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Financial Regulation Roundup: July 13, 2018

Ben Shapiro  Follow

Here are the top stories on the financial regulatory landscape in the U.S., EU and around the world over the past two weeks.

U.S. News:  

  • Federal Reserve Expects to Keep Raising Interest Rates and is Watching Trade Tensions, Minutes Show: Federal Reserve officials last month said they expect to keep raising interest rates and suggested that next year, the rates could be high enough to potentially start slowing growth, according to minutes of their discussion released Thursday. While noting a strong economy, Fed officials appeared vigilant about emerging risks, especially trade tensions, and the dangers of an economy that might overheat. The officials noted heightened concerns from businesses about President Trump's trade policies and noted that some executives had already scaled back future spending plans because of the uncertainty. (The Los Angeles Times: read more)
  • Stress Test Result Signal More Flexible New-Look Fed: This year’s Federal Reserve stress test results suggested a more flexible approach, a further sign the regulator’s new leadership is responding positively to a Wall Street push for pragmatic bank supervision, analysts and lawyers said. Banks that took a one-off capital hit due to the 2017 U.S. tax overhaul got a conditional pass, a departure from the Fed’s traditional strict pass-fail approach to quantitative capital issues, while scandal-plagued Wells Fargo & Co was able to double share buyback plans. (Reuters: read more) 
  • Brett Kavanaugh Likely to Bring Pro-Business Views to Supreme Court: President Trump’s nomination of Judge Brett M. Kavanaugh to the Supreme Court, his second nominee, could further cement the court’s pro-business tilt. In his dozen years as a federal appellate court judge, Judge Kavanaugh has tended to side with business interests in resolving regulatory issues and employment disputes in cases involving the environment, consumer protection and technology. “The Champagne corks are going to pop at the Chamber of Commerce and in the C.E.O. offices across America,” said Dennis Kelleher, president of Better Markets, a nonprofit group that advocates stringent financial regulation. (The New York Times: read more)
  • Fed Faces Decisions on Shrinking Its Huge Bond Portfolio: After the last recession, the Federal Reserve built up a mammoth $4.5 trillion portfolio of mostly mortgage and Treasury securities in an effort to boost financial markets and the economy. The sum was about equal in value to the total economic output of Japan, the world’s third largest economy. Officials could soon take up an important debate about how much to let that portfolio shrink. Last year, they started a program to let securities in the portfolio mature without reinvesting the proceeds in other securities, putting it on a path to shrink to $3 trillion by 2020. Some officials are now wondering if they can end this “run-off” process sooner than planned and manage monetary policy with a larger portfolio in the long run. (The Wall Street Journal: read more)

EU News:

  • Global Regulators Warn Banks Must Abandon Reliance on Libor: Global market regulators on Thursday issued stern warnings that banks must speed up their plans to abandon Libor in favour of “risk-free” reference floating interest rates. In a co-ordinated move, the heads of the UK Financial Conduct Authority and the US Commodity Futures Trading Commission underlined their determination that the market ditches the controversial benchmark. “The discontinuation of Libor is not a possibility. It is a certainty,” said Chris Giancarlo, chairman of the CFTC. (Financial Times: read more)
  • FCA to Publish Voluntary Cost Disclosure Templates in Autumn: A Financial Conduct Authority (FCA) working group has recommended five institutional cost disclosure templates, although it says these should not be made mandatory. The Institutional Disclosure Working Group (IDWG), chaired by long-time campaigner Dr Chris Sier, has said its five proposed templates will cover charges associated with most asset classes. A summary of the group's recommendations was published on July 5, with the regulator confirming a further body - one of the suggestions - would be established in the autumn to "own the outputs of the work so far" as well as curate and update the templates. It will be required to publish a report within a year of its creation. (Investment Week: read more)
  • UK Watchdog Warns Financial Firms over Big Data: Britain’s banks and insurers must take the lead in spelling out how they will use data collected from customers or they could face new rules, Financial Conduct Authority Chair Charles Randell said on July 11. Financial firms have been using Big Data on customers, which can include social media use, for example to price motor or health insurance more accurately. But the trend has worried regulators and consumer groups. The use of Big Data requires good communication so that consumers understand and accept a firm’s approach to using their data and don’t end up being “disenfranchised”, Randell said. (Reuters: read more)

International News:

  • China Vows to Hit Back Over U.S. Proposal for Fresh Tariffs: China accused the United States of bullying and warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 percent tariffs on $200 billion of Chinese goods in a move that rattled global markets. China’s commerce ministry said on Wednesday it was “shocked” and would complain to the World Trade Organisation, but did not immediately say how Beijing would retaliate in the dispute between the world’s two biggest economies. In a statement, it called the U.S. actions “completely unacceptable”. (Reuters: read more)
  • China's Limited Liberalization: The banking and insurance regulators have merged; the door has been opened to foreign bond and equity investors; and international asset managers, banks, brokers and insurers have been told they can hold majority stakes in local firms. There is little doubt that more foreign involvement in China’s financial markets is needed. Foreign banks held a mere 1.3% of the banking assets in China at the end of 2017, according to KPMG.  By the end of the first quarter of this year, foreign institutional investors held just 1.7% of outstanding bonds and 2.1% of outstanding equities, according to CEIC data. (Asia Money: read more)
  • Japan’s Financial Regulator Considers Revising Crypto Exchange Regulation: Report: Japan’s financial regulator is reportedly considering a shakeup of its existing framework of regulating cryptocurrency exchanges to bolster customer protection norms and better secure investor assets. In April 2017, the Financial Services Agency (FSA) – Japan’s financial regulator and watchdog – enacted legislation that recognized bitcoin as a legal method of payment following a revision of the country’s Payment Services Act. The regulation also mandated cryptocurrency exchange operators with a domestic presence to register with the FSA and earn a license from the regulator. (CCN: read more) 

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