The Financial Report, Volume 5, Number 20 - October 2016

by DLA Piper


  • Discussion and Analysis  
  • News from the Americas  
  • News from Asia and the Pacific  
  • News from Europe  
  • Global Regulators  
  • US Securities and Exchange Commission Developments  
  • US Commodity Futures Trading Commission Developments  
  • US Banking and Treasury Department Developments  
  • US Exchanges and Self-Regulatory Organizations

Discussion and Analysis

With the general election now less than two weeks away, it is more apparent than ever that Americans often are sharply divided about how best to achieve certain goals, even if we agree on the goals we are trying to achieve. Numerous examples of that same sort of conundrum exist in the regulation of financial services. Few would argue that retail investors, especially those investing retirement assets, should not be protected against financial adviser misconduct. But, it is possible that new “fiduciary rules” designed to better protect those investors may instead result in fewer brokerage firms willing to accept retirement accounts. This, in turn, may cause retail and retirement investors to flock to online self-directed brokerage accounts or to so-called robo-advisers, thereby further depriving such investors of any direct customized financial advice.

The Department of Labor’s new fiduciary rule for retirement-savings clients is set to take effect on April 10, 2017. The rule will require brokers and certain financial advisers who work with tax-advantaged retirement savings to meet a “fiduciary” standard, meaning they must work in the best interest of their clients and generally avoid conflicts, including those which are inherent in a commission-based compensation structure. Previously, such investment professionals were required to offer only guidance reasonably “suitable” for their clients, a far less-rigorous standard. Although there are several pending lawsuits as some financial industry participants challenge the rule’s scope, it is unlikely that there will be any meaningful changes to the rule before compliance deadlines kick in. Unless, of course, the upcoming election changes the landscape.

A new President could name a new head of the Securities and Exchange Commission, which has indicated that it is working on its own regulatory proposal to require brokers to act in the best interest of their clients in any investment accounts for retail investors, not just retirement accounts.

Although the SEC eventually is likely to come out with its own fiduciary rule, the agency hasn’t yet been able to act amid a partisan divide among the three commissioners and due to other pressing rulemaking agenda items. This delay is exacerbated because the SEC has been operating with only three sitting commissioners, instead of five, because Congress has declined to consider any nominations until after the general election. If the SEC passes its own fiduciary rule, it likely would complement and further expand, not supersede, the Labor Department’s rule. A rule from the SEC would cover both retirement and non-retirement accounts, effectively blanketing the entire advisory world and adding another layer of fiduciary regulation for advisers dealing with individual investors. Of course, if Republican candidate Donald Trump wins the presidency, there is some indication from members of his advisory staff that he would try to repeal the rule entirely.

Some financial firms are not waiting to see the outcome of the general election, however. Those firms have announced that they will no longer accept new commission-paying retirement accounts, effectively requiring those clients to find another brokerage firm that will hold their assets. More than likely, that will mean that those investors will be self-directing their assets in an online brokerage account.

Supporters of the new Labor Department rule and, possibly, new SEC fiduciary requirements, believe that investors must be serviced by financial professionals required to act in their best interest, without regard to the precise capacity in which the professional is acting. Investment advisers have long been held to a fiduciary standard, which many believe also should apply to financial professionals at brokerage firms. If brokerage firms are unwilling to service retirement accounts due to the increased costs and risks of maintaining these accounts, retirement investors still may benefit by being forced to move their accounts to less costly brokerage firms, even if that move requires them to spend more time and effort on managing their portfolios.

Detractors of new fiduciary rules argue that such rules will hurt small investors because fewer brokerage firms will be able and willing to service their accounts and those that will accept such accounts will not offer any financial advice to those clients.

We can all agree on where we want to be, even if we cannot agree on the best route to get there.

News from the Americas

United States

US regulators propose to boost financial institutions’ cybersecurity policies. The Federal Reserve Board, the FDIC, and the OCC announced their joint approval of an advance notice of proposed rulemaking requesting comment on a set of enhanced cybersecurity risk management standards for large and connected entities under their supervision, as well as services provided by third parties to those entities. The enhanced standards would apply to entities with total consolidated assets of US$50 billion or more, with the most stringent measures reserved for firms considered to pose the greatest risk to the financial system. Those firms, among other things, would have to demonstrate they can get their core operations running within two hours of a cyberattack or major IT failure. (10/20/2016) CFO.


Canadian securities regulators use videos to raise awareness about client reporting requirements. The CSA announced that it is promoting four videos to raise awareness of changes to how advisers must report to their clients on the costs, performance, and value of their investments. (10/19/2016)

Roundtable on proposed protocols for meeting vote reconciliation. The OSC announced that will be holding a roundtable to discuss issues identified during consultation on CSA Multilateral Staff Notice 54-304 Final Report on Review of the Proxy Voting Infrastructure and Request for Comments on Proposed Meeting Vote Reconciliation Protocols and next steps in implementing the proposed protocols. The roundtable will take place on Friday, November 18 from 8:30 a.m. to 11:00 a.m. on the 22nd floor of the OSC’s office at 20 Queen Street West, Toronto, Ontario. The event will include panel discussions on the proposed protocols. (10/18/2016)

US Securities and Exchange Commission Developments

Final Rules

SEC adopts final rules to modernize information reported by registered investment companies. The SEC approved final rules that will require registered investment companies, including mutual funds and exchange-traded funds, to report their monthly portfolio holdings and certain annual census information in a structured data format; include additional, standardized disclosures in financial statements that are required in fund registration statements and shareholder reports; and make disclosures regarding securities lending activities in their fund registration statements. The final rules will become effective 60 days after publication in the Federal Register. (10/13/2016) SEC press release. SEC Commissioner Michael S. Piwowar dissented because the final rules did not include a provision that would have permitted the delivery of fund shareholder reports via investment companies’ websites. See also supporting statements by SEC Chair Mary Jo White and SEC Commissioner Kara M. Stein.

