Regulation
The regulatory environment continues to be a contexture of legislative acts and evolving action related to market practices.
What are the regulatory issues that are keeping you up at night? Whatever they might be, there's a good chance that we have the insights to help you understand them and the people to help you adjust and even thrive. Let us know what's on your mind. We'll let you know how we can help.
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Derivatives
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Nadine Chakar, global head of BNY Mellon's Derivatives360 business, explains how the business — which spans the entire life of a derivatives transaction — is developing and offers her reaction to regulatory reform. This interview first appeared in Global Investor magazine, October 2012.
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For more information on our derivatives offerings or any of our industry-leading products and services, contact:
Nadine Chakar, Global Business Head
BNY Mellon Derivatives360 »
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SEC Proposes Rules for Cross-Border Security-Based Swaps
On May 1, 2013 the Securities and Exchange Commission (SEC) unanimously voted to issue a proposal that includes rules and interpretive guidance for cross-border security-based swaps regulation. The proposed rule is pursuant to the requirements set forth for over-the-counter derivatives regulation in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
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Regulatory Reform: The Shape of Things To Come
Transparency, reporting and ongoing regulatory reform are key issues in the derivatives marketplace. While many are aware of the Dodd-Frank Act, the full impact of the law remains unclear. Patrick Tadie, Global Business Executive, Alternative and Broker Dealer Services, discusses the major challenges facing financial institutions in this new regulatory environment and outlines ways to prepare for these challenges.
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CFTC & SEC Begin Finalizing OTC Derivatives Reform
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) are writing rules to regulate the swaps marketplace, and recently approved the final product definitions for swaps and security-based swaps.
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ESMA Unveils EMIR Technical Standards for Consideration
On 25 June 2012, the European Securities and Markets Authority (ESMA) launched a consultation on its regulatory technical standards and implementation proposal for the Regulation on OTC Derivatives, CCPs and Trade Repositories (more commonly referred to as the European Market Infrastructure Regulation (EMIR)). The comment period for ESMA's consultation will close on 5 August 2012.
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European Parliament Final Amendments and EMIR Legislation
On 11 April 2012, the European Parliament published its final amendments to the European Commission's legislative proposal on European Market Infrastructure Regulation (EMIR). At a plenary hearing on 29 March 2012, the European Parliament voted to approve the EMIR text, following a compromise agreement and draft "Regulation of the European Parliament and of the Council on OTC Derivatives, Central Counterparties and Trade Repositories".
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Basel and IOSCO Principles for Financial Market Infrastructure
In April 2012, the Basel Committee on Banking Supervision (Basel Committee) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) published a final report (Report) on the Principles for Financial Market Infrastructure which set out the international standards for systemically important payment, clearing and settlements systems.
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CPSS-IOSCO Finalise OTC Derivatives Data Aggregation and Reporting
On 17 January 2012, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) published their final report on the over-the-counter (OTC) derivatives data and aggregation requirements. The report specifies the minimum requirements for reporting data to Trade Repositories (TRs) and for the reporting by a TR to regulators.
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On 6 March 2012, the European Supervisory Authorities (ESA) comprised of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities Market Authority (ESMA), published a joint discussion paper on the Draft Regulatory Technical Standards on risk mitigation techniques for OTC derivatives not cleared by a Central Counterparty Clearing (CCP) under the Regulation of OTC derivatives, CCPs and Trade Repositories for comment.
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On 16 February 2012, the European Securities Market Authority (ESMA) announced it is holding a public hearing on 6 March to give an opportunity to interested stakeholders to discuss the relevant sections of the discussion paper, Draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories.
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European Trialogue Agrees on Final Text for EMIR
On 9 February 2012, following several months of discussions, the final text for the European Market Infrastructure Regulation (EMIR) was agreed by the European Commission (EC), the European Parliament (EP) and the Council of Ministers (the Council). The legislative text forms the framework for clearing over-the-counter (OTC) contracts and reporting on OTC derivatives transactions, which is a radical reform that mirrors elements of the U.S. Dodd-Frank Act.
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CFTC Issues Final Order Amending the Effective Date for Swap Regulation
On December 19, 2011, the Commodity Futures Trading Commission (CFTC) issued a Final Order regarding the effective date for swap regulation, which extends the potential latest expiration date of the recent exemptive relief to July 16, 2012.
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European Union Agrees EMIR Approach
On 4 October 2011, the Economic and Financial Affairs Council ("the Council") agreed on a general approach to the European Market Infrastructure Regulation ("EMIR") legislation. The compromise proposal sets out the Council's position on increasing transparency and reducing risk in the over-the-counter (OTC) derivatives market. EMIR requires that derivatives contracts should be reported to trade repositories and cleared through a central counterparty clearing (CCP).
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CPSS-IOSCO Closes Consultation on Data Reporting and OTC Aggregation
On 23 September 2011, the Committee on Payment and Settlement Systems ("CPSS") of the Bank for International Settlements ("BIS") and the International Organization of Securities Commissions ("IOSCO") closed their period of consultation on data reporting and aggregation of over-the-counter ("OTC") derivatives.
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European Market Infrastructure Regulation (EMIR)
On 24 May 2011, the European Parliament's Economic & Monetary Affairs Committee (ECON) voted in favour of the revised draft of the European Market Infrastructure Regulation (EMIR) The new regulation proposes a framework for central clearing and risk mitigation of over-the-counter (OTC) derivatives, rules for central counterparties (CCPs), post-trade interoperability, reporting obligations and requirements for trade repositories.
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SEC Orders "Temporary Relief" for Certain Swaps Regulations
The Securities and Exchange Commission recently granted "temporary relief" to companies and other investors who engage in swap transactions, delaying implementation of certain regulations set forth in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
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The financial crisis re-emphasized the importance of counterparty credit risk, and the subsequent industry-led program of reform has addressed many of the shortcomings of the OTC market. BNY Mellon and independent consulting firm InteDelta investigated current counterparty credit risk management policies and processes across a representative sample of asset management, insurance and pension fund institutions. Findings from this research reveal an evolving OTC derivatives market that is wary of risk, open to change, and surprisingly robust.
