|
Discussion and Analysis
The SEC recently adopted new rules that substantially amend Form ADV under the Investment Advisers Act of 1940, as amended (the Advisers Act). Although not as comprehensive as the Form ADV amendments adopted in 2011, the new rules implement significant revisions to the form, including expanding the information collected with respect to separately managed accounts (SMAs), codifying under the term “umbrella registration” previous staff no-action relief permitting affiliated advisers to private funds operating a single advisory business to file a single Form ADV (the Relying Adviser Relief), and making certain clarifying and technical amendments to the form. The new rules also add to the books and records required to be kept related to performance claims. These new rules become effective October 31, 2016, and have a compliance date of October 1, 2017, so investment advisers with a December 31 fiscal year end will be required to comply with the revised reporting requirements no later than their annual amendment filing in the first quarter of 2018.
Some of the most important points of the new rules include:
Disclosure regarding separately managed accounts
The new rules require investment advisers to report new information about their SMA businesses. SMAs include any client account other than a registered investment company, business development company or other pooled investment vehicle (e.g., private funds). While the amount of relevant information regarding SMA business was previously limited, the SEC is seeking to make the level of disclosure related to SMAs comparable to that collected with respect to an adviser’s private fund business. Thus, an adviser with regulatory assets under management (RAUM) attributable to SMAs (SMA RAUM) is required to provide information about the types of assets held in SMAs, the use of derivatives and borrowing, and the custodians used for such SMAs. Reporting with respect to SMAs will increase incrementally at SMA RAUM thresholds of $500 million and $10 billion, and an adviser that acts as sub-adviser to an SMA will only have to report the required information with respect to the portion of the account for which it acts as sub-adviser. An adviser with its principal place of business outside the US must report information about all of its SMAs and may not exclude those owned by non-US persons.
Additional information about investment advisers
More information about the adviser, its advisory business and its affiliations will be included in Items 1, 5 and 7 of Form ADV Part 1 under the new rules. Under Item 1, an adviser will be required to disclose: (i) the total number of offices in which it conducts advisory business, and information regarding its 25 largest offices including the number of employees providing advisory functions and the types of other business activities conducted from such offices; (ii) websites and publicly-available social media platforms on which the adviser controls the content; (iii) the name and IRS Employer Identification Number for any person other than the adviser or a related person (unless it is a registered investment company advised by the adviser) that compensates or employs the adviser’s chief compliance officer; and (iv) if the adviser’s own balance sheet assets (as opposed to client assets) are at least $1 billion, the approximate amount of its assets within specified ranges.
New Item 5 disclosures include: (i) the number of clients and amount of RAUM attributable to 14 specified categories of clients; (ii) the number of clients for which the adviser provided advisory services but for whom it does not have RAUM (e.g., a non-discretionary account); (iii) whether the adviser reports client assets in Part 2A of Form ADV different from the RAUM reported in Part 1A; and (iv) certain additional information concerning wrap fee programs. In Item 7, an adviser must now disclose certain identifying numbers (e.g., PCAOB registration numbers) of service providers to the private funds it advises, and advisers to private funds that rely on the 100 or fewer holders exclusion from being an investment company (Investment Company Act Section 3(c)(1)) must indicate whether sales of interests in such private funds are limited to “qualified clients,” as defined in Advisers Act Rule 205-3.
Umbrella registration of affiliated investment advisers
The new rules effectively codify the Relying Adviser Relief by expressly permitting the “umbrella registration” on a single Form ADV of certain affiliated advisers operating a single advisory business, provided that certain conditions are met. Because Form ADV was not originally designed to accommodate registration of multiple entities, the use of a single form to facilitate registration of multiple entities under the Relying Adviser Relief led to complications and confusion. As amended, the General Instructions to Form ADV now provide standardized instructions for affiliated advisers seeking to file a single Form ADV, provided that the conditions for umbrella registration are satisfied.
Umbrella registration is only available to US investment advisers. The SEC declined to expressly apply it to affiliated entities that are exempt reporting advisers, but stated that the new rules do not withdraw previous SEC guidance that permits certain exempt reporting advisers to file a single Form ADV on behalf of multiple special purposes entities.
Recordkeeping
The new rules also amend Advisers Act Rule 204-2 to require investment advisers to maintain additional supporting materials related to calculation and distribution of investment performance information. Specifically, the revisions require an investment adviser to maintain records supporting performance information distributed to any person (prior Rule 204-2 required retention of such information in relation to communications distributed to 10 or more persons), and require investment advisers to maintain all written communications sent or received relating to performance or rate of return of all managed accounts or securities recommendations (the rule previously required advisers to maintain only certain categories of such written communications).
