Global Financial Regulatory Blog

Global Regulators React to Banking Sector Turbulence

Posted in Banking, Regulatory Reform

Following this spring’s shocks to the banking system, US, UK, and European regulators are considering whether existing regulatory and crisis management measures require reform and enhancement.

By David Berman, Nicola Higgs, Markus E. Krüger, Arthur S. Long, Rob Moulton, Axel Schiemann, Pia Naib, Ja Hyeon Park, Deric Behar, and Charlotte Collins

The spring of 2023 saw more dislocation in the global financial sector than any time since the 2008-09 financial crisis.

In the US, banking institutions with over $500 billion in total assets failed, and other banks that were publicly traded saw their share prices come under significant pressure, leading to intervention by the authorities. In Europe, Swiss regulators undertook similar measures.

The rapidity of these failures came as a surprise to both regulators and the general public. With instability not fully subsiding, US, UK, and European regulators have begun to consider how to calibrate their supervisory regimes in response.

In this report, Latham lawyers examine the measures being considered by regulators in these jurisdictions.

Read the report.

New Federal Exemption Changes the Registration Landscape for M&A Brokers

Posted in Securities Regulation

The narrower M&A broker exemption supersedes the 2014 M&A broker no-action letter while leaving state-level restrictions and foreign M&A broker relief unaffected.

By Marlon Q. Paz, Stephen P. Wink, Naim Culhaci, Donald Thompson, and Deric Behar

On March 29, 2023, the Securities Exchange Act of 1934 (Exchange Act) was amended to exempt certain “M&A brokers” from registration as broker-dealers with the US Securities and Exchange Commission (SEC). The amendment, Exchange Act Section 15(b)(13), signed into law on December 29, 2022, as part of the Consolidated Appropriations Act (H.R. 2617), largely codifies previously granted SEC Staff no-action relief, albeit with certain limitations. Like the prior no-action relief, the new legislation does not preempt state or territorial laws concerning broker-dealer registration.

Persons previously relying on the M&A broker no-action letter should carefully examine the new exemption and related existing state and foreign relief to determine what, if any, implications the new law poses with regard to continued reliance.

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FCA Commences Dialogue on Prospectus Reforms

Posted in Capital Markets, Regulatory Reform

FCA takes an innovative approach to obtain feedback from industry and stakeholder groups.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

In May 2023, the FCA launched a process of engagement and dialogue on how the UK’s future prospectus regime could operate. The FCA’s first thematic engagement papers, published on 18 May, aim to solicit discussion and feedback on: (i) whether or how to set prospectus requirements for issuers seeking admission to trading on UK regulated markets; (ii) whether or how to set prospectus requirements for issuers raising further capital; and (iii) how forward-looking information should be covered in prospectuses.

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FCA Consumer Duty Update: Assessing Fair Value

Posted in Conduct of Business, Regulatory Reform

The FCA has published the findings from its review of firms’ fair value assessment frameworks and set out implementation priorities for firms.

By David Berman, Nicola Higgs, Rob Moulton, Becky Critchley, and Charlotte Collins

On 10 May 2023, the FCA published a speech by Sheldon Mills, FCA Executive Director, Consumers and Competition, on the countdown to the Consumer Duty implementation deadline of 31 July 2023. Alongside the speech, the FCA published the findings from its review of 14 firms’ fair value assessment frameworks under the Consumer Duty.

While the FCA’s review found that firms had considered the requirements carefully, it is concerned that some firms’ frameworks may not be effective in practice. Firms in the final stages of their implementation projects will want to ensure they take the FCA’s messaging, and findings from its review, on board.

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FCA Proposes Radical Reforms to Encourage UK Listings: 60-Second Read

Posted in Capital Markets

Proposals dramatically reduce the regulatory burden on listed companies.

By James Inness, Anna Ngo, and Johannes Poon

On 3 May 2023, the FCA published a consultation paper CP23/10 which sets out a blueprint for changes to the UK listing regime. The key reform proposed is that the existing premium and standard listing segments would be replaced with a single segment for commercial companies.

