May 1, 2017  
Quote of the Week
“We are seeing a great deal of interest from fintech companies that want to learn more about doing business and collaborating with banks....Early in this process, our regulatory instinct has been to say no and to be too risk averse. In the last two years, we’ve worked very hard to take a more open approach.”
Articles in This Issue

US Banking: Fed Powell reforms, role of boards; Trump FSOC and resolution orders; FHFA stress test scenarios; Fed, FDIC resolution plan gaps; House CHOICE Act hearing; Volcker speech future reform

page 2

US Consumer: CFPB HMDA data clarification; CFPB mortgage sector diversity; CFPB student loan complaints; CFPB loan servicer violations; CFPB rulemaking process; CSBS new call report for MSBs

page 3

US Investment: SEC processing of complaints; CFTC registration form 8-R; MSRB board rulemaking; FINRA expedited list of arbitrators; FINRA social media communication; FINRA insider red flags, tips

page 4

Canada: CSA foreign auditor oversight; CSA offering memo exemption; IIROC use of enforcement tools; OSFI Basel pillar 3 disclosures; IIROC conflicts on compensation; IIROC trade confirmation suppression

page 5

International: Basel III adoption progress; FSB chair dynamic reforms; HK Treasury insurance authority; HKMA bank account opening; MAS future reforms, fintech; CSRC supervision of futures risks 

page 6

EU: ECB CCP resolution regulation; ESMA liquidity contracts under MAR; EU Council Brexit negotiating position; EC CMU prospectus, equivalence; EDPS new e-privacy regulation; EIOPA consumer protection

page 7

UK: BoE money markets code; FCA mission, and business plan; FCA firm-complaint data; PRA MIFID implementation part 2; FCA evolving threats speech; Treasury Post-Brexit AML sanctions powers

page 8

AML & Enforcement: OFAC removal SDN list; OFAC Syria sarin research; MAS crime prevention, AML; Fed Deutsche FX, Volcker settlement; OCC, U.S. bank NA filing violations; UK FRC Grant Thornton fine

page 9
Regulatory Watch List
Block-EU Brexit guidelines agreed by EU 27 defer trade talks until later phase, and carve out financial services. Uncertain prospects on timing and terms of access, cause UK banks to implement contingency relocation plans. 
Spoiled for CHOICE House introduces Dodd-Frank replacement bill, with option for fewer rules if higher capital. Prospects in Senate make wider passage unlikely, with GOP disagreement on changes to credit card swipe fees.

US Banking

Fed Powell Reforms, Role of Boards

On Apr. 20, Fed Governor Powell spoke on future reform, and the role of boards in oversight.

  • Financial system stronger than before crisis, with higher levels of better-quality capital.
  • Imposed rigorous, capital stress tests, that recognize dynamic nature of financial risk.
  • Firm could be safely reorganized, resolved, when all other safeguards proved insufficient.
  • New challenge arises from concentrations of risk residing in clearing central counterparties.
  • On capital and liquidity, protect core reforms but support reduced burden on smaller firms.
  • New rulebook excessively complex, need for way to simplify rules, achieve more efficiency.
  • Adjustments also warranted in the supervisory relationship with the boards of banking firms.
  • Followed report from the Wells Fargo scandal, supervisors failed to see red flags, complaints.

Trump FSOC Resolution Order

On Apr. 21, Treasury responded to new executive orders from President Trump on resolution, tax.

  • Treasury to review the process for FSOC and bank orderly liquidation authority, will report.
  • Suspend current FSOC process for designating financial institutions systemically-important.
  • Until completion of review, Treasury to not designate new non-bank unless an emergency.
  • Evaluate if OLA framework is consistent with Trump Feb. 2017 principles on regulation.
  • Note areas where change to bankruptcy code may be better way to resolve financial distress.
  • Reexamine the 2016 tax regulations, to ensure that they do not unduly strain US economy.
  • Said burden of US tax code consumes billions of productive hours in required compliance.

FHFA Stress Test Scenarios

On Apr. 14, FHFA issued scenarios for stress test reports to be performed as at end-2016.

  • Orders issued and scenario details to GSE Fannie Mae, Freddie Mac, each FHL Bank.
  • The new summary instructions and guidance, will apply to all reporting entities, for 2017.
  • Guidance described the scenario assumption, need of complete data, reporting and timing,
  • Also on governance, use of stress test results, evaluations, and correspondence to the FHFA.
  • Specific scenarios requiring submission for baseline, adverse, and severely adverse.
  • Entities should apply these to the relevant line of business, which is subjected to their model.
  • Applicable to each FHFA from Mar. 3, 2017, with guidance effective from Apr. 14, 2016.