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Equity Markets
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Enhancing Australia's Equity Market
The Australian Securities and Investment Commission has released a consultation paper on enhancing regulation of Australia's equity markets. The specific proposals in the Consultation Paper are designed to support the Commission's objectives related to market quality, market integrity, investor protection, fairness and efficient implementation of changes to the regulatory regime.
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Proposals for additional liquidity facilities as part of money market regulatory reforms
The Investment Company Institute (ICI) submitted a comment letter to the Securities and Exchange Commission (SEC) on January 10, 2011, proposing an industry-supported liquidity facility for money market funds.
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Global Investing
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IOSCO Consults on Liquidity Risk Management
for CISThe International Organization of Securities Commissions (IOSCO) has issued a set of guiding standards entitled "Principles of Liquidity Risk Management for Collective Investment Schemes". The consultation report (Consultation) outlines 15 practical principles by which the industry and regulators can assess the quality of their practices for Collective Investment Schemes (CIS) liquidity risk management. The principles will apply to the entity responsible for operating CISs.
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EU Releases Regulatory Technical Standards on Credit Rating Agencies
On 30 May 2012, the European Commission (the Commission) published four Delegated Regulations on Credit Rating Agencies (CRAs) in the Official Journal of the European Union. The Regulations developed by European Securities and Market Authority (ESMA) and endorsed by the Commission on 21 March, establish Regulatory Technical Standards (RTS) for CRAs.
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IOSCO Consults on Integrity and Conflicts of Interest in CRAs
On 25 May 2012, the International Organization of Securities Commission (IOSCO) issued a consultation paper on certain independent controls and procedures Credit Rating Agencies (CRAs) use to promote the quality and integrity of their rating process as well as to address conflicts of interest. IOSCO sought comments from stakeholders and CRAs to refine and enhance the descriptions and assist with further analysis. The consultation period closed on 9 July 2012.
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European Commission Proposes Improving Securities Settlement and CSDs
On 7 March 2012, the European Commission published the proposal for a Regulation on improving securities settlement in the European Union and on Central Securities Depositories (CSDs). The Regulation is intended to bring more safety and efficiency to securities settlement in Europe.
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Summary: SEC Exemptive Relief and Expansion of Actively Managed ETFs
Several large asset management firms have publicly filed to launch actively managed exchange-traded funds (ETFs). Before the launch of a new actively managed ETF, investment companies must file for and be granted exemptive relief from the SEC. Following the financial crisis of 2008, many regulatory bodies worldwide began to review their guidelines for the use of derivatives in investment vehicles. The SEC announced in March 2010 that it would defer its approval of requests for exemptive relief for actively managed ETFs using derivatives (such as swaps) until its investigation on the use of derivatives was complete.
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European Commission Proposes Improving Securities Settlement and CSDs
On 7 March 2012, the European Commission published the proposal for a Regulation on improving securities settlement in the European Union and on Central Securities Depositories (CSDs). The Regulation is intended to bring more safety and efficiency to securities settlement in Europe.
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EC Revises and Extends MAD Scope
On 20 October 2011, the European Commission (EC) published a proposal for a Regulation that expands the scope on insider dealing and market manipulation (MAR) and a Directive that will ensure that insider dealing and market manipulation are dealt with by appropriate sanctions (MAD II). The proposal includes a number of measures to ensure that regulators have access to information to detect market abuse.
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ESMA Consults on Short Selling and CDS, and Announces an Open Hearing
On 15 February 2012, the European Securities Market Authority (ESMA) launched a consultation on the regulation on short selling and certain aspects of credit default swaps (CDS). The objective is to seek comments on the technical advice that ESMA proposes to give to the European Commission (EC) on a number of possible delegated acts concerning the Regulation as listed in the EC request for advice. Responses to the consultation should be submitted online, by 9 March 2012. ESMA will consider all views received to this consultation and to the open hearing scheduled for 29 February 2012 in March 2012.
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ECB Postpones the Launch of TARGET2-Securities
At its meeting on 20 October 2011, the Governing Council of the European Central Bank (ECB) decided to postpone the launch date of the TARGET2-Securities (T2S) securities settlement platform from September 2014 to June 2015.
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IOSCO Outlines its Principles on Collective Investment Schemes
On 19 January 2012, the International Organization of Securities Commissions ("IOSCO") Technical Committee published its final report "Principles on Suspensions of Redemptions in Collective Investment Schemes". The report sets out IOSCO's guiding principles regarding the suspension of redemptions for open-ended collective investment schemes ("CIS"). The report covers management of liquidity risk, ex-ante disclosure to investors, criteria or reasons for the suspension, the decision to suspend and conduct during the suspension.
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The European Commission advanced a Proposal for a new Regulation which will enable social investment fund managers to market their funds across the whole of Europe. It introduces a 'European Social Entrepreneurship Funds' label so that investors can identify funds that focus on investing in European social businesses.
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ESMA Launches Central Credit Rating Repository to Improve Transparency
On 2 February 2012, the European Securities Market Authority ("ESMA") launched a Central Rating Repository ("CEREP") providing information on ratings issued by 15 Credit Rating Agencies (CRAs) registered or certified in the European Union. The CEREP repository will allow investors to assess for the first time, on a single platform, the performance and reliability of credit ratings on different types of ratings, asset classes and geographical regions over a defined period.
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ESMA Outlines Future Framework for ETFs and Other UCITS Issues
On 30 January 2012, the European Securities and Market Authority (ESMA) published a consultation setting out its guidelines on Undertaking for Collective Investments in Transferable Securities (UCITS) Exchange Traded Funds (ETFs) and other UCITS-related issues. The proposals cover both synthetic and physical UCITS ETFs, Total Return Swap by any UCITS and the additional obligations to come.
