PRA Issues Clarification on Implementation of the Solvency II Directive

On August 29, the UK PRA issued an update on the implementation of the Solvency II Directive (2009/138/EC), which is planned for January 1, 2016. The current PRA Update focuses on:

  • the relationship between the risk margin and the calibration of non-hedgeable risks; and
  • the assessment of the credit risk for matching adjustment portfolios.  PRA Update.

ESMA Publishes Guidelines on the EU Implementation of CPSS-IOSCO Principles

On September 4, ESMA published the translation of guidelines and recommendations on implementing the principles for financial market infrastructures in respect of central counterparties (i.e., clearing houses) published by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in April 2012.

The purpose of the guidelines and recommendations is to ensure that EMIR and the regulatory technical standards made under it are fully harmonized and compliant with the CPSS and IOSCO principles.  This will bring EU clearing houses into line with international standards. Guidelines.

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.