31 posts categorized "EMEA Centre for Regulatory Strategy"
Earlier this week, the European Supervisory Authorities (ESAs) published the much anticipated consultation paper and draft regulatory technical standards (RTS) setting out of risk-mitigation techniques for OTC derivative contracts not cleared by a CCP under Article 11 of the European Market Infrastructure Regulation (EMIR).
This week, EU legislators, at the last plenary session of the current Parliament, will push a bumper package of financial sector regulation over the line. The table below lists key directives and regulations relating to the regulation of financial services passed by the current European Parliament and identifies the seven that were signed off yesterday. This package more or less completes the EU's programme to deliver on the G20's post‑crisis commitments. Ahead of the parliamentary elections in May, we look back at what the current configuration of the European Parliament, Council and Commission has achieved over the past five years, and what business remains unfinished.
Firms currently in the midst of implementing the European Market Infrastructure Regulation
(EMIR) will be left with little doubt that the cost of doing business in over-the-counter (OTC) derivatives is set to increase. But to date there has been little clarity as to the size of the increase in costs and how they will differ for a cleared trade versus a non-cleared trade. In our paper ‘OTC Derivatives – The new cost of trading’, we explore how much more expensive cleared and non-cleared OTC derivative transactions will become as a result of the EU OTC derivative reform package; how the structure of OTC derivative markets is set to change; and what strategic challenges arise for firms.
The Financial Conduct Authority (FCA) published on 31 March 2014 its Risk Outlook and Business Plan for 2014-15. Together, these two documents are a must-read for firms as they set out the FCA’s proposed action for the year ahead. The FCA expects firms to look at their business models, strategy and structure to assess whether they are effectively identifying and managing the relevant risks outlined in the Risk Outlook. As stressed by John Griffith-Jones, FCA Chair, “the risks in this document should not just be of concern to the FCA but also to the industry as a whole”.
Efforts to establish the Banking Union took an important step forward yesterday with provisional agreement reached between the European Parliament and Member States on the Single Resolution Mechanism (SRM), after months of difficult negotiations.
The Prudential Regulation Authority’s (PRA) new supervisory approach to foreign bank branches “is expected to require some branches to either exit the market or become a subsidiary”, according to a new consultation paper released today.
The paper sets out the PRA’s proposed approach to supervising international banks, largely focusing on branches of non-European Economic Area (EEA) firms. While the paper provides new details and explanations, it largely confirms the recent experiences of firms seeking to set up (particularly retail) branch operations. A number of things jump out from the paper:
- The PRA’s concerns are greatest with respect to retail banking activity conducted through branches, rather than wholesale activities – the PRA expects new non-EEA branches to focus on wholesale, and to do so at a level that is not critical to the UK economy; high volumes of retail business in branches of non-EEA banks will require “a very high level of assurance” over resolution;
On Friday, the European Banking Authority (EBA) announced the main features of the 2014 EU-wide stress test it will conduct. The European Central Bank (ECB) followed up today with a note on how the stress test will fit in its comprehensive assessment. The announcements were significant in setting out the direction of travel – the ways in which the 2014 stress test will differ (or not) from the 2011 stress test and how the stress test will fit within the ECB comprehensive assessment.
As the third leg in this assessment, the stress test will follow the Asset Quality Review (AQR) and inform conclusions on any capital shortfalls that big Eurozone banks will have to fill before the Single Supervisory Mechanism (SSM) begins. Eurozone banks and supervisors have been busy preparing for the AQR. Friday’s announcement signals that completing the stress test is another significant endeavour, whose deadline is fast approaching.
Today marks the ‘end of the beginning’ for EU bank structural reform, after the Commission published its long-awaited proposal for a Regulation which would ban proprietary trading at the biggest banks in the EU and ring-fence some of their remaining trading activities.
Firms that engage in securities lending and repos, referred to as securities financing transactions (SFTs), will face EMIR-like reporting requirements and stricter rules on rehypothecation under a proposal published today by the European Commission. Investment funds will also be subject to increased disclosure requirements. The proposal is designed to enhance transparency and forms part of a wider package of reforms to address the risks posed by shadow banking. It has been published alongside a proposal on structural reform for banks (see our blog for further detail), reflecting concerns from the Commission that structural separation measures might lead to banks shifting parts of their activity into the less-regulated shadow banking sector.
After more than two years of negotiations, a political agreement was reached last night on the revision to the Markets in Financial Instruments Directive and Regulation (MiFID II / MiFIR). This marks a key milestone in the progress of the reforms which are set to change the landscape for EU capital markets fundamentally. The deal is intended to make markets more resilient by overhauling over-the-counter (OTC) derivatives trading and curbing algorithmic and high-frequency trading; increase transparency in equity, bond, derivative and commodity markets; increase competition in the clearing and trading space; and enhance investor protection. While negotiations have been lengthy, the hiatus that would have been caused by the European Parliament elections in May provided the impetus to get the agreement over the line.