Investment advisers should review the changes now in order to be ready to comply with these substantial new reporting requirements before the October 2017 compliance date. Advisers that currently rely on umbrella registration should also confirm that they will continue to be eligible under the new rules and instructions, and should review new Schedule R and the information required to be disclosed on it with respect to relying advisers in advance of the compliance date.
A more detailed discussion of the new rules can be found in our Financial Services Alert: “SEC adopts substantial new reporting requirements for investment advisers on Form ADV: key points.”
Back to top 
|
|
News from the Americas
Canada
OSC Announces Seniors Expert Advisory Committee Members for 2016-2017. The OSC announced the membership of its new Seniors Expert Advisory Committee, which advises OSC staff on securities-related policy and operational developments that impact older investors and will provide input on the OSC’s related education and outreach activities. (9/7/2016)
OSC Chair/CEO to deliver first keynote address. The OSC announced that Maureen Jensen, OSC Chair and CEO, will be delivering her first keynote address, Protecting Investors, Fostering Confidence: New Initiatives from the OSC, on September 27, 2016, at the Toronto Region Board of Trade. Chair Jensen’s keynote address will outline game-changing initiatives by regulators and what these initiatives will mean for market participants and investors. (9/7/2016)
Back to top
US Securities and Exchange Commission Developments
Guidance
Technical support FAQs for EDGAR filers. The Securities and Exchange Commission published frequently asked questions and answers prepared by the EDGAR Filer Technical Support Team, which include information about obtaining CIKs for EDGAR access, error messages, and browser requirements. (9/6/2016) SEC EDGAR Filer Technical Support Frequently Asked Questions.
Exemptive Orders
BlackRock receives SEC’s permission to participate in joint lending and borrowing facility. The SEC issued an order granting an exemption from several sections of the Investment Company Act and Rule 17d-1 to various BlackRock funds that will allow them to participate in a joint lending and borrowing facility. (9/6/2016)
Selected Enforcement Actions
Executive of IT company’s Chinese subsidiary settles FCPA charges. The SEC instituted settled administrative proceedings against the former chairman and CEO of a China-based subsidiary of an international communications and information technology company for violations of the Foreign Corrupt Practices Act. The SEC alleged that the CEO of Harris Corporation’s Chinese subsidiary operated a bribery scheme in which he arranged for illegal gifts to Chinese government officials to obtain and retain business, and circumvented Harris’s internal accounting controls by recording false information about the gifts in the subsidiary’s books and records. Without admitting or denying the allegations, the CEO settled the charges by consenting to the entry of a cease-and-desist order and agreeing to pay a civil penalty of US$46,000. (9/13/2016) In the Matter of Jun Ping Zhang, SEC Release No. 34-78825.
Health product company executive fraudulently touted company’s stock. The SEC brought civil charges against the CEO of a health products company and a paid promoter for fraudulently promoting the company’s stock. The SEC alleged that the CEO of Empowered Products Inc. hired the promoter to work for the CEO’s separate newsletter publishing business and assist him in writing online newsletter articles to promote the company, which they falsely attributed to independent authors. The CEO and his employee hired promoters to distribute the promotional articles without disclosing that Empowered Products and the CEO approved and paid for the advertisements. (9/6/2016) SEC press release.
Speeches and Statements
Disruptive trading rule on hold, ATS transparency rule moving forward. In a speech at the Security Traders Association’s Annual Market Structure Conference, SEC Chair Mary Jo White said that the SEC will consider a final proposal for rules requiring disclosures by alternative trading systems about their operations in the next few months. White also said that the SEC would wait to propose an anti-disruptive trading rule until after it received comments on staff’s work in this area, describing the task of “developing the right regulatory response” to disruptive trading practices as “difficult.” (9/14/2016) White remarks.
Ceresney reviews impact of SEC’s whistleblower program. In a speech at the Sixteenth Annual Taxpayers against Fraud Conference, SEC Division of Enforcement Director Andrew Ceresney discussed the impact of the SEC’s whistleblower program and provided an overview of the different types of whistleblowers that have participated in the program. (9/14/2016) Ceresney remarks.
