This newsletter summarizes recent regulatory changes impacting Banking, Capital Markets and Insurance firms.

This newsletter covers some of the more recent regulatory changes impacting Banking, Capital Markets and Insurance firms. We track more than 70 regulatory and industry bodies across North America, Europe and Asia Pacific. The shortlisted entries highlight the risks covered and business processes affected by the regulatory reforms.

CURRENT REGULATIONS:

Office of the Comptroller of the Currency (OCC):
OCC Requests Comment on Proposal to Update Activities and Operations Rules and its Rules on Digital Activities
Publication Date: June 4th 2020

Risks Covered: Operational Risk
Business Processes Impacted: Data Privacy
The agency has published a Notice of Proposed Rulemaking for public comment. The Notice updates the rules for national bank and federal savings association activities and operations. Comments on both issuances were due 3 August 2020.1

Consumer Financial Protection Bureau (CFPB):
Amendments to Facilitate the LIBOR Transition (Regulation Z)
Publication Date: June 2nd 2020

Risks Covered: Credit Risk
Business Processes Impacted: Lending and Investment
The agency is proposing to amend Regulation Z, which implements the Truth in Lending Act, specifically addressing the discontinuation of LIBOR. The proposal is to facilitate creditors’ transition away from using LIBOR as an index for variable-rate consumer credit products. Comments were to be submitted before 4 August 2020.2

Federal Reserve (The Fed):
Risk-based Capital Buffer for Holding Companies Subject to the Capital Plan Rule
Publication Date: June 10th 2020
Risks Covered: Liquidity Risk
Business Processes Impacted: Capital Adequacy and Capital Planning
The agency has issued its amended Capital Buffer for Holding Companies not Subject to the Capital Plan Rule. These changes are effective as of 31 December 2020.3

Financial Conduct Authority (FCA):
Coronavirus and safeguarding customers’ funds: proposed guidance for payment firms
Publication Date: June 5th 2020
Risks Covered: Prudential Risk
Business Processes Impacted: Consumer/Investor Protection
The authority has published guidance that should help firms prevent harm to their customers if firms fail, as a result of the coronavirus pandemic, by making the wind-down process orderly and facilitating the return of customer funds. In response to requests from trade bodies and other industry participants, the closing date was extended to 12 June 2020.4

European Insurance and Occupational Pensions Authority (EIOPA):
Discussion paper on (re)insurance value chain and new business models arising from digitalisation
Publication Date: June 10th 2020
Risks Covered: Third Party Risk/Vendor Risk
Business Processes Impacted: Business Continuity Management
The authority has published a discussion paper examining the increasing complexity surrounding how insurance is being manufactured and distributed, and changes in firms’ reliance on outsourcing and third parties. Comments to be submitted by 7 September 2020.5

European Banking Authority (EBA):
The EBA study of the institutions’ reporting costs (‘cost of compliance study’ under Article 430(8) of the CRR) – specification of fact-finding case studies
Publication Date: June 3rd 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Reporting
The authority has published a draft document for discussion which focuses on the collection of information using fact-finding case studies for the cost of compliance study.6

European Banking Authority (EBA):
Submission of technical standards for the risk reduction measures package
Publication Date: June 12th 2020
Risks Covered: Systemic Risk
Business Processes Impacted: Risk Management and Stress Testing
The authority published a letter it had sent to the commission regarding delaying certain technical standards for the risk reduction measures package set out in the Capital Requirements Directive (CRD) V, the Capital Requirements Regulation (CRR) II, the Bank Recovery and Resolution Directive (BRRD) II and the European Market Infrastructure Regulation (EMIR).7

European Commission (EC):
Sustainable finance – obligation for investment firms to advise clients on social and environmental aspects of financial products
Publication Date: June 8th 2020
Risks Covered: Business Cycle Risk
Business Processes Impacted: Capital Adequacy and Capital Planning
The agency has launched an initiative relating to the European Union’s action plan on sustainable finance. This initiative intends to: direct capital flows away from activities that bring negative social and environmental consequences; assess and manage more effectively financial risks resulting from climate change and environmental damage; and direct finance towards economic activities that bring genuine long-term benefits for society. Comments were to be submitted by 6 July 2020.8

European Commission (EC):
Fraud prevention – final evaluation of the Hercule III programme (2014-20)
Publication Date: June 10th 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance
The agency announced that the Hercule III program, which supports measures to counter fraud, corruption and any other illegal activity affecting European Union finances, is to launch a final evaluation of the program to report on its success before it ends on 31 December 2020. In particular, the evaluation is to assess whether coordination under Hercule III has supplemented national action, its long-term impact, and the effects the measures will have after they have been completed.9

