European capital markets: priorities and challenges
On 25 June, the ECB published dinner remarks from Benoît Cœuré, Member of the Executive Board of the ECB, at the International Swaps and Derivatives Association, Frankfurt am Main. Mr. Cœuré’s speech addressed issues such as: (i) market fragmentation as a source of concern; (ii) priorities for CMU after Brexit; (iii) harmonising insolvency frameworks; (iv) supervisory convergence and the oversight and supervision of central counterparties; (v) diversifying external funding for the real economy; (vi) the role of market development; (vii) the role of market integration; and (viii) Benchmark rates and the need for fallback options. Read more
Joint statement on opportunistic strategies in the credit derivatives markets
On 25 June, the FCA published a joint statement on opportunistic strategies in the credit derivative markets. The U.S. Commodity Futures Trading Commission Chairman J. Christopher Giancarlo, U.S. Securities and Exchange Commission Chairman Jay Clayton, and U.K. FCA Chief Executive Andrew Bailey issued the following joint statement regarding the credit derivatives markets: ‘The continued pursuit of various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events,’ may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally. These opportunistic strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as public policy concerns.’ As a result, the Chairmen and Chief Executive of the respective agencies announced that the agencies will make collaborative efforts to prioritize the exploration of avenues, including industry input, which will address these concerns and foster transparency, accountability, integrity, good conduct and investor protection in these markets. Read more
FCA High Cost Credit Review A&O has published an article on the FCA’s high cost credit review. Following its 2018 proposals, the FCA announced on 7 June that it will be proceeding with its proposed reforms to the overdraft market in an attempt to make the use of overdrafts simpler, fairer and easier to manage. These reforms are laid out in its policy statement PS19/16 “High-Cost Credit Review: Overdrafts policy statement” and are described by the FCA as the “biggest shake-up to the overdraft market for a generation”. The changes are relevant to banks and building societies which provide personal accounts and will apply to both arranged and unarranged overdrafts. New guidance on refused payments will also be relevant to payment service providers offering payment accounts. Please find A&O’s publication here.
FCA launches review of the Credit Information Market
On 27 June, the FCA launched a market study to examine how the credit information market operates and the impact it has on consumers. Reflecting the concerns that have been identified, the market study will focus on the following themes: (i) the purpose, quality and accessibility of credit information; (ii) market structure, business models and competition; and (iii) consumers’ engagement and understanding of credit information and how it impacts their behaviour. In exploring these themes, the market study will assess how the sector is working now and how it may develop in the future. It will also look at how the markets for credit information work in some other countries and what the UK market might learn from them. The FCA will report on its preliminary conclusions on these themes in Spring 2020 including, if appropriate, a discussion of potential remedies. Read more Money & Pensions Service: Transforming customer wellbeing On 26 June, the Money and Pensions Service published a report entitled “Transforming customer wellbeing: What can retail banking do to build financial capability?” The report discusses the pressing financial capability challenges facing the UK population and why this should be a priority for retail banking providers. It highlights some of the existing features of current and savings accounts that can improve customers’ financial capability and wellbeing, while also setting out ways retail banking firms can better help their customers. Read more Lending Standards Board Annual Review 2018 On 25 June, the Lending Standards Board (LSB) published its Annual Review 2018, highlighting its key achievements and future ambitions for 2019. Key achievements include: (i) increased protection for personal customers, by completing a review of its personal Standards; (ii) increased protection for customers by overseeing the implementation of four of the FCA’s Credit Card Market Study remedies; and (iii) increased protection for vulnerable customers by completing a review of the Vulnerability Taskforce principles and recommendations. Ambitions include: (i) evolving the role of voluntary standards, working with the FCA and other key bodies to identify areas where the