News
Making Sense of the New Regulatory Environment
In an October 20, 2016 address before the British Bankers Association’s Annual International Banking Conference, Dr. Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, highlighted the environment of uncertainty in which banks currently operate. In addition to such things as technological change and Brexit, he also spoke about the fear and loathing arising from regulatory uncertainty and hinted at some ways regulators can help to lessen the regulatory strain.
Is Liquidity Suffering from Too Much Regulation?
In a March 7, 2016 speech at the Institute of International Bankers Annual Washington Conference in Washington, DC, Federal Reserve Governor Lael Brainard remarked that new regulations may be having inadvertent effects on market liquidity. Governor Brainard’s statement is notable because Fed officials and regulators have been careful to avoid that inference.
Despite Delay, MiFID II Remains a Priority
Among the priorities in the European Commission’s (EC) list of its planned initiatives for 2016 is a new push to refine a package of reforms under its Markets in Financial Instruments Directive (MiFID II). After announcing just last month that MiFID II implementation would be delayed by year to January 3, 2018 due to the overwhelming complexities involved, the EC indicated that it would focus on a number of technical points in MiFID II that need to be specified further, including:
SEC Expects its Cross-Border Swaps Regulations to “Level the Playing Field”
On February 10, 2016, the Securities and Exchange Commission approved final rules intended to ensure that both U.S. and foreign dealers are subject to U.S. regulation when they engage in security-based swap dealing activity in the United States. The new rules require non-U.S. companies that use staff in a U.S. branch or office to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register as a security-based swap dealer.
Reforming the Asset Management Industry is a Global Challenge
SEC Chairman Mary Jo White used the occasion of her keynote speech a the September 21, 2016 International Bar Association’s annual conference to address some the challenges the Securities and Exchange Commission faces in regulating an ever more global asset management industry. With U.S.-registered asset managers increasing their activities in Europe, Africa, and Asia Pacific, the SEC has partnered with IOSCO, the FSB, and others to take transformative steps to modernize regulation of the asset management industry on a more global scale.
A First Step Toward Permanent Securities Lending Data Collection
As we reported in April of 2015, the Office of Financial Research, the Federal Reserve, and the Securities and Exchange Commission launched a joint pilot program to collect better and more complete data on securities lending. At that time, the OFR, Fed, and SEC created a task force to reach out to agent lenders to collect data on loans, terms, and collateral uses. On August 23, 2016, the task force published the results of their joint voluntary data collection project.
Global Financial Reform: Unintended Adverse Consequences in Connected Markets
Financial markets in the 21st Century are profoundly global. This fact was amply demonstrated by the 2007 – 2009 financial crisis, which was centered in the banking systems of the developed western economies but transmitted with devastating effect to economies worldwide. And yet, despite the global consequences of systemic risk transmission, the supervision of financial markets remains essentially a national discipline.
B of E Issues Consultation on Systemic Risk Buffer for Ring-Fenced Banks
On January 29, 2016, the Bank of England (B of E) issued a consultation paper laying out its proposed framework for the systemic risk buffer (SRB) to be applied to ring-fenced banks and large building societies holding more than £25 billion of retail and small and medium enterprise deposits. The proposals are intended to provide clarity to banks on how much capital they will be required to reserve in connection with the activities of their “ring-fenced” arms.
OFR Report Highlights Unintended Consequences of Swaps CCPs
On January 27, 2016, the Office of Financial Research (OFR), an arm of the Treasury Department created under the Dodd-Frank Act, issued its fourth annual report to Congress. The report highlights the results of OFR research, risks to financial markets, and OFR priorities for the coming year. Notable among its findings, the report suggests that reforms mandating central counterparties in the formerly OTC swaps market could unintentionally increase systemic risk in the long run rather than reducing it.
Software Bug Leads to SEC Censure
On January 14, 2016, the SEC announced that a large U.S. broker dealer had agreed to settle charges that its securities lending practices violated federal securities regulations. According to the SEC’s order, the dealer violated Regulation SHO by providing “locates” to customers without an adequate review as to whether the securities could be borrowed reasonably at settlement.[1] As a result, some customer short sales may have been executed improperly.