Financial Services Update______March 18, 2013
Volume 8, No. 11



IN THIS ISSUE

Insights from Winston & Strawn

Feature: The U.K. and E.U.

Banking Agency Developments

Treasury Department Developments

Securities and Exchange Commission

Commodity Futures Trading Commission

Federal Rules Effective Dates

Exchanges and Self-Regulatory Organizations

Winston & Strawn Speaking Engagements and Publications


Insights from Winston & Strawn [Top]

As reported in the previous issue of the Financial Services Update, on March 1, 2013, the Securities and Exchange Commission (the "SEC") issued a release requesting data and other information to assist the SEC in its consideration of whether to make new rules regarding the standards of conduct and regulatory obligations for broker-dealers and investment advisers.
The release explains that investment advisers are subject to differing regulatory schemes (for investment advisers, the Investment Advisers Act of 1940, as amended; for broker-dealers, Securities Exchange Act of 1934 and the rules of each self-regulatory organization ("SRO") to which the broker-dealer belongs). The SEC issued this release as part of an effort to determine whether it should undertake rulemaking to adopt rules establishing a uniform fiduciary standard of conduct for all broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers. In the press release accompanying the release, the SEC explained that, in particular, "the SEC is requesting data and other information from the public and interested parties about the benefits and costs of the current standards of conduct for broker-dealers and investment advisers when providing advice to retail customers, as well as alternative approaches to the standards of conduct." The release provides a list of information that the SEC is requesting from investment advisers and broker-dealers (which information request includes estimates of the costs that investment advisers and broker-dealers would bear in implementing a new standard of care), as well as guidelines for the submission of information.
The release also contains an overview of concepts that the SEC is considering including in a uniform fiduciary standard of conduct for investment advisers and broker-dealers. While the SEC has not yet determined whether it will use its authority to adopt a uniform standard of conduct, the SEC release states that such a uniform standard would include both the duty of loyalty and the duty of care, and the release discusses potential approaches to both. The release explains that the SEC could decide to take no action and, in doing so, preserve the standards currently in place.
Anyone who wishes to submit comments should do so before July 5, 2013. A copy of the release may be found here.
Sarah M. Hesse
Feature: The U.K. and E.U. [Top]
Banking and Treasury Developments
  • EBA Updates Supervisory Reporting Requirements.
On March 15th, the European Banking Authority (the "EBA") published an updated version of the templates, instructions, validation rules and data point model for implementing technical standards on supervisory reporting (COREP and FINREP). The objective of this updated version is to facilitate credit institutions' timely preparation for the implementation of the harmonised reporting requirements. EBA Press Release.
  • IMF Says EU Banks Face Further Losses.
On March 15th the Wall Street Journal reported on the International Monetary Fund's (the "IMF") review of the health of the EU financial system. The report states that "Risks remain elevated" and that EU banks face further losses on household and business loans, in addition to losses already incurred on their holdings of government bonds. IMF Review.
  • U.K. Proposes Consumer Credit Regulation.
On March 6th, The UK's Financial Services Authority (the "FSA") published a consultation on how it plans to introduce a strong and flexible regime to regulate consumer credit. The Government previously announced it would transfer responsibility for regulating consumer credit from the Office for Fair Trading (the "OFT") to the Financial Conduct Authority (the "FCA") by April 1, 2014. The Government has also published a consultation on the legislative changes needed to transfer responsibility to the FCA. The FSA's consultation sets out the overall approach and framework for the regime that will be administered by its successor body, the FCA. Comments should be submitted on or before May 1, 2013. FSA Press Release.
  • Bank of England Funding for Lending Scheme.
On March 4th, the Bank of England published updated data on the use of the Funding for Lending Scheme (the "FLS"). The publication shows for each group participating in the FLS the amount borrowed from the Bank of England and the net quarterly flows of lending to UK households and businesses for the fourth quarter of 2012. Bank of England Press Release.
Securities and Investment Industry Developments
  • ISDA Publishes EMIR Protocol.
On March 8th, the International Swaps and Derivatives Association ("ISDA") announced the launch of the March 2013 EMIR Non-Financial Counterparty ("NFC") Representation Protocol and a Timely Confirmation Amendment Agreement. The protocol is designed to allow swap market participants to simultaneously amend multiple ISDA Master Agreements for the purpose of facilitating compliance with certain "Know Your Counterparty" requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR") and the regulatory technical standards made under it. The protocol will be open until ISDA designates a closing date. Compliance with certain of EMIR's requirements for which the protocol may be relevant is required by March 15, 2013. The protocol is open to ISDA members and non-members alike. ISDA Press Release.
  • EBA Publishes Good Practices for ETF Risk Management.
On March 7th, the European Banking Authority issued an Opinion addressed to National Supervisory Authorities on Good Practices for the Risk Management of Exchange Traded Funds ("ETFs"). ETF Risk.
  • FSA Publishes Consultation on Framework for the Consumer Credit Regime.
On March 6th, the FSA published its consultation on how it plans to introduce a strong and flexible regime to regulate consumer credit. The regime is tailored to address the risks that face consumers without putting undue burdens on firms. Consumer Credit.
  • FSA Discusses Transparency.
On March 4th, a discussion paper concerning transparency and disclosure was published by the FSA. The paper suggests ideas for more effective disclosure aimed at helping consumers make better informed choices and influence firm behavior. FSA Press Release.
Banking Agency Developments [Top]
  • Federal Reserve System Publishes Annual Financial Statements.
On March 15th, the Federal Reserve released the 2012 combined annual financial statements for the Federal Reserve Banks, as well as for the 12 individual Federal Reserve Banks, the consolidated variable interest entities ("VIEs") that were created to respond to strains in financial markets, and the Board of Governors. Federal Reserve Press Release.
  • NCUA Webinar on Examination Focus for 2013.
The National Credit Union Administration is hosting a free webinar, "Examination Issues for 2013," on Wednesday, March 27th. NCUA Press Release.