White says fiduciary rule proposal not imminent. Investment News reported on SEC Chair Mary Jo White’s remarks during a question-and-answer session at the North American Securities Administrators Association conference. White said that SEC commissioners are considering staff recommendations on a potential rule to raise standards for retail investment advice, but the agency does not plan to issue a proposed rule in the near future. (9/12/2016)
Piwowar addresses issues facing corporate and municipal bond markets. SEC Commissioner Michael S. Piwowar discussed recent regulatory efforts related to the fixed income market structure, the need for pre-trade price transparency, and possible changes to the reach of the Tower Amendment to permit the SEC to regulate certain issuers of municipal debt, at the Financial Industry Regulatory Authority’s 2016 Fixed Income Conference. (9/7/2016) Piwowar remarks.
Other Developments
Small and Emerging Companies Advisory Committee meeting. The SEC’s Advisory Committee on Small and Emerging Companies will hold a public meeting on October 5, 2016. Written statements are due on or before October 3, 2016. SEC Release No. 33-10208.
SEC awards US$4 million to whistleblower. The SEC announced that it has awarded over US$4 million to a whistleblower who provided original information about a fraud that led to a successful enforcement action. (9/20/2016) SEC press release.
EDGAR updates. The SEC published the EDGAR ABS XML Technical Specification (Version 1.3) and the EDGAR Filer Manual (Volume II) EDGAR Filing (Version 38). (9/19/2016)
SEC publishes list of rules under review pursuant to Regulatory Flexibility Act. The SEC released the list of rules scheduled for review pursuant to the Regulatory Flexibility Act that have a significant economic impact upon a substantial number of small entities. Comments are due on or before October 20, 2016. (9/15/2016) SEC Release No. 33-10209. SEC Commissioner Michael S. Piwowar noted that by including Regulation NMS in the list of rules under review, the SEC has the opportunity to consider changes to the rules as a part of “a comprehensive equity market structure review program.” Piwowar remarks.
Staff announcements. The SEC announced that Jennifer Marietta-Westberg, Deputy Chief Economist and Deputy Director of the SEC’s Division of Economic and Risk Analysis, will leave the agency to join the private sector. (9/15/2016) The SEC named Sarah G. ten Siethoff to serve as the Deputy Associate Director in the Division of Investment Management’s Rulemaking Office. (9/7/2016)
Investor Advocate encourages SEC to extend proposed ATS disclosure requirements to fixed income ATSs. In a letter to the SEC, Investor Advocate Rick A. Fleming indicated his support for the SEC’s proposed amendments to Regulation ATS, which would require ATSs to disclose additional information about their operations and activities. Fleming also urged the SEC to modify the proposal to require ATSs that transact solely in government securities to file the current version of Form ATS and to make filings on current Form ATS public for all fixed income ATSs. (9/9/2016) Investor Advocate letter.
OCIE announces supervision initiative targeting advisers that employ representatives with disciplinary histories. The SEC’s Office of Compliance Inspections and Examinations announced that it will conduct an examination sweep of supervision practices at registered investment advisers, with a specific focus on firms’ business and compliance practices related to the supervision of employees who have a history of disciplinary actions. The examinations will focus on key risk areas, including advisers’ compliance programs; disclosures of regulatory and disciplinary actions; conflicts of interest in financial arrangements initiated by higher-risk employees; and marketing materials. (9/12/2016) OCIE Risk Alert.
MIAX PEARL seeks registration as national securities exchange. MIAX PEARL, LLC submitted an application to the SEC seeking registration as a national securities exchange operating a fully automated electronic trading platform for the trading of listed options. Comments are due on or before October 31, 2016. (9/8/2016) SEC Release No. 34-78793.
SEC issues revised Form ADV. The SEC released a revised version of FORM ADV that reflects many of the changes to the form resulting from the SEC’s recently adopted amendments to disclosure requirements for investment advisers under the Investment Advisers Act. (9/7/2016) Revised Form ADV.
