What is MIG?
The Markets Infrastructure Group (MIG) provides clients involved in brokerage and market infrastructure with access to a group which focuses specifically on their area of business.
Every month MIG publishes an updater which covers the latest regulatory developments that affect those involved in brokerage and market infrastructure. Welcome to the September 2012 edition of the MIG updater.
- Consultation Paper 12/22: Client assets regime: EMIR, multiple pools and the wider review
- CPSS - IOSCO Consultation Report on recovery and resolution of financial market infrastructures
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Regulatory treatment of valuation adjustments to derivative liabilities: Final rule issued by Basel Committee
On 25 July 2012, the Basel Committee on Banking Supervision (BCBS) revised paragraph 75 of Basel III as regards its application to derivatives. The Basel III rule in paragraph 75 is designed to ensure that an increase in the credit risk of a bank does not, via a reduction in the valuation of its liabilities, lead to an increase in its common equity.
Following consultation the BCBS has agreed that valuation adjustments to derivative liabilities arising from the bank’s own credit risk should be fully derecognised from the calculation of common equity at each reporting date. Whilst recognising that this rule might go beyond the principle in paragraph 75 for non-derivative liabilities, the BCBS believes that valuation adjustments to derivative liabilities raise a wide range of prudential concerns, and therefore conservatism should drive the policy framework in this area. In addition, the BCBS believes that it is currently not feasible to implement alternative approaches in a consistent and sufficiently robust manner.
The revised regulatory treatment would be implemented according to the Basel III transitional provisions for regulatory adjustments. That means that the deduction from common equity tier 1 of all accounting valuation adjustments to derivative liabilities arising from the bank’s own credit risk will be phased in, starting with 20% in 2014 and rising by 20% per year thereafter until full deduction occurs from 1 January 2018.
View Regulatory treatment of valuation adjustments to derivative liabilities: Final rule issued by Basel Committee, 25 July 2012
Basel III counterparty credit risk - FAQs
On 25 July 2012, the Basel Committee on Banking Supervision (BCBS) updated its frequently asked questions (FAQs) on Basel III counterparty credit risk. The FAQs that have been added since the previous version of the FAQs are shaded in yellow and include:
- What needs to be done with CDSs with specific wrong way risk?
- How should purchased credit derivative protection against a banking book exposure that is subject to the double default framework or the substitution approach be treated in the context of a CVA capital charge?
- Eligible financial collateral and gold under Basel III.
View Basel III counterparty credit risk - FAQs, 25 July 2012
FSA statement regarding CRD IV implementation
On 1 August 2012, the FSA published an update on the CRD IV.
The FSA stated that following the delay of the European Parliament’s plenary vote, the statement by Othmar Karas MEP (European Parliament Rapporteur for CRD IV) and the discussion in the Econfin Council it is clear that the legislation will not be adopted earlier than autumn 2012. On that basis it does not appear feasible that the legislation will enter into force on 1 January 2013 as originally intended. No alternative dates have yet been communicated by the EU institutions.
However, the FSA also stated that it will continue to undertake all preparatory work that is possible in the absence of finalised legislative text, in full expectation that the CRD IV will follow the Basel III implementation timetable. The FSA expects all firms within scope to do the same.
View FSA statement regarding CRD IV implementation, 1 August 2012
Policy Statement 12/13: Financial resources requirements for Recognised Bodies
On 27 July 2012, the FSA published Policy Statement 12/13: Financial resources requirements for Recognised Bodies (PS12/13). In PS12/13 the FSA summarised the responses received and policy conclusions reached in relation to Consultation Paper 11/19: Financial resources requirements for recognised bodies (CP11/19). The FSA also presented final rules and guidance.
PS12/13 is structured as follows:
- Chapter 2 sets out the FSA's policy conclusions on the enhancements to the standard approach. As proposed in CP11/19, the FSA will retain a standard approach to calculating the financial resources requirement (FRR), based on six months’ operating expenses, but will modify the basis of the calculation so that allowable deductions will be limited to non-cash costs. The standard approach will be established as a 'floor' to the FRR requirement.
