Financial Stability Board Publishes Responses to Consultation on Proposed Reforms of the Forex Market

On August 20, the Financial Stability Board (FSB) published responses to its consultation in respect of proposed reforms in the forex market.  The consultation was launched on July 15 and recommended reforms relating to: (i) the calculation methodology of the WMR benchmark rates; (ii) the publication of reference rates by central banks; (iii) market infrastructure in relation to the execution of fix trades; and (iv) the behavior of market participants around the time of the major forex benchmarks.

The FSB intends to provide final conclusions and recommendations to the Brisbane G20 Leaders Summit in November 2014. Responses.

ESMA Publishes Responses to Consultation on the Clearing Obligation Under EMIR

On August 19, ESMA published a list of responses received in respect of its first consultation on the clearing obligation relating to draft regulatory technical standards (RTS) for the clearing of interest rate swaps under EU Regulation 648/2012 on OTC derivative transactions, central counterparties and trade repositories (EMIR).  The first consultation was published on July 11 and proposed that basis swaps, fixed-to-float interest rate swaps, forward rate agreements and overnight index swaps should be subject to central clearing.

ESMA will use the responses received to draft its final RTS which will then be subject to endorsement by the European Commission. Responses.

IOSCO Launches Public Information Repository for Central Clearing Requirements

On August 5, IOSCO unveiled its new information repository for central clearing requirements relating to over the counter derivatives.

The purpose of the IOSCO repository is to provide both regulators and market participants with consolidated information on the clearing requirements applicable in different jurisdictions, many of which have been recently revised.  Repository.  News Release.

EBA Publish Final Draft RTS on Equity Exposures

On August 5, EBA published its final draft regulatory technical standards (RTS) specifying the treatment of equity exposures according to Article 495(3) of Regulation No 575/2013 Capital Requirements Regulation (CRR).

The CRR, which has the main purpose of implementing the Basel III reforms in the EU, applies directly to credit institutions and investment firms within member states. When operating under the “Internal Ratings Based Approach,” which allows institutions to use their own estimated risk parameters for the purpose of calculating regulatory capital, the RTS provide for regulators to grant financial institutions temporary exemptions and so avoid part of the increase in capital requirement that would otherwise be necessary.

The RTS have been submitted to the European Commission for adoption as directly applicable EU regulations.  RTS.

ESMA Publish Report on Guidelines and Recommendations Relating Principles for Financial Market Infrastructures in Respect of Central Counterparties

On August 5, ESMA published a report setting out guidelines and recommendations for the implementation of the principles for financial market infrastructures in respect of central counterparties (CCPs) published by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO).

The guidelines and recommendations apply to competent authorities and trade repositories when carrying out their duties under EU Regulation 648/2012 on OTC derivative transactions, central counterparties and trade repositories (EMIR).  As is explained in the report, the purpose of the guidelines and recommendations is to ensure that EMIR, and the regulatory technical standards made under it, is fully harmonized and compliant with the CPSS and IOSCO principles.  Report.

Bank of England Publishes Statement on Enforcement Action Against Lloyds Bank PLC and Bank of Scotland PLC

On July 28, the Bank of England published a statement on Financial Conduct Authority enforcement action against Lloyds Bank PLC and Bank of Scotland PLC.  The statement notes that Lloyds Banking Group has paid the Bank of England £7.76 million as compensation for a reduction in fees received by the Bank of England as a result of the manipulation of submissions to the BBA GBP Repo Rate by Lloyds Bank PLC and Bank of Scotland PLC.  Statement.

PRA Issues Policy Statement on Bonus Clawback

On July 30, the Prudential Regulation Authority (PRA) issued a policy statement in respect of responses received to its consultation on proposals to extend the Remuneration Code to require all PRA-authorized firms to ensure that vested bonus awards can be clawed back from individuals where necessary.  Appendix 1 of the policy statement contains the final rules on bonus clawback, which will enter into force on January 1, 2015.  Policy Statement.

Amendments to Offshore Fund Rules to Reflect Finance Act 2014 AIFM Partnership Tax Changes

Regulations amending the Offshore Funds Regulations 2009 (the 2009 Regulations) to reflect the Finance Act 2014 changes to the taxation of alternative investment fund managers operating as partnerships (AIFM firms) were made on July 21 and have effect for disposals made on or after August 12, 2014.  The changes to the taxation of AIFM firms permit AIFM firms to elect for all or part of a partner’s “relevant restricted profit” to be allocated to the AIFM firm rather than from part of the partner’s profit share.  Accordingly, the partner is not subject to tax on the profit. Instead, the AIFM is treated as a partner in the AIFM firm and is subject to income tax at the additional rate (currently 45 percent) on the allocated amount.  The partner is subsequently subject to tax on the amount that vests, but will receive a tax credit for the tax paid by the AIFM firm.  Regulations.

Reviews into LIBOR, EURIBOR and TIBOR

On July 22, the International Organisation of Securities Commissions (IOSCO) published a Web page on its review of the implementation of IOSCO’s principles for financial benchmarks by administrators of the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR).  IOSCO found that the three administrators have made significant progress in implementing most of the principles.  However, further work is needed on implementing the principles on benchmark design, data sufficiency and transparency of benchmark determinations.

Also on July 22, the Financial Stability Board (FSB) published a report prepared by the Official Sector Steering Group (OSSG) of regulators and central banks on reforming major interest rate benchmarks. The report was based on the March 2014 report of the Market Participants Group, a group of private sector experts asked by the OSSG to identify additional benchmark rates and to analyze transition issues arising from a move to an alternative rate.  It was also based on the IOSCO review.

In the report, the OSSG recommends a multiple-rate approach that involves: (i) strengthening the existing IBORs (the collective term used by the FSB for each of LIBOR, EURIBO and TIBOR) and other potential reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data; and (ii) developing alternative, nearly interest-risk free reference rates.  Web PageFSB ReportMarket Participants Group Report.