LSB can be the effective oversight body; (ii) taking on the governance role for the APP scams CRM Code, supporting the industry in helping to protect victims of these crimes; and (iii) working with the FCA and PSR to provide a complementary regime of self-regulation thus improving efficiency. Read more FCA responds to Committee’s Consumers’ Access to Financial Services report On 21 June, the House of Commons Treasury Select Committee published the FCA's response to its May 2019 report on consumers' access to financial services. Commenting on the response, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said: “The Treasury Committee’s report made a series of wide-ranging recommendations for the regulator and the Government to consider; recommendations for how consumers’ access to financial services can be improved. But the vast majority of the FCA’s reply to our recommendations appears to be a holding response or lacking in desire to effect any change. For example, we recommended that in addition to the Equalities and Human Rights Commission, the FCA should be given responsibility for the enforcement of the Equality Act. Yet the FCA said that it does not have the expertise as a financial services regulator to carry out enforcement. Why could the FCA not acquire the expertise required to ensure that the Equality Act is enforced and protect vulnerable consumers? The FCA should have another go at responding to our report and approach our recommendations with a far more inquisitive and curious attitude.” Read more CORPORATES/ISSUERS Prospectus regulation: Commission delegated regulation on the format, content, scrutiny and approval of prospectuses published in the OJ On 21 June, Commission Delegated Regulation (EU) 2019/980 of 14 March supplementing Regulation (EU) 2017/1129 as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004, was published in the OJ and shall apply from 21 July. Read more Prospectus Regulation: Commission delegated regulation on RTS published in OJ 0010023-0024973 BK:49450984.5 3 On 21 June, Commission Delegated Regulation (EU) 2019/979 of 14 March supplementing Regulation (EU) 2017/1129 with regard to RTS on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission Delegated Regulation (EU) 2016/301, was published in the OJ. This Regulation shall enter into force on the twentieth day following that of its publication in the OJ and it shall apply from 21 July. Read more FINANCIAL CRIME FATF Report to the G20 Leaders’ Summit On 27 June, the FATF released a report to the G20 Leaders’ Summit. The report sets out FATF's ongoing work to fight money laundering and terrorist financing in the following areas: (i) strengthening the institutional basis, governance and capacity of FATF; (ii) FATF’s work programme on virtual assets; (iii) countering the financing of terrorism; (iv) countering the financing of proliferation of weapons of mass destruction; (v) improving transparency and the availability of beneficial ownership information; (vi) financial technologies, regulatory technologies: digital identity; and (vii) de-risking by banks. The report provides an overview of the FATF’s recent and future work in these areas. Read more Publication of the CBDDQ Capacity Building Materials On June 27, the Wolfsberg Group published a series of materials supporting the implementation of the Correspondent Banking Due Diligence Questionnaire (CBDDQ).The CBDDQ was launched in 2018 as a significant update to the original Wolfsberg AML Questionnaire covering the major aspects of banks’ financial crime programmes (AML, ABC and Sanctions) and is designed to be an enhanced and reasonable standard for cross-border and/or other higher risk Correspondent Banking Due Diligence. The new Wolfsberg capacity building materials include: (i) a short video giving an overview of the CBDDQ and its development and purpose; (ii) a series of 12 videos covering each section of the CBDDQ individually and which are intended for high level training and awareness for banks, supervisors and other public sector bodies; and (iii) a detailed review of the majority of the questions in the CBDDQ highlighting the risks and considerations that the questions are designed to identify as well as setting out clear expectations for the communication between Correspondent and Respondent. Read more Money laundering and terrorist financing controls in overseas jurisdictions – advisory notice On 25 June, HMT issued an advisory notice regarding the risks posed by unsatisfactory money laundering and terrorist financing controls in a number of jurisdictions. The advisory notice contains three categories of higher risk jurisdictions: (i) consider as high risk and apply counter measures and enhanced due diligence measures in accordance with the risks; (ii) consider as high risk and apply enhanced due