The PRA Publishes Guidance on Financial Conglomerate Waivers
On January 4, the Prudential Regulation Authority ("PRA") published guidance on the application and supplementary forms that should be submitted by firms requesting a Financial Groups Directive waiver.
The Financial Groups Directive supplements existing sectoral rules with additional requirements for groups with substantial banking/investment and insurance business. Groups are identified as financial conglomerates according to the threshold tests found in the Financial Conglomerates section of the rulebook.
The PRA document is designed to assist firms applying for a financial conglomerate waiver and firms notifying the PRA that a consolidation group is or has ceased to be a financial conglomerate. Document.
ESMA Publishes Peer Review Report on Compliance with SSR Regarding Market Making Activities
On January 5, the European Securities and Markets Authority ("ESMA") published a peer review report aimed at assessing how national competent authorities ("NCAs") apply the exemption for market making activities foreseen in Article 17 of the Short Selling Regulation (SSR). The report reviewed whether the NCAs are applying the general principles and criteria of eligibility for the exemption in compliance with the corresponding ESMA Guidelines and to identify good practices.
The report concluded that all NCAs have dedicated resources and have designed processes to handle the notification of exemptions and the notification functions are staffed with capable, knowledgeable and committed staff and that there are a number of approaches taken by NCAs.
The report highlighted some areas for concern, including: NCAs are not properly seeking assurance, in advance, that market makers seeking an exemption comply with the organizational requirement of the ESMA Guidelines; and many NCAs are too reliant on monitoring by trading venues rather than monitoring by the NCAs themselves. Report.
ECB Publishes Its SSM Supervisory Priorities for 2016
On January 6, the European Central Bank ("ECB") published a paper setting out its supervisory priorities in relation to the banks it supervises under the Single Supervisory Mechanism ("SSM").
The ECB's supervisory priorities under the SSM are:
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Business model and profitability risk;
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Credit risk;
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Capital adequacy;
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Risk governance and data quality; and
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Liquidity.
The priorities are not an exhaustive list but are meant to provide an essential tool to coordinate supervisory actions across banks in an appropriately harmonized, proportionate and efficient way, thereby contributing to a level playing field and a stronger supervisory impact. Paper.
SFT Regulation Comes into Force on January 12, 2016
On January 12, the Regulation on Reporting and Transparency of Securities Financing Transactions will come into force ("the SFT Regulation").
Securities financing transactions ("SFTs") allow market participants to access secured funding, in order to secure financing for their activities. This involves the temporary exchange of assets as collateral for a funding transaction.
The SFT Regulation enhances transparency in the shadow banking sector in three ways:
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Introduction of reporting by any EU financial or non-financial counterparty (excluding SMEs) of all SFTs, except those concluded with central banks, to central databases known as trade repositories. Depending on their category, firms should start reporting at different stages from 12 to 21 months after the entry into force of the relevant regulatory technical standards;
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Requirement for investment funds to disclose information regarding their use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents from the entry into force of the SFT Regulation, while the existing funds with have 18 months to amend them; and
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Introduction 6 months after the entry into force of the SFT Regulation of some minimum transparency conditions that should be met on the reuse of collateral, such as:
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Counterparty's consent to the reuse must have been obtained in a written agreement;
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The potential risks must have been disclosed to the counterparty; and
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The collateral reused must be shifted away from the account of the counterparty to the account of the re-user.
The provisions relating to reuse apply to all EU entities as well as third country entities which reuse collateral belonging to an EU entity.
On October 29, the Commission also published FAQs on the SFT Regulation.
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