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

Proposed Enhancements to the European Banking Authority's Powers for Anti-Money Laundering

On September 12, 2018, the European Commission published a Communication setting out a broad strategy for strengthening the EU's framework for anti-money laundering supervision. The Communication is accompanied by a fact sheet setting out Questions and Answers on the strategy.

The Commission notes that, despite the recent strengthening of the EU's framework through the Fourth Money Laundering Directive (4MLD) and the forthcoming Fifth Money Laundering Directive (5MLD), there are concerns that gaps remain in the EU's supervisory framework. The Commission highlights that there is no clear articulation between the prudential and anti-money laundering rules for financial institutions. It identifies shortcomings in the reaction time of national supervisors and in the level of cooperation and information sharing both between prudential and anti-money laundering supervisors and on a cross-border basis between EU supervisors and other supervisors based both within and outside the EU. While the Commission recognizes that 5MLD will remove certain obstacles to cooperation between anti-money laundering and prudential supervisors, it also notes that further steps are necessary to ensure effective supervisory cooperation, especially where financial institutions operate across borders.

In the Communication, the Commission sets out a strategy that has been developed following analysis carried out by a Joint Working Group convened by the Commission. The strategy includes short-term legislative and non-legislative initiatives, along with long-term objectives, to enhance interaction between the anti-money laundering and prudential frameworks.

The Commission proposes a number of legislative and non-legislative measures including the following:

  • The Commission proposes an amendment to its September 2017 proposals to amend the founding regulations of the European Supervisory Authorities. The amendment is designed to: (i) centralize within the European Banking Authority the anti-money laundering resources and expertise that are currently spread across the three ESAs and the Joint Committee's dedicated subcommittee; (ii) specify in more detail in the EBA's founding regulation the anti- money laundering related tasks with which it is entrusted; (iii) reinforce the tools at the EBA's disposal for carrying out the anti-money laundering related tasks; and (iv) strengthen the coordination role of the EBA for international anti-money laundering related issues, in particular coordinating cooperation with relevant third-country authorities in cases entailing a cross-border dimension.
  • The Commission notes that, in June 2018, the European Parliament tabled proposed amendments to the Commission's proposed amendments to the Capital Requirements Regulation and the Capital Requirements Directive (referred to as the CRDV package). The Commission supports the European Parliament's proposals, which relate to information exchange and the duty of cooperation between prudential and anti-money laundering authorities and bodies.
  • The Commission invites the EBA to undertake a stock-taking exercise to identify the various anti-money laundering issues relevant from a prudential perspective and conduct a mapping exercise showing how anti- money laundering aspects are currently factored into prudential supervision. The EBA is then invited to adopt common guidance for EU prudential supervisors on how to appropriately and consistently take money-laundering and terrorist financing risks into account in their activities.
  • The EBA is invited to analyze the impact of the different approaches behind the distribution of competences in prudential supervision and anti-money laundering supervision.
  • The EBA is invited to monitor, in conjunction with the other ESAs, the implementation of the Risk-Based Supervision Joint Guidelines published in April 2017. The Commission also asks the ESAs to expand the Joint Guidelines to specify common procedures and methodologies for the supervision and assessment by anti-money laundering authorities of financial institutions' compliance with anti-money laundering rules.
  • Going forward, the EBA should undertake reviews of the activities of EU anti-money laundering authorities, and make concrete recommendations to these authorities and have in place an effective follow-up mechanism.
  • The EBA is invited to devise a cooperation strategy with relevant third-country authorities, for the purposes of enhancing international cooperation on anti-money laundering issues.

The Communication is available at: http://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-645-F1-EN-MAIN-PART-1.PDF, the fact sheet is available at: http://europa.eu/rapid/press-release_MEMO-18-5725_en.htm, the amended proposal on ESAs' powers are available at: http://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-646-F1-EN-MAIN-PART-1.PDF, details of the Commission's September 2017 proposals on ESA powers are available at: http://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-646-F1-EN-MAIN-PART-1.PDF, details of 5MLD are available at: https://finreg.shearman.com/eu39s-fifth-money-laundering-directive-to-enter-i and the Risk-Based Supervision Joint Guidelines are available at: https://esas-joint-committee.europa.eu/Publications/Guidelines/Joint%20Guidelines%20on%20risk-based%20supervision_EN%20%28ESAs%202016%2072%29.pdf.

BANK PRUDENTIAL REGULATION & REGULATORY CAPITAL

European Central Bank Consults on Part 2 to Guide to Licensing Credit Institutions

On September 14, 2018, the European Central Bank opened a consultation on a draft Part 2 to its Guide to Assessments of Licence Applications by banks. The ECB published the Guide to Assessment of Licence Applications in March 2018, which applies to all license applications to become a credit institution within the meaning of the CRR. The ECB developed the Guide, which is not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the Single Supervisory Mechanism.

The consultation on the draft Part 2 of the Guide focuses on assessment criteria for capital requirements and business plans, including initial capital, own funds, location, operations and structural organization, banking group and outsourcing.

The consultation closes on October 25, 2018. The consultation paper is available at:

https://www.bankingsupervision.europa.eu/legalframework/publiccons/pdf/licence_applications_part2/ssm.draft_guide_201809.en.pdf?b370a4ec6f586938767bab4bf5e321d8, the consultation webpage is available at: https://www.bankingsupervision.europa.eu/legalframework/publiccons/html/licence_applications_part2.en.html and details of the Guide to Assessments of Licence Applications are available at: https://finreg.shearman.com/european-central-bank-issues-final-guides-on-lice.

UK Prudential Regulator Consults on Revisions to Supervisory Reporting Requirements

On September 12, 2018, the U.K. Prudential Regulation Authority launched a consultation on changes to the PRA's reporting requirements to reflect proposed changes set out by the EBA in consultations launched in August 2018. The EBA proposes a number of revisions to the existing Implementing Technical Standards on the supervisory reporting requirements under the CRR. These include proposed revisions to the financial reporting (FINREP) annexes of the ITS, which add new reporting requirements for non-performing and forborne exposures, amend the reporting of profit or loss items (in particular on expenses) and amend the reporting on leases following International Financial Reporting Standard 16. Proposed revisions to the common reporting (COREP) annexes relate to the Liquidity Coverage Requirement for credit institutions.

The PRA's proposals are relevant to U.K. banks and building societies. Alignment of the PRA's reporting requirements requires the PRA to make amendments to PRA reporting templates for ring-fenced banks, profit and loss statements and forecast capital data and also requires an extension of the existing FINREP templates to include the non-performing loan and forborne exposure templates contained in the EBA's consultations.

Comments on the consultation are invited by December 12, 2018. The PRA's proposals will be implemented on a date that corresponds with the implementation of the EBA's FINREP and COREP changes. This is currently expected to be March 2020.

The consultation paper (PRA CP 19/18) is available at: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2018/cp1918.pdf, the consultation webpage is available at: https://www.bankofengland.co.uk/prudential-regulation/publication/2018/regulatory-reporting-eba-taxonomy-29, details of EBA's proposals for the FINREP framework are available at: https://finreg.shearman.com/european-banking-authority-proposes-revised and details of the EBA's proposals for the COREP framework are available at: https://finreg.shearman.com/european-banking-authority-proposes-revised-super.

To read this Newsletter in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.