In this week's newsletter, we provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
AML/CTF, Sanctions and Insider Trading
UK Sanctions and Anti-Money Laundering Act 2018 Receives Royal Assent
On May 23, 2018, the Sanctions and Anti-Money Laundering Act 2018 received Royal Assent and came partly into force on May 23, 2018. The majority of the provisions of the Act will enter into force on a day appointed by the Secretary of State. The Act will provide a domestic sanctions framework after the U.K. leaves the EU, enabling the U.K. to continue to meet its international obligations and use sanctions as a national security and foreign policy tool.
The Act's provisions empower the U.K. Government to make sanctions regulations to be imposed, where appropriate, to comply with United Nations obligations or other international obligations, to further the prevention of terrorism, for the purposes of national security or international peace and security, or to further foreign policy objectives. The Act also empowers the U.K. Government to create, amend and update regulations for the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system.
The Sanctions and Anti-Money Laundering Act 2018 is available at: http://www.legislation.gov.uk/ukpga/2018/13/pdfs/ukpga_20180013_en.pdf.
Updated Guidance on Monetary Penalties for Financial Sanctions Breaches Published by UK Office of Financial Sanctions Implementation
On May 21, 2018, the Office of Financial Sanctions Implementation published an updated version of its guidance on monetary penalties for breaches of financial sanctions. The guidance was first published in April 2017. The update sets out more detail on OFSI's expectations around voluntary disclosure of breaches of financial sanctions. The chapter on the right of individuals to appeal to the Upper Tribunal has also been updated.
The updated guidance is available at:
Bank Prudential Regulation & Regulatory Capital
US Office of the Comptroller of the Currency Publishes Its Spring Semiannual Risk Perspective
On May 24, 2018, the U.S. Office of the Comptroller of the Currency announced the publication of its spring 2018 Semiannual Risk Perspective. The OCC report discusses risks facing national banks and federal savings associations and provides high-level overviews of the economic operating environment, bank performance and trends in supervisory actions. The report highlights key risks in three areas: easing underwriting practices with respect to credit underwriting practices, elevated operational risk, due, in part, to cybersecurity and increased use of third-party service providers, and compliance risk, particularly with respect to high BSA/AML/OFAC compliance risk, changing regulatory landscape and evolving risks outpacing compliance management systems.
The report also focuses on risk that is emerging with respect to rising interest rates and their effect on increased uncertainty in deposits. With respect to trends in supervisory actions, the report notes that the number of banks with composite ratings of 4 or 5 have declined year-over-year through the end of 2017, that the number of outstanding matters requiring attention has been declining over the past few years, and that the number of outstanding enforcement actions has declined since 2010.
The full text of the OCC report is available at: https://assets.publishing.service.gov.uk/government/ uploads/system/uploads/attachment_data/file/708991/Monetary_Penalties_Guidance_web.pdf
US President Trump Signs Dodd-Frank Act Reform Bill
On May 24, 2018, U.S. President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act; the first major financial services reform bill since the enactment of the Dodd-Frank Act in 2010. While the act is not a wholesale repeal of the Dodd-Frank Act, and does not offer the broad regulatory relief that was proposed under the Financial Choice Act of 2017, it does modify or eliminate certain requirements on community and regional banks and nonbank financial institutions in particular that have been perceived to be especially burdensome. The key aspect of the act may be the increase, from $50 billion to $250 billion, of the threshold at which a large banking organization automatically becomes subject to enhanced prudential standards. The act contains several other important provisions, including: exempting banks with less than $10 billion in total consolidated assets from the Volcker Rule and easing certain fund naming restrictions under the Volcker Rule; exempting certain deposits held by custodial banks from the calculation of the supplementary leverage ratio; reducing reporting and supervision requirements applicable to community banks; and easing certain securities law requirements. Many of the provisions in the act are self-executing, although a number of other provisions require positive action to be taken by U.S. federal financial regulatory agencies.
For a more detailed discussion of the act, you may wish to refer to our client publication: "First Major Dodd- Frank Reform Bill Signed into Law" available at: https://www.shearman.com/perspectives/2018/05/first-major-dodd-frank-reform-bill.
The full text of the act is available at: https://www.congress.gov/115/bills/s2155/BILLS-115s2155enr.pdf.
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