International Monetary Fund (IMF):
Fintech and Payments Regulation: Analytical Framework
Publication Date: June 1st 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Payments
The authority has published a draft guidance setting out its expectations for insurers and insurance intermediaries to consider the value of their products in light of the exceptional circumstances arising out of Covid-19. Comments were to be submitted by 15 May 2020.10

Securities and Exchange Commission (SEC):
Credit Risk Retention – Notice of Commencement of Review; Extension of Review Period
Publication Date: June 19th 2020
Risks Covered: Credit Risk
Business Processes Impacted: Funding and Liquidity Management
A number of agencies have provided notice pertaining to the extension of the review period, the determination of the review, of the definition of qualified residential mortgage, the community-focused residential mortgage exemption, and the exemption for qualifying three-to-four unit residential mortgage loans.11

International Swaps and Derivatives Association (ISDA); Association for Financial Markets in Europe (AFME):
Application of DAC 6 to Financial Products and Services
Publication Date: June 18th 2020
Risks Covered: Business Cycle Risk
Business Processes Impacted: Business Continuity Management
A number of agencies have published a paper which proposes a common approach, based on market participants’ understanding of EU Council Directive (EU) 2018/822 (DAC6) principles.12

International Swaps and Derivatives Association (ISDA):
ISDA Standardized Approaches benchmarking for FRTB-SA, SA-CCR and CVA
Publication Date: June 17th 2020
Risks Covered: Counterparty Credit Risk
Business Processes Impacted: Capital Adequacy and Capital Planning
The association has published two documents which provide information as to the capital models (FRTB), counterparty credit risk (CCR) and credit valuation adjustment (CVA), benchmarking exercise, and related services offered by ActiveViam and Axiom SL, two vendors that have licensed the ISDA standardized approaches Benchmarking Unit-tests.13

HM Treasury (HMT):
Prudential standards in the Financial Services Bill: June Update
Publication Date: June 23rd 2020
Risks Covered: Prudential Risk
Business Processes Impacted: Business Continuity Management
The regulator has published a policy statement in line with the prudential regulatory reforms it has planned for the financial services industry. The statement includes an explanation of HM Treasury’s approach to legislating prudential standards, including the introduction of a delegation and accountability framework for the UK regulators.14

HM Treasury (HMT):
Regulatory reforms in Financial Services
Publication Date: June 23rd 2020
Risks Covered: Prudential Risk
Business Processes Impacted: Lending and Investment
In particular, the government is announcing how it intends to legislate for updated prudential rules to reflect international Basel standards and a new regime for investment firms. HM Treasury thus seeks feedback on the transposition of the Bank Recovery and Resolution Directive II (BRRDII) and intends to review the prudential rules for insurers as a precursor for improvements to the rules.15

Financial Industry Regulatory Authority (FINRA):
FINRA Amends Its Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest
Publication Date: June 30th 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Reporting
The authority has issued a notice stating it has amended its suitability rule, CAB suitability rule and rules governing non-cash compensation in order to provide clarity on which standard applies and to address potential inconsistencies with the Securities and Exchange Commission’s (SEC) Regulation Best Interest. These changes have been approved by the SEC and went into effect on 30 June 2020, the compliance date of Reg BI.16

Financial Conduct Authority (FCA):
Cryptoassets: AML / CTF regime
Publication Date: June 22nd 2020
Risks Covered: Systemic Risk
Business Processes Impacted: Fraud and Financial Crime
The authority has updated its cryptoassets policy regarding Anti-Money Laundering/Combating the Financing of Terrorism regime. Applications from existing businesses were to be received by 30 June 2020 for priority review to check that they are ready to be determined.17

Financial Conduct Authority (FCA):
EBA Guidelines on ICT and Security Risk Management
Publication Date: June 25th 2020
Risks Covered: Counterparty Credit Risk
Business Processes Impacted: Capital Adequacy and Capital Planning
The authority has announced that it intends to comply with the European Banking Authority’s (EBA) final guidelines on information and communication technology (ICT) and security risk management for credit institutions. This means that all credit institutions, investment firms and payment service providers have to comply with the Guidelines from 30 June 2020, and are also referred to the EBA’s guidelines on the use of flexibility in relation to COVID-19 and the implementation of the Guidelines. The FCA expects to publish its final rules on the new requirements for operational resilience in Q1 2021.18

European Central Bank (ECB):
Working group on euro risk-free rates recommends voluntary compensation for legacy swaption contracts affected by the discounting transition to the €STR
Publication Date: June 16th 2020
Risks Covered: Interest Rate Risk (non-trading book)
Business Processes Impacted: Clearing & Settlement – Exchange Traded and OTC
The regulator has announced the endorsement by the private sector working group on euro risk-free rates of a recommendation that counter-parties voluntarily exchange compensation for legacy swaption contracts affected by the transition of central counter-party discounting from the Euro Overnight Index Average (EONIA) to the Euro Short-Term Rate (€STR).19