SEC approves final rules on liquidity risk management programs for open-end funds. The SEC voted to adopt final rules that will require mutual funds and other open-end management investment companies, including ETFs, to establish liquidity risk management programs. Among other things, the final rules require funds to classify each of the investments in their portfolios into one of four liquidity categories; determine a minimum percentage of their net assets that must be invested in highly liquid investments; and gain approval of their liquidity risk management programs by their boards. The final rules will become effective 60 days after publication in the Federal Register. (10/13/2016) SEC press release. SEC Commissioner Kara M. Stein called the rule “an important step toward improving fund resiliency.”

SEC authorizes use of swing pricing by some investment companies. The SEC adopted rule amendments that will allow certain registered open-end management investment companies to use “swing pricing,” which is the process of adjusting the fund’s net asset value per share to effectively pass on the costs stemming from shareholder purchase or redemption activity to the shareholders associated with that activity. The final rules will become effective two years after publication in the Federal Register. (10/13/2016) SEC press release. Commissioner Piwowar dissented, raising the concern that funds could use swing pricing “to conceal from investors the true costs they will incur upon the purchase and sale of their fund shares.”


Corporation Finance revises Rule 701 C&DIs. The SEC’s Division of Corporation Finance issued new and revised Compliance and Disclosure Interpretations on Securities Act Rule 701’s exemption for securities offered by private companies pursuant to compensatory benefit plans and contracts. Revised C&DI 271.014; new C&DI 271.24. (10/19/2016)

Revised C&DI addresses holding period for securities issued under individually negotiated employment agreements. The SEC’s Division of Corporation Finance issued a revised C&DI on Securities Act Rule 144(d)’s holding period for restricted securities that explains how the rule applies to restricted securities issued as part of an individually negotiated employment agreement. (10/19/2016) C&DI 532.06.

Corporation Finance publishes new C&DIs on pay ratio disclosure. The SEC’s Division of Corporation Finance issued five new C&DIs on new requirements under Regulation S-K for a public company to disclose the pay ratio of its chief executive officer to the median compensation of its employees. The new C&DIs address the identification of the median employee, including questions concerning alternative consistently applied compensation measures, furloughed employees, and independent contractors. (10/18/2016) Regulation S-K C&DIs.

Selected Enforcement Actions

SEC brings charges against board member for trading on nonpublic information during board meeting. The SEC charged a member of the board of directors of a financial services firm with insider trading. The SEC alleged that he learned confidential details about the company’s planned acquisition of another firm during a board executive committee meeting and proceeded to place his first order to purchase shares of the target company’s stock while that executive committee meeting was still in progress. The SEC alleged that the board member reaped illegal profits of more than US$56,000. The board member will also face charges in a parallel criminal proceeding. (10/21/2016) SEC press release.

Former CEO of brokerage firm settles charges of violating AML rules. The SEC announced charges against the former president and CEO of a brokerage firm for supervisory failures that led to the firm’s violations of anti-money laundering rules. The SEC alleged that the CEO permitted foreign corporate entities to execute securities transactions through a brokerage account opened by a foreign bank affiliated with the brokerage firm without verifying the identities of the non-US citizens who beneficially owned them as required by the customer identification program. Without admitting or denying the allegations, the CEO settled the charges by consenting to the entry of a cease-and-desist order and a one-year supervisory suspension. The CEO will also pay a civil penalty of US$50,000. (10/19/2016) In the Matter of Lia Yaffar-Pena, SEC Release No. 34-79124.

Investment adviser charged with fair valuation and disclosure failures. A mutual fund adviser has settled charges that it improperly fair valued certain fund holdings and failed to disclose important aspects of its attempt to correct the resulting harm. The SEC alleged that the adviser improperly valued certain securities held by mutual funds that it advised, which caused the mutual funds to be priced at an incorrect net asset value. The adviser took steps to remedy the problems caused by the improper valuations, paying US$27 million to the mutual funds and their shareholders; however, the adviser failed to disclose that it based the remediation on incorrect calculations of the funds’ losses by failing to follow the funds’ NAV correction procedures or that it compensated shareholders differently based on whether they invested directly or through an intermediary. Without admitting or denying the allegations, the adviser settled the charges by consenting to the entry of cease-and-desist and censure orders, agreeing to undertake a self-administered distribution to affected shareholders, and paying a US$3.9 million civil penalty. (10/18/2016) In the Matter of Calvert Investment Management, Inc., SEC Release No. IA-4554.