- Chapter 3 sets out the FSA's policy considerations on the creation of the risk-based approach. As proposed in CP11/19 the FSA will introduce the risk-based approach as a new pillar to the FRR calculation. However, the new pillar will apply to Recognised Investment Exchanges (RIEs) only. During the period leading up to the implementation of the European Markets Infrastructure Regulation (EMIR), Recognised Clearing Houses (RCHs) will be expected to hold a capital buffer equal to 50% of the standard approach amount. This is a formalisation of the FSA’s current approach to minimise compliance burdens on central counterparties (CCPs) while they focus on preparations for EMIR.
- Chapter 4 sets out arrangements the FSA expects to be implemented to address group risk. The FSA will not create a bespoke group consolidation regime requiring a Recognised Body's (RB's) financial holding company to meet a consolidated capital requirement. Recognising the added emphasis this places on effective ring fencing arrangements, the FSA will instead specify that eligible assets should be held on the balance sheet of the RB, and that a deduction from eligible capital should be made for certain assets representing an investment in, or an exposure to, an undertaking in the same group.
- Chapter 5 sets out the FSA's policy conclusions on eligible financial resources. The FSA will maintain its current emphasis on ensuring that eligible financial resources are sufficiently liquid and funded by high quality capital.
The FSA has provided for a six month transitional period, beginning on the date of publication of PS12/13, before applying the new guidance.
View Policy Statement 12/13: Financial resources requirements for Recognised Bodies, 27 July 2012
Capitalisation of bank exposures to central counterparties
On 25 July 2012, the Basel Committee on Banking Supervision (BCBS) issued a paper which set out interim rules for the capitalisation of bank exposures to central counterparties.
The interim rules build on the new CPSS-IOSCO Principles for Financial Market Infrastructures which are designed to enhance the robustness of essential infrastructure, including central counterparties (CCPs). Where a CCP is supervised in a manner consistent with these principles, exposures to such CCPs will receive a preferential capital treatment. In particular, trade exposures will receive a nominal risk-weight of 2 per cent. In addition, the interim rules allow banks to choose from one of two approaches for determining the capital required for exposures to default funds:
- A risk sensitive approach on which the BCBS has already consulted on previously.
- A simplified method under which default fund exposures will be subject to a 1250 per cent risk weight subject to an overall cap based on the volume of a bank’s trade exposures.
The interim rules also cover indirect clearing that allow clients to benefit from the preferential treatment for central clearing.
The BCBS intends that the interim rules will allow for full implementation of Basel III, while still recognising that additional work is needed to develop an improved capital framework. Further work in this area is planned for 2013.
View Capitalisation of bank exposures to central counterparties, 25 July 2012
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Clearing & settlement
BCBS consultation on supervisory guidance for managing risks associated with the settlement of foreign exchange transactions
On 17 August 2012, the Basel Committee on Banking Supervision (BCBS) published a Consultation Document on supervisory guidance for managing risks associated with the settlement of foreign exchange (FX) transactions.
The draft supervisory guidance expands on and is intended to replace the September 2000 supervisory guidance for managing settlement risk in FX transactions.
The draft supervisory guidance is organised into seven guidelines that address governance, principal risk, replacement cost risk, liquidity risk, operational risk, legal risk and capital for FX transactions. The key recommendations emphasise the following:
- A bank should ensure that all FX settlement-related risks are effectively managed and that its practices are consistent with those used for managing other counterparty exposures of similar size and duration.
- A bank should reduce its principal risk as much as practicable by settling FX transactions through the use of financial market infrastructures that provide PVP arrangements. Where PVP settlement is not practicable, a bank should properly identify, measure, control and reduce the size and duration of its remaining principal risk.
- A bank should ensure that when analysing capital needs, all FX settlement-related risks should be considered, including principal risk and replacement cost risk and that sufficient capital is held against these potential exposures, as appropriate.
View BCBS Consultation Document on supervisory guidance for managing risks associated with the settlement of foreign exchange transactions, 17 August 2012
ISDA Dodd-Frank Documentation Initiative
The International Swaps and Derivatives Association (ISDA) is launching a series of protocols which are designed to assist the over-the-counter (OTC) derivatives industry in implementing the regulatory requirements of the US Dodd-Frank Act.