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ESMA Issues Guidelines on Short Selling and Certain Aspects of CDS
In November 2011, the Council and the Parliament voted on a Regulation on short selling and certain aspects of Credit Default Swaps (CDS). The regulation once published, will be applicable from 1 November 2012. The consultation period is expected to close on 31 March 2012 after which time; ESMA will publish its final report and submit its draft technical standards.
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ESMA Publishes its Rules for Alternative Investment Fund Managers
On 16 November 2011, the European Securities and Markets Authority ("ESMA") published their final report on its detailed rules on implementing measures of the Alternative Investment Fund Manager's Directive (AIFMD). In its report, ESMA establishes a comprehensive framework for alternative investment funds, their managers and depositories. The report covers four broad areas: i) General provisions for managers, authorization and operating conditions, ii) Governance of Depositories, iii) Transparency and Leverage and iv) Third Countries Arrangements.
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On 31 October 2011, the European Securities Market Authority announced the registration of four credit rating agencies; DBRS, Fitch Rating, Moody's Investor Services and Standard and Poors. The European Union (EU) requires rating agencies to be registered in compliance with the EU Credit Rating Agencies (CRA) regulation.
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ESMA Opinion on Practical Arrangements for Late Transposition to UCITS IV
On 13 October 2011, the European Securities and Market Authority (ESMA) published its opinion on the practical arrangements for the late transposition and implementation of measures of Undertaking of Collective Investments in Transferable Securities Directive (UCITS IV). The deadline for Member State transposition into national law was 1 July 2011.
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ESMA Consults on Credit Rating Agencies Technical Standards
On 19 September 2011, the European Securities and Market Authority issued a consultation paper on the Regulatory Technical Standards on credit rating agencies in their application for registration and certification as well as for the assessment of their systemic importance to the financial stability or integrity of financial markets.
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ESMA Seeks Feedback on ETFs and Structured UCITS
On 22 July 2011, the European Securities and Markets Authority (ESMA) published a discussion paper, Policy Orientations on Guidelines for UCITS Exchange-Traded Funds (ETF) and Structured UCITS, on aspects of the regulatory regime governing Undertakings for Collective Investments in Transferable Securities (UCITS). ESMA seeks feedback in order to "improve the transparency and quality of information provided to the investors who are buying UCITS ETFs and Structured UCITS". ESMA will consider all responses received on or before 22 September 2011.
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European Commission Delays Feedback on Market Abuse Directive
The European Commission (the Commission) proposed a Market Abuse Directive (Directive) to address insider dealing and market manipulation as well as to harmonise the treatment of market abuse across member states. The Commission was expected to provide feedback on the consultation paper discussing the revised legislation by the first half of 2011; however, publication has been delayed and a new date has yet to be announced.
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European Securities Settlement: Steps Toward Harmonization
The evolution of the European Union (EU) has meant rapid integration across its member nations to form a more cohesive governance model. Much of this transformation has occurred in the financial markets, from the creation of the European Central Bank to the adoption of a common currency. As a way to bring about further harmonization among its various financial markets, European leaders have agreed that a uniform schedule must be implemented for trade settlement across the different EU nations.
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Fund Operations
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AIFMD and the Impact on Investment Trusts
The Alternative Investment Fund Managers Directive (AIFMD) looms among an avalanche of financial services regulation facing the alternative investment funds industry. Fund managers will need to consider the consequences of the AIFMD's requirements and how these fit within their existing organisational and operating structures. Investment trusts have already begun detailed analysis of the impact on their business and operational models.
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AIFMD Changes Europe's Euro 2 Trillion Alternative Investment Fund Industry
The AIFM Directive introduces harmonized rules for managers of alternative investment funds that are sold to EU investors. The Madoff fraud, the Lehman experience (impacting hedge funds) and the political desire to create more transparency around hedge funds and private equity funds were immediate catalysts for this new directive. This paper outlines the Directive, examines the impact on the fund value chain and the deepening manager — service provider relationship, reviews the increased depositary duties and liabilities as well as the new hedge fund - prime broker depositary models.
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MiFID II - Expanding Regulatory Reform in Europe
The Markets in Financial Instruments Directive became a core pillar in the European Union financial markets regulatory system when it was implemented on 1 November 2007. The Directive's main objectives were to increase competition, improve investor protection and, combined with other Directives, help create a single market for financial services and activities in the EU. The key measures implemented through the directive were: best execution and order-handling practices, categorization of clients, investment research, conflicts of interest, outsourcing, transaction reporting, pre- and post-trade transparency and regulation of trade-related market infrastructure. The objective of this paper is to provide BNY Mellon's perspective on the impacts of changes to The Markets in Financial Instruments Directive as proposed in a package of amendments and a regulation currently under consideration by the European Parliament and the European Council.
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ESMA Proposes Prudent Remuneration Policies for AIFMs
The European Securities and Markets Authority (ESMA) published a consultation on proposed guidelines on the remuneration of alternative investment fund managers (AIFMs) as required by Article 13(2) of the AIFMD. The aim is to create a sound and prudent remuneration structure with the view of increasing investor protection and avoid excessive risk taking. Comments to this consultation are due on 27 September 2012.
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Impending Regulatory Changes for the Investment Trust Industry
The Alternative Investment Funds Managers Directive (AIFMD) will bring a wide range of currently unregulated funds into the regulatory framework of the European Union. Learn more about the main provisions of the directive.
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Regulatory Reform: The Shape of Things To Come
Transparency, reporting and ongoing regulatory reform are key issues in the derivatives marketplace. While many are aware of the Dodd-Frank Act, the full impact of the law remains unclear. Patrick Tadie, Global Business Executive, Alternative and Broker Dealer Services, discusses the major challenges facing financial institutions in this new regulatory environment and outlines ways to prepare for these challenges.