Fed, FDIC Resolution Plan Gaps

On Apr. 24, Fed and FDIC said Wells Fargo had finally remediated deficiencies for 2015 plans.

  • New finding firm no longer subject to growth restriction from 2016 on overseas, non-banks.
  • Bank submitted a revised plan in Mar. 2017, that remediated the remaining deficiencies.
  • Fed issued a feedback letter to firm on steps taken in how the deficiencies were resolved
  • Showed legal entity rationalization criteria is clear, actionable, and aligned with resolution.
  • Included mapping of critical shared services, into the legal entity rationalization criteria.
  • Next required to file new plan by Jul. 1, 2017, and address the vulnerabilities for resolution.
  • Apr. 2017 determination for 2015 plan, would not pertain to any future resolution filing.

House CHOICE Act Hearing

On Apr. 26, House financial services panel held hearing on CHOICE Act, to replace Dodd-Frank.

  • Chairman Hensarling statement, repeated his criticisms of Dodd-Frank, related regulations.
  • Described "greater burden to enterprise" than all the other Obama regulations combined.
  • Chairman also said 75% of banks offered free checking before DFA law; by 2016 only 38%.
  • Minimum balance requirements raised for free checking, so now more underbanked families.
  • Repeated strong critique of CFPB as a "rogue agency" which seriously harmed consumers.
  • Will simplify capital requirements, as the best form of insurance against future bank failures. 
  • Repealed "misguided, complex, unneeded Volcker Rule", market less liquid, more fragile.
  • NASAA criticized, act "would dramatically change regulatory policies in wrong direction."
  • On Apr. 27, 2017, Treasury Secretary Mnuchin welcomed reintroduction of the CHOICE Act.

Volcker Speech Future Reform

On Apr. 19, Volcker spoke on concerns for future of financial reform, believed stability misleading.

  • To preserve Dodd-Frank orderly liquidation authority, as weapon against future bailouts.
  • Maintained that the Volcker Rule concept is simple to apply, despite the claims of banks.
  • Lower regulatory burden on true community banks, including Basel capital standards.
  • Challenge determine what is true community bank, and not from misplaced burden-easing.
  • Multi-agency structure riddled with gaping holes and overlap, need review structure.
  • FSOC helpful, but insufficient to overcome flaws, encouraged Congress serious study.

US Consumer

CFPB HMDA Data Clarification

On Apr. 13, CFPB proposed rules to clarify data required to be submitted for HMDA reporting.

  • Followed 2016 CFPB update of HMDA and expanded data collection under Dodd Frank.
  • CFPB clarified the information required to be collected and reported for mortgage lending.
  • Rule was updated in 2015, to improve quality and type of data reporting by firms.
  • Dodd-Frank required new reporting, to identify potentially discriminatory lending patterns.
  • Assess if the lender meeting housing needs of their community, public-sector investment.
  • Updated requirements take effect in Jan. 2018, noted the industry is working to get compliant.
  • Established transition rule for reporting certain loans that were purchased by financial entity.
  • Facilitate reporting by census tract of property, using the new online CFPB geo-coding tool.

CFPB Mortgage Sector Diversity

On Apr. 27, CFPB issued report to promote level of diversity from participants in mortgage sector.

  • Report discussed the current approaches and business case for diversity and inclusion.
  • Followed meeting including MBA, larger and smaller banks, and some non-banking entities.
  • Roundtable attended by staff from OMWI of OCC, FDIC, Federal Reserve, and FHFA.
  • Saw improved overall performance, cases of positive and productive workplace impact.
  • Robust analysis and broader understanding has resulted from having multiple viewpoints.
  • Diversity broadened customer base and developing new tailored business products.
  • Understanding demographics key to ensuring better reflection of available talent pools.

CFPB Student Loan Complaints

On Apr. 25, CFPB issued monthly complaint snapshot, with a focus on student lending.

  • Student loans make up over half - 64%, of all complaints reported by consumers in the US.
  • Consumers were often not told about options that allow them to continue repaying loans.
  • Misapplied payments also caused problems, including negative impact on credit reports.
  • Faced delay and inaccurate denials, when applying for income-driven repayment plans.
  • As of Apr.1, 2017, CFPB handled a total of approximately 1,163,200 complaints nationally.
  • For Mar. 2017, debt collection was the most-complained-about financial product or service.
  • Student loan complaints showed the greatest increase, being 325% of all product, services.

