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Deutsche BankGlobal Transaction Banking
Leading the way through regulatory change May 2015
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Contents1 Editorial: Marcus Sehr
Our Head of Institutional Cash and EMEA Head of Institutional Cash & Securities Services welcomes you to a new issue of regulatory change updates and explains why the topic continues to be a driving force for our industry.
2 NewsA round-up of each of the major regulatory initiatives currently underway, how these are likely to impact you and what to expect and when.
3 Feature: Intraday liquidity in the spotlightOne of the major focus areas for our industry in 2015 is intraday liquidity, and in particular, intraday liquidity reporting. Christian Goerlach answers questions put to us by some of our financial institution clients on the topic of intraday liquidity and explains what regulators are trying to achieve.
4 Interview: Angus Fletcher surveys the regulatory landscapeWhen it comes to regulatory change, Deutsche Bank’s Market Advocacy team has been at the forefront of many industry-wide discussions, advising clients on the relevant regulatory developments. The team's head discusses upcoming regulation in 2015.
5 Sector focus: CSD-Regulation - the consequences of a ‘technical dossier’Marko Niederheide from our Market Advocacy team considers the potential impact that the proposed technical standards of Central Securities Depositary Regulation could have on the industry.
6 Regional focus: AsiaOur local specialists provide a view on how Asia is moving to greater financial interconnectivity and come up with a formula that can explain the challenges existing in the these markets.
7 The road aheadOn any journey, it pays to have a good map. With a view to informing clients of regulatory change, we have summarised the key milestones, as well as who will be impacted and how.
8 Contacts
The Market Advocacy team is ready to discuss regulatory topics with clients and other interested parties. Here you can find your relevant contact person.
9 Glossary Our glossary helps you in navigating the complexity of various regulatory terms with a simple explanation of each.
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Since the announcement of the G20 regulatory objectives back in 2009, substantial progress has been made with regards to reducing systemic risk, protecting investors and increasing transparency. In that time, banks have made huge regulatory investments resulting in a drag on ‘return on equity’ which, in turn, has forced them to reduce costs within their organisations. Now, however, after six challenging years, a genuinely positive mood is emerging whereby banks are focused on ensuring measurable business value from investments. Nonetheless, regulators will continue to monitor improvement in banks’ stability, controls and culture.
Increases in capital requirements as well as the introduction of liquidity measures have gone a long way to making banks more stable. In 2015 we can expect to see a refinement of these ‘too big to fail’ policies with regulators bringing in further measures on capital, liquidity and resolution – with pressure on banks to make progress even where national implementation deadlines are phased-in later.
With respect to capital, banks can expect continued stress tests which may result in tightening of the minimum Common Equity Tier 1 capital requirements. On the positive side, those that have invested can better manage risk exposure and, through the use of sophisticated analytics and processes, will be better positioned to attract new customers. On the liquidity front, specifically Basel III, supervisors are now implementing the liquidity coverage ratio (LCR) and finalising the net stable funding ratio (NSFR).
Regulators are also increasing efforts to ensure that banks become resolvable, that they can fail without causing disruption to the financial markets.
While regulators look to refine ‘too big to fail’ measures, they will also insist on banks enhancing their controls and transparency. Strengthening controls not only means protecting systems from hackers or cyber attacks, but also preventing criminals from gaining access to the financial system by adhering to anti money laundering (AML), know your customer (KYC) and even KYCC (know your customer’s customer) processes.
Controls also need to be in place to comply with official sanctions against specific entities or jurisdictions.
But again, there is a positive side to these required investments. Leading organisations are looking to leverage and implement new capabilities and process improvements for KYC to expedite the customer on-boarding process, giving assurance to their clients that they are working with the right partner.
On the topic of improving banks’ culture, risk governance needs to be strengthened. Senior management has to demonstrate zero tolerance on unethical behaviour. But banks will have to go further than this. They will have to bolster their three lines of defence (business line management, risk management & compliance and audit) and make sure that a sound risk appetite framework is in place.
2015 will not be without its challenges. However, continuous investments have now set a firm foundation for growth and future success. The best current example in transaction banking is TARGET2-Securities (T2S), the European initiative to harmonise the post-trade settlement landscape ensuring different markets in Europe are working to the same standards. The project started in 2008 and will be implemented in four waves, with the first scheduled to be completed in June this year. Similar to SEPA, it is one of the biggest financial projects that transaction banking providers have ever undertaken.
Going forward then, we can expect to see an effective response to regulatory initiatives, resulting in benefits and allowing a shift of focus back to growth. For financial institutions it will be crucial to work with a sound and stable partner that not only fully understands the regulatory environment in which it operates, but also utilises those investments to provide business opportunities to its partners.
Peloton’s goal is to take an informed, deeper look at the regulation affecting our clients both from a global as well as a regional perspective. It aims to demonstrate how we can collectively turn challenges into opportunities in this constantly evolving environment.
Editorial: Marcus SehrWelcome to the Q1 2015 edition of Peloton giving you an insight into the latest developments in banking regulations and the impacts and challenges for our industry.
Marcus Sehr Head of Institutional Cash and EMEA Head of Institutional Cash & Securities Services
Stability, resilience and transparency – what everyone wants from their banks
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NewsInitiative Latest Status What’s next
Anti-Money Laundering Directive IVSafeguarding the interest of society from criminality and terrorist acts
The EC implements measures to improve cross-border transaction oversight via identification of beneficial owner information, creation of public central registries. Going forward banks are being held responsible for their KYC process
Legislation – Q2 2015 – Final Text of FTFR expected
– Q2 2017 – Entry into force of regulatory requirements
ASEAN cross –border bond settlement intermediaryDevelopment of deep local currency bond markets and the promotion of cross-border flows
The Asian Development Bank released a document in April on the basic principles of establishing an Asian regional (bond) settlement intermediary. The goal is to improve the cross-border bond and cash settlement infrastructure in the region.