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ESMA Discusses Key Concepts of AIFMD and types of AIFMs
The European Securities and Market Authority (ESMA) published a discussion paper on the key concepts of the European Union's Alternative Investment Fund Managers (AIFM) Directive and the types of AIFMs as well as industry-related responses. In its paper of 23 February 2012, ESMA set out its interpretation of some key concepts of the AIFM Directive to ensure competent national authorities are aligned in their understanding and application of certain main concepts of the Directive.
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In December 2011, the European Securities and Markets Authority (ESMA) issued two consultation papers on certain aspects of the Markets in Financial Instruments Directive (MiFID) requirements for suitability and compliance. ESMA will accept all responses received by 24 February 2012.
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European Union Markets in Financial Instruments Directive II MiFID II / MiFIR
On 20 October 2011, the European Commission ("the Commission") issued its proposal to revise the Markets in Financial Instruments Directive ("MiFID"). The proposal consists of a draft Directive, MiFID II which requires transposition into national law, and a draft Regulation, MiFIR, which is directly applicable without transposition. The new structure is set to increase the powers of regulators as well as provide clearer operating rules for all trading activities.
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ESMA Opinion on Practical Arrangements for Late Transposition to UCITS IV
On 13 October 2011, the European Securities and Market Authority (ESMA) published its opinion on the practical arrangements for the late transposition and implementation of measures of Undertaking of Collective Investments in Transferable Securities Directive (UCITS IV). The deadline for Member State transposition into national law was 1 July 2011.
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European Commission Plans for Legislation on CSDs
The European Commission is planning to introduce legislation on Central Securities Depositories (CSDs) in the European Union (EU). The principal purpose of this legislation is to create an appropriate regulatory framework for CSDs in the EU and to harmonise certain aspects of securities settlement. The Commission held a public consultation on its planned CSD legislation from January to March 2011. The Commission's legislative proposal is expected to be issued in November 2011.
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European Commission Delays UCITS Depositary Function Publication
The European Commission (the "Commission") has postponed the publication of the Undertaking for Collective Investments in Transferable Securities ("UCITS") V legislative proposal on the UCITS depositary function and managers' remuneration, moving the release date to the early part of 2012. The purpose of this legislation is to further harmonise protection for UCITS investors with a particular focus on the duties of depositaries, including eligibility, liability and how they are supervised. It may also include new rules on competition between fund providers and policies remuneration policies for UCITS managers. The Commission intends to introduce a new section on sanctioning regimes into the directive, stating its objective of greater convergence and reinforcement of the national sanctioning regimes in the financial sector. The publication for UCITS V was originally scheduled for July 2011.
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SEC Approves FINRA's Operations Professional Registration Proposal
In July, the Securities and Exchange Commission (SEC) approved a proposal by the Financial Industry Regulatory Authority (FINRA) to create a registration category and qualification exam requirements for certain operations personnel ("Operations Professionals") within the financial services industry. This proposal also establishes continuing education requirements for Operations Professionals, which must be initially completed two years after passing the qualification exam, with subsequent continuing education requirements occurring every three years thereafter.
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ESMA Consults on AIFMD Technical Advice and Third Countries
On 23 August 2011, the European Securities Market Authority (ESMA) issued its second consultation, setting out its proposals for detailed rules on supervision and third country entities under the Alternative Investment Fund Manager Directive ("AIFMD") Level 2 measures. The technical draft, titled ESMA's draft technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive in relation to supervision and third countries, dated 23 August 2011 can be found here.
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UCITS IV Directive transposition in EU Member States Law
The European Union (EU) Undertakings for Collective Investments in Transferable Securities (UCITS) IV Directive is a significant piece of new regulation that has the potential to improve the way fund managers do business across Europe and beyond, and its execution is critical for the EU funds market.
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The Alternative Investment Fund Managers Directive
The Alternative Investment Fund Managers Directive (the "Directive") came into force on 21 July 2011, just 20 days following its publication in the Official Journal of the European Union (EU). EU Member States will have until 22 July 2013 to transpose the provisions set out in the Directive into their local law.
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Insurance
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Treasury Collections in the Insurance Industry: Current Practices and Priorities for the Future
Find out what some of the largest and most highly respected insurance companies in the United States are saying about cash collections and payments processing today. Also learn what these companies identify as key challenges that need to be overcome to increase visibility and improve control.
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The European Insurance and Occupational Pensions Authority (EIOPA) released a consultation in relation to the Supervisory Reporting and Public Disclosure in the Solvency II framework. This Consultation Paper is being issued in the frame of the development by EIOPA of the measures which should facilitate the convergent implementation of Solvency II.
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Insurance IT Roundtable: Regulation Overload Sparks IT Re-think
The regulatory changes that have occurred or are being anticipated in the future are forcing insurance companies to review and rethink how they do things internally. The demands that are being forced on the back and middle office operations of insurance companies are increasing. Learn how the various regulatory initiatives globally are affecting insurance firms' technology demands.
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Solvency II Directive: Implication for Asset Servicing
In April 2003, representatives of the European Union (EU) Member States endorsed the European Commission proposal regarding the fundamental principles for the design of a future prudential system for the supervision of insurance undertakings in the EU. After much deliberation and following completion of the consultation process, the Commission adopted the Solvency II Proposal in July 2007.
Solvency II introduces a fundamental review of the solvency and risk management standards for the European insurance industry, with the objective of providing greater protection for policyholders. Solvency II aims to implement solvency requirements that reflect the risks companies face and deliver a supervisory system that is consistent across all member states. The directive stipulates that solvency calculations should align more closely with the specific risk profile of the undertaking or the company to avoid the possibility of consumer loss or market disruption in the insurance sector. It seeks to instill risk awareness into operations, the governance process and decision making of the business. It is envisaged the harmonization of the above will bring benefits, making it easier for firms to do business across the EU.