CFPB Loan Servicer Violations

On Apr. 26, CFPB issued report on role played by servicers of mortgage and student loans.

  • Found some student loan, mortgage servicers failed to provide borrowers legal protections.
  • Report is summary of their supervisory work from Sep.- Dec. 2016, by CFPB examiners.
  • Most complaints about servicers related to shoddy loan practices, faulty data collection.
  • Serious issues for consumers, when seeking alternatives to foreclosure, or loss mitigation.
  • Premature starts to foreclosure process with erroneous information on available options.
  • Frequent misuse of escrow accounts to pay insurance premiums on unrelated loans.
  • Cited $6.1mn redress by auto loan servicers, from five recent public enforcement actions.
  • Over $39mn in consumer remediation and another $19mn in civil money penalties.
  • CFPB examiners also alerted companies, and outlined their necessary remedial measures.

CFPB Rulemaking Process

On Apr. 21, CFPB issued policy on ex-parte communications filed in the rulemaking process.

  • Required disclosure of ex parte presentation made to CFPB staff on pending rulemakings.
  • For written or oral information, argument on merit, outcome of rulemaking proceeding.
  • Policy clarifies it can apply to any means of communication made to CFPB on rulemaking.
  • CFPB expected primary way of commenting, on published rules is in writing on docket.
  • Does not apply on federal register publication, and update added or posted on CFPB website.
  • Newly added re State AGs, bank regulators authorities, agencies licensing, supervising.
  • Extended timeframe to submit summary of ex parte to 10 business days to help compliance.
  • Can email to CFPB executive secretary and to the CFPB employee point of contact.

CSBS New Call Report for MSBs

On Apr. 18, CSBS announced the release of the MSB call report, with filing due from May 15.

  • Call report required to be fled via nationwide multistate licensing system (NMLS).
  • Filed by MSBs, and fintech firms licensed to do business as money transmitters.
  • Use to create only comprehensive database of nationwide MSB transaction activity.
  • 18 State agencies adopted report for Q1 2017, covering 80% of all money transmitters.
  • Several additional States are expected to adopt the MSB Call Report in the near future.

US Investment

SEC Processing of Complaints

On Apr. 19, SEC issued bulletin on process used for their handling of investor complaints.

  • Individual complaints made against brokers, investment advisers, mutual funds, and others.
  • Complaints could relate to any problems from investments, accounts, financial professionals.
  • Order-handling, trade execution, confirmation, dividends, fees, commissions, or disclosure.
  • The SEC investor education office will send a complaint to a firm, if investor has consented.
  • Will then request that firm send written report to the investor and OIEA on the issues raised.
  • SEC division enforcement may also conduct wider investigations, on a confidential basis.
  • OIEA will not update investor on status of a complaint, or confirm its existence in review.

CFTC Registration Form 8-R

On Apr. 28, CFTC issued form 8-R to register  individuals working for firms in futures markets.

  • Form 8-R is an application for individual to register with CFTC as an associated person.
  • Associated to registrant, floor broker, or floor trader, or to be listed as principal of registrant.
  • Form 8-R also used by NFA, as US registered futures association as authorized by CFTC.
  • CFTC delegated registration function to NFA including the processing of Form 8-R filing.
  • NFA has requested CFTC make changes to Form 8-R, and which are now being adopted.
  • Disciplinary information question on fitness of applicant related to statutory disqualification.
  • Clarified that “principal” goes beyond CFTC-registrant, to include any firm connected to.
  • Revised version of Form 8-R shall be effective when NFA make it available on their web-site.
  • CFTC also issued the adoption of a revised registration Form 8-R, and cancelled Form 3-R.

MSRB Board Meeting Apr. 2017

On Apr. 19, MSRB scheduled rulemaking items to discuss on agenda if its Apr. 26-27 board meeting.

  • Agenda covered advertising, CUSIP allocation, initiatives on additional data, and market tools.
  • Guidance on MSRB rules on using solicitor re municipal advisor duties if not subject to G-42.
  • Comments received on proposed changes to MSRB Rule G-21 on advertising by dealers.
  • This is part of long-term effort to revise and update MSRB Rule G-11, and related rules.
  • Comments now received by SEC on MSRB proposed rule change, to add new Rule G-49.
  • Comments on the review of existing MSRB Rule G-26, on customer account transfers.

FINRA Arbitrator Expedited List

On Apr. 26, FINRA proposed rules on expedited lists of arbitrators for customer and industry code.