The first protocol was launched on 13 August 2012 and consists of a series of amendments to existing ISDA documentation, as well as standardised questionnaires that enable counterparties to match and exchange “know-your-customer” information securely.
The protocols form a core element of the ISDA’s DF Documentation Initiative which will, among other things, provide a standard set of amendments to facilitate the updating of existing swap relationship documentation for Dodd-Frank compliance purposes as well as other standard industry documentation, such as general and product specific risk disclosures.
View ISDA Dodd-Frank Documentation Initiative, 13 August 2012
Commission Q&A on EMD - Question on the scope of the SEPA Migration
On 1 August 2012, the European Commission updated its questions and answers website on the Electronic Money Directive. The Commission added a new answer which concerns the SEPA Migration Regulation and its application to electronic money.
View Commission Q&A on EMD - Question on the scope of the new Regulation 260/2012, 1 August 2012
Guidelines of the ECB on TARGET2-Securities (recast)
There has been published in the Official Journal of the European Union the Guidelines of the European Central Bank (ECB) of 18 July 2012 on TARGET2-Securities (recast).
The Guidelines lay down in particular the basic foundations of TARGET2-Securities (T2S) in its specification, development and operational phases. It is complemented by additional legal acts and contractual arrangements under the ultimate responsibility of the Governing Council of the ECB as T2S is further developed.
View Guidelines of the European Central Bank of 18 July 2012 on TARGET2-Securities (recast), 11 August 2012
ISDA, AFME, BBA, Assosim response to ESMA Consultation Paper and draft Technical Standards on EMIR
On 5 August 2012, the ISDA, AFME, BBA and Assosim (collectively the Associations) published a joint response to the Consultation Paper and draft Technical Standards that the European Securities and Markets Authority (ESMA) has produced on the European Markets Infrastructure Regulation (EMIR).
Key points in the joint response include the Associations:
- Welcome the ESMA interpretation that an ‘equivalent’ level of protection under the EMIR Regulatory Technical Standard (RTS) for indirect clients does not mean the availability of the same protective structures particular to the central counterparty (CCP) clearing member-client relationship but that, rather, these structures should be replicated for indirect clients at the level of the clearing member (and not necessarily at the CCP level).
- Are particularly concerned about the international application of the requirements for indirect clearing set out in the proposed RTS to the extent that they conflict with, or come into conflict with, local regulation for financial intermediaries in jurisdictions outside the EU.
- Believe that further clarity is needed as to whether or not the clearing obligation for certain classes of OTC derivatives is triggered only by the granting of authorization to CCPs under EMIR.
- Believe that in relation to the clearing obligation further clarity is needed on the treatment of FX contracts.
- Welcome the improvements in the approach regarding non-financials and the hedging definition but still have a number of concerns.
- Have a number of concerns in relation to the RTS addressing the clearing threshold.
- Welcome guidance on the meaning of ‘practical and legal impediments’ in relation to the notification to regulators on intra-group transactions.
- Believe that some of the details addressing recognition of third country CCPs may be unnecessary.
- Believe that the ESMA proposals on disclosure establish a firm foundation going forward, but that a CCP's investment policy and account structure should also be made publicly available.
- Believe that CCPs - subject to regulatory approval – are best placed to decide on appropriate confidence levels for different products, including OTC derivatives.
- Welcome an explicit statement in the final RTS to confirm that Article 44 of EMIR does not relate to intraday liquidity requirements for the cash-clearing CCPs operating on a pan-European basis.
- Stress the importance of transparency by CCPs regarding their collateral policies, in order for clearing members and clients to be able to gauge associated risks.
- Highlight the need for consistency with other international regulators on the issue of trade repositories. This is not only on the principles-based level but also on the more detailed level.
- Continue to support the idea of reporting collateral/exposures, but believes this should be done via a single “Counterparty Exposure Repository”.
View ISDA, AFME, BBA, Assosim response to ESMA Consultation Paper and draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories, 5 August 2012
EMIR published in the Official Journal
On 27 July 2012, the text of the European Markets Infrastructure Regulation was published in the Official Journal of the European Union.
The Regulation entered into force 20 days after its publication in the Official Journal.