European Commission (EC):
Sustainable Finance: Commission welcomes the adoption by the European Parliament of the Taxonomy Regulation
Publication Date: June 18th 2020
Risks Covered: Business Cycle Risk
Business Processes Impacted: Lending and Investment
The regulator has welcomed the adoption by the European Parliament of the Taxonomy Regulation that is to contribute to the European Green Deal by encouraging private sector investment in green and sustainable projects. The Regulation was developed to help create the world’s first “green list”, which is a classification system for sustainable economic activities, and to make sure the European Union becomes climate neutral by 2050.20

FORTHCOMING REGULATIONS:

Financial Industry Regulatory Authority (FINRA)
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Extend the Implementation of FINRA Rule 4240 (Margin Requirements for Credit Default Swaps)
The agency’s proposal to extend to 1 September 2021 the implementation of FINRA Rule 4240. FINRA Rule 4240 implements an interim pilot program with respect to margin requirements for certain transactions in credit default swaps that are security-based swaps.21

Office of the Comptroller of the Currency (OCC)
Community Reinvestment Act Regulations
The agency is adopting a final rule to strengthen and modernize the Community Reinvestment Act (CRA) by clarifying and expanding the activities that qualify for CRA credit; updating where activities count for CRA credit; creating a more consistent and objective method for evaluating CRA performance; and providing for more timely and transparent CRA-related data collection, recordkeeping, and reporting. This rule is effective on 1 October 2020.22

Financial Conduct Authority (FCA)
PS20/5: Extending the Senior Managers Regime to benchmark administrators: Final rules
The authority has issued a policy statement summarizing the feedback received to the Consultation Paper (CP) 19/31 on proposals for extending the Senior Managers Regime (SMR) to benchmark administrators, and providing its response to comments. This policy statement also details the final rules and guidance.23

Financial Conduct Authority (FCA)
Product value and coronavirus: guidance for insurance firms
The regulator has set out expectations for insurers and insurance intermediaries to consider the value of their products in light of the exceptional circumstances resulting from the COVID-19 pandemic.24

Securities and Exchange Commission (SEC)
Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds
Multiple regulators have adopted amendments to the regulations implementing section 13 of the Bank Holding Company Act (BHC Act). These final amendments are intended to improve and streamline the regulations implementing section 13 of the BHC Act by modifying and clarifying requirements related to the covered fund provisions of the rules. The final rule is effective 1 October 2020.25

Consumer Financial Protection Bureau (CFPB)
Facilitating the LIBOR Transition (Regulation Z)
The Consumer Protection agency is proposing to amend Regulation Z, which implements the Truth in Lending Act, and addresses the sunset of LIBOR which is expected to be discontinued after 2021. Some creditors currently use LIBOR as an index for calculating rates for open-end and closed-end products. The CFPB is proposing changes to open-end and closed-end provisions to provide examples of replacement indices for LIBOR and that meet certain Regulation Z standards.26

Consumer Financial Protection Bureau (CFPB)
Advisory Opinions Pilot
The Consumer Protection agency has announced the establishment of a new pilot advisory opinion program. This procedural rule was applicable as of 22 June 2020.27

Commodity Futures Trading Commission (CFTC)
Retail Commodity Transactions Involving Certain Digital Assets
The Commission issued its final interpretive guidance concerning the term ‘‘actual delivery’’ as set forth in the Commodity Exchange Act (CEA) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, this final interpretive guidance is being issued to inform the public of the Commission’s views when determining whether actual delivery has occurred in the context of retail commodity transactions in certain types of digital assets that serve as a medium of exchange, colloquially known as ‘‘virtual currencies.’’ This final guidance went into effect on 24 June 2020.28

Footnotes:

  1. “OCC Requests Comment on Proposal to Update Activities and Operations Rules and its Rules on Digital Activities,” Compliance Alliance, June 4, 2020. Access at: OCC Requests Comment on Proposal to Update Activities and Operations Rules and its Rules on Digital Activities.
  2. “Facilitating the LIBOR Transition (Regulation Z),” Bureau of Consumer Financial Protection, June 2, 2020. Access at: Amendments to Facilitate the LIBOR Transition (Regulation Z).
  3. “Capital Buffer for Holding Companies not Subject to the Capital Plan Rule (items 45-47),” Federal Reserve, June 10, 2020. Access at: Risk-based Capital Buffer for Holding Companies Subject to the Capital Plan Rule.
  4. “Coronavirus and safeguarding customers’ funds: proposed guidance for payment firms,” Financial Conduct Authority, June 5, 2020. Access at: Coronavirus and safeguarding customers’ funds: proposed guidance for payment firms.
  5. “Discussion paper on the (re)insurance value chain and new business models arising from digitalisation,” European Insurance and Occupational Pensions Authority, June 10, 2020. Access at: Discussion paper on (re)insurance value chain and new business models arising from digitalisation.
  6. “The EBA study of the institutions’ reporting costs (‘cost of compliance study’ under Article 430(8) of the CRR) – specification of fact-finding case studies,” European Banking Authority, June 3, 2020. Access at: The EBA study of the institutions’ reporting costs (‘cost of compliance study’ under Article 430(8) of the CRR) – specification of fact-finding case studies.
  7. Letter – Submission of technical standards for the risk reduction measures package, European Banking Authority, June 12, 2020. Access at: Submission of technical standards for the risk reduction measures package.
  8. “Sustainable finance – obligation for investment firms to advise clients on social and environmental aspects of financial products,” European Commission, June 8, 2020. Access at: Sustainable finance – Obligation for investment firms to advise clients on social and environmental aspects of financial products.
  9. “Fraud prevention – final evaluation of the Hercule III programme (2014-20)” European Commission, June 10, 2020. Access at: Fraud prevention – final evaluation of the Hercule III programme (2014-20).
  10. “Fintech and Payments Regulation: Analytical Framework,” International Monetary Fund, June 1, 2020. Access at: Fintech and Payments Regulation: Analytical Framework.
  11. “Credit Risk Retention-Notice of Commencement of Review; Extension of Review Period,” Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Securities and Exchange Commission, and Department of Housing and Urban Development, June 19, 2020. Access at: Credit Risk Retention – Notice of Commencement of Review; Extension of Review Period.
  12. “Application of DAC 6 to Financial Products and Services,” International Swaps and Derivatives Association (ISDA), June 18, 2020. Access at: Application of DAC 6 to Financial Products and Services.
  13. “ISDA Standardized Approaches benchmarking for FRTB-SA, SA-CCR and CVA,” International Swaps and Derivatives Association, June 22, 2020. Access at: ISDA Standardized Approaches benchmarking for FRTB-SA, SA-CCR and CVA.
  14. “Prudential standards in the Financial Services Bill: June Update,” Gov.UK, June 23, 2020. Access at: Prudential standards in the Financial Services Bill: June Update.
  15. “Regulatory reforms in Financial Services,” Gov.UK, June 23, 2020. Access at: Regulatory reforms in Financial Services.
  16. “FINRA Amends Its Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest,” Financial Industry Regulatory Authority, Regulatory Notice 20-18, June 30, 2020. Access at: FINRA Amends Its Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest
  17. “Cryptoassets: AML/CTF regime,” Financial Conduct Authority, June 22, 2020. Access at: Cryptoassets: AML / CTF regime.
  18. “EBA Guidelines on ICT and Security Risk Management,” Financial Conduct Authority, June 25, 2020. Access at: EBA Guidelines on ICT and Security Risk Management.
  19. “Working group on euro risk-free rates recommends voluntary compensation for legacy swaption contracts affected by the discounting transition to the €STR,” European Central Bank, June 16, 2020. Access at: Working group on euro risk-free rates recommends voluntary compensation for legacy swaption contracts affected by the discounting transition to the €STR.
  20. “Sustainable Finance: Commission welcomes the adoption by the European Parliament of the Taxonomy Regulation,” European Commission, June 18, 2020. Access at: Sustainable Finance: Commission welcomes the adoption by the European Parliament of the Taxonomy Regulation.
  21. “Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Extend the Implementation of FINRA Rule 4240 (Margin Requirements for Credit Default Swaps),” Securities and Exchange Commission, June 10, 2020. Access at: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Extend the Implementation of FINRA Rule 4240 (Margin Requirements for Credit Default Swaps).
  22. “Community Reinvestment Act Regulations,” Federal Register, June 5, 2020. Access at: Community Reinvestment Act Regulations.
  23. “Extending the Senior Managers Regime to benchmark administrators: final rules,” Financial Conduct Authority, June 2, 2020. Access at: PS20/5: Extending the Senior Managers Regime to benchmark administrators: Final rules
  24. “Product value and coronavirus: guidance for insurance firms,” Financial Conduct Authority, June 3, 2020. Access at: Product value and coronavirus: guidance for insurance firms
  25. “Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds,” Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission, and the Securities and Exchange Commission, June 25, 2020. Access at: Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds.
  26. “Facilitating the LIBOR Transition (Regulation Z),” Federal Register, June 18, 2020. Access at: Facilitating the LIBOR Transition (Regulation Z).
  27. “Advisory Opinions Pilot,” Federal Register, June 22, 2020. Access at: Advisory Opinions Pilot.
  28. “Retail Commodity Transactions Involving Certain Digital Assets,” Federal Register, June 24, 2020. Access at: Retail Commodity Transactions Involving Certain Digital Assets.

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