  • Would amend customer and industry codes, to expedite list selection process in arbitration.
  • Amended Rules 12402 and 12403 of code of arbitration procedure, for customer disputes.
  • Also amended FINRA Rule 13403 of code of arbitration procedure for industry disputes.
  • Director of FINRA office of dispute resolution (ODR) will send out list, or lists, of arbitrators.
  • List as generated by the neutral list selection system (NLSS), to all parties at the same time.
  • In 30 days of when last answer due, regardless of whether parties’ had agreed to extend dates.
  • Requested comments be submitted within 21 days from publication in the federal register.

FINRA Social Media Communication

On Apr. 25, FINRA issued notice on social media and website communications with the public.

  • Follows FINRA earlier 2010/11 social media guidance, but does not change the principles.
  • Issued new guidance due to a further increase in social media usage, changes in technology.
  • Added guidance on chatrooms, text messages, mobile applications, other new tech usage.
  • Depended on the content, not on the type of device or technology used for communication.
  • If communicate on business by text message app or chat, must ensure records can be kept.
  • Personal communications not required to be retained regardless of the method, or content.
  • Required native advertising communications should be both fair and balanced as to risks.
  • Not responsible for unsolicited third-party opinions or comments, but must disclose if
    have paid for, and notify retail to use caution.

FINRA Insider Red Flags, Tips

On Apr. 19, FINRA issued video on  identifying red flags for insider trading, and providing tips.

  • With Cam Funkhouser, EVP office of fraud detection and market intelligence (OFDMI).
  • Interview cited some red flags firms should look out for, in relation to insider trading.
  • Trading before material news, appearance of patterns, unregistered stock certificates
  • Overview recent cases, and how to contact FINRA with a tip on insider trading or fraud.
  • Gave contact information, no specific method to report, website, hotline, contact staff.
  • More detail is better, who, what, why, when and where, rather than saying think it is a problem.
  • Don't assume that FINRA already know about, so if you see something, say something.


CSA Foreign Auditor Oversight

On Apr. 25, CSA sought input on oversight on audits of reporting issuers done by foreign firms.

  • Address challenges being faced by Canadian Public Accountability Board (CPAB),
  • CPAB requested that CSA amend national instrument 52-108 on oversight of auditors.
  • Applied to audit firms involved in audit of reporting issuer’s financial statements.
  • Proposed requirement for an audit firm to register as a participating audit firm (PAF).
  • Participation agreement will permit CPAB to inspect PAF, to assess compliance with rules and professional standards, when issuing a report on issuer financial statements.
  • Amendment help CPAB access audit working papers located in most foreign jurisdictions.
  • Require disclosure of situations where CPAB was prevented from inspecting audit papers.

CSA Offering Memo Exemption

On Apr. 20, CSA issued report on issuer's use of the rights offering, and prospectus exemptions.

  • Rights offering exemption was effective in all Canadian jurisdictions, since Dec. 8, 2015.
  • Exemption made prospectus-exempt rights offering more attractive to reporting issuers.
  • Rights offering notice requires that reporting issuers file information with security holders.
  • Dilution limit of 100%, increased from 25%; and added statutory secondary market liability.
  • Update included review of rights offerings for the period since guidance was first adopted.
  • Found that exemption used more frequently, allowing issuers to raise more capital, quickly.
  • Believed issuers have been using exemption appropriately, and comply with requirements.

IIROC Use of Enforcement Tools

On Apr. 19, IIROC issued report on using new tools for more effective enforcement actions.

  • Completed 138 investigations vs, 124 in 2015, commenced 55 proceedings, up by 25%.
  • Prosecuted 40 individuals 6 firms, suspended 2 firms/20 individuals, barred 6 individuals.
  • Increase in total number of complaints received, to 1,459 in 2016, vs 1,341 in 2015.
  • Unsuitable investments, remained top complaint received and prosecuted by IIROC.
  • Total sanctions imposed on disciplined individuals rose to $3.12mn, up from $2.95mn.
  • While IIROC collected 100% of fines on firms, only got 8% from individuals, fall of 50%.
  • Showed the need for new government legal authority to improve collections, enforcement.

OSFI Basel Pillar 3 Disclosures

On Apr. 20, OSFI issued final guidelines on bank pillar 3 disclosure, under the Basel standards.