diligence measures in accordance with the risks, and any other measures as specified by the FATF that have a similar effect in mitigating risks; and (iii) take appropriate actions to minimise the associated risks, which may include enhanced due diligence measures in high risk situations. Read more Outcomes FATF Plenary, 19-21 June On 21 June, FATF President Marshall Billingslea of the United States, chaired the third and last Plenary meeting under the U.S. Presidency in Orlando on 19-21 June. During three days of meetings, delegates discussed the following issues, including FATF initiatives under the U.S. Presidency of the FATF: (i) major strategic initiatives, for example, mitigating risks from virtual asset activities, including a public statement and a risk-approach guidance on virtual assets and virtual asset service providers; (ii) mutual evaluations and follow-up reviews and compliance; (iii) other initiatives, for example, adoption of a report to the G20 leaders; (iv) welcoming the Kingdom of Saudi Arabia as a new member to the FATF; and (v) discussion of the FATF priorities under the Chinese Presidency. Read more Report on the application of Chapter IV of Wire Transfer Regulation On 20 June, the Council of the EU published a cover note along with a report by the EC on the application of chapter IV of the Wire Transfer Regulation (WTR) on information accompanying transfers of funds. Chapter IV of the revised WTR sets out provisions on sanctions and monitoring. The first part of the report describes the state of play of the implementation by Member States of Chapter IV of the Regulation, focusing on 0010023-0024973 BK:49450984.5 4 important horizontal implementation issues, common to several Member States. The second part of the report provides an overview of sanctioning activities of different national supervisory authorities. Read more FINTECH AI in Financial Services On 27 June, UK Finance published a report entitled ‘Artificial Intelligence In Financial Services’. The report begins by exploring what AI is. While terms such as machine learning, deep learning, neural networks and random forests technologies, all components of AI, are likely to be familiar across organisations, UK Finance is focused on the practical exploration of what it means for organisations. These technologies could augment an organisation’s capabilities in compelling new ways, developing solutions that see, hear, speak, and understand customer needs. The report then moves on to address issues, such as: (i) building an AI capable organisation; (ii) owning AI; (iii) ethical AI governance and oversight approach options; (iv) how to implement and scale AI; (v) cyber security and financial crime; and (vi) how to scale AI and demonstrate value. Read more GFIN – One Year On On 25 June, the FCA published a report of the Global Financial Innovation Network (GFIN), GFIN-one year on, in which it reflects on its work in the year since it was established. Since its inception, GFIN has continued to develop its mandate and to grow its membership; as of June there are 35 financial services regulators with full membership status and 7 Observers, including the IMF and the World Bank Group. Going forward, GFIN: (i) intends to focus on formalising their approach for cross-border testing; (ii) will be working together with their RegTech work stream on creating, for example, cross-jurisdictional tests and proofs of concept regarding supervisory technologies or technologies that facilitate compliance for regulated firms; and (iii) will focus on how they can support emerging markets to help define, shape, and develop their respective regulatory markets approach to innovation. Read more INSURANCE Report from the EC on the application of Directive 2009/138/EC On 27 June, the EC published a report to the EP and the Council of the EU on the application of Directive 2009/138/EC on the taking and pursuit of the business of Insurance and Reinsurance (Solvency II) with regard to group supervision and capital management within a group of insurance or reinsurance undertakings. The report assesses the benefit of enhancing group supervision and capital management within a group of insurance or reinsurance undertakings, as required under Article 242(2) of the Solvency II Directive. It is divided into four parts: An introduction in Chapter I; Analysis of supervisory practices and challenges related to the determination of the scope and the exercise of supervisory powers over groups in Chapter II; An assessment of challenges and legal uncertainties related to group solvency calculation, group governance and group reporting in Chapters III and IV; Finally, Chapter V provides a brief overview of developments in the fields of mediation of supervisory disputes and insurance guarantee schemes (IGS), which are not directly