Financial Regulation Roundup: November 2, 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:

Banks Urge US Regulators to Reconsider ‘Volcker Rule’ Tweaks

  • Banks on Thursday pushed back on how regulators are attempting to simplify rules prohibiting banks from trading on their own account, a development that is likely to delay efforts to wrap up the overhaul in the coming months. On May 30, U.S. regulators unveiled a plan to modify the so-called Volcker Rule introduced following the 2007-2009 financial crisis, aiming to make compliance easier for many firms and relieving small banks altogether. Wall Street has long complained about the complexity and subjectivity of the rule, which bans banks that accept U.S. taxpayer-insured deposits — such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley — from engaging in short-term speculative trading. (Reuters: read more)

SEC to Issue Final Rule on Investment Advice Package by September 2019

  • The Securities and Exchange Commission plans to issue a final rule by September 2019 on its standards of conduct package covering investment advisory professionals, according to its updated regulatory agenda. Karen Barr, president and CEO of the Investment Adviser Association, said in an email Friday that the SEC appears to have used September as a default date for many regulatory items that are new or have changed status. "My bet is that the SEC issues a final rule earlier than that September date," Ms. Barr said. (Pensions & Investments: read more)

Fed Sets New Rules to Ease Regulations on Smaller Banks

  • Smaller banks would face “significantly” reduced regulations while larger institutions would see largely the same scrutiny under rules the Federal Reserve proposed Wednesday. The changes would be the latest moves the central bank has made to reduce the regulatory burden for community and regional financial institutions, unwinding some of the restrictions put in place after the financial crisis. The central bank voted 3-1 to approve a draft of the plan; Governor Lael Brainard opposed. “The proposals before us would prescribe materially less stringent requirements on firms with less risk, while maintaining the most stringent requirements for firms that pose the greatest risks to the financial system and our economy,” Fed Chairman Jerome Powell said in a statement. “And the proposals seek to maintain a middle ground for those firms that are clearly in the middle.” (CNBC: read more)

Wall Street May Get Capital Break in New Approach to Derivatives

  • The biggest U.S. banks may be on their way to a new capital standard for derivatives trading that addresses industry complaints that Wall Street’s risk-taking has been overestimated. The Federal Reserve and two other agencies on Tuesday proposed a new approach meant to answer concerns that existing requirements ignore risk-reducing collateral and didn’t allow enough netting of derivatives contracts with similar risks. The change would free up some of the bank capital demanded after the 2008 financial crisis. (Read more: Bloomberg)

The Fed Just Warned Against ‘Predatory’ Peer-To-Peer Lending

  • The Cleveland Fed came out with an analysis that focused on the consumer end of peer-to-peer lending, calling the loans "predatory," comparing them to pre-financial-crisis subprime mortgages because they're now showing very similar delinquency characteristics, and fretting about what these P2P loans, given their double-digit growth rates, could mean for financial stability. Loan balances outstanding have soared 84% in four years, from $55 billion in 2013 to $101 billion in 2016, according to the study. Nearly 16 million US consumers had personal loans via P2P lenders at the end of 2016. (Read more: Business Insider)

EU News:

UK to Study Possible Ban on Sale of Cryptocurrency Derivatives

  • The UK’s financial watchdog is weighing a potential ban on the sale of derivatives based on cryptocurrencies such as bitcoin, in what would be its first major intervention in the nascent market. The Financial Conduct Authority said on Monday that it would launch a consultation in the first quarter of next year on whether to prohibit the sale of derivatives — such as contracts for difference, options and futures — based on cryptocurrencies to retail investors. The FCA statement was published alongside a long-awaited report by the Cryptoasset Taskforce, which is made up of representatives of the FCA, the UK Treasury and the Bank of England. The task force launched a review in April following concerns that the largely unregulated crypto market is vulnerable to fraud and manipulation, and can be used by criminals to facilitate money laundering. (Read more: Financial Times)

End Big Four Dominance Using French-style Joint Audits, Watchdog Told

  • Regulators should consider introducing a French-style joint audit system to break the Big Four’s stranglehold on the top end of the market, the industry body said yesterday. Responding to a fast-moving review of Britain’s audit sector, the Institute of Chartered Accountants in England and Wales (ICAEW) warned the Competition and Markets Authority (CMA) of the dangers posed by bringing about a forcible break-up. It said there was “a risk that one of the Big Four could either fail, or voluntarily withdraw” from the market for the auditing the UK’s top companies if intervention in the stricken sector were too heavy-handed. (Read more: City A.M.)

Court Clarifies When Sipp Providers Must Say No to Clients

  • Self-invested personal pension providers cannot avoid regulatory principles by accepting business on an execution-only basis, a judge has said. In his dismissal of the Berkeley Burke judicial review, published  on 30 October, Mr Justice Jacobs said a Sipp provider could not rely on a perceived duty to carry out business as requested by the client without considering the outcome for the client in line with FCA client protection rules. Berkeley Burke had argued it had a duty to abide by Conduct of Business (Cobs) rule 11.2.19R (1), which states "Whenever there is a specific instruction from the client, the firm must execute the order following the specific instruction." (Read more: FT Adviser)

City Watchdog to Probe Home and Car Insurance Markets

  • Insurers will be the focus of a new probe by the City regulator, which is planning to investigate whether customers are getting a good deal when they purchase home and motor insurance. The Financial Conduct Authority said it is concerned that general insurance pricing practices “have the potential to cause harm to consumers, particularly those who are vulnerable”. The watchdog said supervisory work on home insurance had uncovered a number of issues that “could cause harm to customers”, including firms failing to have appropriate or clear pricing strategies, governance and controls. (Read more: The Independent)

International News:

Trump Has Reportedly Asked Officials to Draft a Possible Trade Deal with China

  • U.S. President Donald Trump has asked officials in his administration to start drafting the terms of a possible trade deal with China, Bloomberg reported Friday, citing four unnamed sources familiar with the matter. A major remaining issue is intellectual property theft by Chinese companies, one of the sources told Bloomberg, which reported that multiple agencies are involved in the effort. The report of a potential deal draft came after Trump said Thursday he had spoken to Chinese President Xi Jinping amid concerns about escalating trade tensions between the world’s two largest economies. (Read more: CNBC)

UAE Issues New Law Governing Central Bank, Financial Institutions

  • The United Arab Emirates has issued a new law governing the central bank and the regulation of financial institutions and activities in an effort to bolster monetary performance and confidence in the economy. The new law, which updates old legislation dating back more than three decades, raises the central bank’s capital to 20 billion dirhams ($5.45 billion) and allows for the establishment of a general reserve of up to four times the paid up capital, the UAE said in a statement. As well as ensuring prudent management of foreign reserves, the new rules are designed to protect stability of the financial system and help stability of the currency. (Read more: Reuters)

China Gives Nod To Wholly Owned Foreign Banks

  • Draft rules from the China Banking and Insurance Regulatory Commission (CBIRC) show that the regulator will relax at least some ownership rules for foreign banks. Reuters reported this week that with the new rules, these financial firms located outside China will be able to establish banks and branches that are wholly owned and funded. There will also be opportunity to establish joint ventures with Chinese-owned banks. According to the newswire, the CBIRC said these foreign branches will be required to keep more than 8 percent of yuan risk assets as operational funds and reserves denominated in that currency. (Read more: PYMNTS.com)

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