  • Followed OSFI Jan. 2017 proposed guide on pillar 3 disclosure by banks re Basel standards
  • First applied for 6 domestic systemic banks, will review disclosure of others at later date.
  • D-SIBs to implement revised Basel Pillar 3 standards, for year ending Oct. 31, 2018.
  • In 2017, OSFI will issue, final guidelines to implementing the Basel pillar 3 standards.
  • Apr. 2017 guidelines replace OSFI Nov. 2007 advisory pillar 3 disclosure, on Oct. 31, 2018.
  • Promote market discipline over credit risk, counterparty credit risk, and securitization.
  • Once Basel completed its Pillar 3 work, OSFI will determine application for smaller banks.

IIROC Compensation Conflicts

On Apr. 27, IIROC issued review of conflicts on compensation for dealers and areas of concern.

  • Reliance on disclosure without addressing the conflict, and poor quality of disclosure given.
  • Lack of oversight of compensation programs, and the associated conflicts by firms.
  • Saw shift to fee-based and managed accounts without supervision or monitoring of the risk.
  • Disclosure alone is insufficient to address conflict, particularly around compensation.
  • More important that conflicts are avoided or addressed before disclosure was consider.
  • IIROC requested firms to identify issues controlling conflicts with double-charging.
  • Recently issued request for information from sample of dealers offering fee-based accounts.
  • Cases where did not follow own policies and procedure, client best interest not considered.
  • Failure to self-report such issues will be referred to enforcement if later find deficiency.
  • IIROC enhancing conduct exam programs, to better assess any non-compliance by dealers. 

IIROC Trade Confirm Suppression

On Apr. 20, IIROC proposed rules to allow for suppression of trade-confirmation notices.

  • Re dealer member rule (DMR) 200.2(I)(x)(B) governing suppression of trade-confirmation.
  • Make confirmations more practical for dealers with a compliance-trade rate of above 90%.
  • For dealer over 90% compliant in quarter, but falling below that for one of last 4 quarters.
  • Proposals remove need for three consecutive compliant quarters rule, to allow fluctuation.
  • Allow suppression if member has not made more than 2 reports under rule 800.49(6).


Basel III Adoption Progress

On Apr. 25, Basel issued report on adoption of Basel III framework in member countries.

  • As at Mar. all 27 member jurisdictions have risk-based capital rules, LCR and buffers.
  • 26 countries have issued final rules on countercyclical capital buffers, 25 on D-SIBs.
  • And 20 issued rules on non-centrally cleared derivatives and 20 on intraday liquidity.
  • All member countries which are a home jurisdiction to G-SIBs have final rules in force.
  • Deadlines for counterparty risk (SA-CCR), CCPs and PLR3 disclosure have now passed.
  • 21 have PLR3 rules, 19 have final/draft SA-CCR and 17 have draft/final rules on CCPs.
  • Further assessment of LCR implementation underway, aims to assess all by end-2017.
  • Noted 7 countries lagging behind on Basel swap margin rules for uncleared derivatives.

FSB Chair Dynamic Reforms

On Apr. 20, FSB Chair Carney urged that reform implementation should be dynamic process.

  • Adjust measures if unnecessary duplication, inconsistencies, or see unintended impacts.
  • Resist steps that would fragment the global financial system, such as with trade barriers.
  • Build system of deference to each other’s approaches, when outcomes are comparable.
  • FSB is developing structured framework to evaluate reforms, deliver it to G20 Summit.
  • Risk from reform fatigue on implementation momentum, and Brexit negotiation outcomes.
  • Need to complete Basel III, and put end to too big to fail, noted system is at fork in the road.
  • Require shadow banking be fully transformed into resilient market-based finance system.

HK Treasury Insurance Authority

On Apr. 24, HK Treasury gazetted new insurance regulatory structure independent of government.

  • The Insurance Authority (IA) will replace the Office of the Commissioner of Insurance OCI.
  • To regulate insurance companies with effect from Jun. 26, OCI to be disbanded same day.
  • Government gazetted Insurance Companies Ordinance 2015 Notice 2017 to specify date.
  • Gazette subsidiary legislation, to enable new HKIA to collect authorization and user fees.
  • Will also empower IA to introduce technical updates to various subsidiary legislation.
  • IA to replace OCI then take over regulation of insurance intermediaries from the SROs.
  • Expected to complete takeover supervision from the three SROs, within two years.

HKMA Bank Account Opening

On Apr. 21, HKMA deputy CEO Yuen spoke about opening bank accounts for overseas clients.