Treasury Department Developments [Top]
  • OCC Proposes Reporting Requirements for Annual Stress Test for Covered Institutions with Consolidated Assets of $10 Billion to $50 Billion.
On March 15th the Office of the Comptroller of the Currency (the "OCC") published a notice of proposed information collection in the Federal Register seeking comment on annual stress test reporting. Comments on the notice are requested by May 10, 2013. Proposed Information Collection.
  • Community Bank Supervision.
On March 14th, Comptroller of the Currency Thomas J. Curry discussed community bank supervision during an address to the Independent Community Bankers of America Annual Convention. Comptroller Curry Remarks.
  • New SDN Search Tool.
On March 13th, the Office of Foreign Assets Control ("OFAC") announced a new and improved tool for searching its list of Specially Designated Nationals. The new tool employs fuzzy logic, which uses character and string matching as well as phonetic matching to find names. Treasury – OFAC Notice.
  • Confirmation Hearing for CPFB Director.
On March 12th, Richard Cordray, currently serving as temporary Director of the Consumer Financial Protection Bureau (the "CFPB"), presented testimony at a cordial confirmation hearing before the Senate Committee on Banking, Housing, and Urban Affairs. Confirmation still appears unlikely, however, because of partisan disputes about the CFPB's autonomy and funding. Confirmation Hearing; Cordray Testimony.
Securities and Exchange Commission [Top]
Proposed Rules
  • Regulation SCI.
On March 8th, the Securities and Exchange Commission (the "SEC") published the proposing release and text for Regulation SCI, which would apply to certain self-regulatory organizations (including registered clearing agencies), alternative trading systems, plan processors, and exempt clearing agencies subject to the SEC's Automation Review Policy (collectively, "SCI entities"), and would require these SCI entities to comply with requirements with respect to their automated systems that support the performance of their regulated activities. The deadline for comments is the date that is 60 days after date the proposing release is published in Federal Register. SEC Release No. 34-69077.
Regulatory Orders
  • SEC Extends CAT Deadline.
On March 7th, the SEC extended until December 6, 2013, the date by which the Financial Industry Regulatory Authority ("FINRA") and the seventeen registered national securities exchanges must file a national market system plan to govern the creation, implementation, and maintenance of a consolidated audit trail and central repository. SEC Release No. 34-69060.
Other Developments
  • Staff Guidance Update on Social Media Filings by Investment Companies.
On March 15th, the SEC published a guidance update from its staff to clarify the obligations of mutual funds and other investment companies to seek review of materials posted on their social media sites. SEC Press Release.
  • Mary Jo White Essentially Unopposed in Hearing.
Mary Jo White's confirmation hearing on March 12th was less contentious than some expected, as none of the senators on the banking committee voiced opposition to her appointment. White defended her earlier years as a white-collar defense lawyer, and promised that "the American public will be my client, and I will work as zealously as is possible on behalf of them." Confirmation Unopposed.
Commodity Futures Trading Commission [Top]
  • Mandatory CDS Clearing.
On March 11, 2013, swap dealers, major swap participants and private funds active in the swaps market are required to begin clearing certain index credit default swaps ("CDS") and interest rate swaps that they entered into on or after March 11, 2013. The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap. The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing because they are non-financial entities hedging commercial risk. CFTC Press Release 6529-13.
  • Swap Data Reporting Requirements Advisory.
On March 8th, the Commodity Futures Trading Commission’s ("CFTC") Division of Market Oversight issued an Advisory reminding market participants that swap dealers were required to begin reporting data regarding equity, foreign exchange and other commodity swaps, beginning February 28, 2013. Swap dealers must be in compliance with their reporting obligations with respect to historical swaps in these three asset classes by March 30, 2013. The Advisory also reminds market participants that Parts 43, 45, and 46 apply to the reporting of data regarding swaps, and not data regarding futures contracts, and that parties with reporting obligations under the swap data reporting rules remain fully responsible for the timely and accurate fulfillment of their reporting obligations, even if they contract with a third party service provider to facilitate reporting. In addition to marking the beginning of swap dealer reporting for the remaining three swap asset classes, February 28, 2013, marked the beginning of required reporting by major swap participants under all of the CFTC's swap data reporting rules, for all asset classes. Entities that are not swap dealers or major swap participants must be in compliance with the CFTC's swap data reporting rules, for all asset classes, by April 10, 2013. CFTC Press Release.