related to group supervision. The EC has invited EIOPA to provide by 30 June 2020 technical advice on the issues identified in the report, as well as other related issues that may be detrimental to policyholder protection, as part of the 2020 Review of the Solvency II Directive. Read more Corrigenda On 25 June, a corrigendum to Commission Delegated Regulation (EU) 2019/981 of 8 March amending Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), was published in the OJ. The corrigendum amends Article 1(48) of the Delegated Regulation. Read more MARKETS AND MARKETS INFRASTRUCTURE EBA roadmap for the new market and counterparty credit risk approaches and draft RTS under CRR II On 27 June, the EBA published a report entitled ‘EBA Roadmap For The New Market And Counterparty Credit Risk Approaches’. This report contains an overview of responses received from the industry to its 0010023-0024973 BK:49450984.5 5 December 2017 Discussion Paper entitled ‘Implementation in the EU of the revised market risk and counterparty credit risk frameworks’. It provides a comprehensive overview of EBA deliverables in the area of market risk and counterparty credit risk and outlines the EBA’s intentions and a roadmap, with a view to ensuring the smooth implementation of the new approaches in the EU. The EBA roadmap also aims to deliver swiftly on the new standardised approach for counterparty credit risk (SA-CCR) and on the specific reporting requirements for market risk, which constitute the first step towards the full implementation of the fundamental review of the trading book (FRTB) in the EU. In addition, eleven draft technical standards have been published across 3 different Consultation Papers (CP): the CP on draft RTS on liquidity horizons, the CP on draft RTS on back-testing and profit and loss attribution (PLA) requirements and the CP on draft RTS on criteria for assessing the modellability of risk factors under the Internal Model Approach (IMA). These draft RTS are produced under new CRR II provisions. The entry into force of these technical standards will trigger the three-year period after which institutions, which have been granted permission to use the new IMA for reporting purposes, will be required to report IMA figures. The deadline for responding is 4 October. EBA Roadmap Draft RTS regarding modellability of risk factors Draft RTS regarding back-testing requirements Draft RTS regarding liquidity horizons BoE: risk management approach to collateral referencing LIBOR for use in the Sterling Monetary Framework On 27 June, the BoE published a discussion paper on its risk management approach to collateral referencing LIBOR for use in the Sterling Monetary Framework(SMF). The purpose of this paper is to seek initial feedback on the BoE’s approach to the risk management of collateral that references LIBOR and is positioned at the BoE for use in its market operations, as sterling and other markets transition away from LIBOR towards alternative risk‐free reference rates. Section 2 provides a brief background to both the LIBOR transition process and the BoE’s collateral framework. Section 3 describes some of the potential implications for the Bank’s balance sheet from LIBOR transition. Section 4 outlines a number of possible risk management approaches currently under consideration by the BoE to ensure that it remains well placed to provide liquidity insurance in support of financial stability. It further poses some questions for discussion. Views on these questions are sought, both from firms that are signed up (or expect to sign up) to the SMF and from any other interested parties. Responses will be used to help frame the BoE’s future risk management approach with regards to collateral referencing LIBOR, which it will publish in due course after careful consideration. The deadline for responding is 27 September. Read more FCA confirms recognition of the FX Global and UK Money Markets Codes On 26 June, the FCA published a statement confirming it recognised the following voluntary market codes of best practice under its codes recognition scheme: (i) FX Global Code; and (ii) UK Money Markets (MM) Code. The FCA established its codes recognition scheme last year for recognising industry codes for unregulated financial markets and activities. The FX and MM Codes are the first codes to be recognised by the FCA. Following recognition, the FCA will not supervise firms or individuals directly against these codes in unregulated markets. The FCA’s role is to make sure that firms meet their governance and systems and control obligations, including under the SM&CR. The FCA expects firms and individuals to consider both the spirit and letter of code provisions to make sure they fully meet ‘proper standards of market conduct’. Read more Council sets its position on easier access to