  • Small number of banks need to comply with requirements mandated by overseas regulator.
  • This has led to de-risking efforts in some instances, which is a sub-optimal outcome.
  • HKMA has been working with both the banks, and their stakeholders to address these issues.
  • Maintains a webpage dedicated to information on opening of bank accounts in the region.
  • Some banks now offer pre-vetting screening before applicant is physically present in HK.
  • HKMA also working with industry to enhance efficiency of KYC utilities, technology

MAS Future Reforms, FinTech

On Apr. 21, MAS MD Menon spoke on future regulations and  increased application of fintech.

  • Priority to evaluate reform made to date, and then position regulation for fintech changes.
  • Pressure has begun to mount, to unwind some of the recent reform, so assessment needed.
  • There are concerns that liquidity declined in some markets, partly due to rising regulation.
  • Worryingly, the profitability of several large banks today is below their cost of capital.
  • The cost of risk management and compliance has exploded, regulators must monitor this.
  • Key principles in fine-tuning regulations are risk proportionality, and global consistency.
  • Must also look to harness FinTech to better regulate and supervise financial participants.
  • The major risk for financial institutions and regulators, is likely to be from cyber space.
  • The primary need is to adopt common risk management standards over cyber defense.

CSRC Futures Risk Supervision

On Apr. 21, CSRC issued guidelines on risk control and supervision for futures companies.

  • Raised minimum net capital requirement to 30m yuan to strengthen settlement risk.
  • Further refine proportion of asset adjustment require scientific capital calculation.
  • Adjusted asset management business risk capital, for the scope and accrual criteria.
  • Submission in the index system based on the futures market and risk characteristic.
  • Adapted the regulatory standard for futures development stage, enhance risk management.
  • Prepared risk supervision report, and reporting guidelines, for futures companies.
  • To ensure smooth implementation, CSRC will allow a transition-period until Oct. 1, 2017.


ECB CCP Resolution Regulation

On Apr. 20, ECB director Coeure spoke on need for regulation of central clearing counterparties.

  • Role of central counterparties have expanded significantly over recent years due to EMIR.
  • Regulatory authorities have devoted greater attention to strengthen systemic safeguards.
  • CPMI-IOSCO is expected to propose clearer guidance on PFMI requirements during 2017.
  • Will include explicit board responsibility to oversee risks, conduct rigorous stress-testing.
  • CPMI-IOSCO Work has revealed that CCPs still need to improve on their recovery plans.
  • An important remaining area is for safeguard around interaction of recovery and resolution.
  • Funding arrangement should be proportionate to the tail-of-tail nature of resolution risks.

ESMA Liquidity Contracts in MAR

On Apr. 25, ESMA issued opinion on liquidity contract practices, for market abuse regulation.

  • Accepted market practices AMPs on liquidity will be sent to ESMA by national authorities.
  • MAR provides exception from prohibition on market manipulation, for accepted practices.
  • Opinion stated common criteria that liquidity contract AMPs should possess, to be granted.
  • Liquidity contracts should be in written form, and conducted on a recognized trading venue.
  • Should also gradate between liquid and less liquid instruments, stricter rules for former.
  • Contracts should specify price conditions to limit the price impact of orders transmitted.
  • Trades should not exceed 25% of the average daily volume on the market for illiquid shares.

EU Council Brexit Negotiating Position

On Apr. 29, EU Council negotiation guidelines on Brexit, were adopted immediately at a summit.

  • Guidelines define framework for negotiations with UK, and will set out overall EU position.
  • Constituted the first step in process after UK notified Art 50 intention to leave on Mar. 29.
  • On Apr. 27, Council stated clear consensus on principles that should guide talks with the UK.
  • Need to start by preparing for an orderly UK withdrawal, and guarantee rights of citizens.
  • On Apr. 28, Council issued invitation letter to EU27 members of the European Council.
  • Letter set out idea of phased approach, where the main issues to precede future relations.
  • Need secure strong guarantee for citizens and families, and define UK financial obligations.
  • Only after progress was made on these issues could talks on their future relations commence.

EC CMU Prospectus, Equivalence

On Apr. 25, EC Commissioner Dombrovskis, spoke on CMU, prospectuses, and equivalence.

  • Brexit is a defining and challenging moment for the EU, with the potential for disruption.
  • First priority is to minimize the uncertainty caused by UK's decision to leave the EU.
  • EU should accelerate CMU to unlock new financing from growth and develop rules.
  • Proposal to overhaul prospectus regime and plans to restart simple securitization market.
  • Prospect of largest financial center leaving single market makes finishing CMU harder.
  • Integration is now existential question for remaining 27 states if they are to compete.
  • International cooperation key to equivalence, but need to consider every case on own merit.
  • Circumstances of third country operators can change, due to new laws and practice.

