ESMA Consults on Draft Guidelines on Non–Significant Benchmarks Under Benchmarks Regulation


On September 29, 2017, ESMA published a consultation paper on draft guidelines for non-significant benchmarks under the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) (Benchmarks Regulation or BMR).

The BMR envisages that ESMA may issue guidelines setting out the obligations that will apply to non-significant benchmarks in four areas. A separate chapter is dedicated to each area in the consultation paper, summarizing the proposed content of the guidelines for each, as well as outlining the objectives and policy issues:

  • Procedures, characteristics and positioning of oversight function, under Article 5 of the BMR (see chapter 5).
  • Appropriateness and verifiability of input data, under Article 11 (see chapter 6).
  • Transparency of methodology, under Article 13 (see chapter 7).
  • Governance and control requirements for supervised contributors, under Article 13 (see chapter 8).

The first three areas listed above apply to administrators of non-significant benchmarks, and the fourth to supervised contributors to non-significant benchmarks.

The proposals in the consultation paper impose lighter requirements for non-significant benchmarks (and their administrators and supervised contributors) in relation to the relevant areas than those for significant benchmarks. ESMA submitted its draft regulatory and implementing technical standards applicable to critical and significant benchmarks to the European Commission in March 2017.

The deadline for comments on the draft guidelines is November 30, 2017.

ESMA Comments on MiFID II Implementation and Brexit


On September 29, 2017, reported on comments by Stephen Maijoor, ESMA Chair, on the implementation of MiFID II and Brexit.

Mr. Maijoor believes that while implementation of the new rules under the MiFID II Directive (2014/65/EU) and Markets in Financial Instruments Regulation (Regulation 600/2014) may trigger some glitches, broader disruption is not anticipated. also reports that the FCA has said that it would not punish firms for “not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start date”. Mr. Maijoor further commented that it is likely that regulators would look differently on a violation on January 4, 2018, from one at a later date.

Regarding Brexit, Mr. Maijoor observed that MiFID II had been designed on the basis that the most liquid European market would indeed be within the EU. Depending on how Brexit negotiations progress, he believes that the exit of the UK from the single market would affect some elements of MiFID.

According to Mr. Maijoor, ESMA has begun assessing the impact of a possible “hard” Brexit on the stability of the EU’s securities market. This includes considering the position of credit rating agencies (CRAs) and trade repositories (both of which ESMA directly regulates), and protection for EU investors in UK-based mutual funds.

ECON Draft Reports on Proposed BRRD II Directive and SRM II Regulation


On September 29, 2017, the European Parliament’s Economic and Monetary Affairs Committee (“ECON“) published two draft reports relating to the European Commission’s proposed revisions to the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) and to the implementation in the EU of the Financial Stability Board’s total loss absorbing capacity (TLAC) standard (BRRD II):

  1. Draft report on the Commission’s proposal for a Regulation to amend the Single Resolution Mechanism (Regulation 806/2014) (proposed SRM II Regulation).
  2. Draft report on the Commission’s proposal for a Directive to amend the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) (proposed BRRD II Directive).

Each of the draft reports contains a Parliament legislative resolution on the proposed Regulation and Directive (as applicable), which suggests amendments to the European Commission’s original legislative proposal. They also each contain an explanatory statement by the rapporteur Gunnar Hökmark.

Next, ECON will vote to finalize the draft reports before they are considered by the Parliament.

Alterations related to insolvency rankings are necessary to integrate the TLAC standard requirements into the BRRD. In June 2017, ECON published a draft report on the Commission’s proposed Directive amending the BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy (the proposed Insolvency Hierarchy Directive).

As part of a package of banking reforms, the Commission published the proposed Directive in November 2016. The EU institutions have agreed to fast-track this proposal. The Council of the EU agreed to its general approach on the proposed Directive in June 2017 and, at that time, stated that it hoped the Parliament would be able to start negotiating by the end of 2017.

FHFA Requests Input on FHFA’s Draft Strategic Plan for Fiscal Years 2018-2022


On September 27, 2017, the Federal Housing Finance Agency requested comment on its proposed strategic plan, which “…reflects the Agency’s priorities as regulator of the Federal Home Loan Bank System and as regulator and conservator of Fannie Mae and Freddie Mac[.]” Release.

FDIC Adopts Final Rule on Qualified Financial Contracts


On September 27, 2017, the Federal Deposit Insurance Corporation finalized a rule, similar to the rule approved by the Federal Reserve Board, relating to termination and cancellation rights for specified contracts and specified institutions. Applicable types of agreements include “derivatives, securities lending, and short-term funding transactions, such as repurchase agreements.” FDIC Release.

Agencies Propose Simplifying Regulatory Capital Rules


On September 27, 2017, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Office of the Comptroller of the Currency announced a proposed rule intended to decrease regulation under these entities’ “regulatory capital rule.” The proposed rule “would apply only to banking organizations that are not subject to the ‘advanced approaches’ in the capital rule, which are generally firms with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure.” FDIC Release. Federal Reserve Release. OCC Release.

European Commission Adopts Amending Delegated Regulation on RTS on Consolidated Tape for Non-Equity Products Under MiFID II


On September 26, 2017, the European Commission published Delegated Regulation (C(2017) 6337 final), which it has adopted to amend Delegated Regulation (EU) 2017/571, which supplements MiFID II Directive (2014/65/EU) with regulatory technical standards (RTS) on authorization, organizational requirements and the publication of transactions for data reporting services providers.

The amending Delegated Regulation sets out RTS specifying the scope of the consolidated tape for non-equity financial instruments under MiFID II.

The RTS reflect a mandate given to ESMA under Article 65(8)(c) of the MiFID II Directive. ESMA submitted its draft RTS to the Commission in March 2017.

Next, the Council of the EU and the European Parliament will consider the Delegated Regulation. If neither of them objects, the amending Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU (OJ). It is stated as applying from January 3, 2018, except for:

  1. Article 15a(4) (that is, the transitional provisions relating to the first assessment period for determining the coverage ratios by consolidated tape providers (CTPs)), which will apply from January 1, 2019; and

Articles 14(2), 15(1), (2) and (3), and 20(b) (that is, the provisions on the non-equity tape of Article 65(2)), which will apply from September 3, 2019.

CFTC’s Division of Market Oversight Extends Existing Relief and Provides Additional Relief for Reporting Parties From Reporting Obligations as Required by the OCR Final Rule


On September 25, 2017, the Division of Market Oversight of the U.S. Commodity Futures Trading Commission “issued a no-action letter (CFTC Staff Letter 17-45) that extends current relief and provides additional relief to reporting parties from [certain] reporting obligations[ under a 2013 final rule relating to ownership and control in futures and swap markets.]” Release.

Community Reinvestment Act Regulations: Notice of Proposed Rulemaking


On September 22, 2017, multiple government agencies announced “… a proposed rule that would revise their regulations implementing the Community Reinvestment Act (CRA) (12 USC 2901 et seq.). The proposed rule would amend the CRA regulations’ definitions of ‘home mortgage loan’ and ‘consumer loan’ to conform to recent changes made by the Consumer Financial Protection Bureau to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The proposed rule would also amend the CRA public file content requirements for consistency with Regulation C, make technical amendments to remove cross references related to the proposed amended definitions, and remove an obsolete reference to the Neighborhood Stabilization Program.” Release.