Federal Rules Effective Dates [Top]
March 2013 - May 2013
  • Consumer Financial Protection Bureau
March 18, 2013 – Disclosure of Records and Information. 78 FR 11483.
  • Federal Housing Finance Agency; Federal Housing Finance Board
April 12, 2013 – Repeal of Disclosure Regulations. 78 FR 15869.
  • National Credit Union Administration
April 1, 2013 - Chartering and Field of Membership Manual for Federal Credit Unions. 78 FR 13460.
March 29, 2013 - Investment and Deposit Activities. 78 FR 13212.
  • Securities and Exchange Commission
March 25, 2013 - Lost Securityholders and Unresponsive Payees. 78 FR 4768.

Exchanges and Self-Regulatory Organizations [Top]
Financial Industry Regulatory Authority
  • SEC Designates Longer Period to Consider FINRA BrokerCheck Notice Proposal.
On March 7th, the SEC designated April 25, 2013 as the date by which it will approve, disapprove, or institute disapproval proceedings regarding FINRA's proposed rule change to amend FINRA Rule 2267 (Investor Education and Protection) to require that members include a prominent description of and link to FINRA BrokerCheck, as prescribed by FINRA, on their websites, social media pages, and any comparable Internet presence, and on websites, social media pages, and any comparable Internet presence relating to a member's investment banking or securities business maintained by or on behalf of any person associated with a member. SEC Release No. 34-69063.
  • Margin Requirements for Credit Default Swaps.
On March 8th, the SEC issued a notice of filing and order granting accelerated approval of a proposed rule change submitted by FINRA to amend FINRA Rule 4240 (Margin Requirements for Credit Default Swaps). Specifically, FINRA is proposing to amend FINRA Rule 4240 to permit a member to require, with respect to credit default swaps that are security-based swaps held in an account subject to an approved portfolio margining program, the amount of margin determined by the member's portfolio margin methodology, subject to specified requirements. Comments should be submitted on or before April 4, 2013. SEC Release No. 34-69089.
National Futures Association
  • Chief Compliance Officer Requirements.
On March 8th, the National Futures Association reminded members that the Chief Compliance Officer requirements under CFTC Regulation 3.3 became effective on October 1, 2012 for futures commission merchants ("FCMs") regulated by a prudential regulator or that are also in some capacity registrants of the SEC. The compliance date for all other FCMs is March 29, 2013. Therefore, all FCMs not subject to the October 1, 2012 compliance date must designate a CCO and that person must be listed as a principal of the FCM by March 29, 2013. Those FCMs subject to the March 29, 2013 effective date will be required to file the CCO Annual Report as of the date of the firm's first fiscal year end after March 29, 2013. NFA Notice to Members I-13-07.

Winston & Strawn Speaking Engagements and Publications [Top]
  • Antitrust and Competition—The EU Weekly Briefing, Vol. 1, Issue 19.
Antitrust and Competition — The EU Weekly Briefing is designed to provide timely updates on recent European Union competition law by including a short description of, and links to, recent developments. EU Weekly Briefing.
  • London Fortnightly Financial Newsletter, Volume 1, Issue 8.
Litigation / Contentious Regulatory — the Fortnightly Financial Newsletter is written by lawyers in Winston & Strawn's London office, focusing on key developments within the contentious financial services and financial crime arena. It contains brief highlights of those developments together with links to the source material for further review, if desired. Fortnightly Financial Newsletter.

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