In this week's newsletter, we provide a snapshot of the principal US, European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
Bank Prudential Regulation & Regulatory Capital
Federal Banking Agencies Release Statement on Annual Stress Tests at Medium-Sized Financial Companies
On June 2, 2015, the US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation and the US Office of the Comptroller of the Currency (collectively, the Federal banking agencies), released a statement reiterating the disclosure requirements for the annual company-run stress tests conducted by financial institutions with total consolidated assets between $10 billion and $50 billion. In the statement, the Federal banking agencies emphasized the requirement for such medium-sized firms to disclose certain information regarding the annual stress tests, including: (i) a description of the types of risks included in the stress test; (ii) a summary description of the methodologies used to conduct the stress test; (iii) estimates of losses, revenue, and net income; (iv) post-stress capital ratios; and (v) an explanation of the most significant causes for the changes in regulatory capital ratios. In addition, as the Federal banking agencies have previously stated, the company-run stress tests are intended to produce hypothetical results and are not intended to be forecasts or expected outcomes.
Stress test results must be disclosed between June 15, 2015 and June 30, 2015. Any questions regarding the disclosures made in connection with the stress tests should be directed to the firms.
The statement released by the Federal banking agencies is available at: https://www.fdic.gov/news/news/press/2015/pr15045a.pdf.
Extension of Transitional Provisions for Exposures to CCPs Formally Announced
Following the announcement by the European Commission on June 4, 2015, that the transitional period for regulatory capital requirements for EU banks' exposures to CCPs under the EU Capital Requirements Regulation would be extended from June 15, 2015 to December 15, 2015, the Implementing Regulation was published in the Official Journal of the European Union on June 9, 2015. The Implementing Regulation comes into effect on June 12, 2015. The extension is intended to allow further time for CCPs, both from the EU and from non-EU jurisdictions, to become authorized or recognized under the European Market Infrastructure Regulation. One of the requirements for recognition of a third country CCP is that the third country's regime for supervision of CCPs is deemed to be equivalent to that of the regime under EMIR. Equivalence decisions for CCP regimes have only been given for Hong Kong, Singapore, Australia and Japan. Decisions for major jurisdictions, such as the US, are still outstanding. Authorization or recognition under EMIR will give the CCP the status of being a Qualifying CCP, which is relevant for clearing member firms to calculate their capital requirements for exposures to CCPs under the CRR. Lower capital requirements will be imposed for exposures to a QCCP than for exposures to a non-QCCP CCP.
The Implementing Regulation is available at: http://eur-lex.europa.eu/legalc-ontent/EN/TXT/PDF/?uri=OJ:JOL_2015_143_R_0003&from=EN.
You may like to see our client note on third country equivalence under EMIR, available at: http://www.shearman.com/~/media/Files/NewsInsights/Publications/2015/05/Update-On-Third-Country-Equivalence-Under-EMIR-FIA-052815.pdf .
Amending Regulation on Own Funds Requirements in Force
On June 2, 2015, the Amending Regulation setting out Regulatory Technical Standards on own funds requirements for institutions under CRD IV was published in the Official Journal of the European Union. The Amending Regulation applies to banks and investment firms and specifies the conditions in which a drag on own funds is disproportionate in terms of distributions on: (i) an individual Common Equity Tier 1 instrument; and (ii) the total own funds of the firm. The Amending Regulation also deals with preferential distributions regarding preferential rights to payments of distributions as well as preferential distributions regarding the order of distribution payments. The Amending Regulation enters into effect on June 22, 2015.
The Regulation is available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2015.135.01.0001.01.ENG.
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