United States: Financial Regulatory Developments Focus - July 16, 2015

In this week’s newsletter, we provide a snapshot of the principal US, European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.

Bank Prudential Regulation & Regulatory Capital

US Federal Deposit Insurance Corporation Issues Notice of Proposed Rulemaking to Revise How Small Banks are Assessed for Deposit Insurance

On June 16, 2015, the US Federal Deposit Insurance Corporation approved a Notice of Proposed Rulemaking and request for comment on proposed refinements to the deposit insurance assessment system for small insured depository institutions that have been federally insured for at least five years (referred to as "established small banks"). The FDIC is proposing to refine the deposit insurance assessment system by: (i) revising the financial ratios method so that it would be based on a statistical model estimating the probability of failure over three years; (ii) updating the financial measures used in the financial ratios method consistent with the statistical model; and (iii) eliminating risk categories for established small banks and using the financial ratios method to determine assessment rates for all such banks (subject to minimum or maximum initial assessment rates based upon a bank's composite rating). The FDIC proposes that the refinements would become operative the quarter after the reserve ratio of the Deposit Insurance Fund reaches 1.15 percent. and that a final rule would go into effect the quarter after a final rule is adopted; however, as stated above, the proposed amendments would not become operative until the quarter after the DIF reserve ratio reaches 1.15 percent.

The FDIC press release is available at: https://www.fdic.gov/news/news/press/2015/pr15050.html  and the Noticed of Proposed Rulemaking is available at: http://www.gpo.gov/fdsys/pkg/FR-2015-07-13/pdf/2015-16514.pdf .

UK Prudential Regulation Authority Consults on Implementation of UK Leverage Ratio Framework

On July 10, 2015, the Prudential Regulation Authority published proposed rules on the implementation of the UK leverage ratio framework. The Financial Policy Committee directed the PRA on July 1, 2015, to implement a UK leverage ratio framework applying: (i) a minimum leverage requirement immediately to UK Global Systemically Important Institutions, and from 2018 (subject to a review in 2017) to all banks, building societies and PRA-regulated investment firms; (ii) a supplementary leverage ratio buffer of 35 percent. of corresponding risk weighted systemic buffer rates to UK G SIIs, phased in from 2016, and to domestically systemically important banks, building societies and PRA regulated investment firms from 2019, referred to as the additional leverage ratio buffer or ALRB; and (iii) a countercyclical leverage ratio buffer of 35 percent. of a firm's institution-specific countercyclical capital buffer rate which will apply immediately to UK G SIIs and other major domestic UK banks and building societies and from 2018 (subject to a review in 2017) to all banks, building societies and PRA regulated investment firms, including any ring fenced banks, large building societies and any other banks that become subject to a countercyclical capital buffer. The PRA proposes that firms covered by the rules should include those with total retail deposits equal to or greater than Ł50 billion, whether on a consolidated or individual basis, on a firm's financial year-end date. The PRA is also proposing that relevant firms will be subject to leverage ratio reporting and disclosure requirements. The PRA's consultation sets out how it intends to implement that framework and includes proposed rules, templates for reporting, a supervisory statement on which firms would be expected to report leverage ratio information and a supervisory statement on the PRA's expectations on the application of the UK leverage ratio framework.

Responses to the consultation must be submitted by October 12, 2015. The PRA intends to publish its policy statement with feedback, final rules and supervisory statements by the end of 2015. It is proposed that the UK leverage ratio framework will come into force on January 1, 2016.

The PRA's consultation paper is available at: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2015/cp2415.pdf.

Corporate Governance

UK Regulators Publish Further Final Rules on Senior Manager and Certification Regime

On July 7, 2015, the PRA and Financial Conduct Authority published further Policy Statements, including feedback to proposals and final rules for the Senior Manager and Certification Regime which comes into effect next year. The PRA and FCA have now issued final rules on all aspects of the regime except for: (i) rules on regulatory references (the PRA will consider the recommendations made by the Fair and Effective Markets Review before making final rules before March next year); (ii) rules applicable to UK branches of non-EEA firms; and (iii) rules applicable to UK branches of EEA firms for which final legislation is required before the rules can be made. The FCA is also consulting on the extension of the certification regime to individuals involved in wholesale activity, responses to which are due by September 6, 2015. The regulators also intend to provide final guidelines on enforcement matters and senior management responsibility regarding whistleblowing. The Senior Manager and Certification Regime is due to come into effect from March 7, 2016.

The PRA's Policy Statement is available at: http://www.bankofengland.co.uk/pra/Documents/publications/ps/2015/ps1615.pdf  and the FCA's Final Rules and Consultation Paper is available at: http://www.fca.org.uk/static/documents/consultation-papers/cp15-22.pdf . The PRA simultaneously published a Supervisory Statement, available at: http://www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss2815.pdf  and a Statement of Policy, available at: http://www.bankofengland.co.uk/pra/Documents/publications/sop/2015/conditions.pdf.

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