Worldwide: Financial Regulatory Developments Focus - October 15, 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 Board of Governors of the Federal Reserve System Announces Approval of Applications by Royal Bank of Canada and RBC USA Holdco Corporation

On October 7, 2015, the US Board of Governors of the Federal Reserve System announced the approval of the applications by Royal Bank of Canada and its subsidiary, RBC USA Holdco Corporation, to acquire City National Corporation and its wholly owned subsidiary, City National Bank, under section 3 of the Bank Holding Company Act. City National is a $33 billion banking organization. The Federal Reserve Board's approval comes approximately seven months after submission of the application, which was the subject of comments opposing the application.

On the same day, the Federal Reserve Board approved the application by Royal Bank of Canada to establish a limited federal branch in New Jersey. As a limited federal branch, it will only take deposits permitted to be taken by an Edge corporation under section 25A of the Federal Reserve Act.

The Federal Reserve Board press release announcing the approval of the acquisition is available at: http://www.federalreserve.gov/newsevents/press/orders/20151007a.htm; the Federal Reserve Board order approving the acquisition is available at: http://www.federalreserve.gov/newsevents/press/orders/orders20151007a1.pdf; the Federal Reserve Board press release approving the limited branch is available at: http://www.federalreserve.gov/newsevents/press/orders/20151007b.htm and the Federal Reserve Board order approving the limited branch is available at: http://www.federalreserve.gov/newsevents/press/orders/orders20151007b1.pdf.

EU Regulation Correcting Regulatory Technical Standards on Securitization Retention Under Capital Requirements Regulation

On October 8, 2015, a Delegated Regulation correcting the text of the Regulatory Technical Standards on requirements for investor, sponsor, original lenders and originator institutions for exposures to transferred credit risk under the Capital Requirements Regulation was published in the Official Journal of the European Union. Minor errors were made in the RTS published in various languages of the EU, and the revisions correct such errors, including clarifying that materially relevant data does not have to be provided to investors at an individual loan level in all circumstances and that it may be sufficient to provide such data on an aggregate basis in certain circumstances. The Delegated Regulation enters into force on October 28, 2015.

The Deleted Regulation is available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2015.263.01.0012.01.ENG.

European Banking Authority Publishes Guidelines on Management of Interest Rate Risk Arising from Non-Trading Activities

On October 6, 2015, the European Banking Authority published final translations of its Guidelines on the management of interest rate risk arising from non-trading activities, also known as interest rate risk in the banking book or IRRBB, which is the risk to firms arising from adverse movements in interest rates. Under the Capital Requirements Directive, national regulators must require a firm to take measures if its economic value declines by more than 20 percent of their own funds as a result of a sudden and unexpected change in interest rates of 200 basis points which is termed supervisory "standard shock." National regulators must also take steps when a change occurs, as defined by the EBA in these Guidelines. The Guidelines set out the definition of such change and the methods for the calculation of the outcome of the supervisory standard shock, which is the shock applied to a firm's portfolio to determine the impact on the economic value of the firm, as well as specify the identification, management and mitigation of IRRBB. The Guidelines apply from January 1, 2016. They will repeal the Guidelines of the Committee of European Banking Supervisors published in 2006. The Guidelines are addressed to national regulators and relevant credit institutions and investment firms. National regulators must notify the EBA by December 7, 2015 as to whether they comply or intend to comply with the Guidelines.

The Guidelines are available at: http://www.eba.europa.eu/documents/10180/1084098/EBA-GL-2015-08_EN_GL+on+IRRBB.pdf/1a14372b-f165-4163-a91a-22770d1d938a.

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