View Official Journal of the European Union - Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, 27 July 2012
Information on the deadline for the submission of the joint draft RTSs on risk mitigation techniques for OTC derivatives contracts not cleared by a CCP
Previously, the Joint Committee of the European Supervisory Authorities (ESAs) addressed a request to the European Commission for a postponement of the deadline for the submission of the joint regulatory technical standards (RTS) on risk mitigation techniques for over-the-counter (OTC) derivatives contracts not cleared by a central counterparty (CCP).
On 30 July 2012, the European Banking Authority issued a short statement on its website stating that the Commission shares the views of the ESAs that the present deadline of 30 September 2012 is inconsistent with the on-going global development of international standards. The Commission will set a new deadline once the current deadline has expired.
View Information on the deadline for the submission of the joint draft regulatory technical standards on risk mitigation techniques for OTC derivatives contracts not cleared by a CCP, 30 July 2012
Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules
On 25 July 2012, the FSA published Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules (CP12/15). In CP12/15 the FSA consults on two areas of client assets policy, CASS oversight and reporting and the mandate rules.
In CP12/15 the FSA confirmed that it is not consulting on introducing the Client Money and Asset Return (CMAR) requirements for CASS small firms, but that it intends to keep this under review.
The FSA also proposes:
- To clarify that the regulated activity of arranging safeguarding and administration of assets does not fall within the scope of CASS 1A (CASS firm classification and operational oversight).
- To clarify the date when a firm becomes a CASS firm for the first time or when a CASS firm changes category.
- That a CASS medium or a CASS large firm must take the necessary steps to allocate the CASS operational oversight function (CF10a) to a director or a senior manager as soon as practicable. This includes submitting a CF10a application within a specified time period of 30 business days and, in the meantime, allocating a director or a senior manager performing a significant influence function (SIF) responsibility for: (i) oversight of the firm’s operational compliance with CASS; (ii) reporting to the firm’s governing body about that oversight; and (iii) completing and submitting a CMAR to the FSA.
- Guidance concerning the CMAR in that a firm using the standard method of internal reconciliation should (unless otherwise stated) report client money balances on the basis of its client money resource as at the last business day of the reporting period.
In relation to the mandate rules the FSA proposes to clarify their scope. The FSA does not propose to change the internal controls required by the mandate rules (other than by clarifying what is required for discretionary investment managers when acting as such), and it is not proposing to change the purpose of the rules. In fact the FSA takes the opportunity in CP12/15 to confirm that the sole requirement of the mandate rules is that a firm that has mandates must establish and maintain adequate records and internal controls in respect of its use of those mandates.
The deadline for comments on CP12/15 is 30 September 2012. The FSA plans to issue a Policy Statement in November 2012, with the final rules coming into force on 1 January 2013.
View Consultation Paper 12/15: Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules, 25 July 2012
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Consultation Paper 12/22: Client assets regime: EMIR, multiple pools and the wider review
On 6 September 2012, the FSA published Consultation Paper 12/22: Client assets regime: EMIR, multiple pools and the wider review (CP12/22).
CP12/22 is a combined Consultation Paper and Discussion Paper which consults on the FSA’s client assets regime to adhere to the European Markets Infrastructure Regulation (EMIR), proposes to introduce a change in the client money rules applicable to investment firms and opens a discussion on the wider regime.
CP12/22 has three parts:
- Part I discusses segregation and porting measures in articles 39 and 48 of EMIR and consequential changes to the FSAs Client Assets sourcebook (CASS). Pursuant to EMIR, when a clearing member firm becomes insolvent, the client positions it holds in client accounts at a central counterparty (CCP) and the margin supporting those positions, may be referred to another client account held by a back-up clearing member. This process is known as porting. Under the current CASS rules the insolvency of a firm triggers a primary pooling event. On such an event, all client money is pooled for distribution. To comply with EMIR the FSA is proposing to amend CASS to exclude client money that is held by a clearing member firm in a client transaction account at a CCP from the pooling that occurs if that firm becomes insolvent.