Back to top
US Commodity Futures Trading Commission Developments
Final rules on system safeguards testing requirements. The CFTC adopted a final rule amending its current system safeguards rules for designated contract markets, swap execution facilities, and swap data repositories, by enhancing and clarifying current provisions relating to system safeguards risk analysis and oversight and cybersecurity testing, and adding new provisions concerning certain aspects of cybersecurity testing. The CFTC also adopted enhanced requirements for testing by a derivatives clearing organization of its system safeguards, as well as additional amendments to reorder and renumber certain paragraphs within the regulations and make other minor changes to improve the clarity of the rule text. (9/19/2016)
Yieldbroker qualifies for first-of-its-kind no-action relief. The CFTC announced that its Divisions of Market Oversight and Swap and Intermediary Oversight have stated that Yieldbroker, a multilateral swaps trading facility that is licensed and regulated in Australia, has qualified for no-action relief in connection with CFTC No-Action Letter No. 15-29. This makes Yieldbroker the first foreign-regulated, multilateral swap trading facility that permits direct access to US persons to qualify for long-term no-action relief from the requirement to register as a swap execution facility with the CFTC. (9/14/2016) No-Action Letter No. 16-72.
CFTC approves final rules for system safeguards resting requirements and comparability determination for Japan uncleared swap margin rules for substituted compliance. The CFTC announced that it approved final rules for system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories, and derivatives clearing organizations. In addition, the CFTC approved a comparability determination that would allow substituted compliance with certain of Japan’s margin requirements for uncleared swaps as compared to the uncleared swap margin provisions of Title VII of Dodd-Frank and CFTC regulations. (9/8/2016)
CFTC signs MOU with two Mexican authorities to enhance supervision of cross-border regulated entities. The CFTC announced that CFTC Chair Timothy Massad signed an MOU with the Comisión Nacional Bancaria y de Valores and the Banco de México regarding cooperation and the exchange of information in the supervision and oversight of certain regulated entities that operate on a cross-border basis in the US and Mexico. The scope of the MOU includes central counterparties and trade repositories. (9/6/2016)
Back to top
US Banking and Treasury Department Developments
OCC
OCC Comptroller delivers remarks on the federal banking system. Comptroller of the Currency Thomas J. Curry delivered the 2016 Robert Glauber Lecture at the Harvard Kennedy School, where he discussed how the financial system has progressed since the Great Recession, its present strengths, and the need to remain vigilant against risks. (9/15/2016)
Bank Supervision Operating Plan for Fiscal Year 2017. The OCC announced the release of its bank supervision operating plan for fiscal year 2017. (9/14/2016)
OCC requests comment on its proposed rule on receiverships for uninsured national banks. The OCC announced that it is requesting comment on a proposed rule to implement the basic legal framework for receiverships set forth in the National Bank Act. The proposed rule would apply to receiverships for any national bank that is not insured by the FDIC and for which the FDIC is not required to be appointed as receiver, such as an uninsured trust bank. This proposed rule would not apply to federal savings associations, all of which are insured. The comment period for the proposed rule ends on November 14, 2016. (9/13/2016)
Newsletter focuses on housing financing in Indian Country. The OCC announced its publication of the latest edition of its Community Development Investments newsletter entitled “Housing Financing in Indian Country: Spotlight on HUD’s Title VI Program.” This issue describes the Department of Housing and Urban Development’s Title VI loan guarantee program, and presents examples of how banks have used the program to extend financing for housing in Indian Country. This edition also reviews how these activities may be eligible for Community Reinvestment Act consideration. (9/9/2016)
OCC requests comment on proposed rule on industrial and commercial metals. The OCC requested comment on a proposed rule to prohibit national banks and federal savings associations from dealing and investing in “industrial or commercial metal.” Pursuant to the proposed rule, the term “industrial or commercial metal” means metal (including an alloy) in a physical form primarily suited to industrial or commercial use; for example, copper cathodes. (9/8/2016)
OCC names Deputy Comptroller for Leadership, Executive and Organizational Development. The OCC announced that it has selected Patricia Pointer to be its Deputy Comptroller for Leadership, Executive and Organizational Development, effective September 18, 2016. (9/6/2016)
FDIC
New resources unveiled to help community bankers learn more about affordable mortgage programs. The FDIC announced that it has published The Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises, and launched the Affordable Mortgage Lending Center, an online resource center to help community bankers learn more about single-family housing products offered by federal agencies and government-sponsored enterprises. (9/15/2016)
New Director for Center for Financial Research is named. The FDIC announced that Professor Manju Puri, Ph.D., will serve as the director of the FDIC’s Center for Financial Research for two years, beginning on October 1st. She is currently the J. B. Fuqua Professor, Finance, at the Fuqua School of Business at Duke University. (9/9/2016)