crowdfunding platforms On 26 June, the Council of the EU announced that it had agreed its compromise proposal in respect of the proposed new regulatory framework for the operation of crowdfunding platforms. The Council position: (i) removes barriers for crowdfunding platforms operating cross-border; (ii) provides tailored rules for EU crowdfunding businesses depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds); (iii) provides a common set of prudential, information and transparency requirements to ensure a high level of investor protection; and (iv) defines common authorisation and supervision rules for national competent authorities. The EP adopted its first reading position on 27 March. Both co-legislators are now in a position to start trilogue negotiations. Read more Proxy Advisors (Shareholders’ Rights) Regulation Implementation (DEPP and EG) On 26 June, the FCA published a consultation paper in which it sets out how it will amend the Decision Procedure and Penalties manual (DEPP) and Enforcement Guide (EG) to implement the new obligations on proxy advisors set out by the revised Shareholder Rights Directive in the UK. The FCA proposes decision 0010023-0024973 BK:49450984.5 6 making procedures to: (i) remove an advisor from the public list of proxy advisors if they stop providing services but have not given the FCA notice to be removed from the list; and (ii) investigate and discipline proxy advisors that must meet the Proxy Advisors (Shareholders' Rights) Regulations but are not authorised by us or the PRA under the Financial Services and Markets Act 2000. The deadline for responding is 26 July. Read more Financial Services and Markets Act 2000 (Prospectus) Regulations 2019 On 25 June, the Financial Services and Markets Act 2000 (Prospectus) Regulations 2019 were published. These Regulations give effect to the EU Prospectus Regulation by making amendments to the Financial Services and Markets Act 2000. Part 1 designates the FCA as the competent authority. Key changes introduced by the Prospectus regulation include: (i) the introduction of the EU Growth Prospectus – a lighter, less burdensome document for SMEs (and certain other issuers) to produce when issuing securities to the public or seeking admission to trading on a regulated market; (ii) a simplified disclosure regime for secondary issuances; (iii) an increase in the information that can be included in the prospectus by reference; and (iv) the introduction of a Universal Registration Document (a registration document describing the company’s organisation, business, financial position, earnings and prospects, governance and shareholding structure) to be filed annually, that enables a full prospectus (when prepared) to be approved within a shorter timeframe. The Regulations come into force on 21 July. Read more ESMA’s letter to the EC regarding delaying review of certain MiFID II transparency requirements On 25 June, ESMA published a letter sent by ESMA Chair, Steven Maijoor, to the EC Director General for Financial Stability, Financial Services and CMU, Olivier Guersent, on the annual review on transparency requirements for non-equity instruments (RTS 2). ESMA considers that the remaining uncertainties regarding the timing and conditions of Brexit do not allow for an adequate assessment at this point in time. Brexit will in all likelihood affect liquidity in bond and derivatives markets and the value of the assessment will be limited when conducted before these effects have materialized. Therefore, ESMA does not consider that this is a suitable time for performing the assessment and for potentially tightening the transparency rules in RTS 2. Read more COREPER invited to agree negotiating mandate On 25 June, the Council of the EU published an ‘I’ item note from COREPER on the mandate for negotiations with the EP regarding the proposal for a Regulation on European Crowdfunding Service Providers (ECSPs) and the proposal for a Directive amending Directive 2014/65/EU on markets in financial instruments. Read more ESMA consults on short-termism in financial markets On 24 June, ESMA published a questionnaire which aims to gather evidence on potential short-term pressures on corporations stemming from the financial sector. By December, ESMA will deliver a report to the EC based on its findings, in line with the EC’s request to each of the three ESAs. The report will present evidence and possibly advice on potential undue short-termism. The EC will consider ways to follow up on the report’s findings, which may include policy actions. The deadline for responding is 29 July. Read more FMLC report on uncertainty in EU Blocking Regulation On 21 June, the UK Financial Markets Law Committee (FMLC) published a report on the uncertainty that has arisen since the recent imposition of US sanctions with