United States: Financial Regulatory Developments Focus - September 2, 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.

Corporate Governance

US Federal Deposit Insurance Corporation Publishes Issue of Journal with Focus on the Critical Role of Corporate Governance and Strategic Planning in Responding to Earnings Challenges

On August 24, 2015, the US Federal Deposit Insurance Corporation released the Summer 2015 issue of Supervisory Insights. The current issue includes papers on strategic planning and corporate governance. The journal also includes an article titled "Bank Investment in Securitizations: The New Regulatory Landscape in Brief" which explains how banks can structure their investment decision process in order to comply with these new rules resulting from the enactment of the Dodd-Frank Act.

The FDIC press release is available at: https://www.fdic.gov/news/news/press/2015/pr15067.html.

The latest issue of Supervisory Insights is available at: https://www.fdic.gov/regulations/examinations/supervisory/insights/sisum15/SISummer2015.pdf.

Financial Services Roundtable Sends Letter to Governor Tarullo Urging Significant Changes to IAIS Insurer Proposal

On August 24, 2015, the Financial Services Roundtable – a prominent US financial services industry group – released a letter to US Federal Reserve Board governor Daniel Tarullo pressing the Board, in its capacity as a member of the Financial Stability Board and the IAIS, to oppose a plan by the International Association of Insurance Supervisors to create capital standards for systemically important insurance companies before the end of 2015. Among other things, the FSR letter notes that the IAIS plan to adopt Higher Loss Absorbency standards for certain insurance companies is premature, lacks transparency and should be delayed until revisions to other portions of IAIS's rules are completed. In addition, the letter notes that, just as international banking regulators conducted an economic analysis on the effect of new capital rules for banks prior to the implementation of such rules, so the IAIS should delay adopting a final HLA standard until it completes a comprehensive economic analysis on the effect of placing a capital surcharge on "globally significant" insurance companies.

The press release is available at: http://fsroundtable.org/fsr-sends-letter-to-gov-tarullo-urging-significant-changes-to-flawed-insurer-proposal/.

The text of the FSR letter is available at: http://bit.ly/1U9h7bO.

Derivatives

US Commodity Futures Trading Commission Approves National Futures Association Rules Enhancing Protections for Retail Forex Customers

On August 27, 2015, the US Commodity Futures Trading Commission approved rule amendments and a new interpretive notice filed by the National Futures Association heightening protections for retail customers of NFA Forex Dealer Members. Among other things, the rule amendments (i) impose additional capital requirements on FDMs; (ii) require FDMs to collect security deposits for off-exchange foreign currency transactions from both eligible contract participant counterparties as well as retail counterparties; (iii) require FDMs to adopt and implement more stringent risk management programs; and (iv) require FDMs to provide additional market disclosures and firm-specific information on their websites.

Statements issued by Chairman Timothy Massad and Commissioner Sharon Bowen emphasized the heightened risks faced by retail customers investing in the foreign exchange markets, including the losses retail investors face as a result of minor price movements in the foreign exchange market. In her statement, Commissioner Bowen further stated that the CFTC should consider imposing additional regulations on retail forex dealers, including, but not limited to: (i) imposing concentration charges on RFEDs if they are overly exposed to a particular currency pair or liquidity provider to incentivize RFEDs to balance their, and their retail counterparties' positions; (ii) requiring that RFEDs get the best possible prices for their retail counterparties; and (iii) requiring or incentivizing RFEDs to clear in order to lower the credit risks that retail foreign exchange investors face.

The CFTC press release is available at: http://www.cftc.gov/PressRoom/PressReleases/pr7219-15.

The NFA's rule submission to the CFTC is available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/nfaforexsubmission052815.pdf.

The text of Commissioner Bowen's statement on enhancing protections for retail forex customers is available at: http://www.cftc.gov/PressRoom/SpeechesTestimony/bowenstatement082715.

The text of Chairman Massad's statement on enhancing protections for retail forex customers is available at: http://www.cftc.gov/PressRoom/SpeechesTestimony/massadstatement082715.

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