News
Security-Based Swaps: What’s on the SEC’s Agenda?
The SEC has issued a policy statement laying out a roadmap for how it plans to implement new rules regulating security-based swaps and security-based swap market participants under authority granted to it by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The Statement presents a sequencing of the compliance dates for these final rules by grouping the rules into five categories and describes the interconnectedness of the compliance dates for these rules, both within and among the five categories.
ESMA Claims Lead in Regulating OTC Derivatives
Verena Ross, Executive Director of the European Securities and Markets Authority, says that the EU will lead by example in the harmonization and convergence of regulation of OTC derivatives. With the plan for the EU regulation of OTC derivatives, central counterparties, and trade repositories (EMIR) now having been agreed upon by the European Parliament and the Council, ESMA is due to deliver draft regulatory and implementing technical standards under EMIR in June. Ross believes that if the EU is able to harmonize regulation and integrate supervision in Europe, the same convergence is possible, and necessary, globally.
German Regulator at Odds with Global Peers on Shadow Banking Wraps
In an April interview with BaFin Quarterly, Dr. Elke König, the head of Germany’s Federal Financial Supervisory Authority (BaFin), called for the swift regulation of shadow banking and derivatives. Critical of the FSB’s data gathering approach to shadow banking, König said that regulators must push ahead with regulating shadow banking straight away, or they will be regulating banks while more dangerous shadow banking risks grow.
EC Cites Three Key Questions for Shadow Banking Regs
Shadow banking, i.e., credit intermediation outside the regular banking system, may represent the greatest challenge facing financial policy makers today. Since the G20 Summits in Seoul in 2010 and Cannes in 2011, regulators have struggled to envision the changes needed to reign in shadow banking practices. At an April 27 conference in Brussels, which was dedicated solely to shadow banking, the European Commission released a Consultation Paper with three questions intended to guide future regulation.
Breaking the Law of Unintended Consequences
The rush to reregulate the financial markets after the financial crisis understandably has many concerned about unintended consequences. Regardless of good intentions, the fixes put in place by legislators, central bankers, and regulators no matter how well thought out are bound to affect the complex and constantly evolving global financial markets in unanticipated ways. Professor Roberta Romano of the Yale Law School shares these worries and proposes in her latest paper, Regulating in the Dark, a mechanism for addressing and remediating the inevitable unintended consequences of hasty financial regulation.
U.S. Finalizes Stress Test Guidance for Largest Banks
The Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency have issued definitive guidance on supervisory expectations for stress testing by banking organizations with more than $10 billion in total consolidated assets. This set of interpretations is a final version of initial guidance issued June 15, 2011, and provides high-level principles for stress testing practices required of big banks and depository institutions. Overall, it “highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks and better equips the organization to address a range of adverse outcomes.”
Basel Seeks Input on Trading Book Capital Requirements
The Basel Committee on Banking Supervision is seeking comment on initial policy proposals emerging from the Committee’s fundamental review of trading book capital requirements The consultation paper contemplates a revised market risk framework and proposes specific measures intended to improve trading book capital requirements. These proposals also reflect the Committee’s increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions.
Comparing US and EU Derivatives Regulation Regimes
As a result of commitments made at the G20 in 2009, member states across the globe are engaging in a number of regulatory reform initiatives addressing derivatives. Though the G20 members agreed to some basic principles of regulation, and officials say that some level of cooperation and coordination is happening, the proposed regimes are not identical, and each may have extraterritorial effects. These new sets of rules and regulations emanating from each jurisdiction’s initiative may present some difficult compliance issues for end users of derivatives with global trading operations. Sidley & Austin has put together a report comparing and contrasting some of the provisions and new regulations under the US’s Dodd-Frank Act and those under the EU’s European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Directive (MiFID II). This report should help clarify areas where compliance issues may arise for global traders.
Fed Sets Volcker Rule Phase-In
On April 19, the Federal Reserve Board clarified that an entity covered by Volcker Rule will have the full two-year period provided by the statute to conform its activities and investments. The guidance issued by the Fed also assures covered entities and institutions that no activities or investments will be prohibited by the Volcker Rule until the end of the implementation period, currently scheduled to occur on July 21, 2014.
Bernanke: Shadow Banking Remains a “Key Vulnerability”
In an April 13 address, Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, made clear that he sees the system of shadow banking as a key vulnerability that makes another catastrophic economic crisis nearly inevitable. In Bernanke’s view, the increased importance of the so-called shadow banking system is the primary reason for the severity and pervasiveness of the financial crisis, and the regulatory gaps in which shadow banking activities operate must be addressed by policy makers.