EDPS New ePrivacy Regulation

On Apr. 24, EDPS issued opinion on proposal to repeal and replace the EU ePrivacy Directive .

  • Supported the choice of legal instrument i.e. regulation that is directly applicable in EU.
  • But splitting of data into metadata, content data, data from terminals risks leaving gaps.
  • No legal justification, for linking to laws in European Electronic Communications Code.
  • EDPS argued for set of necessary definitions with ePrivacy Regulation to covers its scope.
  • Should remove tracking walls, so any consent is to be genuine and freely given choice.

EIOPA Consumer Protection

On Apr. 26, EIOPA issued a thematic review of EU-wide consumer protection by insurance firms.

  • Covered thematic review of incentives and remuneration for asset management services.
  • Widespread and significant payments from asset managers to insurance undertakings.
  • 81% of participating insurance undertakings had received some monetary incentives.
  • Payments in review sample totaled €3.7bn in 2015, estimated for whole market of €5.2bn.
  • 70% of insurance entities did not disclose to their policyholders, remuneration received.
  • About 60% of firms retained these monetary incentives and remuneration they received.
  • Entities invested a significant proportion of these assets in funds paying higher incentives.
  • Poor or inconsistent mitigation of conflicts of interest, may lead to a material detriment.
  • Selection of asset managers is in some cases constrained by these existing business deals.


BoE Money Markets Code

On Apr. 26, BoE issued voluntary money markets code for deposits, repos, and securities lending

  • Outlined high-level principles including ethics, governance, risk, confidentiality and execution.
  • Underpinned by key principle that participants in market act in a manner to promote integrity.
  • Superseded code for non-investment products (NIP), gilt repos, and for securities lending.
  • Endorsed by the Money Markets Committee (MMC), comprised of market participants.
  • BoE's ambition is that the code is embedded widely by the beginning of the 2018 year.
  • Contains chapter on conduct in the unsecured money markets, repos, and securities lending.
  • Annex included statement of commitment, day count conventions, glossary and for groups.

FCA Mission, Business Plan

On Apr. 18, FCA issued final mission, business plan, proposed fees, and issued views on sectors.

  • Covered FCA mission priorities, 2017/2018 business plan and consultation on fee levels.
  • Mission included enhancing trust in the UK markets by setting clear rules and standards.
  • Act as gate keeper by only authorizing firms and individuals that are suitable for the UK.
  • Priorities include supporting UK government with preparation for withdrawal from the EU.
  • Launched campaign to increase understanding over payment protection insurance (PPI).
  • Review implications to vulnerable consumers, high-cost credit and long-term savings work.
  • FCA also issued sector views containing an overview of how each sector is performing.
  • Sectors covered retail banking, retail lending, insurance, pensions and retail investment.

FCA Firm-Complaint Data

On Apr. 26, FCA issued data on the complaints it had received, with both total and entity-levels.

  • Has total number of complaints reported by firms during second half of 2016 (3.04mn).
  • Number is higher than previously, because FCA's new rules now capture all complaints.
  • Firms now have up to three days to address a complaint to the satisfaction of the consumer.
  • In aggregate, PPI remains most complained about product, with 29% of all complaints.
  • 43% of complaints were closed within three days, and 97% were closed in under 8 weeks.
  • 60% of all complaints were upheld by firms, where the firm agreed with the complainant.
  • Total redress paid to consumers was £1.9bn administration is most common complaint.

PRA MiFID Implementation Part 2

On Apr. 28, PRA issued their final policy on implementation of MiFID II: Part 2 and MiFIR.

  • Set out PRA rule to grant authorizations for new MiFID investment activities by firms.
  • Under rules firms are required to implement Art 9 MiFID management requirement.
  • Management body has clear responsibilities setting strategic objectives and risk strategy.
  • PRA received no comment on proposals, so rules are as consulted with drafting changes.
  • The appendices 5-7 included links to three supervisory statements updated for MiFID II.
  • Rules and statements that apply MiFID II (Appendices 1-7) in force from Jan. 3, 2018.

FCA Evolving Threat Speech

On Apr. 24, FCA director Delfas spoke on the evolving threat landscape, including technology.

  • Threat landscape is ever-evolving and now included attacks using the internet of things.
  • Time to address wider gap between criminal capability and market ability to defend itself.
  • Dialog should evolve on getting basics right, moving to a secure culture, and measuring it.
  • Consider other drivers, beyond boardroom, sharing of information and building capacity.
  • Attacks exceeding 1.5Tb per second are now entirely feasible, and scale expected to grow.
  • SMART televisions, fridges, routers and cameras are being exploited to form botnets.
  • As broadband becomes norm devices become capable of being comprised and utilized.
  • It is important that NEDs play active role in ensuring that firms are managing cyber risk.