30 countries in Europe will adopt Solvency II (27 EU Member States plus 3 in the European Economic Area). The target implementation date for Europe is set for January 1, 2013. Other country regulators including Japan, Bermuda and Cayman Island are watching Solvency II with the view of introducing similar risk based capital regulation locally.
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Investor Protection
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FASB Invitation to Comment on Private Company Decision-Making Framework Discussion Paper
The U.S. Financial Accounting Standards Board issued an invitation to comment by October 31, 2012 on its staff discussion paper, Private Company Decision-Making Framework. The paper outlines an approach for deciding whether and when to modify U.S. Generally Accepted Accounting Principles (GAAP) for private companies that follow U.S. GAAP.
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European Commission Investor Compensation Schemes Directive
The European Commission published a review of the Investor Compensation Scheme Directive (ISCD), which aims to extend the scope of compensation under the ICSD, reduce the gaps in the regulatory system, reduce the disparities between the protection of clients of investment firms and of bank depositors and create common rules to harmonise the funding of the schemes and their day-to-day operations.
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GASB's Proposal to Require Governments Disclose Cash Flow and Financial Obligations
The Governmental Accounting Standards Board (GASB) approved their Preliminary Views, Economic Condition Reporting: Financial Projections, to provide more information to assist users in assessing a government or governmental entity's economic condition.
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SEC Publishes Risk Alert on Investment Advisor Use of Social Media
The Securities and Exchange Commission's (SEC) Office of Compliance Inspections and Examinations released a National Examination Risk Alert concerning the use of social media by registered investment advisors on January 4, 2012.
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FSA Receives Feedback on the Delivery of RDR Platforms Consultation Paper
The FSA received feedback on its consultation paper entitled Platforms: Delivering the RDR and other issues for platforms and nominee-related services (CP10/29), which closed on 17 February 2011. The paper proposes to regulate platforms in a way that would achieve the objectives of the Retail Distribution Review and achieve good outcomes for consumers, whilst recognising the industry's concerns wherever possible. The new rules will change the way firms carry out their business. The target date for implementation is 31 December 2012.
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Update on the FSA Retail Distribution Review
The Retail Distribution Review launched in 2006 by the Financial Services Authority seeks to address previous 'mis-selling' scandals and specifically sets out to improve the clarity with which firms describe their services to customers; address the potential for adviser remuneration to distort consumer outcomes; and increase the professional standards of advisers.
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DOL Proposes Expansion of the Definition of Fiduciary
The Employment Benefits Security Administration within the Department of Labor (DOL) has proposed a broader definition of the term "fiduciary" to apply to those who provide investment advice to retirement plan officials or plan participants. This proposal is under consideration because the evolving financial marketplace and its expanded suite of products have resulted in more complex advisory relationships, some of which the DOL believes should be categorized as fiduciary in nature but currently are not. The new proposal would expand the original guidelines that were put in place 35 years ago and, if adopted, would affect plan sponsors, fiduciaries, participants and beneficiaries of retirement plans (which includes individual retirement accounts and pension plans), as well as the providers of investment advice and other services for these accounts and plans.
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Money Market Reform
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Financial Regulation Altering the Cash Management Landscape
BNY Mellon Cash Investment Strategies looks at the potential supply and demand mismatch of shorter-maturity securities as new regulations require money market mutual funds to hold more highly liquid, short-term securities, while Basel III regulations encourage banks to focus on longer-term debt.
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IOSCO Consults on Money Market Funds Systemic Risk Analysis and Reform Options
On 27 April 2012, the International Organization of Securities Commissions (IOSCO) issued a consultation paper on "Money Market Fund Systemic Risk Analysis and Reform Options." The purpose of the consultation is to undertake a preliminary analysis of the potential risks Money Market Funds (MMFs) may pose to systemic stability as well as to develop policy recommendations by July 2012.
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FSB Recommends Strengthening Oversight and Regulation on Shadow Banking and Money Markets
On 27 October 2011, the Financial Stability Board ("FSB") published a report which outlines its overall approach to strengthen the oversight and regulation of shadow banking. In its recommendation, the FSB sets out a proposal for intensifying monitoring and enhancing regulation. A report on the progress of the shadow banking initiatives is expected in March 2012.
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Money Fund Intelligence: Money Market Funds Ready to Transact Non-$1
On October 31, the last directive in the SEC's Money Market Fund Reform amendments to the Investment Company Act will come into effect. Funds must be in compliance with a transactions processing mandate requiring the fund to have the capacity to redeem and sell its securities at a price based on the fund's current net asset value per share, including the capacity to sell and redeem shares at prices that do not correspond to the stable net asset value or price per share. Jim Cecere, managing director of global product management for U.S. financial institutions, discusses the issues and challenges of the new regulation.
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Evaluating the Post-Crisis Tri-Party Repo Market
The financial crisis of 2008 - 2009 prompted regulatory agencies worldwide to re-examine systemic risks in various markets and re-evaluate the way that many transactions are conducted. The Task Force on Tri-Party Repo Infrastructure was created to identify risks that could be mitigated in tri-party repurchase transactions and to recommend actions to help avoid these risks in the future. While such steps are necessary to bolster confidence in our financial markets, institutions must look at the costs involved and decide how best to adhere to new initiatives while still maximizing the potential for yield.
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Regulators
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SEC and CFTC Approve Final Joint Rules for
Private Fund Risk ReportingThe U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have approved final rules Requiring Registered Investment Advisers to Private Funds and Certain Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) and have jointly established the form and content to be included in Form PF filings.
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The proposals adopted by the European Commission seek to clarify the role of the auditors and introducing more stringent rules for the audit sector aimed in particular at strengthening the independence of auditors as well as greater diversity into the current highly concentrated audit market.