Federal Reserve
Nellie Liang, director of the Division of Financial Stability, to retire. The Board announced that Nellie Liang, director of the Division of Financial Stability, will retire later this year after 30 years of service to the Board, including six years as director. (9/9/2016)
Federal Reserve approves final policy statement detailing framework for setting CCyB. The Board announced its release of a policy statement detailing the framework the Board will follow in setting the Countercyclical Capital Buffer (CCyB) for private-sector credit exposures located in the US. The CCyB can be used to increase the resilience of the financial system by raising capital requirements on internationally active banking organizations when the risk of above-normal losses is raised. It would then be available to help banking organizations absorb shocks associated with decreasing credit conditions. Application of the buffer could also help moderate variations in the supply of credit. The policy statement provides background on the range of financial-system weaknesses and other factors the Board may take into account as it evaluates settings for the buffer. (9/8/2016)
Board Asks Congress to cut back on Wall Street merchant banking. In a joint statement on the types of banking activities that might pose risks to the financial system, the Federal Reserve, along with the FDIC and the OCC, recommended that Congress limit Wall Street’s ability to own physical commodities and engage in other aspects of merchant banking because of possible risks to the financial system. (9/8/2016)
FFIEC
Revised Information Security booklet. The FFIEC announced its issuance of a revised Information Security booklet, which is part of the FFIEC Information Technology Examination Handbook. The revised booklet addresses the factors necessary to assess the level of security risks to a financial institution’s information systems. The booklet further assists examiners in evaluating the adequacy of the information security program’s integration into overall risk management. (9/9/2016)
Treasury Department
Treasury International Capital data for July. The US Department of the Treasury announced its release of Treasury International Capital data for July 2016. (9/16/2016)
FinCEN
Advisory issued to financial institutions on email compromise fraud schemes. FinCEN issued an advisory to help financial institutions guard against a growing number of email fraud schemes in which criminals misappropriate funds by deceiving financial institutions and their customers into conducting wire transfers. This advisory also provides red flags, developed in consultation with the FBI and the US Secret Service, which financial institutions can use to identify and prevent such email fraud schemes. (9/6/2016)
Back to top
US Exchanges and Self-Regulatory Organizations
FINRA sanctions Avenir Financial, CEO and registered representative for misconduct in self-offerings. The Financial Industry Regulatory Authority announced that a FINRA hearing panel fined Avenir Financial Group US$229,000, and suspended it for two years from engaging in any self-offerings of securities, for misconduct including the fraudulent sales of equity interests in the firm and promissory notes. The panel also found that the firm failed to provide to customers written disclosures regarding compensation from the sales and the use of proceeds in connection with the equity offerings, and inadequately supervised the firm’s capital raising. In addition to the sanctions against Avenir, the panel barred its former CEO from the securities industry for fraud, suspended a registered representative for two years for fraud, and ordered the representative to disgorge his US$25,000 commission. Avenir, the CEO, and the registered representative were also ordered to offer rescission to defrauded customers. FINRA press release.
FINRA announces election and appointment of new governors to FINRA Board. FINRA announced the election of a Small Firm Governor and the appointment of two new public governors to its Board of Governors at its 2016 Annual Meeting. (9/19/2016) FINRA press release.
MSRB offers progress report on completion of Dodd-Frank mandated regulatory framework for municipal advisors. The Municipal Securities Rulemaking Board provided an overview of its work on completing a regulatory framework for municipal advisors under the Dodd-Frank Wall Street Reform and Consumer Protection Act in a letter to members of Congress. (9/19/2016) MSRB press release.
MSRB will develop new academic data product for municipal market research. The MSRB announced that it has received approval from the SEC to develop an enhanced historical data product to provide institutions of higher education with post-trade municipal securities transaction data. The new product will include anonymous dealer identifiers to assist researchers in identifying transactions executed by specific parties while protecting dealers’ actual identities. (9/14/2016) MSRB press release.
NFA notifies members of updated list of AML/CFT deficient jurisdictions. The National Futures Association advised members to review and revise their anti-money laundering programs to comply with the most current information on jurisdictions with AML/CFT deficiencies identified by the Financial Action Task Force in its updated list of jurisdictions. (9/14/2016) NFA Notice I-16-19.
FINRA targets Early Rollovers in Unit Investment Trusts. FINRA released a targeted exam letter that requests information regarding firms’ Unit Investment Trust rollovers, including information about registered representatives who generated the highest Early Rollover revenue and the highest number of Early Rollovers. (9/13/2016) FINRA targeted exam letter.
