News
EU OTC Derivatives Reforms Have Major Pension Players Worried
In their joint response to the European Securities and Markets Authority (ESMA) draft technical standards for the regulation on OTC derivatives, the Dutch Pension Federation, APG, MN, PGGM, Shell and Syntrus Achmea Asset Management, major players in the Dutch pension industry, were highly critical of the proposals, and said they could do more harm than good. They note that the proposals have a high probability of increasing costs for pension funds and their administrators, costs that will ultimately be borne by pension beneficiaries. While ESMA has said that the proposals aim to reduce risks via the use of central clearing and risk mitigation techniques and increase confidence with respect to margins, the joint response from the Pension Federation says that they are not convinced that the increase of the confidence level with regard to the margin will automatically lead to more safety.
Have Bailouts Made Banks Less Risky?
During the financial crisis, central banks, finance ministries, and legislatures across the globe put in place bank rescue packages for the most part financed by public funds. Have these unprecedented recapitalisations at public expense resulted in a reduction of risk in banks’ loan books?
Momentum Builds But No Consensus on Money Fund Reforms
The need for further regulations governing money market funds was once again hotly debated at Senate Banking Committee hearings last week. At the hearings, Treasury Secretary Timothy Geithner reiterated his concerns that the 2010 money market reforms enacted by the SEC just do not go far enough, and doubled down on his commitment to see the SEC enact further measures, saying: “My own judgment is that the SEC needs to go further. They can go further. And we should get on with the business of letting them expose to the world, to the markets, a set of options that the world can comment on.” Senator Corker added that he believed that the Financial Stability Oversight Council (FSOC) could act if the SEC fails to move forward with further money market fund reforms.
Basel and IOSCO Float Margin Requirements for Non-centrally-cleared Derivatives
The Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) jointly have published a consultative paper on margin requirements for non-centrally-cleared derivatives. The paper presents the initial policy proposals emerging from the Basel Committee and IOSCO joint Working Group on Margining Requirements.
Is Money Market Fund Reform Just Regulatory Overkill?
Already subject to a comprehensive regulatory regime, amendments in 2010 to the rules governing money market funds tightened regulation even further to make money funds more resilient to certain short-term market risks, and to provide greater protections for investors in a money market fund threatening to “break the buck.” More recently, however, Federal Reserve officials and some members of the Financial Stability Oversight Council have said money market funds are subject to runs, a source of systemic risk, and part of a shadow banking system that sorely needs even more regulation. In response, Melanie L. Fein, former senior legal counsel to the Board of Governors of the Federal Reserve System has published a paper describing why further changes to the money market regulatory regime are unwarranted overkill.
Effective Dates for OTC Derivatives Regulations on the Horizon
Following the approval on July 11 by the Commodity Futures Trading Commission of the definitional rules for “swaps” and other derivatives products, and defining the “end user exemption,” the compliance dates for many of the CFTC’s implementing rules for the regulation of derivatives under the Dodd-Frank Act are becoming clearer.
Risk Management – High Level, but Low Tech
According to a June survey conducted by KPMG LLP, enterprise risk management processes of many major financial services firms are surprisingly manual – perhaps dangerously so. The survey results are somewhat unexpected given that the financial services industry is one of the most technologically sophisticated, complex, and heavily regulated industries there is.
CFTC Finalizes Swaps “End-User” Exemption
On July 11, the CFTC approved its much awaited final rule implementing the end-user exception from mandatory clearing of swaps. The new ruleslay out parameters of the end-user exception by (1) defining the term “hedging or mitigating commercial risk” and (2) establishing certain reporting requirements for end-users electing to make use of the end-user exception. In addition, these new rules finalize the definition of “swaps” and trigger compliance requirements under several major CFTC swap market regulations.
EU to Provide Hedging Exemption for OTC Derivatives
In his July 4 address before the Europlace Financial Forum, European Securities and Markets Authority (ESMA) chair, Steven Maijoor, announced that ESMA would be proposing standards implementing regulation of OTC derivatives, central counterparties and trade repositories (EMIR) by September 30. Maijoor said that these implementation standards will include an end-user exemption similar to the one expected to be in place under the Dodd-Frank Act.
UK’s Ring-Fenced Banks get OK to offer Hedge Services
The UK’s Treasury has published a white paper setting out how the government intends to implement the recommendations of the Independent Commission on Banking (the Vickers Report). The paper offers further detail on plans to separate retail and investment banking through a “ring fencing” and increase competition in the UK banking sector. Further, the paper sets out proposals to make banks more resilient, as well as making them simpler to resolve in the event of failure.