Global Financial Regulatory Blog

Federal Reserve Recognizes Significance of Climate Risks on Financial Stability

Posted in Environmental, Social and Governance (ESG)

The US prudential regulator is paying attention to climate risks, and will likely act to mitigate those risks if they threaten financial stability.

By Alan W. Avery, Pia Naib, Deric Behar, and Kristina S. Wyatt

In its November 2020 Financial Stability Report (the Report), the Board of Governors of the Federal Reserve System (Federal Reserve) acknowledged, for the first time in the Report’s history, the impact of climate risks on financial stability. The Report, which aims to provide a current assessment of the resilience of the US financial system on a biannual basis, reflects Chairman Jerome Powell’s November 5, 2020, statement, in which he said that the Federal Reserve is “actively … getting up to speed” on climate risks and impacts to the financial system. Continue Reading

Podcast – Brexit & Financial Services: Preparing for the End of the Transition Period

Posted in Conduct of Business, Derivatives, Markets and Investments, Regulatory Reform

FCA’s Stephen Hanks discusses onshoring and how to ensure regulatory compliance before the year’s end.

With the end of the Brexit transition period looming, many financial services firms are asking what they need to do between now and the end of the year to ensure regulatory compliance.

In this episode of Connected With Latham, Anne Mainwaring, London associate in the Financial Regulatory Practice, joins Stephen Hanks, Manager in the Markets Policy Department at the UK’s Financial Conduct Authority, to discuss key focus areas in the run up to, as well as beyond, the end of the transition period. Focus topics include the approach to onshoring, the key MiFID II onshoring changes, and the FCA’s approach to implementation review and policy following the end of the transition period.

Listen here or download in Apple PodcastsGoogle PodcastsSpotify, or anywhere else you listen to podcasts.

UK Chancellor Outlines Future for Financial Services Post-Brexit

Posted in Markets and Investments

Equivalence decisions for EEA states, green finance and fintech initiatives are at the forefront of the UK government’s priorities.

By Rob Moulton, Anne Mainwaring, and Anna Lewis-Martinez

On 9 November 2020, the UK Chancellor of the Exchequer, Rishi Sunak, delivered a statement setting out plans for the start of a new chapter for UK financial services to ensure that the UK remains “an open, attractive international financial centre” post-Brexit. These plans include the announcement of a set of equivalence decisions for EEA states, as well as proposals for a greener financial services industry, reforming access to the UK’s markets, and growing and investing in fintech. Continue Reading

FINRA Issues Proposal to Mandate Filing of All Retail Communications Regarding Certain Private Placements

Posted in Securities Regulation

In setting forth its rationale, FINRA observed that private placement retail communications reviewed by AdReg have “revealed significant and pervasive” violations of FINRA Rule 2210.

By Dana G. Fleischman, Stephen P. Wink, Naim Culhaci, and Deric Behar

On October 28, 2020, the Financial Industry Regulatory Authority, Inc. (FINRA) filed with the US Securities and Exchange Commission (SEC) proposed amendments (the Proposal) to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities). The proposed amendments would require FINRA members to file all retail communications used by members in connection with private placement offerings that are subject to those Rules’ filing requirements (Covered Private Placements).[1] Continue Reading

UK Announces Climate Focused Financial Services Regime

Posted in Environmental, Social and Governance (ESG)

The UK Government presents initiatives designed to green the UK economy and bolster attractiveness as an international financial centre.

By Paul A. Davies and Michael D. Green

On 9 November 2020, Rishi Sunak, Chancellor of the Exchequer, announced several initiatives designed to help the UK tackle climate change, while maintaining its position as an “open, attractive international financial centre” after the Brexit transition period ends.

Most importantly, the Chancellor announced that the UK will require corporate disclosures to align with the Task Force on Climate-related Financial Disclosures (TCFD) by 2025 at the latest. In doing so, the UK will become the first country in the world to move past the “comply or explain” approach and make TCFD-aligned disclosure fully mandatory, in an effort to support climate-related transparency and the greening of the UK economy. Continue Reading

US Department of Labor Puts ESG Investing on Ice

Posted in Environmental, Social and Governance (ESG), Markets and Investments

In its finalized rule amending ERISA, the DOL makes financial factors paramount in a fiduciary’s responsibility to investors.