SEC says fantasy stock picking game involved illegal sale of security-based swaps. The SEC announced charges against a New-York based company for illegally offering complex derivatives products to retail investors through fantasy stock picking mobile phone games. The SEC alleged that players of the company’s mobile phone games won points and cash prizes for accurately predicting the order in which 10 securities would perform relative to each other. The company kept 10 percent of the entry fees and obtained a data set about market expectations that it hoped to sell to hedge funds and other investors. The SEC alleged that the company’s agreements with players were security-based swaps because they provided for a payment that was dependent on an event associated with a potential financial, economic, or commercial consequence and based on the value of individual securities. The SEC charged the company with violating Dodd-Frank Act restrictions on the offer and sale of security-based swaps to investors who do not qualify as “eligible contract participants” and without an effective registration statement covering the offering. Without admitting or denying the allegations, the company settled the charges by consenting to the entry of a cease-and-desist order and agreeing to pay a US$50,000 civil penalty. (10/13/2016) In the Matter of Forcerank LLC, SEC Release No. 33-10232.

Investment adviser failed to supervise analyst who obtained nonpublic information from tech company. The SEC instituted settled administrative proceedings against an investment adviser and a former senior analyst at the firm for failures related to the misuse of material nonpublic information by the adviser’s employees. The SEC alleged that a research analyst obtained material nonpublic information from a company insider and shared the information with the adviser, which executed timely and profitable trades ahead of public announcement of the information by the company. The analyst shared the information with the senior analyst, who was his supervisor, but the supervisor failed to question the analyst about the source of his information or investigate other red flags that indicated the analyst had obtained the information improperly. According to the SEC, the adviser failed to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information. Without admitting or denying the allegations, the adviser and the senior analyst settled the charges. The adviser agreed to be censured and to pay disgorgement of US$5,165,862, prejudgment interest of US$1,129,222, and a civil money penalty in the amount of US$2,582,991. The senior analyst agreed to be suspended from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent for 12 months and to pay a civil penalty of US$130,000. (10/13/2016) In the Matter of Artis Capital Management, L.P. and Michael W. Harden, SEC Release No. IA-4550.

Speeches and Statements

White advocates for greater SEC role in regulation of US Treasury market. In an address at The Evolving Structure of the US Treasury Market Second Annual Conference, SEC Chair Mary Jo White indicated that the SEC is considering ways of extending aspects of the securities regulatory framework to US Treasury market intermediaries. (10/24/2016) White remarks.

Piwowar emphasizes importance of economic analysis in regulation. SEC Commissioner Michael S. Piwowar discussed how high-quality, independent economic analysis informs the regulatory process in remarks at the 2016 Conference on Auditing and Capital Markets. (10/21/2016) Piwowar remarks.

OCIE plans to enhance oversight of FINRA. In a speech to the National Society of Compliance Professionals 2016 National Conference, SEC Office of Compliance Inspections and Examinations Director Marc Wyatt indicated that OCIE will increase its oversight of the Financial Industry Regulatory Authority as it relies more heavily on FINRA for examinations of broker-dealers. (10/17/2016) Wyatt remarks.

Ceresney says SEC will continue to focus enforcement efforts on public finance. SEC Division of Enforcement Director Andrew J. Ceresney discussed the SEC’s enforcement efforts in the municipal securities market and public pension funds in speech to the Securities Enforcement Forum 2016. (10/13/2016) Ceresney remarks.

Other Developments

OCIE announces examinations of whistleblower compliance. OCIE announced that it will conduct examinations of registered investment advisers and registered broker-dealers to assess their compliance with key whistleblower rules under Section 21F of the Securities Exchange Act. The examinations will include a review of registrants’ compliance manuals, codes of ethics, employment agreements, and severance agreements to determine whether they include provisions pertaining to confidentiality of information and reporting of possible securities law violations that may raise concerns under Rule 21F-17. (10/24/2016) OCIE risk alert.

Staff announcements. The SEC announced that it has appointed John W. Berry to serve as Associate Regional Director for Enforcement in its Los Angeles Regional Office. (10/24/2016) The SEC also announced that Melissa Hodgman has been named Associate Director of the SEC’s Division of Enforcement. (10/14/2016)

EDGAR updates. The SEC published the EDGAR Form N-MFP2 XML Technical Specification (Version 1). (10/14/2016)

SEC announces enforcement results for 2016 fiscal year. The SEC released its enforcement results for fiscal year 2016, which indicate that the agency filed a record number of enforcement actions and increased the number of actions involving financial reporting-related misconduct, investment advisers, and Foreign Corrupt Practices Act violations. (10/11/2016) SEC press release.

