United States: Financial Regulatory Developments Focus - September 22, 2015

Bank Prudential Regulation & Regulatory Capital

Delegated Regulations on Regulatory Technical Standards under the Capital Requirements Regulation Published in Official Journal of the European Union

On September 19, 2015, two delegated regulations on Regulatory Technical Standards under the Capital Requirements Regulation were published in the Official Journal of the European Union:

  1. The delegated regulation for the disclosure of information for the compliance of institutions with the requirement for a countercyclical capital buffer which sets out the specifications for the disclosures required by firms for compliance with their requirements for a countercyclical capital buffer; and
  2. The delegated regulation for the transitional treatment of equity exposures under the Internal Ratings-Based approach which states that national regulators may grant certain firms with exemptions from the IRB treatment where the categories of the firm's equity exposures were already benefiting from an exemption from the IRB treatment on December 31, 2013.

Both delegated regulations enter into force on October 9, 2015.

The delegated regulations are available at: http://eur-lex.europa.eu/legal- content/EN/TXT/?uri=uriserv:OJ.L_.2015.244.01.0001.01.ENG and http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2015.244.01.0009.01.ENG.

Bank Structural Reform

US Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg Gives Remarks at the FDIC Banking Research Conference on the Orderly Failure of Large, Complex, Systemically Important Financial Institutions

On September 17, 2015, US Federal Deposit Insurance Corporation Chairman, Martin J. Gruenberg, gave a speech at the FDIC Banking Research Conference outlining the progress made by the FDIC to date in instituting a framework under the Dodd-Frank Act for the orderly failure of large, complex, systemically important financial institutions. Among other topics, the speech addressed the FDIC's efforts to use the living will process to improve resolvability of firms under the US Bankruptcy Code, and the FDIC's progress in developing the operational capabilities to carry out a resolution under the Orderly Liquidation Authority, a public-sector bankruptcy process prescribed by the Dodd Frank Act for institutions whose resolution under the US Bankruptcy Code would pose systemic concerns. Chairman Gruenberg asserted that using the living will process to bring about changes in the structure and operations of firms to facilitate orderly resolution under bankruptcy is a statutory mandate of the FDIC, as well as being prepared to use the powers available under the Orderly Liquidation Authority to manage the orderly failure of a firm. These remarks echoed previous statements given by Chairman Gruenberg when speaking in front of the Peterson Institute for International Economics in May 2015.

The speech is available at: https://www.fdic.gov/news/news/speeches/spsep1715.html.

UK Regulators Publish Consultation on Implementation of Ring-Fencing Transfer Schemes

On September 18, 2015, the Prudential Regulation Authority and Financial Conduct Authority both issued consultations on the implementation of Ring-Fencing Transfer Schemes under the UK's ring-fencing regime. Banks with core deposits over Ł25 billion over a period of three years are expected to comply with ring-fencing requirements from January 1, 2019, separating the retail arms of banks from their riskier investment banking operations. RFTSs enable some or all of a bank's business to be transferred to another body so that the bank can restructure to comply with the ring-fencing rules. A scheme report, which must comment on whether the scheme could have any adverse effect on third parties, must be prepared by a skilled person approved by the PRA and FCA. The scheme report is intended to assist the court in its decision whether to sanction the scheme. Consent from all parties that may be affected by the transfer is not required but third parties affected by the proposed scheme may make representations to the court. The PRA must also consult the FCA before approving a skilled person or a scheme report. The PRA will also issue two certificates: one providing its consent to the scheme and the second to verify that the transferee will have adequate financial resources. Where the transferee is only regulated by the FCA, the FCA must issue the financial resources certificate. The PRA seeks views on its draft Statement of Policy on the PRA's approach to RFTSs and on its proposed approach for the approval of skilled persons and scheme reports. The FCA seeks views on its draft general guidance on RFTSs. Comments on both consultations are due by October 30, 2015.

The PRA consultation is available at: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2015/cp3315.pdf  and the FCA consultation is available at: http://www.fca.org.uk/static/documents/guidance-consultations/gc15-05.pdf.  

Corporate Governance

UK Regulators Consult on Amendments to Forms under New Senior Managers Regime and Current Approved Persons Regime

On September 18, 2015, the FCA and PRA published a joint consultation paper on proposed changes to certain forms used by firms and individuals under the incoming Senior Managers Regime and current Approved Persons Regime. The consultation seeks views on proposed changes to two forms for the new SMR and two forms for the current APR regime. The proposed changes would modify the required disclosures required by individuals relating to ongoing investigations and past convictions, according to whether the individual will be a senior manager under the SMR or an approved person under the APR and allow the regulators to assess fitness and propriety appropriately. Other forms for which the regulators have no duty to consult on have also been amended with immediate effect, including Long Form A forms and Notifications for Change in Controller. Comments are due by October 19, 2015. The regulators intend to publish the revised forms before the end of 2015 and guidance notes on completing the forms for the Senior Managers Regime are also expected.

The consultation paper is available at: http://www.fca.org.uk/static/fca/documents/consultation-papers/cp15-29.pdf.


The US Commodity Futures Trading Commission Issues Interpretation Clarifying the Consistency between CFTC Regulations Applicable to Derivatives Clearing Organizations and the Principles for Financial Market Infrastructures

On September 18, 2015, the US Commodity Futures Trading Commission's Division of Clearing and Risk released an interpretation clarifying the consistency of the CFTC's Part 39 regulations pertinent to certain derivatives clearing organizations with the CPMI-IOSCO Principles for Financial Market Infrastructures. The clarification relates to certain risk management standards which, among other things, address risks associated with the following: exchange-of-value settlement services; link arrangements of DCOs; the requirement to use central bank services, where available and practicable; and requirements regarding the due diligence conducted with respect to custodian banks. In the guidance, the CFTC interprets the relevant Part 39 regulations, which apply to systemically important DCOs and those DCOs that have opted into an enhanced regulatory framework (known as Subpart C DCOs), to incorporate all of the standards set forth in the PFMIs.

The CFTC staff interpretation is available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/15-50.pdf.

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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