- Part II sets out proposals for introducing multiple pooling. The FSA states that the proposals could result in the most significant changes it has made to the client assets regime in over 20 years. EMIR and the changes proposed in Part I will only allow a CCP to port the margin the clearing member could be holding. To make porting net client transaction accounts a viable option the FSA proposes to introduce ‘client money sub-pools’ into the client assets regime. The proposals will allow firms to operate legally and operationally separate client money sub-pools. This will allow a clearing member firm to operate discrete sub-pools of client money comprising, for example, the margin held in a particular net client transaction account at a CCP and the client money the clearing member holds in relation to that transaction account. Given the advantages that multiple pooling and the potential client demand for such arrangements the FSA is also proposing to make multiple sub-pools available to other types of business. The FSA consults on allowing firms the discretion to create specific sub-pools based, for example, on a class of clients or business lines. The FSA also discusses whether in addition to, or in place of, the discretion to create sub-pools it should require firms to have separate client money sub-pools for example, for retail and non-retail clients or for margined and non-margined business.
- Part III discusses the wider client assets review currently underway, which is focused on getting a better result in the context of client assets in a firm’s insolvency. The objectives of the review are to: (i) improve the speed of return of client assets following the insolvency of an investment firm; (ii) reduce the market impact of an insolvency of an investment firm that holds client assets; and (iii) achieve a greater return of client assets to clients following the insolvency of an investment firm.
The deadline for comments on:
- Part I of CP12/22 is 16 October 2012. The FSA expects to publish a Feedback Statement and final rules in December 2012.
- Parts II and III of CP12/22 is 30 November 2012. In relation to the proposals in Part II the FSA expects to publish feedback and final rules in the first half of 2013. In relation to Part III the FSA expects to publish feedback and consult on proposed rule changes in the first half of 2013.
View Consultation Paper 12/22: Client assets regime: EMIR, multiple pools and the wider review, 6 September 2012
Handbook Release 128
On 9 August 2012, the FSA published Handbook Release 128. This Handbook Release contained pages to be inserted into paper versions of the FSA Handbook in order to bring it up to date. These changes came into force between 7 July 2012 and 6 August 2012.
View Handbook Release 128, 9 August 2012
Handbook Release 129
On 11 September 2012, the FSA published Handbook Release 129. This Handbook Release contained pages to be inserted into paper versions of the FSA Handbook in order to bring it up to date. These changes came into force between 7 August 2012 and 6 September 2012.
View Handbook Release 129, 11 September 2012
Policy development update no.150
On 31 August 2012, the FSA published its latest Policy development update (no. 150).
In this update the FSA briefly discussed its publications issued since the last update. This included Consultation Paper 12/19: Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes and Policy Statement 12/13: Financial resources requirements for Recognised Bodies.
The FSA then described other recent policy publications including guidance consultations and finalised guidance. Since the last policy development update the FSA has produced one piece of finalised guidance, Finalised Guidance 12/18: Sale and Rent Back Review 2011.
The final part of the update contained an updated timetable for forthcoming FSA publications. FSA publications in Q3 2012 include:
- Mortgage Market Review: Proposed package of reforms - Policy Statement to CP11/31.
- Consultation Paper on restrictions on the retail distribution of unregulated collective investment schemes and close substitutes.
- Consultation Paper on CASS, EMIR and porting.
- Consultation Paper on the implementation of the Alternative Investment Fund Managers Directive (AIFMD).
- Consultation Paper on proposed amendments to the Listing Rules in relation to the AIFMD, Mineral Companies Eligibility and Minority Shareholders Protections and feedback to CP12/2.
View Policy development update no. 150, 31 August 2012
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HM Treasury advisory notice on money laundering and terrorist financing controls in overseas jurisdictions
On 12 July 2012, HM Treasury published an updated advisory notice about the risks posed by unsatisfactory money laundering and terrorist financing controls in a number of jurisdictions. The advisory notice superseded previous advice issued by HM Treasury, in particular that issued on 5 March 2012.
The advice was split into two parts:
- Part A: Jurisdictions with ongoing and substantial money laundering and terrorist financing risks.
- Part B: Jurisdictions with strategic deficiencies in their anti-money laundering (AML) and counter terrorist financing (CFT) regime, which have developed an action plan with the Financial Action Task Force.
In relation to Part A of the advice HM Treasury included three jurisdictions which were not included in the advice issued on 5 March 2012: Ecuador, Vietnam and Yemen.
