United States: Financial Regulatory Developments Focus - 1 October 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.


CFTC Issues Extension of No-Action Relief Granted to Certain CDS Clearing-Related Swaps

On September 29, 2014, the US Commodity Futures Trading Commission's ("CFTC") Division of Market Oversight announced an extension of no-action relief previously granted on December 31, 2013, providing time-limited relief relating to certain occasional, off-facility, cleared credit default swaps ("CDS") entered into pursuant to a derivative clearing organization's rules related to its price submission process for determining end-of-day settlement prices for cleared CDSs ("CDS Settlement Price Process"). Under the no-action letter, the CFTC will not commence an enforcement action against any clearing member of a derivative clearing organization for entering into a swap through the CDS Settlement Price Process and not through a swap execution facility or a designated contract market. In addition, counterparties for such swaps will be relieved of their obligation to report swap data under the CFTC no-action letter. The extension of the no-action relief will expire on September 30, 2015.

The full text of the CFTC no-action letter is available at:


CFTC Announces that Swap Dealers and Major Swap Participants May Furnish Risk Exposure Reports to the Commission through WinJammer

On September 29, 2014, the CFTC's Division of Swap Dealer and Intermediary Oversight announced that Swap Dealers ("SDs") and Major Swap Participants ("MSPs") may furnish risk exposure reports to the CFTC through WinJammer, instead of filing via the CFTC's web portal. CFTC Regulation 23.600(c)(2)(ii) requires SDs and MSPs to furnish risk exposure reports to the CFTC. Today's announcement by the CFTC clarifies that, because risk exposure reports submitted by SDs and MSPs through WinJammer will be furnished to the CFTC automatically, SDs and MSPs are not required to re-submit the same risk exposure reports to the CFTC through the CFTC web portal.

Bank Prudential Regulation & Regulatory Capital

PRA Proposed Approach to Compliance with EBA Guidelines on Disclosure of Encumbered and Unencumbered Assets

On September 22, 2014, the Prudential Regulation Authority ("PRA") published for consultation a draft supervisory statement on the European Banking Authority's ("EBA") Guidelines on Disclosure of Encumbered and Unencumbered Assets. The draft supervisory statement sets out the criteria for the PRA's intended use of the waiver from the requirement to disclose collateral received that is kept off balance sheet (which would normally be disclosed by firms to the PRA using template B in the EBA Guidelines). The EBA Guidelines relate to the reporting requirements under the Capital Requirements Regulation. The Guidelines seek to address concerns that transparency regarding assets encumbered to central banks and liquidity assistance given by central banks may negatively impact financial stability. Under the EBA Guidelines, a national regulator may waive the requirement to disclose such collateral if such disclosure would allow the use or non-use of liquidity assistance to be detected. Under the PRA's proposals, a PRA-supervised firm subject to the Capital Requirements Regulation and the Capital Requirements Directive will be able to make use of the waiver provided it meets the PRA's criteria. The consultation paper also includes the PRA's proposed expectations on factors to be considered and frequency of disclosures in compliance with the EBA Guidelines. Reponses to the consultation are due by November 24, 2014.

The consultation paper is available at:


FFIEC Warns of Security Vulnerabilities in Bourne-again Shell System Software

On September 26, 2014, the Federal Financial Institutions Examination Council ("FFIEC") issued an alert notifying financial institutions of a material security vulnerability in Bourne-again shell system software that could allow attackers to gain access and control of operating systems. The FFIEC alert outlines the risks associated with the vulnerability (known as "Shellshock") and advises financial institutions to take appropriate risk mitigation steps. Examples of appropriate risk mitigations steps include: (i) identifying vulnerable internal systems and services; (ii) following appropriate patch management practices; and (iii) ensuring that third-party vendors take appropriate risk mitigation steps and monitoring the status of the vendors' efforts.

The full text of the FFIEC alert is available at:

http://www.ffiec.gov/press/PDF/FFIEC_JointStatement_BASH_Shellshock_Vuln erability.pdf.

OCC Issues Booklet on Federal Branches and Agencies Supervision

On September 26, 2014, the OCC issued the "Federal Branches and Agencies Supervision" booklet in order to provide updated guidance and examination procedures to both examiners and bankers on the supervision of federal branches and agencies. The booklet also highlights special considerations arising from legal and operational structures that differentiate federal branches and agencies from national banks and addresses new and updated rules and guidance issued by other federal agencies.

The full text of the OCC booklet is available at:


Banking Supervisors and Central Bankers Meet to Discuss Post-Crisis Reform Progress

On September 25, 2014, the Bank for International Settlements published a press release which summarizes the discussion on progress of post-crisis reforms at the meeting of banking supervisors and central bankers in China. The press release sets out next steps for dealing with globally systemically important banks, the net stable funding ratio (the final standard will be released in the coming weeks), revising corporate governance guidance, securitization standards and improving consistency in bank capital ratios.

The press release is available at:


Recovery & Resolution

Final Guidelines on Tests, Reviews or Exercises Potentially Leading to Support Measures

On September 22, 2014, the EBA published final Guidelines on the types of tests, reviews or exercise that would exempt an injection of own funds or acquisition of capital instruments from being considered a form of extraordinary public financial support under the Banking Recovery and Resolution Directive (the "BRRD"). Under the BRRD, a request by a bank for extraordinary public financial support is an indicator that the firm is failing or is likely to fail which will trigger resolution. However, in certain circumstances, such a request will not trigger resolution, including when an injection of own funds or an acquisition of a capital instrument is used to address a capital shortfall resulting from a stress test, an asset quality review or other equivalent exercises. The Guidelines apply to national regulators and aim to ensure a consistent application of the BRRD provisions across the EU. National regulators are required to implement the Guidelines by January 1, 2015.

The Guidelines are available at:


EBA Consults on Proposed Guidelines on Minimum Indicators for Recovery Plans

On September 26, 2014, the EBA published a consultation on proposed guidelines which set out the minimum qualitative and quantitative indicators that a firm should include in its recovery plan, as required by the BRRD, for capital, liquidity, profitability and asset quality. A recovery plan will set out how a firm intends to restore financial viability in case of severe distress. The indicators will be used to identify when to trigger the process set out in the recovery plan to assess which recovery actions should be taken. The consultation closes on January 2, 2015. The consultation paper is available at: http://www.eba.europa.eu/-/eba-consults-onqualitative-and-quantitative-recovery-plan-indicators.

EBA Consults on Eligibility Criteria for Simplified Obligations

On September 25, 2014, the EBA published two consultation papers on draft guidelines and draft implementing technical standards ("ITS") relating to eligibility of firms for simplified obligations under the BRRD. The proposed guidelines expand upon the criteria in the BRRD for eligibility for simplified obligations, creating a list of mandatory and optional indicators for national regulators to use in their assessments of firms. The proposed guidelines also include clarification that any firm considered to be globally systemically important would not be suitable for the application of the simplified obligations. The proposed draft ITS establish templates and definitions for national regulators to use when transmitting information to the EBA about their assessments of firms against the eligibility criteria. Both consultations close on January 3, 2015.

The consultation papers are available at:


To view the full report please click here.

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.

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