FINRA solicits candidates for upcoming election for Small Firm Advisory Board and District Committees. FINRA notified members that eligible candidates who want to be included on the ballots for the upcoming elections for its Small Firm Advisory Board and for vacant positions on FINRA District Committees must submit candidate profiles and nomination forms to the Corporate Secretary of FINRA on or before October 7, 2016. (9/7/2016)
NYSE informs members of proposed listing of Dell Technologies tracking stock. The New York Stock Exchange LLC published an Information Memo regarding the proposed listing on NYSE of the Class V Common Stock of Dell Technologies Inc., which will be issued in connection with a merger agreement between Dell and EMC Corporation. The Memo reminded members of their obligations to determine the suitability of investing in these “tracking stocks” for their customers. (9/6/2016) NYSE Information Memo 16-12.
Back to top
News from Asia and the Pacific
Japan
Overview of results of ERM assessment based on ORSA reports and ERM hearings. In 2015, the FSA initiated a reporting requirement under which individual insurance companies are required to prepare and submit an ORSA (Own Risk and Solvency Assessment) Report. Based on the submitted ORSA Reports, the FSA conducted an ERM (Enterprise Risk Management) assessment and summarized the results of the assessment in its Overview of Results of ERM Assessment based on ORSA Reports and ERM Hearings and Overview of ERM Assessment Viewpoints. (9/15/2016)
Hong Kong
SFC proposes to enhance position limit regime. The SFC announced its launch of a consultation proposing enhancements to the position limit regime to expand its scope and make it more responsive to financial market developments. Pursuant to the proposals, the cap on the excess position limit that may be authorized by the SFC would increase from 50% to 300% of the statutory position limit. In addition, the statutory position limit for stock options contracts would triple to 150,000. Finally, the proposal calls for new excess position limits for index arbitrage activities, asset managers and market makers of exchange-traded funds. Comments on the proposals and the corresponding rule amendments should be submitted by November 21, 2016. (9/20/2016)
Deadline extended for response to the joint consultation on listing regulation. The SFC and The Stock Exchange of Hong Kong Limited announced a two-month extension of the deadline for responding to the joint consultation on the proposed enhancements to the Exchange’s decision-making and governance structure for listing regulation. The consultation period will now end on November 18, 2016. (9/9/2016)
Singapore
Singapore and Switzerland expanding cooperation on FinTech. The MAS and the Swiss Financial Market Supervisory Authority announced that they have signed a cooperation agreement to foster greater cooperation on FinTech. (9/12/2016)
Australia
ASIC reports on review of marketing practices in IPOs. ASIC announced that its review of marketing practices in IPOs has found that so-called “traditional” means of communication (telephone calls, emails and websites) remain more important for the marketing of an offer to retail investors. The review found that the use of social media is not yet pervasive; it is only used occasionally by small to medium-sized firms to market IPOs. REP 494 Marketing practices in initial public offerings of securities details the review’s findings, highlights areas of concern and provides for consideration ASIC’s recommendations to improve marketing practices for IPOs in the future. (9/19/2016)
ASIC releases guidance on review and remediation. ASIC announced that it has released guidance on review and remediation conducted by Australian financial services licensees providing personal advice to retail clients. (9/15/2016)
Back to top
News from Europe
ESMA authorizes Ice Clear Europe as CCP under EMIR. The European Securities and Markets Authority announced that it has added ICE Clear Europe Ltd. to its list of authorized central counterparties under the European Markets Infrastructure Regulation. (9/19/2016) ESMA press release.
BOE consults on redesigned Real-Time Gross Settlement service. The Bank of England requested comments on a consultation paper that contains proposals for a new Real-Time Gross Settlement service, the payment system that provides the platform for sterling central bank reserves. Among other things, the consultation paper proposes to expand access to RTGS to non-bank Payment Service Providers, to design the new RTGS to interoperate directly with a wider range of payments systems, and to base the new RTGS on an explicit resilience framework that stresses the primacy of data integrity to address a range of threats to continuity of service. Comments are due on or before November 7, 2016. (9/16/2016) BOE press release.
FCA reveals plans to address financial needs of ageing population. The UK Financial Conduct Authority provided an update on its work addressing how financial services should meet the needs of older consumers. The FCA reported that it will undertake work in six specific areas to supplement its current initiatives on the ageing population, which will include pensions, mortgages, scams, smarter consumer communications, and advice and guidance. (9/15/2016) FCA press release.