US Commodity Futures Trading Commission Developments

Proposed rules on cross-border application of registration thresholds, external business conduct standards. The Federal Register published the CFTC’s proposed rules addressing the cross-border application of certain swap provisions of the CEA. The proposed rule defines key terms for purposes of applying the CEA’s swap provisions to cross-border transactions and addresses the cross-border application of the registration thresholds and external business conduct standards for swap dealers and major swap participants, including the extent to which they would apply to swap transactions that are arranged, negotiated, or executed using personnel located in the US. Comments must be received by December 19, 2016. (10/18/2016)

Advisory issued on investments in money market mutual funds. The Division of Swap Dealer and Intermediary Oversight (DSIO) issued an advisory to futures commission merchants in response to inquiries regarding the practical application and effect of the DSIO’s August letter granting no-action relief regarding investments in money market funds. (10/18/2016)

Final order issued exempting certain specified transactions of SPP. The CFTC announced its unanimous approval of a final order in response to a petition from Southwest Power Pool, Inc. (SPP), a Regional Transmission Organization regulated by FERC. The final order exempts certain transactions of SPP from the CEA and CFTC regulations, with the exception of the CFTC’s general anti-fraud and anti-manipulation authority, and scienter-based prohibitions. The final order will expressly exempt such transactions from private actions under CEA section 22. (10/18/2016) Q&A. See Chair Massad statement. Also see Commissioner Giancarlo statement.

Federal Register publishes final rule on clearing requirement determination of the CEA for Interest Rate Swaps. The Federal Register published the CFTC’s final rule requiring that interest rate swaps denominated in certain currencies and having certain termination dates be submitted for clearing to a DCO that is registered under the CEA or a DCO that has been exempted from registration under the CEA. The amended rule is effective December 13, 2016. (10/14/2016)

CFTC approves order on swap dealer registration de minimis exception. The CFTC announced that it approved an Order establishing December 31, 2018, as the swap dealer registration de minimis threshold phase-in termination date. CFTC Regulation 1.3(ggg)(4)(ii)(C)(1) provides that the agency may terminate the December 31, 2017 phase-in termination date and establish a new phase-in termination date by Order. With this approval, the de minimis threshold will remain at US$8 billion until December 31, 2018, instead of changing to US$3 billion on December 31, 2017. Absent further action by the CFTC, the phase-in period would terminate on December 31, 2018, at which time the de minimis threshold will be US$3 billion. See Federal Register notice. Also see Chairman Massad’s statement and the concurring statement of Commissioner Bowen. (10/13/2016)

Rule enforcement review of the NYMEX and COMEX. The DMO announced that it has issued the results of a rule enforcement review of the New York Mercantile Exchange and the Commodity Exchange. The DMO found that NYMEX and COMEX have adequate market surveillance programs, subject to one recommendation regarding the exchanges’ program for monitoring exemptions from position limits. The DMO recommended that these exchanges “consider implementing a formal review process by which they can verify that a market participant who has a position larger than a position limit is, in fact, making use of an exemption, consistent with the strategy described in their exemption application.” (10/13/2016)

Proposed rule on application of certain swap provisions in cross-border transactions is approved. The CFTC announced that it voted unanimously to propose rules and interpretations addressing the application of certain swap provisions of the CEA and CFTC regulations to cross-border transactions. The comment period ends 60 days following publication of the proposal in the Federal Register. For more information, see the Fact sheet and the Federal Register notice. Also see Chairman Massad’s statement, the concurring statement of Commissioner Bowen, and Commissioner Giancarlo’s statement. (10/11/2016)

US Banking and Treasury Department Developments


Comptroller discusses interagency collaboration. At an event for bank regulators related to accounting and auditing of regulated financial institutions, Comptroller of the Currency Thomas J. Curry discussed the importance of interagency collaboration to the supervision and regulation of the financial services industry. (10/25/2016)

Regulatory agencies issue an exception on real estate transactions from the appraisal requirements for transactions in areas affected by severe storms, flooding in Louisiana. The OCC, the FDIC, Federal Reserve Board of Governors, and NCUA announced that they have issued an exception from the appraisal requirements for real estate-related financial transactions in the communities declared to be in a major disaster area due to the severe storms and flooding in Louisiana. The agencies will not require financial institutions to acquire appraisals for affected transactions for the time period specified if certain conditions are met. The agencies will monitor institutions’ use of the appraisal exception to ensure that real estate-related transactions are being originated in a manner consistent with safe and sound banking practices. The exception will expire on December 31, 2017. (10/24/2016) Federal Register notice.

OCC names new Deputy Chief Counsel. The OCC announced that, effective immediately, Charles M. Steele is now its Deputy Chief Counsel. Mr. Steele, who will supervise the Administrative and Internal Law, Community and Consumer Law, Enforcement and Compliance, and Litigation divisions, will also supervise the district counsel staffs in the agency’s Southern District and Western District offices. (10/24/2016)

FAQs on FFIEC Cybersecurity Assessment Tool. The OCC announced that the FFIEC’s Cybersecurity Assessment Tool contains answers to FAQs that bankers have posed to OCC examiners and policy staff members. (10/17/2016)

OCC to host Risk Governance and Credit workshops in Houston. The OCC announced that it will host two workshops in Houston, Texas, at the Royal Sonesta Hotel Houston, November 29-30, for directors of national community banks and federal savings associations supervised by the OCC. The Risk Governance workshop on November 29th will combine lectures, discussion, and exercises to provide practical information for directors to effectively measure and manage risks, and will focus on the OCC’s approach to risk-based supervision and major risks in the financial industry. The Credit Risk workshop on November 30th will focus on credit risk within the loan portfolio, such as identifying trends and recognizing problems, and will cover the roles of the board and management, how to stay informed of changes in credit risk, and how to effect change. This is the final Credit Risk workshop for 2016. (10/17/2016)

Mutual Savings Association Advisory Committee Charter renewed. The OCC announced that it has renewed the charter of its Mutual Savings Association Advisory Committee, which advises the agency on issues and opportunities facing mutual savings institutions. (10/17/2016) Federal Register notice.