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Summary: Financial Stability Oversight Council Created Under the Dodd-Frank Act
The Financial Stability Oversight Council (FSOC) was created under legislation included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), and it has been tasked by lawmakers with the identification and mitigation of threats to the stability of the U.S. financial markets. To help the FSOC gather the necessary data to help determine existing systemic risks, research and analysis may be requested from the Office of Financial Research, which was also created through the Dodd-Frank Act. The FSOC must report to Congress on an annual basis about emerging risks to the financial system.
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European Commission Plans for Legislation on CSDs
The European Commission ("the Commission") is planning to introduce legislation on Central Securities Depositories (CSDs) in the European Union (EU). The principal purpose of this legislation is to create an appropriate regulatory framework for CSDs in the EU and to harmonise certain aspects of securities settlement. The Commission held a public consultation on its planned CSD legislation from January to March 2011.
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SEC Removes Credit Ratings as Criteria for Short-Form Registration
On July 26, the Securities and Exchange Commission voted unanimously to remove credit ratings as one of the eligibility criteria for companies planning to use "short form" registration when registering their securities for public sale. Forms S-3 and F-3 are the "short forms" used by eligible issuers to register securities under the Securities Act of 1933.
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International Financial Reporting Standards - Are You Getting Ready for IFRS 9?
The changes to accounting standards for financial instruments in IFRS 9 will have significant system and operations implications for organizations. The objective of this paper is to provide an overview of recent changes so that companies can gain a better understanding of the new and potential requirements and how their operations may be impacted.
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Retirement Plans
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Sponsors of defined benefit and defined contribution plans are working to solve a most pressing question: how to provide employees with retirement benefits that offer sufficient funding without causing further strain to employer balance sheets or government budgets. This report identifies how managers of retirement plans view this challenge and how their service providers, including their custodians and asset managers, can help confront it.
Invested in You
For more information on benefit disbursements or any of our industry-leading products and services, contact:
Laurin Moore, Head of the U.S. Corporate, Government & Not-for-Profit Group »
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SEC Recommendations for Investor Education Regarding Target Date Funds
On April 11, 2013, the Securities and Exchange Commission (SEC) Investor Advisory Committee, Subcommittee on Target Date Funds, held a meeting to discuss recommendations for target date funds marketing and advertising practices that will promote investor understanding of target date fund operations and risks.
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Department of Labor: Clearing Brokers Not Fiduciaries Under ERISA
On February 7, 2013 the Department of Labor (DOL) issued an Advisory Opinion to clarify whether a swaps Clearing Member (CM) or Central Counterparty (CCP) in a swaps transaction involving an employee benefit plan meet the definition of a "fiduciary" subject to requirements set forth Employee Retirement Income Security Act (ERISA) of 1974.
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Department of Labor Publishes Target Date Fund Tips for ERISA Fiduciaries
In February 2013, the U.S. Department of Labor (DOL) Employee Benefits Security Administration issued general guidance to assist plan fiduciaries in selecting and monitoring target date funds (TDFs) and other investment options in 401(k) and similar participant-directed individual account plans.
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The Department of Labor Releases Form 5500 Filing Instructions for Plan Year 2012
On December 4, 2012, the Department of Labor (DOL), in conjunction with the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC), issued filing instructions for the Employee Retirement Income and Securities Act (ERISA) Form 5500 and Form 5500 SF for plan year 2012.
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EIOPA Quantitative Impact Study (QIS) for Occupational Pensions
On 16 October 2012, the European Insurance and Occupational Pensions Authority (EIOPA) launched the first quantitative impact study (QIS) on EIOPA's Advice on the Review of the Institutions for Occupational Retirement Provision (IORP) directive. The assessment will also review the security and benefit adjustment requirements of different European Union (EU) states.
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On October 10, 2011, the U.S. Internal Revenue Service (IRS) announced pension plan limitations for 2012. Cost of living adjustments affected dollar limitations for pension plans and other retirement-related items for the 2012 tax year because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.
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Department of Labor Revises Guidelines for 401K Fees Disclosure
On July 30, 2012, the Department of Labor (DOL) issued a revised Field Assistance Bulletin, (FAB) 2012-02R, which provides plan administrators with further guidance regarding their obligation to disclose fees and expenses information to 401(k) plan participants and beneficiaries.
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GASB Approves New Pension Accounting and Financial Reporting Standards
On June 25, 2012, the Governmental Accounting Standards Board (GASB) voted to approve two new standards; Statement No. 67 and Statement No. 68. These standards are designed to "improve the decision-usefulness of reported pension information and to increase the transparency, consistency, and comparability of pension information across governments."
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Plan Administrators' Participant-Level Disclosure Requirements (404a-5)
On October 14, 2010, the U.S. Department of Labor (DOL) issued a final regulation (404a-5) under the Employee Retirement Income Security Act of 1974 (ERISA), setting forth the fiduciary requirements for disclosure to plan participants and beneficiaries who have the right to direct the investment of assets held in their accounts, e.g., 401(k) plans and certain 403(b) plans. Plan administrators, for plan years beginning on or after November 1, 2011, must disclose certain information about the plan and the investment options offered to the plan participants before August 30, 2012.
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New FSA Rules on DB Pension Transfers for Scheme Members
Following a short consultation period on strengthening protection for members of defined benefit pension schemes, the Financial Services Authority (FSA) issued its rules and guidelines for schemes considering moving their money into personal pensions.
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Department of Labor Announces Rules on 408(b)(2) Fee Disclosures
On 2 February 2012, the long awaited U.S. Department of Labor (DoL) rules on 408(b)(2) fee disclosure, was finally released. The final ruling extends the effective deadline by three months to allow service providers to become compliant before 1 July 2012. For further information, please read the fact sheet and 408(b)(2) rules.