Regulation round-up. The FCA published the September edition of its Regulation round-up. (9/15/2016)
FCA occasional paper analyzes dark pool reference prices. The FCA issued an occasional paper entitled Asymmetries in Dark Pool Reference Prices. The paper examines the prevalence of reference price latency and primary market choice in reference prices in dark pools, finding asymmetric outcomes across participants when the reference price is stale. The paper concludes that while the costs are substantially borne by less-sophisticated participants, they are likely the result of individual participant decisions rather than conflicts of interest and have small economic impact. (9/15/2016) FCA press release.
EC reveals plans to move forward with Capital Markets Union Action Plan. The European Commission published a statement that sets out its plans to accelerate the reforms proposed under the Capital Markets Union. The EC called on the European Parliament to complete the first measures proposed under the Action Plan, including the modernization of prospectus rules, the strengthening of venture capital markets, and the development of national and regional capital markets. The EC also indicated it would move forward with the next phase of the Action Plan by proposing business restructuring and insolvency reforms, changes to increase equity financing over debt, and amendments to insurance and banking legislation to encourage private investment in infrastructure. (9/14/2016) EC press release.
Results of EBA’s CRDIV-CRR/Basel III monitoring exercise. The European Banking Authority released the results of its CRDIV-CRR/Basel III monitoring exercise on the European banking system, which presents aggregate data on capital ratios for European Union banks using data as of December 31, 2015. The results of the exercise show improvement in European banks’ capital positions and an increase of the leverage ratio and liquidity coverage ratio. (9/13/2016) EBA press release.
FCA consults on revisions to appropriate qualification exam standards. The FCA requested comments on proposed amendments to the appropriate qualification exam standards for appropriate qualifications listed in the FCA’s Training and Competence Sourcebook. Comments are due on or before December 13, 2016. (9/13/2016) FCA press release.
BOE offers details on eligibility and sectors under Corporate Bond Purchase Scheme. The BOE issued a notice that provides additional detail about eligibility determinations for its Corporate Bond Purchase Scheme, a program in which the BOE will purchase a portfolio of up to £10 billion of sterling investment grade bonds by firms making a material contribution to the UK economy to impart broad economic stimulus. The notice explains how the BOE will determine whether a company makes a material contribution to the UK and the sector classification it will use to ensure purchases are representative of the set of eligible bonds. (9/12/2016) BOE press release.
FCA consults on transitional provision on calculation of insurers’ regulated fees and levies. In an effort to accommodate Solvency II changes to insurers’ regulatory returns, the FCA published a consultation paper that proposes to use insurers’ tariff data from 2016/17 to calculate their FCA periodic fees and the Financial Ombudsman Service annual levies for 2017/18. Comments are due on or before November 9, 2016. (9/9/2016) FCA press release.
PRA proposes transitional approach to calculation of PRA fees and FSCS levies for insurers. The Prudential Regulation Authority requested comments on proposals for a transitional approach in the calculation of insurance firms’ PRA fees and Financial Services Compensation Scheme levies for 2017/18. The PRA proposes to base calculations for the 2017/18 fees on the last set of Solvency I data received, which would consist of the returns received for a relevant insurance firm’s financial year ending during 2015. Comments are due on or before November 9, 2016. (9/9/2016) PRA press release.
PRA finalizes rules on the external audit of Solvency II public disclosure. The PRA published a policy statement that contains the final rules on the external audit of the public disclosure requirement under Solvency II and responds to the public feedback it received on its July 2016 consultation paper, which amended its proposed rules to clarify the duty of care of auditors to the PRA and to defer the requirement for external audit of the public disclosure by applying the requirement initially to firms with years ending on or after November 15, 2016. The PRA also published a supervisory statement that sets out its expectations of insurers and audit firms regarding the appropriateness of the information disclosed, the level of assurance with respect to the external audit requirement, and the audit guidance that should be followed during the audit of a firm’s Solvency II public disclosure. (9/9/2016) PRA press release.
European regulators reject EC’s proposed amendments to RTS on non-centrally cleared OTC derivatives. The EBA, ESMA, and the European Insurance and Occupational Pensions Authority issued an Opinion in which they disagreed with the EC’s proposed amendments to final draft Regulatory Technical Standards on risk mitigation techniques for OTC derivatives by a central counterparty. The regulators maintained that the EC’s proposal to remove concentration limits on initial margins for pension schemes would eliminate a crucial measure to mitigate the exposure of pension funds and their counterparties to potential risks. (9/9/2016) EBA press release.