In relation to Part B of the advice HM Treasury included three jurisdictions which were not included in the advice issued on 5 March 2012: Afghanistan, Albania and Kuwait. Turkmenistan was assessed to have made sufficient amendments to its AML/CFT regime to be removed from the advice.
View HM Treasury advisory notice on money laundering and terrorist financing controls in overseas jurisdictions, 12 July 2012
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Regulation and compliance
FSB thematic peer review of resolution regimes
In November 2011, the Financial Stability Board (FSB) published the Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes) as part of a package of policy measures intended to address the moral hazard risks posed by systemically important financial institutions. The Key Attributes set out the core elements of effective resolution regimes that apply to any financial institution that could be systemically significant or critical if it fails.
On 3 August 2012, the FSB published its first peer review to evaluate member jurisdictions’ existing resolution regimes and any planned changes to those regimes using the Key Attributes as a benchmark. In particular the objectives of the peer review are to:
- Take stock of national resolution regimes that apply to different types of financial institutions, and of any planned changes to those regimes.
- Highlight good practices in national resolution regimes as well as any material inconsistencies or gaps (compared to the Key Attributes) that would need to be addressed.
- Evaluate progress in implementing reforms to national resolution regimes using the Key Attributes as a benchmark, and identify challenges arising from their implementation.
- Inform and help to improve the assessment methodology by identifying needed clarifications or revisions to the essential criteria and/or explanatory notes.
The deadline for responding to the thematic peer review is 28 September 2012.
View FSB thematic peer review of resolution regimes, 3 August 2012
CPSS - IOSCO Consultative Report on recovery and resolution of financial market infrastructures
In November 2011, the Financial Stability Board (FSB) published a report entitled Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes). The Key Attributes set out those elements that are considered necessary to establish a regime for resolving financial institutions without severe systemic disruption and without exposing taxpayers to loss.
On 31 July 2012, the Committee on Payment and Settlement Systems (CPSS) and the International Organisation of Securities Commissions (IOSCO) co-published a Consultative Report entitled Recovery and resolution of financial market infrastructures. In the Consultative Report the CPSS-IOSCO outline the features of effective recovery and resolution regimes for financial market infrastructures (FMIs) in accordance with the Key Attributes.
The purpose of the Consultative Report is to help develop a common understanding of FMIs’ recovery and resolution in all relevant jurisdictions, and a common interpretation of how the Key Attributes apply to the recovery and resolution of FMIs.
The Consultative Report has six sections. Following the introduction (Section 1), it addresses the relationship and continuity between the Key Attributes and the CPSS-IOSCO Principles for financial market infrastructures (Section 2), recovery and resolution approaches for different types of FMI (Section 3), the interpretation of the Key Attributes as they apply to FMIs (Section 4), cooperation and coordination among relevant authorities (Section 5), and the CPSS-IOSCO’s key conclusions (Section 6). The Consultative Report is supplemented by an Annex which provides CPSS-IOSCO’s interpretation of each of the Key Attributes as they relate to FMIs.
The deadline for commenting on the Consultative Report is 28 September 2012.
View CPSS - IOSCO Consultative Report on recovery and resolution of financial market infrastructures, 31 July 2012
ESMA publishes update on MiFID waivers from pre-trade transparency
On 8 August 2012, the European Securities and Markets Authority (ESMA) updated its waiver document which provides information on the pre-trade transparency of trading systems already set up in the EU and informs on the compliance of such systems with the Markets in Financial Instruments Directive (MiFID).
The updated parts of the waiver document are set out in red and cover:
- "Trailing Stop Orders" which are stop orders with an additional feature. This is an absolute or percentage distance between the stop limit and the current reference price is entered. The stop limit adjusts automatically to the development of the reference price.
- "One-cancels-others" orders which operate by the simultaneous placement of a stop order and a limit order within one order.
View ESMA publishes update on MiFID waivers from pre-trade transparency, 8 August 2012
Council publishes latest compromise proposals on MIFID review
On 31 August 2012, the Presidency of the Council of the European Union published compromise proposals on both the proposed Markets in Financial Instruments Directive (recast) and the proposed Regulation on Markets in Financial Instruments (MiFIR).
