations from 10 September 2014 to 1 December 2014. For underwriters, the deadline for compliance remains unchanged at 10 September 2014. However, the SEC announced that it would take a tiered approach to civil penalties based on the size of the underwriters. Finally, the SEC announced that if violations are identified after the expiration of the Initiative, the SEC's Enforcement Division would consider factors such as reasonable good faith, as well as documented efforts in deciding whether to recommend enforcement action and, as applicable, in determining relief.

The full text describing the Initiative is available at: http://www.sec.gov/divisions/enforce/municipalities-continuing-disclosure-cooperationinitiative.shtml.

Consumer Protection

ESMA Warns about Risks in CoCos

On 31 July 2014, ESMA published a statement warning institutional investors about the potential risks of investing in contingent convertible instruments, known in the financial markets as CoCos. ESMA is concerned because CoCos are very complex and differ from traditional instruments in a number of ways. ESMA's concerns relate specifically to trigger levels, coupon cancellation, capital structure inversion risk, call extension risk and yield or valuation risk.

ESMA's statement is available at: http://www.esma.europa.eu/news/ESMA-Statement- Potential-Risks-Associated-Investing-Contingent-Convertible Instruments?t=326&o=home.

ESAs Remind Banks and Insurance Firms on Self Placement Obligations

On 31 July 2014, the European Supervisory Authorities (the EBA, ESMA and the European Insurance and Occupational Pensions Authority) published a statement reminding banks and insurance firms that they are expected to comply with all EU requirements when placing financial instruments with depositors, retail investors and policy holders. The ESAs are concerned that firms are using self placement as a means of complying with the recently introduced enhanced prudential requirements, such as the capital requirements legislation, the BRRD and Solvency 2, and in so doing, do not comply with their other legal obligations and may put investors at risk.

The statement is available at: https://eiopa.europa.eu/joint-committee/index.html.

OCC Releases Risk Management Guidance

On 4 August 2014, the Office of the Comptroller of the Currency ("OCC") issued guidance to national banks and federal savings associations (collectively "banks") on the application of consumer protection requirements and banking practices to consumer debt-sale arrangements with third parties that intend to pursue collection of the underlying obligations. Among other things, the OCC guidance emphasizes that: (i) a bank must have in place appropriate internal policies and procedures that govern debt-sale arrangements consistently across the bank; (ii) banks must be performing appropriate due diligence when selecting debt buys; (iii) banks must provide accurate and comprehensive information regarding each debt sold, at the time of sale; (iv) banks must ensure compliance with applicable consumer protection laws and regulations; and (v) banks must implement appropriate oversight of debt-sale arrangements.

The full text of the OCC bulletin is available at: http://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-37.html.


On 4 August 2014, the Bank of England announced Spencer Dale, the Bank's Executive Director for Financial Stability Strategy and Risk, will leave the Bank and start a new job as Chief Economist at BP plc in October 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Barnabas W.B. Reynolds
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.