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Current pension legislative outlook – reviewing 2011 – looking forward to 2012
A review of 2011 retirement policy activity and discussion of the 2012 policy agenda
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Department of Labor Revises Interim Participant Fee e-disclosure Policy
The Department of Labor's Employee Benefit Security Administration (EBSA) issued Technical Release 2011-03 which sets forth an interim enforcement policy regarding the use of electronic media to satisfy the disclosure requirements under Regulation 29 CFR 2550.404a-5. On December 8, 2011 EBSA issued a further update, Technical Release 2011-03R, which revises the department's interim policy.
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U.S. Department of Labor & Securities Exchange Commission Coordinate on 401(k) Plan Fee Disclosure Rules
On October 27, 2011, the U.S. Department of Labor (DOL) released a Securities and Exchange Commission (SEC) staff no-action letter relating to both the Employee Benefits Security Administration's participant-level fee disclosure regulation (ERISA Rule 404a-5) and Rule 482 under the Securities Act of 1933.
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Department of Labor Finalizes Investment Advice Regulation
On October 24, 2011, the Department of Labor released final regulations on investment advice. The regulation implements the statutory exemption, added by the 2006 Pension Protection Act (PPA), for flat-fee and model-driven investment advice provided to by a person affiliated with funds offered under a 401(k) plan.
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An Examination of the Latin American Pension Systems - The Challenges Ahead
Latin America's economic ascendancy exemplifies the success in debt and inflation management and the solidification of democratic rule. While not facing the imminent demographic challenges of the developing world, the long-term macroeconomic viability of the region is predicated upon building upon prior structural reforms, namely pension reform to ensure popular expectations are met within the realm of fiscal responsibility. To achieve this objective, public-private partnerships will need to consider certain recommendations.
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Taxation
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Tax-Transparent Investing Via Common Contractual Funds
Asset pooling allows investors to pool their assets in order to co-invest. It is used by investment companies to offer investors of varying scale access to specialised investment products. This article outlines the benefits available to institutional investors who choose to invest their assets via a tax-transparent pooling structure such as the Irish Common Contractual Fund (CCF). Properly establishing the infrastructure to support a CCF requires a degree of effort, but the benefits make it worthwhile.
Invested in You
For more information on taxation, or to learn about our industry-leading products and services, contact:
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IRS and Treasury Finalize FATCA
On January 17, 2013 the U.S Department of Treasury (Treasury) and Internal Revenue Service (IRS) released the final regulations for the Foreign Account Tax Compliance Act (FATCA). With the publication of the final regulations those impacted by FATCA can now move closer to implementing their own FATCA compliance regimes.
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IRS Delays FATCA Guidance Rules
Despite a recent publication by a Treasury Official, the Inland Revenue Services (IRS) did not issue its proposed rules on Foreign Account Tax Compliance (FATCA) at the end of January as originally planned. According to sources at the Treasury Department, the government is drafting proposals for a regulation. FATCA guidance is intended to implement a statute that requires foreign banks to report their U.S.-owned accounts to the IRS or face, in some cases a 30 percent withholding tax.
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European Commission Proposes Financial Transaction Tax Reform
On 28 September 2011, the European Commission ("the Commission") announced its proposals for a Financial Transaction Tax ("FTT") at European level. The proposed reform would introduce a minimum tax on financial transactions where at least one party is a financial institution established in a Member State and acts as either an agent or principal. Financial institutions will be charged an amount equal to 0.1% of the market price for transactions in shares and bonds, and will be charged an amount equal to 0.01% of the notional amount for derivative transactions. Although the Commission proposes to implement the tax in 2014, work is still in progress to reach a consensus.
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U.S. Treasury and IRS Extend FATCA Compliance Deadline
The U.S. Treasury and the Internal Revenue Service have extended compliance deadlines for the Foreign Account Tax Compliance Act (FATCA).
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Foreign Account Tax Compliance Act
Guidance regarding payments to Foreign Financial Institutions and Non-Financial Foreign Entities
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FBAR: Amendment to the Bank Secrecy Act Regulations
On February 24, 2011, the Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of the Treasury issued the final rule to amend the Bank Secrecy Act regulations regarding the reporting of foreign financial accounts. The amendments relate primarily to the clarification of certain definitions, including foreign financial account and signature or other authority over foreign financial accounts. Additionally, on May 31, 2011, FinCEN issued Notice 2011-1 which extended the filing deadline for certain individuals with signature or other authority and no financial interest in certain foreign financial accounts. All other U.S. persons required to file the Report of Foreign Bank and Financial Accounts (FBAR) this year are required to meet the June 30, 2011 filing deadline.
The U.S. Department of the Treasury is recommending that questions be directed to: FinCEN, Regulatory Policy & Programs Division (800) 949-2732, select Option 1 All individuals and entities are encouraged to contact their legal or tax consultants to determine applicability of FBAR requirements. Criminal and/or civil penalties could apply to those who do not file or maintain filings for FBAR.
For further information, including access to Form TD-F 90-22.1, please visit www.irs.gov and www.fincen.gov.
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Wall Street Reform
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Helping Mutual Fund Clients Do More With Less
The past several years have marked a new era for the way in which mutual fund companies do business. Changes in the regulatory landscape have played a large part in this evolution, as proposed legislation has called for enhanced risk management and increased oversight of mutual funds, as well as for an increase in transparency through the use of additional disclosures and reporting. In order to be ready for the new requirements, fund companies may need to implement additional systems, which may lead to greater expenses.
Invested in You
For more information on Wall Street reform, or to learn about our industry-leading products and services, contact:
Jay Nusblatt, Head of U.S. Fund Accounting and Administration »
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SEC and CFTC Finalize Identity Theft Reg Flag Program
On April 10, 2013 the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) issued a joint final rule requiring entities under their jurisdiction and managing covered accounts to adopt and administer identity theft red flag programs. This final rule includes, but it not limited to investment advisers, broker dealers, mutual funds, futures commission merchants and swap dealers. The SEC and CFTC finalized this rule in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
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SEC Mandates Consolidated Audit Trail
The U.S. Securities and Exchange Commission announced on July 11, 2012 that it has finalized Rule 613 under the Securities Exchange Act of 1934 to require national securities exchanges and national securities associations (self-regulatory organizations or SROs) to jointly submit a national market system (NMS) plan to create, implement, and maintain a consolidated order tracking system, or consolidated audit trail, with respect to the trading of NMS securities.