EBA revises list of ITS validation rules. The EBA released a revised list of validation rules in its Implementing Technical Standards on supervisory reporting. The revised list flags the rules that have been deactivated due to errors or associated IT problems. (9/9/2016) EBA press release.
EBA revises list of CET1 capital instruments. The EBA published an updated list of capital instruments that have been classified as Common Equity Tier 1 by EU Competent Supervisory Authorities. (9/8/2016) EBA press release.
EBA analyzes core funding ratio as alternative to NSFR for assessing funding risk. The EBA published a report that examines the core funding ratio across the EU to evaluate the ratio as an alternative metric for assessing EU banks’ funding risk. The report concluded that the core funding ratio cannot fully assess a potential funding gap and would not serve as an appropriate alternative to the Net Stable Funding Ratio. (9/8/2016) EBA press release.
European regulators identify main risks for the EU financial system. The EBA, ESMA, and EIOPA released its September 2016 Report on Risks and Vulnerabilities in the EU Financial System, which highlighted the low growth and low yield environment and its potential effects on financial institutions’ profitability and asset quality as well as concerns related to the interconnectedness in the EU financial system as the primary risks for the EU financial system. (9/7/2016) EBA press release.
Back to top
Global Regulators
ISDA recommends greater standardization in derivatives market infrastructures. The International Swaps and Derivatives Association published a white paper that contains several recommendations for using greater standardization and automation to improve efficiency in the derivatives trade processes including the implementation of additional standardization in documentation, data, and processes; the development of smart contracts to automatically execute intended lifecycle events; and the adoption of a standard, multi-use derivatives product identifier. (9/15/2016) ISDA press release.
Basel Committee releases Basel III monitoring results. The Basel Committee on Banking Supervision released the results of the most recent Basel III monitoring exercise. Among other things, the monitoring report found that all large internationally active banks met Basel III risk-based capital minimum CET1 requirements, more than three quarters of banks met or exceeded 100% LCR, and nearly all banks reported an NSFR at or above 90%. (9/13/2016) BIS press release.
Academic review shows benefits of single-name CDS. ISDA published a paper that reviews the academic literature on the benefits and costs of single-name credit default swaps. The paper showed that the single-name CDS market has a positive impact on the supply of credit to many reference entities underlying traded CDS, lowers the borrowing costs for some corporate and sovereign reference entities, and provides useful information about the likelihood of future adverse credit events. (9/12/2016) ISDA press release.
ISDA publishes ISDA 2016 China Collateral Memorandum. ISDA issued a memorandum that contains information on the legal issues surrounding the exchange of collateral with a counterparty in China and examines the enforceability of collateral rights contained in ISDA credit support documentation under Chinese law. (9/7/2016) ISDA press release.
Back to top
| |
CONTACTS
Co-Editors-in-Chief,
Financial Report
Edward Johnsen
Wesley Nissen
Issue Editors
Edward Johnsen
Wesley Nissen
WE ARE ALSO THINKING ABOUT
Our Financial Services Alert: “SEC adopts substantial new reporting requirements for investment advisers on Form ADV: key points”
Our Cybersecurity Law Alert: “New York proposes cybersecurity regulation aiming to protect financial services companies from criminal enterprises”
Our International Banking and Financial Regulation Alert: “Brexit and MiFID II implementation in the UK – impacts on foreign markets”
ABOUT US
DLA Piper’s Financial Services team represents a broad spectrum of institutions involved in virtually every aspect of finance and financial services, including banks, broker-dealers and investment advisers in connection with transactional, regulatory compliance, structured products, private funds, derivatives, futures and securities trading, securitizations, corporate lending, and SEC and other regulatory investigation, enforcement and litigation matters.
Our Corporate and Securities group represents clients ranging from Fortune 500 companies to startup entities developing industry-leading technologies, including banks, finance companies, venture capital and private equity funds, insurance companies, pension funds and institutional lenders, with respect to sophisticated transactions, corporate governance and tax matters, and compensation and technology issues.
DLA Piper is a global law firm with lawyers in the Americas, Asia Pacific, Europe, Africa and the Middle East, positioning us to help companies with their legal needs around the world. Find out more at www.dlapiper.com.
SUBSCRIBE
Would you like to receive other DLA Piper publications? Please visit this page to sign up.
FOLLOW US
|