The compromise proposals have been produced following discussions in meetings of the working party on financial services in July 2012. Latest additions and changes are denoted by bold underlining and deletions by strikethroughs.
View Proposal for a Directive of the European Parliament and of the Council on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council - Presidency compromise, 31 August 2012
View Proposal for a Regulation of the European Parliament and of the Council on markets in financial instruments and amending Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories - Presidency compromise, 31 August 2012
European Parliament to consider MiFID review
The European Parliament procedure files for both the draft Markets in Financial Instruments Directive (recast) and the draft Markets in Financial Instruments Regulation indicate that both will be considered in plenary session from 22 to 23 October 2012.
View European Parliament procedure file MiFID (recast), 30 August 2012
View European Parliament procedure file MiFIR, 30 August 2012
HM Treasury draft clauses to inform responses to consultation on broadening the financial sector resolution regime
On 1 August 2012, HM Treasury published a Consultation Document entitled Financial sector resolution: Broadening the regime. In this consultation the Government set out proposals on enhancing the mechanisms available for dealing with the failure of systemically important non-banks. The consultation covers four broad groups:
- Investment firms and parent undertakings.
- Central counterparties (CCPs).
- Non-CCP financial market infrastructures.
The deadline for comments on the Consultation Document is 24 September 2012.
On 23 August 2012, HM Treasury published draft legislative clauses together with explanatory notes to inform responses to the Consultation Document. The draft clauses have been prepared on the basis that the Financial Services Bill, as introduced to the House of Lords on 23 May 2012, has been enacted and that it is in force.
View Financial sector resolution: Broadening the regime, 23 August 2012
FSA revises Remuneration Policy Statement self-assessment templates and tables
On 22 August 2012, the FSA has updated its web page on the Remuneration Code. The updated web page now contains the following templates and code staff lists:
- Tier 1 firms: Template and code staff list.
- Tier 2 firms: Template and code staff list.
- Tiers 3 and 4 firms: Template and code staff list.
The Remuneration Policy Statement templates allow firms to record their remuneration policies, practices and procedures and assess their compliance with the Remuneration Code. The Code staff list allows firms to keep a record of all Remuneration Code staff identified for the current performance year.
View FSA revises Remuneration Policy Statement self-assessment templates and tables, 22 August 2012
FAQs on the transition to the FCA
On 31 July 2012, the FSA published a set of questions and answers on the transition to the proposed Financial Conduct Authority (FCA). The questions and answers cover a wide range of issues including:
- Whether the FCA will be the sole regulator for insurance intermediaries.
- Whether the authorisation process will be quicker under the FCA.
- How the FSA will drive better culture within firms.
- The regulation of dual regulated firms.
- Whether the current fee structure will be adopted by the FCA.
- The new powers of the FCA including how the product intervention power will impact product innovation.
- Whether the FCA will keep the TCF outcomes and / or whether it will publish new consumer outcomes.
The FSA also stated that it will publish an approach document on the FCA in October 2012 which will give further detail on how it will work.
View FAQs on the transition to the FCA, 31 July 2012
Policy Statement 12/12: Regulating bidding for emissions allowances under Phase Three of the EU Emissions Trading Scheme: Feedback to CP12/6
On 19 July 2012, the FSA published Policy Statement 12/12: Regulating bidding for emissions allowances under Phase Three of the EU Emissions Trading Scheme: Feedback to CP12/6 (PS12/12).
In PS12/12 the FSA reports on the responses received to its earlier consultation (Consultation Paper 12/6: Regulating bidding for Emissions Allowances under Phase Three of the EU Emissions Trading Scheme) on authorising and supervising firms that intend to bid for emissions auction products across the EU on auction platforms operating under the EU Commission Auction Regulation. The FSA also sets out the changes to the Handbook which came into effect on 27 July 2012.
View Policy Statement 12/12: Regulating bidding for emissions allowances under Phase Three of the EU Emissions Trading Scheme: Feedback to CP12/6, 19 July 2012
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012
On 20 July 2012, there was published on the legislation.gov.uk website The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012 (the Order) together with an Explanatory Memorandum.
The Order implements the requirement in Article 18 of the EU Commission Auction Regulation for the UK to have enacted legislation enabling the FSA to authorise certain categories of people to bid in auctions of emissions allowances on their own account or on behalf of clients, and implements related provisions in Articles 6(5) and 59 of that Regulation.