extra-territorial effect, mainly in relation to Iran, and the EU Blocking Regulation. Section 1 of the paper sets out an executive summary and introduction. Section 2 sets out the background to the legal framework to the Blocking Regulation, including the manner in which it is implemented in the U.K. Section 3 considers the issues of legal uncertainty arising under English law as a result of the extension of the Blocking Regulation. In particular, Section 3 addresses issues of legal uncertainty arising under the Blocking Regulation with respect to: (i) definitional analyses; (ii) its applicability to private counterparties; (iii) its jurisdictional scope; (iv) the authorisation procedure; (v) the ability to bring certain damages claims under the Blocking Regulation; and (vi) the U.K. implementation of the Blocking Regulation. Section 4 considers the impact that these issues of legal uncertainty may have on market participants. The paper concludes in Section 5 by proposing some solutions to resolve certain issues of legal uncertainty, where possible. Read more 0010023-0024973 BK:49450984.5 7 ESMA makes available updated results of the annual transparency calculations for equity and equitylike instruments On 21 June, ESMA made available updated results of the annual transparency calculations for equity and equity-like instruments. The updated results of the annual transparency calculations for equity and equity-like instruments shall apply from 8 July until 31 March 2020, and they reflect: (i) the adjustment of the average daily number of transactions on the most relevant market determining the tick-size regime for shares whose main pool of liquidity is in a third country in accordance with CDR 2019/443; (ii) late corrections of the underlying data used to perform the calculations by reporting entities. This is the data provided to Financial Instruments Transparency System by trading venues and approved publication arrangements in relation to the calendar year 2018; and (iii) the adjustment of the most relevant market in accordance with CDR 2017/590. From 1 April 2020, the next annual transparency calculations for equity and equity-like instruments to be published by 1 March 2020, will become applicable. Read more Delegated Regulation amending MiFID II to promote use of SME growth markets published in OJ On 21 June, Commission Delegated Regulation (EU) 2019/1011 amending Commission Delegated Regulation (EU) 2017/565 as regards certain registration conditions to promote the use of SME growth markets was published in the OJ. MiFID II includes standards an SME issuer must meet in order to qualify as an SME and for its securities to be traded on an SME growth market. Commission Delegated Regulation (EU) 2019/1011 amends Article 77 and 78 in order to address the issue that these standards are seen as too restrictive. This Regulation shall enter into force on the day following that of its publication in the OJ. It shall apply from 11 October. Read more The future of finance report On 20 June, the BoE published its response to a report on the future of finance. The report looks at: (i) how the economy is changing; (ii) how finance can serve and support these changes; and (iii) what it could mean for the BoE. In particular, the report looks at how the BoE should: (i) shape tomorrow’s payment system; (ii) enable innovation through modern financial infrastructure; (iii) support the data economy through standard and protocols; (iv) champion global standards for finance; (v) promote the smooth transition to a low carbon economy; (vi) adapt to the needs of a changing demographic; (vii) safeguard the financial system from evolving risks; (viii) enhance protection against cyber risks; and (ix) embrace digital regulation. In response, the BoE has announced it will take a number of actions to address five key areas. These include supporting a more innovative and competitive payments system that will be suitable for the digital age Read more PAYMENT SERVICES AND PAYMENT SYSTEMS Access and governance report on payment systems: update on progress On 27 June, the PSR published its fourth report on access to payment systems and the governance of payment system operators in the UK. The report covers the following developments: (i) a record-high year for new participants - 12, up from seven in 2017 – joined FPS, Bacs and CHAPS in 2018; (ii) expanded access - the first non-bank payment service providers (PSPs) joined these systems; (iii) more indirect access providers (IAPs) - there are more IAPs in the market that are actively onboarding PSPs than ever before; and (iv) increased choice - the increasing number of PSPs with access to interbank payment systems has led to improvements in the quality and range of services that consumers receive. The PSR expects credit institutions to meet