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The Dodd-Frank Act: Two Years Later
July 21, 2012 marked the two-year anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Signed into law on July 21, 2010, the Dodd-Frank Act proposes financial market reforms in response to the 2008 financial crisis.
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SEC Publishes Final Rule Amending the Definition of "Accredited Investor"
On December 29, 2011, the U.S. Securities and Exchange Commission (SEC) published its final rule which amends the accredited investor standards in its existing rules.
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CFTC Proposes Limits on Banks' Proprietary Trading and Hedge Funds Investments
On January 11, 2012, the U.S. Commodity Futures Trading Commission ("CFTC") proposed limits on banks' proprietary trading and hedge fund investments under the Dodd-Frank Act's Volcker Rule.
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SEC and CFTC Approve Final Joint Rules for Private Fund Risk Reporting
The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have approved final rules Requiring Registered Investment Advisers to Private Funds and Certain Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) and have jointly established the form and content to be included in Form PF filings.
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FSOC Proposal on the Authority to Supervise and Regulate Certain Nonbank Financial Companies
The Financial Stability Oversight Council ("FSOC") recently proposed its framework and considerations for evaluating whether a nonbank financial company would need to be under the supervision of the Board of Governors of the Federal Reserve System ("FRB"). The proposed rules would help implement Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").
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Financial Stability
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Basel Principles for Effective Risk Management
The Basel Committee on Banking Supervision (Basel) released a consultative paper entitled "Principles for Effective Risk Data Aggregation and Risk Reporting". In this paper, Basel presents fourteen principles for governance of risk and data reporting capabilities. From 2016 onwards, these principles will become applicable to systemically important banks (SIBs). Basel request comments to their consultation by 28 September 2012.
Invested in You
For more information on banking operations, or to learn about our industry-leading products and services, contact:
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OCC Publishes Final Rule on Banks' Valuation of STIFs
On October 9, 2012 the Office of the Comptroller of the Currency (OCC) published a final rule to amend the valuation and management requirements for Short Term Investment Fund (STIF) assets.
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Basel Committee Releases Answers to Basel III Implementation Monitoring
On 5 October 2011, the Basel Committee on Banking Supervision published a "Frequently Asked Questions" report that provides answers to technical and interpretive questions on leverage ratio and liquidity raised by supervisors and banks during the Committee's Basel III implementation monitoring.
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OCC New Lending Limit Rule for Banks
On June 21, 2012, the Office of the Comptroller of the Currency (OCC) issued an Interim Final Rule to amend the statutory definition of "loans and extensions of credit" per Title 12 of the U.S. Code of Federal Regulations (12 C.F.R. § 84), to include credit exposures arising from derivatives and securities financing transactions.
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ICB Endorses Ring-fencing Banks and Competition
On 12 September 2011, the Independent Commission on Banking (ICB) published a "Final Report" setting out the Commission's final analysis and recommendations to create a more stable and competitive environment for UK banking in the longer-term. The report required that by 2019, retail banking activities should be ring-fenced from wholesale and investment banking activities.
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FSB Recommends Strengthening Oversight and Regulation on Shadow Banking and Money Markets
On 27 October 2011, the Financial Stability Board ("FSB") published a report which outlines its overall approach to strengthen the oversight and regulation of shadow banking. In its recommendation, the FSB sets out a proposal for intensifying monitoring and enhancing regulation. A report on the progress of the shadow banking initiatives is expected in March 2012.
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Basel Committee Consults on Capitalisation of Bank Exposures to Central Counterparties
The Basel Committee ("the Committee") published its second consultative paper on the proposal of Capitalisation of Bank Exposures to Central Counterparties ("CCPs"). The proposal which takes account of the responses received during the earlier consultation in December 2010, as well as the impact assessments, covers the capital requirements for default fund exposures and trade-related exposures to CCPs. The Committee intends to finalise the rules around the end of 2011 and expects to implement in its member jurisdictions by January 2013. The Committee welcomes all feedback on the proposed text by Friday 25 November 2011.
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Financial Stability Board Discusses its Packaged Reform
On 3 October 2011, the Financial Stability Board (FSB) met to agree on the policy reforms it hopes to present at the G-20 Summit in November.
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GET SMARTER
Luxembourg Aligns Specialised Investment Funds Law with AIFMD
The Luxembourg Parliament adopted a new bill amending the Law on Specialised Investment Funds. The Law introduces several important changes to the regime governing SIFs and will effectively create an Alternative Investment Fund Managers Directive compliant Alternative Investment Fund vehicle ahead of AIFMD coming into effect. The amended Law introduces rules on delegation, risk management and the handling of actual or potential conflicts of interest.
SURVIVAL TACTICS
Money Funds at Continued Cross Roads
Given the authority granted to the Financial Stability Oversight Council and the Federal Reserve by the Dodd-Frank Act, these regulators have been provided with a broad brushstroke to implement financial reform. With the intention of creating a stronger and more stable money market, the impact will most likely be increased oversight, further reporting requirements and more stringent guidelines designed to reduce potential systemic risk by a nonbank financial company.
Workbench Mobile
With our newly launched Workbench Mobile application, BNY Mellon Asset Servicing clients are able to easily view and monitor a wide range of account investment and performance data, industry news updates, and more.
Client Education
BNY Mellon provides a team of dedicated resources for our clients' continuous education. The Institute for Client Education provides access to a number of topics in a variety of learning methods targeted for all levels of your organization.
Learn more about our client education opportunities and online learning management tool »
Market Leadership
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