First-ever Project Catalyst innovation highlights report. The CFPB announced that it has released a report highlighting various market developments that have the potential to produce benefits for consumers. (10/24/2016)

Treasury Department

Final earnings stripping announced. The Treasury Department and the IRS announced that they have issued final regulations to address earnings stripping. This action will further reduce the benefits of corporate tax inversions, level the playing field between US and non-US businesses, and limit the ability of companies to lower their tax bills through transactions involving debt that do not support new investment in the US. These regulations also require large corporations claiming interest deductions to document loans to and from their affiliates, just as businesses of all sizes do when they borrow from unrelated lenders. The rules were proposed in April along with temporary anti-inversion regulations. See fact sheet and remarks by Treasury Secretary Lew. (10/13/2016)

US Judicial Developments

CFPB’s structure as an independent agency headed by a single Director violates the Constitution. Petitioner mortgage lender, which was the subject of a CFPB enforcement action, contended that the CFPB’s status as an independent agency headed by a single Director is a violation of Article II of the Constitution. The DC Circuit agreed that this structure is unconstitutional, as it concentrates enormous executive power in a single, unaccountable, unchecked Director who can only be removed by the President for cause. The panel severed the for-cause provision from Dodd-Frank and directed the CFPB to continue to operate and perform its responsibilities, but under the ultimate supervision and direction of the President. (10/11/2016) CFPB.

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US Exchanges and Self-Regulatory Organizations

NYSE reminds members of prohibition on disclosure of non-public order information in use of new telephone booths. The New York Stock Exchange LLC published an Information Memo that notifies members of new telephone booths on the 18 Broad Street side of the Trading Floor, which have been excluded from the definition of “Trading Floor” under amendments to Rule 6A. The Memo also reminds members of their obligation to have adequate policies and procedures in place to detect and prevent the disclosure of Floor-based non-public order information before they can use the telephone booths. (10/21/2016) NYSE Information Memo.

FINRA prepares firms for new reporting requirements for transactions in Treasury Securities. FINRA announced that the SEC approved its proposal to adopt new reporting requirements for transactions in Treasury Securities. Under the new rule, FINRA member firms will be required to report certain transactions in Treasury Securities, except savings bonds, to FINRA’s Trade Reporting and Compliance Engine (TRACE) starting on July 10, 2017. FINRA also published a Regulatory Notice that details the requirements of the new rule. In addition, FINRA published technical specifications describing the new reporting requirements. (10/19/2016)

FINRA offers guidance on changes to TRACE reporting rules for CMO transactions. FINRA announced that the SEC recently approved amendments to the TRACE rules and dissemination procedures related to transactions in collateralized mortgage obligations, which will become effective on March 20, 2017. Among other things, the rule amendments provide for the dissemination of CMO transactions based on transaction size and level of trading activity, reduce the timeframe for reporting transactions in CMOs executed after issuance, and simplify the reporting requirements for pre-issuance CMO transactions. (10/17/2016) FINRA Regulatory Notice 16-38.

FINRA offers guidance on new capital acquisition broker rules. FINRA provided an overview of its new rules that will apply to “capital acquisition brokers,” which include firms that engage in a limited range of activities such as advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions. The new rules will become effective on April 14, 2017, except for the rules on CAB membership application and associated person registration, which will become effective on January 3, 2017. (10/17/2016) FINRA Regulatory Notice 16-37.

MSRB seeks input on strategic priorities. The Municipal Securities Rulemaking Board requested comments about the future development of its Electronic Municipal Market Access website as well as how the agency should prioritize its ongoing and future efforts. Comments are due on or before November 11, 2016. (10/12/2016) MSRB press release.

News from Asia and the Pacific

Hong Kong

SFC hosts IOSCO board meeting in Hong Kong. SFC announced that a meeting of the Board of the International Organization of Securities Commissions (IOSCO) in Hong Kong on October 20-21 focused on issues facing securities regulators and global financial markets. The IOSCO board discussed ways to advance the organization’s agenda for financial regulatory reform and also reviewed the progress of IOSCO’s work on margin requirements, central counterparties, asset management and market conduct. (10/24/2016)

SFC commences cybersecurity review on brokers’ internet and mobile trading systems. The SFC announced its launch of a review to assess the cybersecurity preparedness, compliance and resilience of brokers’ internet and mobile trading systems. The review followed several reports from securities brokers that the security of some customers’ Internet and mobile trading accounts has been compromised and unauthorized securities trading transactions were conducted through these accounts. (10/13/2016)


Macroeconomic Review. The MAS announced publication of the Macroeconomic Review, which provides information on the Economic Policy Group’s background analysis and assessment of GDP growth and inflation developments in the Singapore economy.