By Paul A. Davies, Nicola Higgs, Kristina S. Wyatt, and Deric Behar

On October 30, 2020, the US Department of Labor (DOL) published Financial Factors in Selecting Plan Investments (the Rule) and a related Fact Sheet, a codification of the spirit, if not the exact words, of a controversial proposal issued by the DOL in June 2020 (the Proposal). The Rule adopts amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and requires fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular investment. The net effect is to restrict plan fiduciaries from making investment decisions guided by goals or policies other than achieving the highest possible return for investors. Non-financial goals would ostensibly include any environmental, social, or governance (ESG) factors that many investors consider important to their investment decision-making. Continue Reading

Understanding the ISDA IBOR Fallbacks Protocol and Supplement

Posted in Benchmark Regulations

The launch of the Protocol and the Supplement represents a key landmark in the transition away from IBORs but is not a one-stop solution.

By Yvette D. Valdez, Becky Critchley, Adam Bruce Fovent, J. Ashley Weeks, Deric Behar, and Anna Lewis-Martinez

On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published its IBOR Fallbacks Protocol (Protocol) and Supplement to the 2006 ISDA Definitions (Supplement) in anticipation of the expected discontinuation of the London Interbank Offered Rate (LIBOR) at the end of 2021. ISDA has also published a related set of Frequently Asked Questions, as well as a User Guide to IBOR Fallbacks and RFRs, to assist market participants in navigating the Protocol and the Supplement.

The Protocol and the Supplement, which take effect on January 25, 2021, provide robust fallback provisions to be applied upon the permanent cessation of a relevant IBOR or a pre-cessation announcement made with respect to LIBOR. The Protocol provides an efficient amendment mechanism for mutually adhering counterparties to incorporate these fallback provisions into legacy contracts. However, the Protocol and the Supplement do not themselves modify the terms of underlying floating rate exposures or ensure such exposures transition in the same manner as any interest rate derivatives entered into to hedge those exposures. Continue Reading

ESMA’s STO Guidance Aims to Limit Post-Brexit Disruption

Posted in Securities Regulation

However, ESMA’s proposed changes are less sweeping than required to achieve this aim.

By Rob Moulton and Anne Mainwaring

Should the Brexit transition period end without a UK equivalence decision, ESMA has issued guidance to limit the impact on the trading obligation for shares by assuming the following:

— All EU shares (EU Member State, Iceland, Liechtenstein, and Norway ISINs) will be within the scope of the EU STO. GB ISINs will be outside the scope of the EU STO.

— The trading of shares with an EEA ISIN on a UK trading venue in GBP by EU investment firms (which encompasses a narrow subset of total EU trading activity) will be outside the scope of the EU STO.

— Other ISINs should continue to determine STO application in accordance with the previous ESMA guidance published in November 2017.

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HM Treasury Consults on Post-EU Financial Services Regulatory Framework

Posted in Regulatory Reform

The UK government signals a diversion from the onshored regime towards a more flexible financial services regulatory framework.

By Rob Moulton, Anne Mainwaring, and Anna Lewis-Martinez

HM Treasury has published a consultation paper marking the start of Phase II of its financial services review, which will focus on the broader regulatory framework for financial services regulation in the UK post-Brexit.

HM Treasury acknowledges the drawbacks of the EU approach to financial services regulation. Namely, this approach has complicated the operation of the regulatory model under the Financial Services and Markets Act 2000 (FSMA), which HM Treasury considers to be an appropriate framework for financial services regulation in the UK after the end of the transition period. HM Treasury therefore proposes an adaptation of the FSMA model as the most effective approach to the post-EU regulatory framework, acknowledging that the onshored regime of EU legislation will fail to provide an adequate long-term solution for the UK’s post-EU financial services regulatory framework. Continue Reading

ISDA Gearing up to Launch IBOR Fallbacks Protocol

Posted in Benchmark Regulations, Derivatives

Regulators and industry groups strongly encourage market participants to adopt ISDA’s much-anticipated IBOR Fallbacks Protocol and Definitions Supplement.

By Yvette D. Valdez, Becky Critchley, Deric Behar, and Anna Lewis-Martinez

The International Swaps and Derivatives Association (ISDA) has published a statement from its Board of Directors confirming that on October 23, 2020 it will launch its IBOR (interbank offered rates) Fallbacks Protocol (the Protocol) and IBOR Fallbacks Supplement to the 2006 ISDA Definitions (the Supplement). The Supplement and the Protocol’s amendments will take effect on January 25, 2021.

According to ISDA’s October 9 announcement, all new derivatives contracts that incorporate the 2006 ISDA Definitions and reference one of the covered IBORs will contain the new fallbacks as of January 25, 2021. Derivatives contracts existing as of this date will also incorporate the new fallbacks if both counterparties have adhered to the Protocol or otherwise bilaterally agreed to include the new fallbacks in their contracts.

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