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Euro shorts   31.01.14 including EC proposal for banking structural reforms provokes hostile response and EU-US trade deal
 

Euro shorts 31.01.14 including EC proposal for banking structural reforms provokes hostile response and EU-US trade deal

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    Euro shorts   31.01.14 including EC proposal for banking structural reforms provokes hostile response and EU-US trade deal Euro shorts 31.01.14 including EC proposal for banking structural reforms provokes hostile response and EU-US trade deal Document Transcript

    • Welcome to Euro Shorts, a short briefing on some of the week’s developments in the financial services industry in Europe. If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers. Claire Cummings 020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com EC proposal for banking structural reforms provokes hostile response The European Commission has published a proposed Regulation aimed at banks that are deemed to be too big to fail because the consequences of their failure are considered detrimental for the financial system as a whole. The Regulation will apply to EU banks deemed to be of global systemic importance or those exceeding certain specified thresholds. The EC is proposing to introduce a ban on proprietary trading with effect from 1 January 2017 and a power for supervisors to require banks to separate certain trading activities from a deposit-taking entity as of 1 July 2018. The Regulation has provoked a hostile response in France, where it was attacked by the central bank governor, who considers that the proposal is ‘irresponsible and contrary to the interests of the European economy”. EU-US trade deal The European Commission has proposed a framework for regulatory cooperation in financial services in the context of negotiations for an EU-US trade deal, known as the Transatlantic Trade and Investment Partnership (TTIP). The EU is proposing to establish, within the TTIP framework, a transparent, accountable and rule-based process that would commit the two parties to work together towards strengthening financial stability. The regulatory co-operation would be based on a number of general principles which would be backed up by specific arrangements for the governance of the EU-US regulatory co-operation, guidelines on equivalence assessments
    • and commitments to exchange necessary and appropriate data between regulators. The proposal includes the commitment to outcome-based assessments of whether the other party's regulatory and supervisory framework is equivalent, which could potentially lead to mutual reliance on the rules of the other party. IMF warns that big banks still pose a threat An IMF executive, tasked with financial oversight, has said that more work is needed to tackle the threat posed by big banks to the world financial system. Mr Vinals criticised the amount of implicit subsidies currently provided to systemically important financial institutions as too large and considered that officials are ill-equipped to deal with a Lehmans-style bankruptcy. Mr Vinals concluded that the G20 still had a great deal of work to do to determine what would happen if a bank with major operations abroad were to go under. FSB re-confirms Cayman designation The Financial Stability Board has confirmed its designation of the Cayman Islands as a jurisdiction which demonstrates sufficiently strong adherence to international standards on cooperation and information exchange. The Cayman Islands first gained this recognition in 2012. The FSB was established to coordinate the work of national financial authorities and international standard setting bodies in the interest of financial stability and began this initiative in 2010, in response to a call by the G20 leaders to develop a toolbox of measures to promote adherence to prudential standards and cooperation with jurisdictions. Cayman is listed among those countries which meet its required standards in the areas of banking supervision, insurance supervision and securities regulation. ISDAfix benchmark ICAP plc, a London based broker, is to be stripped of its function setting a US benchmark for interest rate swaps by ISDA This comes amid investigation by the FCA and the CFTC of alleged manipulation of ISDAfix. ISDA has transferred the function to Thomson Reuters Corp., which will calculate all ISDAfix rates in the future and all rates will be set based on actual trades, rather than based on data reported from banks. Meanwhile, the Financial Stability Board is expected to announce that it will scrutinise
    • benchmarks used in currency trading as part of its reforms of interest rate benchmarks. EMIR third country equivalence ESMA has advised the European Commission that the Japanese regulatory regime for commodity CCPs (including its legal provisions and approach to supervision and enforcement) provides for an equivalent system for recognition of CCPs authorised under third-country legal regimes. If the Commission adopts such a decision, certain provisions of EMIR may be disapplied in favour of equivalent third country rules. ESMA is permitted under EMIR to recognise in the EU a CCP which is authorised outside the EU. MiFID protocol ESMA has published an updated version of its protocol on the operation of its MiFID database. The protocol relates to the practical co-operation arrangements between the national competent authorities (NCAs) of the member states and the staff of ESMA for the purposes of managing the calculation and publication of market transparency calculations. Annex 1 to the protocol contains an internal guidebook that is intended to facilitate the NCAs' MiFID market transparency calculations. ESMA is entitled to change or amend the protocol as it sees fit. IOSCO final report on protection of client assets IOSCO has published its final report on recommendations regarding the protection of client assets. The report contains eight principles that provide guidance to regulators on how to enhance their supervision of intermediaries holding client assets by clarifying the roles of the intermediary and the regulator in protecting those assets. The principles also outline the intermediaries’ responsibility to ensure compliance with applicable domestic rules and regulations (including in the areas of recordkeeping, providing statements of account, and arrangements to safeguard client assets and minimise the risk of loss and misuse), including through the development of internal systems and controls to monitor compliance. IOSCO consulted on the principles in February 2013.
    • EC reporting and transparency proposal The European Commission has published a legislative proposal for a Regulation on reporting and transparency of securities financing transactions (SFTs). The proposed Regulation sets out proposals for requirements for: (i) financial or non-financial counterparties of SFTs to report the details of SFT transactions to trade repositories; (ii) UCITS management companies, UCITS investment companies and AIFMs to provide information to investors on their use of SFTs and other financing structures; and (iii) counterparties seeking to engage in rehypothecation to ensure certain conditions are satisfied before they have the right to rehypothecation. The proposal stems from the Commission’s work on risks posed by shadow banking. CRD IV The European Systemic Risk Board has published its decision on a framework for national macro-prudential policy notifications and the provision of opinions and the issuing of recommendations by the ESRB, as required by CRD IV. ESRB must provide opinions and issue recommendations on specific macro-prudential measures within one month of receiving notification of such measures. The decision sets out the process it will follow for assessing notified measures and delivering opinions or recommendations. It also sets out the process notifying authorities must follow when providing notifications, including the use of a specific template. EMIR ESMA has published its final report on procedural rules to impose fines and periodic penalty payments on trade repositories. Under EMIR, where ESMA finds that a TR has, intentionally or negligently, committed one of the infringements listed in Annex I of EMIR, it must impose a fine. ESMA is also required to impose periodic penalty payments in order to compel TRs or other relevant persons to put an end to an infringement or respectively to comply with their obligations in accordance with EMIR. In the meantime, EMIR’s reporting obligation will come into full effect on 12 February 2014.
    • Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com 3 1 Ja n u a r y 2 0 1 4