all aspects of their obligations under regulation 105 of the PSRs 2017, however, where the PSR suspects that credit institutions are not complying with their obligations, it will continue to consider all options available including formal enforcement proceedings, having regard to the factors set out in our Administrative Priority Framework (APF). Read more Opinion of the EBA on the elements of strong customer authentication under PSD2 On 21 June, the EBA published an opinion on elements of strong customer authentication (SCA) under PSD2. The opinion contains both general and specific comments addressed to competent authorities in relation to what may or may not constitute SCA. It focuses on the different elements (inherence, knowledge and possession) that would constitute compliant factors for SCA and it considers the existing authentication approaches in e-commerce. This opinion is complementary to the EBA Opinion on the implementation of the RTS, published in June 2018, as well as the questions and answers (Q&As) published on the topic. Read more 0010023-0024973 BK:49450984.5 8 PRUDENTIAL REGULATION PRA Speech: Bank regulation: on the benefits of flexibility On 26 June, the PRA published a speech by the PRA Executive Director of Prudential Policy, Victoria Saporta, on the benefits of flexibility in bank regulation. In her speech, Victoria Saporta explains why the PRA has to be robust but flexible when responding to the future challenges. Technology is transforming the financial system she says and UK regulators must have the powers and tools to respond flexibly to the opportunities and risks it brings. Vicky also outlines the PRA’s approach to liquidity policy now that the international banking reforms are in place. She set out three priority issues for implementation: (i) cashflow mismatch risk; (ii) the Net Stable Funding Ratio; and (iii) asset encumbrance. Read more BCBS: Revisions to leverage ratio disclosure requirements On 26 June, the BCBS published a document setting out revisions to the leverage ratio disclosure requirements. The BCBS reviewed the comments received on the consultative document and conducted a quantitative impact study of the range of proposed treatments. Based on these inputs, the BCBS has agreed that internationally-active banks must disclose the amounts of adjusted gross securities financing transaction (SFT) assets (as defined in paragraph 51(i) of the leverage ratio standard) based on quarter-end values and on an average of daily values over the quarter as part of their Pillar 3 requirements, in addition to disclosure of the total leverage exposure and the leverage ratio as calculated using the averaged value of SFTs. Given the heightened volatility in SFT markets around quarter-end dates, the disclosure of banks’ average SFT exposures during the quarter will provide stakeholders with additional information related to banks’ actual leverage. This revision will apply to the Pillar 3 disclosure requirements associated with the version of the leverage ratio standard that will serve as the Pillar 1 minimum capital requirement as of 1 January 2022. Revisions to the Pillar 3 disclosure templates and instructions that will serve to implement these revised disclosure requirements are set out in the Annex to this document. Read more FSB: Progress in implementation of G20 financial regulatory reforms On 25 June, the FSB published a summary progress report on implementing the G20 financial regulatory reforms. The report summarises the progress made by FSB member jurisdictions in implementing regulatory reforms to fix the fault lines that led to the global financial crisis and build a safer, more resilient financial system. It is accompanied by an updated colour-coded table showing the status of implementation across FSB jurisdictions for core reform areas, including changes since the November 2018 G20 Summit. The next full progress report on implementation and effects of reforms will be delivered to the G20 and published in October. Read more EBA issues 2020 EU-wide stress test methodology for discussion On 25 June, the EBA published the 2020 EU-wide stress test draft methodology, templates and template guidance, which will be discussed with the industry. The 2020 exercise will assess EU banks' resilience to an adverse economic shock and inform the 2020 Supervisory Review and Evaluation Process. The methodology covers all risk areas and builds on the methodology prepared for the 2018 exercise, while improving some aspects based on the lessons learnt. The final methodology will be published by the end of the year. The EU-wide stress test will be launched in January 2020 and the results published by the end of July. Read more Pillar 2 liquidity: PRA110 reporting frequency threshold On 25 June, the PRA published a consultation paper (CP) on