Treasury Post-Brexit AML Sanctions

On Apr. 21, UK Treasury issued white paper on powers to impose sanctions after Brexit.

  • UK Government sought view on legal powers after country completed withdrawal from EU.
  • UK to still be able to impose and implement sanctions, and comply with UN obligations.
  • Current legal powers flowed from European Communities Act 1972, so need new powers.
  • Not possible to achieve this through the Great Repeal Bill, as freeze in status is not sufficient.
  • Bill would put UK in breach of international obligations and be unable to work with EU.
  • Need for primary legislation with framework, and secondary legislation setting out details.
  • Expected powers to implement Immigration Act, apply asset freezes and trade restrictions.
  • New laws should include reporting obligations for persons aware of breaches of sanctions.

AML & Enforcement

OFAC Removal Process from SDN List

On Apr. 20, OFAC issued FAQ on process for petitions for removal of entities from SDN list.

  • OFAC designates and removes persons from specially designated nationals sanctions list.
  • FAQ provides guidance on the process of removing blocked persons from this status.
  • Every year, OFAC removes hundreds of individuals and entities from the SDN list.
  • Need file name of person, details, reason for request to remove, any additional evidence.
  • No need for lawyer, OFAC accepts petitions from listed persons, and their representatives.
  • Applicant must establish that delisting is appropriate, as set forth in OFAC regulation.

OFAC Syria Sarin Attack Research

On Apr. 24, Treasury sanctioned Syrian research staff for their role in assisting the sarin attack.

  • OFAC action against 271 staff from scientific studies and research center (SSRC).
  • Action has targeted the agency that develops chemical weapons and the means of delivery.
  • Sanctions were in response to Apr. 4, Syrian regime sarin attack on Khan Sheikhoun.
  • The employees have chemistry expertise or have worked in chemical weapons program.
  • Action followed OFAC, US State Department. Jan. 2017 sanctions against the Syria regime. 

MAS Crime Prevention, AML Framework

On Apr. 24, MAS deputy MD spoke on financial crime detection, comprehensive AML framework.

  • In 2016, MAS consolidated their supervisory resources, into one AML focused department.
  • The framework involved major elements of progressive regulations, intensive supervision.
  • With rigorous enforcement and international co-operation and partnership with industry.
  • MAS has in recent years, stepped up its AML offsite reviews as well as onsite supervision.
  • Adopted new risk bucketing metrics to allow MAS to target the more vulnerable areas.

Fed Deutsche FX, Volcker Settlement

On Apr. 20, Fed fined Deutsche Bank $156mn, for violations related to FX, and Volcker rule.

  • $136.9mn fine is for unsafe practices in FX markets, and $19.7mn for lack of compliance.
  • First bank found breaking Volcker rule due to not maintaining a good compliance program.
  • Found significant failure in controls, internal supervision, compliance, oversight all around.
  • Fed found deficiencies in oversight, internal control on FX traders of USD, other currency.
  • Finding applied to trading both for the bank's own accounts and that done for its customers.
  • Failed to detect traders were using electronic chat-rooms to collude with their competitors.
  • Behavior harmed  clients, distorted markets, and unduly benefited traders' own account.

OCC, U.S. Bank NA Filing Violations

On Apr. 25, OCC fined U.S. Bank N.A, $15mn, for bankruptcy filing breach, between 2009-2014.

  • Violation on bankruptcy filing proof of claim, payment change notices, and post-petition fee.
  • Failed to meet bankruptcy rules, constituting unsafe or unsound banking practices.
  • Bank was already under Apr. 2011 servicing-related consent order, terminated in Feb 2016.
  • The bank filed untimely, or filed inaccurately, the proofs of claim violating bankruptcy rules.
  • Payment application inaccuracies, resulted in over-payments made by debtors or trustees.

UK FRC Grant Thornton Fine

On Apr. 24, UK FRC fined Grant Thornton £2.3mn for audit failures re AIM listed company.

  • Grant Thornton will pay £2.3mn-fine for their audit failure relating to audits of AssetCo plc.
  • Firm, and retired partner, Napper admitted misconduct, agreed to fines, other sanction.
  • Firm had an inflated balance sheet, including significant revenue streams that was fictitious.
  • Respondents agreed to a statement of facts  about the audit of AssetCo, listed company.
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