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Hong Kong Moves Forward With Major Update to Capital Regime for Insurance Companies

Posted in Capital and Liquidity

Insurance Ordinance amendments would create a risk-based capital regime aligned with international standards.

By Simon Hawkins and Adrian Fong

On 6 April 2023, the Hong Kong government introduced the Insurance (Amendment) Bill 2023 into the Legislative Council to amend the Insurance Ordinance (Cap. 41, Laws of Hong Kong) (IO) and implement a risk-based capital (RBC) regime for insurers in Hong Kong.

Hong Kong long-term and general business insurers are subject to a rule-based capital adequacy regime, meaning that an insurer’s capital adequacy is based on its solvency margin (which is linked to the amount of premium income or level of insurance liabilities). The existing regime does not take into account factors related to the business and risk management practices of an individual insurer, such as the products offered or the investments made. The prescribed rules on asset and liability valuation also lack consistency in certain areas.

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The FCA’s Consumer Duty — Determining “Material Influence”

Posted in Conduct of Business, Regulatory Reform, Retail Markets

The Consumer Duty applies to firms that materially influence consumer outcomes.

By Becky Critchley and Effie Stathaki

The Consumer Duty (Duty) (as set out in the FCA’s Policy Statement PS22/9 and guidance document FG22/5) will come into force at the end of July 2023.

The Duty applies across the distribution chain – namely, to all firms involved in the manufacture, provision, sale, and ongoing administration and management of a product or service to the end retail customer.

The Duty applies to all firms that have a material influence over, or determine, retail customer outcomes.

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FDIC Vice Chairman Cautions Against New Regulation as a Response to Recent Bank Failures

Posted in Banking

In contrast with the White House’s position, the Vice Chairman denied that loosened Dodd-Frank rules contributed to the recent bank failures.

By Arthur S. Long, Pia Naib, and Deric Behar

On April 12, 2023, Federal Deposit Insurance Corporation (FDIC) Vice Chairman Travis Hill delivered a speech at the Bipartisan Policy Center, “Recent Bank Failures and the Path Ahead.” In it, he addressed key themes and takeaways from the March 2023 bank failures that saw the FDIC appointed as receiver for a bank with over $200 billion in consolidated assets and another with over $110 billion in consolidated assets, as well the voluntary liquidation of another bank with over $10 billion in consolidated assets. Notably, his views indicate that the US banking agencies do not agree over the regulatory lessons to be drawn from the failures.

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FCA Publishes Business Plan for 2023/24

Posted in Environmental, Social and Governance (ESG), Fintech and Cryptocurrency, Market Misconduct, Uncategorized

The Future Regulatory Framework and Consumer Duty will be key areas of focus for the coming year.

By Rob Moulton, Nicola Higgs, David Berman, Becky Critchley, and Charlotte Collins

On 5 April 2023, the FCA published its Business Plan for 2023/24. The Business Plan sets out a number of priority areas for the regulator, tied into its three main areas of focus: reducing and preventing serious harm, setting and testing higher standards, and promoting competition and positive change.

The FCA highlights four of these priority areas that will receive additional emphasis over the coming year. These priority areas indicate a strong focus on developing the Future Regulatory Framework, including consulting on Handbook Rules to replace elements of onshored EU legislation as well as progressing the Edinburgh Reforms; and on consumer protection, including effectively implementing the new Consumer Duty.

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UK Government Kicks Off Investment Research Review

Posted in Capital Markets, Markets and Investments

The tone of the Call for Evidence indicates the controversial research unbundling rules could be primed for reform.

By Rob Moulton, Gary Whitehead, and Charlotte Collins

On 3 April 2023, HM Treasury published a Call for Evidence as the first step in the independent review of investment research and its contribution to the competitiveness of the UK’s capital markets.

The review has the stated key objectives of:

  • Assessing the link between levels of research and the attractiveness of the UK as a destination to list
  • Evaluating options to improve the UK market for investment research and to provide recommendations to this effect

The review was announced as part of the Edinburgh Reforms in December 2022. The Chancellor noted at the time that “the review is part of the government’s wider commitment to enhance the UK’s ability to attract companies to list and grow”.

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