Pillar 2 liquidity: PRA110 reporting frequency threshold. In this CP, the PRA sets out its proposal to amend the reporting frequency of the PRA110 reporting template when a firm is in stress. The proposed rule would introduce a further threshold of total assets of £5 billion or above, calculated in accordance with Council Directive 86/635/EEC. Firms above this threshold, that would otherwise report PRA110 monthly, would report on every business day if (and for as long as) there is a specific liquidity stress, or market liquidity stress in relation to the firm, branch, or group in question. The proposals in this CP would make amendments to: (i) the Regulatory Reporting Part of the PRA Rulebook (Appendix 1 and Appendix 2); and (ii) Supervisory Statement (SS) 24/15 ‘The PRA’s approach to liquidity and funding risk’ (Appendix 3). The deadline for responding is 27 September. Read more 0010023-0024973 BK:49450984.5 9 Addendum to the SRB 2018 MREL policy on new CRR requirements On 25 June, the SRB published an addendum to its 2018 policy on the minimum requirement for own funds and eligible liabilities (MREL) for the second wave of resolution plans with the aim of informing institutions in the SRB’s remit of the interplay between certain key regulatory changes in the so-called ‘Banking Package’ and the SRB’s MREL policies and decisions. With this addendum, the SRB informs institutions of the implementation of CRR provisions relating to total loss-absorbing capacity requirements for globalsystemically important institutions (G-SIIs), as well as the permission regime under Article 78a CRR applicable to all institutions. This addendum aims to summarise and explain key new elements of the CRR that are relevant for the SRB and its tasks. However, it does not purport to cover all the new legislative provisions that may be relevant for the institutions under the SRB’s remit in other areas of regulation. Pillar 1 requirements for G-SIIs are applicable as of 27 June. Read more Overview of Pillar 2 supervisory review practices and approaches On 21 June, the BCBS published a report setting out an overview of Pillar 2 supervisory review practices and approaches. The report provides a broad overview of the key concepts of Pillar 2 and presents a description of different practices in use across Basel Committee member jurisdictions. While the report covers a range of topics, it is not a comprehensive stocktake of all Pillar 2-related topics for all Basel Committee member jurisdictions. Rather, the report highlights key areas of the Pillar 2 framework and provides examples and case studies of the ranges of practices. Supervisors will continue to develop Pillar 2 practices over time and adjust to new risks and methodologies. Read more Basel Committee discusses policy and supervisory initiatives and approves implementation reports On 20 June, BCBS published a press release summarising the on-going policy and supervisory initiatives that were discussed when the BCBS met in Basel on 19-20 June. At its meeting, the BCBS: (i) agreed on a targeted and limited revision of the leverage ratio to allow margin received from a client to offset the exposure amounts of client-cleared derivatives. This revision, which will be published next week, seeks to balance the robustness of the leverage ratio as a safeguard against unsustainable levels of leverage with the G20 Leaders' commitment to promote the central clearing of standardised derivative contracts. The BCBS will monitor the effect of this revision on the leverage ratio framework; (ii) agreed on a set of disclosure requirements to curb leverage ratio window dressing, building on the measures outlined in a BCBS newsletter published last year. The standard will be revised to require banks to disclose their leverage ratios based on the quarter-end and average values of securities financing transactions. These disclosure requirements will be published next week. The BCBS will continue to monitor window-dressing behaviour across financial markets; (iii) approved a report on Pillar 2 supervisory practices and approaches, which will be published shortly; and (iv) reviewed the reports that assessed the implementation of the Net Stable Funding Ratio and large exposures standards in Australia, Canada and India. Publication of these reports is expected in July. Read more OTHER DEVELOPMENTS Philip Hammond Mansion House dinner speech 2019 On 20 June, HMT published a speech by the Chancellor of the Exchequer, Phillip Hammond, at the Mansion House. The issues addressed by Mr. Hammond (in addition to Brexit) include: (i) HMT conducting a review of the payments landscape; (ii) the growing presence of FinTech, especially initiatives such as open banking; and (iii) the government planning a long-term review of the UK’s future regulatory framework. Read more