Singapore and South Korea sign cooperation agreement in FinTech. The MAS announced that it signed a cooperation agreement with the Korean Financial Services Commission (KFSC) to foster greater cooperation in FinTech. Pursuant to the agreement, MAS and KFSC will explore potential joint innovation projects on technologies such as big data and mobile payments. MAS and KFSC will also discuss issues of common interest, and share information on FinTech trends and how it may impact existing regulations. (10/24/2016)

Singapore and the Government of Andhra Pradesh sign FinTech cooperation agreement. The MAS announced that it signed a FinTech Cooperation Agreement with the Government of Andhra Pradesh (GoAP) to promote innovation in financial services in their respective markets. Pursuant to the agreement, MAS and GoAP will explore joint innovation projects on technologies such as digital payments and blockchain, and collaborate on the development of education programs/curricula on FinTech. MAS and GoAP also agreed to discuss emerging FinTech trends and exchange views on regulatory issues related to innovations in financial services. (10/22/2016)

Singapore Hosts First EU - Asia-Pacific Forum on Financial Regulation. The MAS announced that it hosted regulators from the European Union and the Asia-Pacific Region at the inaugural EU-Asia-Pacific Forum on Financial Regulation.


Kenyan and Australian regulators sign agreement to support FinTech innovation. The Capital Markets Authority of Kenya and ASIC announced that they have signed a Cooperation Agreement that aims to promote innovation in financial services in their respective markets. (10/21/2016)

ASIC remakes expiring class order on rights issue notifications and repeals expiring class order on money market deposits. ASIC announced that it has made a new legislative instrument to replace Class Order Rights issue notifications, which was due to expire on April 1, 2017. The new legislative instrument is ASIC Corporations (Renounceable Rights Issue Notifications) Instrument 2016/993. ASIC has also repealed Class Order Money market deposits, which was due to expire on April 1, 2017. (10/18/2016)

ASIC consults on four expiring class orders on registered managed investment schemes. ASIC announced that it has released a consultation paper proposing to remake four class orders on registered schemes, which are due to expire between October 1, 2017 and April 2018. The instruments that ASIC proposes to remake are Class Order [CO 98/50] Incorporating parts of other compliance plans; Class Order [CO 98/60] Protecting class rights in a managed investment scheme; Class Order [CO 98/1806] Related bodies corporate and external members of compliance committee; and Class Order [CO 98/1808] Allowing constitutions to use Appendix 15A of the ASX Listing Rules. Consultation Paper 270 Remaking ASIC class orders on registered schemes outlines ASIC’s rationale for proposing to remake the class orders. Submissions on CP 270 are due by November 25, 2016. (10/14/2016)

ASIC issues statement on review of ASX technical failure on September 19. ASIC issued a statement on the technical failure that the ASX equity market experienced on September 19th, impacting the market’s proper operation.

ASIC clarifies guidance for forward-looking statements in the mining and resources industry. ASIC announced that it has re-issued an updated Information Sheet 214 Mining and resources: Forward-looking statements, on statements relating to future matters commonly made in the mining and resources industry. (10/12/2016)

ASIC consults on expiring class order on managed investment scheme buy-backs and updates to related guidance. ASIC announced its release of Consultation Paper 269 Remaking ASIC class order on managed investment scheme buy-backs and updating related guidance, proposing to remake its class order on managed investment scheme buy-backs, currently due to expire on April 1, 2018, and proposed changes to platforms policy. Submissions on the consultation paper are due by November 23, 2016. (10/12/2016)

News from Europe

FCA consults on revised guidance on guarantor loans. The UK Financial Conduct Authority requested comments on proposed guidance regarding the FCA’s interpretation of requirements under the Consumer Credit Act 1974 regarding the enforcement of security in the context of guarantor loans to serve a default notice before enforcing a guarantee or indemnity following breach of a regulated agreement. Comments are due on or before November 25, 2016. (10/25/2016) FCA press release.

PRA issues final supervisory statement on monitoring model drift and the reporting of standard formula SCR information. The Prudential Regulation Authority published a supervisory statement that explains its expectations of firms with an approved internal model and its approach to monitoring model drift and the reporting of standard formula Solvency Capital Requirement information. The statement provides clarifications on the standard formula calculation, the re-basing of “model drift” ratios on approval of major changes, and the possible disclosure of results. (10/25/2016) PRA press release.

PRA seeks comments on proposed changes to reporting format for NST submissions by Solvency II firms. The PRA published a consultation paper relevant to UK Solvency II firms that proposes changes to the National Specific Template file type and reporting format, including requirements and transitional arrangements to facilitate the use of standard XBRL format, and presents several reporting clarifications and technical corrections relating to the accompanying NST LOG files. Comments are due on or before December 6, 2016. To enable firms to submit in XBRL or XBRL-enabled Excel format, the PRA also published a Modification by Consent to enable firms with a financial year ending on or after June 30, 2016, but before December 19, 2016, to have time to implement the proposed changes to the reporting format. (10/25/2016) PRA press release.