View The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012, 20 July 2012
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Formation and launch of the FSB LEI Private Sector Preparatory Group
Earlier this year the Financial Stability Board (FSB) published a report entitled A Global Legal Entity Identifier for Financial Markets. In this report the FSB set out high level principles for a global legal entity identifier (LEI) system and 35 recommendations for the development of a unique system for parties to financial transactions.
To take the work forward the FSB established an LEI implementation group consisting of experts from the global regulatory community. To support the implementation group the FSB issued a call on 3 July 2012 for interested parties from the private sector to participate in the LEI Private Sector Preparatory Group (PSPG).
On 3 August 2012, the FSB issued a press statement that the PSPG held its inaugural meeting in New York City, USA on 25 July 2012. Work will be taken forward in three work streams:
- Governance and legal work stream: Assist and contribute to the work of the LEI implementation group on the development of the legal framework and necessary legal documents for the establishment of the global LEI foundation.
- Operations work stream: Under the guidance of the LEI implementation group, develop options for a plug-in architecture for the central operating unit that supports the federated nature of the LEI system and allows integration of local operating units.
- Ownership and relationship data work stream: Support the LEI implementation group in developing recommendations for the early introduction of additional reference data for corporate ownership, relationships and hierarchies.
View Formation and launch of the FSB LEI Private Sector Preparatory Group, 3 August 2012
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OTC derivatives international roundtables
Norton Rose Group will be hosting a series of international roundtables on the European Market Infrastructure Regulation (EMIR).
In August / September there will be two roundtables in London, one for buy-side clients and another for energy clients.
Further roundtables will take place in our offices in Amsterdam, Hong Kong and Singapore.
The roundtables in Hong Kong and Singapore will give participants the chance to get an insight into EMIR and draw comparisons with local regulatory developments.
The invitation to the international roundtables can be found here.
If you can not access this link, please copy and paste the address below into your web browser.
40 minute briefing series - October 2012 to January 2013
We are pleased to announce that the invitation for the next series of 40 minute briefings is now available.
If you can not access this link, please copy and paste the address below into your web browser.
Financial services regulatory products: Phoenix, Pegasus, OTC Oracle and AIFMD expert
Having difficulty keeping up with the pace of the Government's regulatory reform proposals?
Phoenix is our new financial services product that is an online resource designed to help those who are starting their UK regulatory reform projects. It sets out the latest developments and timing of the Government's reform programme plus the key resource papers from the Treasury, Bank of England, FSA and the ICB. The latest Norton Rose LLP briefing notes, videos and webcasts are also available.
The Phoenix main page can be found here.
Behind the curve on the MiFID review?
We have launched a second online resource product called "Pegasus". Pegasus is a new financial services product that is an online resource designed to assist those starting work on MiFID review projects.
The Pegasus main page can be found here.
G20 commitment on clearing
Our third online resource product is OTC Oracle. OTC Oracle is designed to assist clients track the implementation of the G20 commitment to have all standardised OTC derivatives traded on exchanges or electronic trading platforms, where appropriate, and cleared through CCPs by the end of 2012. OTC Oracle sets out the latest developments and timing plus the key resource papers from each of the EU, Canada, Hong Kong and Singapore.
The OTC Oracle main page can be found here.
Our fourth online resource product is AIFMD expert. AIFMD expert is designed to assist clients and contacts of Norton Rose LLP when conducting their projects on the Alternative Investment Fund Managers Directive. It sets out the latest developments and timing of the AIFMD plus the key resource papers from the Commission, ESMA and the FSA. Clients and contacts are also given access to the latest Norton Rose LLP briefing notes, slides and webcasts.
The AIFMD expert main page can be found here.
Financial services Fireside Fridays
Please click on the links below:
Financial services & markets webinars
We are currently experiencing significant changes in the European financial services regime that could have a particular impact on both financial firms and non-financial firms that trade energy, commodities and emissions. To assist our clients we have produced a series of short webinars which will look at the forthcoming regulatory changes and their impact on the financial regulation of trading.
Financial services webcasts
Please click on the links below:
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