EBA offers recommendations to simplify and harmonize large exposures regime. The European Banking Authority published a report that responds to the European Commission’s call for advice on the review of the large exposures framework laid down in the Capital Requirements Regulation. Among other things, the report recommends modifying the current large exposures capital base by including only Tier 1 capital instead of allowing also a proportion of Tier 2 capital and removing three of the five exemptions currently used by institutions to enhance alignment of the framework with the Basel Committee on Banking Supervision’s standards on large exposures. (10/24/2016) EBA press release.

EBA consultation on technical standards on MREL reporting by Resolution Authorities. The EBA requested comments on draft Implementing Technical Standards that propose the procedures and templates for Resolution Authorities to use when informing the EBA of the minimum requirements for own funds and eligible liabilities that have been set for each institution under their jurisdiction. Comments are due on or before November 21, 2016. (10/24/2016) EBA press release.

ESMA releases translations of MAR guidelines. The European Securities and Markets Authority announced the translation of its Market Abuse Regulation Guidelines on persons receiving market soundings and on delay in the disclosure of inside information into the 22 official languages of the European Union, which is required to trigger their national applications. (10/20/2016) ESMA press release.

EBA advises EC to apply full CRDIV/CRR only to investment firms identified as GSIIs and OSIIs. In a response to the European Commission’s call for technical advice on the application of the Capital Requirements Directive and Capital Requirements Regulation prudential regime to investment firms, the EBA recommended that only those investment firms that are currently identified as Global Systemically Important Institutions and Other Systemically Important Institutions should remain subject to the full CRD/CRR regime. (10/20/2016) EBA press release.

EBA will hold public hearing on European covered bond framework proposals. The EBA announced that it will hold a public hearing on November 18, 2016, regarding its draft proposals on the European covered bond framework. The EBA said that it expects to deliver its final report on the functioning of the frameworks for covered bonds according to the EBA’s best practice principles by the end of the year. (10/20/2016) EBA press release.

FCA completes thematic review of packaged bank accounts. The FCA released the findings of its thematic review of packaged bank accounts, which examined the implementation of new rules designed to help customers understand the suitability of these products for them. The FCA’s review found that the new rules raised standards in the market, but firms needed to improve their practices around eligibility checks for certain kinds of insurance products and in their handling of complaints. (10/20/2016) FCA press release.

Regulation round-up. The FCA published the October 2016 edition of its Regulation round-up. (10/20/2016)

PRA statement on the concept of “durable link.” The PRA issued a statement on the concept of “durable link,” which is used to determine whether a firm’s holding of less than 20% in another undertaking is to be treated as a “participation” for the purposes of the CRR. The PRA explained that its interpretation of durable link takes into consideration the definition of “significant influence” under the accounting framework as well as factors regarding the financial, governance and management intent of the firm’s management. (10/20/2016) PRA statement.

FCA publishes guidance consultation on mortgage payment shortfall remediation framework. The FCA requested comments on proposed guidance on the treatment of customers with mortgage payment shortfalls. The proposed guidance responds to concerns about the automatic inclusion of arrears balances in these customers’ monthly mortgage payments and recommends a remediation framework to provide a proportionate, fair and timely remediation option that firms can use. Comments are due on or before January 18. 2017. (10/19/2016) FCA press release.

FCA finalizes findings of investment and corporate banking market study. The FCA released the final report of its investment and corporate banking market study, which recommends several measures to improve competition in the market. Among other things, the FCA’s report suggests the development of industry guidelines on the presentation of league tables, the elimination of incentives for loss-making trades to generate higher positions on league tables, and the implementation of a supervisory program for initial public offering allocations. (10/18/2016) FCA press release.

FCA seeks comments on proposed ban on use of restrictive contractual clauses by banks. In connection with the final report on its market study of the investment and corporate banking market, the FCA published a consultation paper that proposes to ban the use of contractual clauses by banks that restrict competition by requiring customers to award or offer future services to the bank. Comments are due on or before December 16, 2016. (10/18/2016) FCA consultation paper 16-31.

ECB publishes results of October 2016 euro area bank lending survey. The European Central Bank released the results of its euro area bank lending survey for the third quarter of 2016. Among other things, the survey found that loan demand continued to increase, credit standards on loans to enterprises remained unchanged, and credit supply conditions improved for households. (10/18/2016) ECB press release.

PRA publishes feedback received on consultation paper on Pillar 2 liquidity. The PRA published a statement that summarizes the feedback it received on a draft statement of policy for its approach to three aspects of Pillar 2 liquidity: intraday risk, debt buyback and non-margined derivatives. (10/18/2016) PRA statement.

FCA completes thematic review of annuity sales practices. The FCA released the findings of its thematic review of non-advised annuity sales practices, which examined whether firms provided customers with adequate information about enhanced annuities. The FCA found no evidence of a systemic failure to provide customers with sufficient information but noted that it did have concerns about practices at some firms when significant communications took place by telephone. (10/14/2016) FCA press release.

ECB reports results of September 2016 SESFOD credit terms survey. The ECB published the results of its September 2016 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets. The ECB found that credit terms offered to counterparties in both the provision of finance that is collateralized by euro-denominated securities and over-the-counter derivatives markets became somewhat less favorable, while liquidity and functioning of markets remained stable. (10/14/2016) ECB press release.

ESMA releases Guidelines on remuneration practices under UCITS and AIFMD. ESMA published two sets of Guidelines on sound remuneration practices under the Undertakings for the Collective Investment in Transferable Securities Directive and the Alternative Investment Fund Managers Directive. The UCITS Guidelines clarify requirements for management companies when establishing and applying a remuneration policy for key staff. The AIFMD Guidelines amend the current guidelines on sound remuneration practices to clarify the application of the remuneration rules in a group context. The Guidelines will apply from January 1, 2017. (10/14/2016) ESMA press release.

ESMA and IFRS Foundation update cooperation agreement. ESMA and the International Financial Reporting Standards Foundation published an updated set of protocols that outlines how the two organizations will cooperate with each other and work together to facilitate the development and implementation of IFRS Standards. (10/13/2016) ESMA press release.

ESMA updates Q&A on UCITS. ESMA revised its questions and answers document on the application of the UCITS Directive to include new information on regulated markets in Member States under the Directive; translation requirements in relation to the remuneration disclosure; reinvestment of cash collateral; and the commencement of periodical reporting pursuant to Article 13 of the Securities Financing Transactions Regulation. (10/12/2016) ESMA press release.

EBA issues reminder of deadlines for data submission for the 2017 benchmarking exercise of internal approaches. The EBA reminded competent authorities of the key dates for the submission of data for the 2017 benchmarking exercise of internal approaches. The 2017 exercise will apply to EU institutions using internal approaches to calculate capital requirements and will cover market risk and credit risk for the so-called low default portfolios, including large corporate, sovereign and financial institutions. (10/12/2016) EBA press release.

EBA publishes 2017 annual work program. The EBA announced its annual work program for 2017, which describes its specific activities and tasks for the year. The EBA’s priorities for 2017 include liquidity and leverage ratio; credit risk and credit risk modelling; recovery planning and early intervention; promoting convergence; and improving the framework for the protection of consumers and the monitoring of financial innovation. (10/12/2016) EBA press release.

ESMA announces priorities for 2017 work program. ESMA published its annual work program, which identifies its priorities and areas of focus for 2017. ESMA identified several key areas of focus, including converging supervisory practices on the implementation of MiFIDII/MiFIR; focusing on data quality; continued work on the Benchmarks Regulation and other initiatives under the Capital Markets Union; and directly supervising credit rating agencies and trade repositories, with a particular focus on their ancillary activities. (10/11/2016) ESMA press release.

Global Regulators

Basel Committee reports on progress of Basel III standards adoption. The Basel Committee on Banking Supervision published its eleventh progress report on the adoption of the Basel regulatory framework, which provides an update on the adoption status of Basel III standards for each member jurisdiction. The report indicates that all member jurisdictions have final risk-based capital rules, liquidity coverage ratio regulations and capital conservation buffers in force; all but one member jurisdictions have issued final rules for the countercyclical capital buffers; nearly all have issued final or draft rules for their domestic systemically important banks framework; and 18 have issued final or draft rules for margin requirements for non-centrally cleared derivatives. (10/19/2016) BIS press release.

FSB releases methodology for assessing the implementation of Key Attributes of Effective Resolution Regimes. The Financial Stability Board released a methodology for assessing the implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions in the banking sector. The methodology establishes criteria for adopting or reforming bank resolution regimes in accordance with the Key Attributes. (10/19/2016) FSB press release.

CPMI-IOSCO consultative report on harmonization of OTC derivatives data elements. The International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures requested comments on their consultative report regarding the harmonization of critical OTC derivatives data elements other than the Unique Transaction Identifier and the Unique Product Identifier. The report continues the work of IOSCO, CPMI, and the FSB to develop guidance on harmonizing these data elements to permit the global aggregation of data from OTC derivatives contracts reported to trade repositories. Comments are due on or before November 30, 2016. (10/19/2016) IOSCO press release.

ISDA examines research on clearing for small derivatives users. The International Swaps and Derivatives Association published Key Trends in Clearing for Small Derivatives Users, a research note that analyzes publicly available data on clearing to evaluate concerns about clearing access for smaller derivatives users in the US and the EU. (10/17/2016) ISDA research note.

Basel Committee publishes final standard on TLAC holdings. The Basel Committee issued a final standard on the regulatory capital treatment of banks’ holdings of instruments that comprise the total loss-absorbing capacity for G-SIBs. Among other things, the final standard requires banks to deduct from Tier 2 capital their holdings of TLAC instruments and certain instruments with subordinated forms of TLAC that are not already included in regulatory capital. The deduction is subject to the thresholds that apply to existing holdings of regulatory capital and an additional 5 percent threshold for non-regulatory-capital TLAC holdings only. The standard will become effective on January 1, 2019. (10/12/2016) BIS press release.

Basel Committee releases policy proposals on regulatory treatment of accounting provisions. The Basel Committee published a consultative document and a discussion paper on the policy considerations related to the regulatory treatment of accounting provisions under the Basel III capital framework. The discussion paper contains policy options for the long-term regulatory treatment of provisions under the new expected credit loss accounting standards. The consultative document proposes to retain the current regulatory treatment of provisions under the standardized and the internal ratings-based approaches for credit risk on an interim basis. Comments are due on or before January 13, 2017. (10/11/2016) BIS press release.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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