Planning – 2018 – CSD-RTGS linkages to be developed
– 2020 – development of integrated solution
Asia Region Funds PassportCreation of harmonised funds regulation across Asia
In February, the second consultation paper setting out how the scheme could operate was launched by six countries: Australia, New Zealand, Singapore, South Korea, Thailand and the Philippines.
Planning – September 2015 - A draft memorandum of understanding to be published
– Late 2016 – launch
Basel IIINew capital requirements for banks, introduction of liquidity coverage ratio and leverage ratio
Basel III standards have been published and are to be converted into local law. These introduce new measures that banks need to adhere to:
Liquidity Coverage Ratio (LCR) – banks need to hold sufficient High-Quality Liquid Assets (HQLA) to cover the calculated total Net Cash Outflows over a 30-day period.
Net Stable Funding Ratio (NSFR) – available stable funding has to exceed the required level.
Leverage ratio – caps the total size of a bank’s balance sheet at a multiple of its capital.
Implementation – May 2015 – first US Basel III standardised reporting submission as of March 31, 2015
– Q4 2015 – EU and US rules to implement NSFR expected
Capital Markets UnionDiscussing the next steps to Growth in Europe
The European Commission has published a Green Paper outlining thoughts how to promote and develop the EU market. Particular focus on SME financing, long-term investments, securitisation markets and approach on EU insolvency laws.
Based on market feedback the EU Commission is to issue policy actions to address the market requirements.
Planning – May 2015 – responses to the Green Paper due
– Q3 / Q4 2015 – EU Commission to issue plan of action
CSDRRegulation of CSDs as systemically important market infrastructures
Proposal covers elements of settlement efficiency and also CSD Governance and set-up. CSDR has entered into force in September 2014 and regulatory work is focusing on implementation measures. Industry focus will be on the measures for settlement discipline, prescribing fines for late settlement and processes around the buy-in of late deliveries.
Implementation – June 2015 – ESMA to deliver Level 2 Standards to European Commission
– September 2015 – European Commission to consider draft Level 2 standards
– Q1 2016 – earliest entry into force of Level 2 standards
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Initiative Latest Status What’s next
DTCC – T+2 The Depository Trust & Clearing Corporation (DTCC) has announced its intention to shorten the settlement cycle for US securities, following the publication of a study conducted in 2012. The move to T+2 would represent a positive step towards sounder markets and would align the US settlement cycle with global market practices.
Under consideration
– Q2 2015 publication of White Paper to outline migration approach
– 2015 development of migration plans
– 2016/ 2017 Implementation of new settlement cycle
EMIRRegulation covering OTC derivatives (central clearing)
Initial compliance dates have already been reached. Portfolio reconciliation and derivative transactions have to be reported regularly. Next major milestone will be mandatory clearing.
Compliance – Q2 2015 – equivalence decision expected for foreign CCPs
– Q4 2015 – Begin of clearing obligation for OTC derivatives
Enhanced Prudential Standards for Foreign Banking Organisations (FBO)Applies enhanced prudential standards and early remediation framework for FBOs
All large FBOs with a balance sheet of USD 50 billion of assets or more are required to create a separately capitalised top-tier US intermediate holding company (IHC) to harbour all US bank and non-bank subsidiaries (excludes branches). IHC will be subject to US capital/leverage requirements, stress testing, and liquidity management standards.
Implementation – July 2016 IHC formation
– November 2016 – First US Basel III standardized reporting submission of the IHC as of 30 Sep 2016
– January 2018 – US Basel III Leverage Ratio conformance
FATCAAimed at strengthening US tax information reporting and compliance regarding accounts held by US persons outside the US
Phased roll-out for reporting withholding regime on all payments related to US-domiciled institutions began in July 2014 and will continue through to 2018. Key points for participating Foreign Financial Institutions: identification and due diligence on account holders; annual reporting to the IRS on account holders; withholding and payment to the IRS of 30% of any payments of US source income, as well as gross proceeds from the sale of securities generating US source income to non-compliant entities.
Compliance – Q3 2015 – Begin withholding on any undocumented pre-existing individual high value account, continued remediation of pre-existing clients and FATCA reporting
Financial Transaction TaxIntroduction of a Europe-wide tax on financial transactions
FTT regimes already exist in France and Italy. 11 EU countries wish to implement a harmonised regime through enhanced cooperation. There is political commitment to an FTT on equities and some derivatives but final details have yet to be fleshed out.
Legislation – Q3 2015 – Target date for finalised proposal
– January 2016 – Intention to start tax application to start (estimated)
Fund RegulationRegulating the investment fund industry
Since July 2013, the alternative investment industry has been regulated through AIFMD, requiring compliance on the part of depositories and newly-established alternative investment funds. There is a strong focus on investor protection and increased liability for depositories. This also reflected on UCITS instruments through the fifth revision of UCTIS Directive.
Implementation (UCITS V)
Compliance (AIFMD)
– Q4 2015 – ESMA to issue guidelines on asset segregation under AIFMD
– Q1 2016 - UCITS V implementation
Funds Transfer RegulationAlignment of EU standards to Global Payment standards
The EU Commission introduces an obligation on payment service providers to have transfers of funds accompanied by information on the payer and the payee. This would align European payment process to global FATF standards.
Legislation – Q2 2015 – Final Text of FTFR expected
– Q2 2017 – Entry into force of regulatory requirements
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Initiative Latest Status What’s next
Market Access, The Kingdom of Saudi ArabiaPlans to open market to foreign financial institutions
The Capital Market Authority (CMA) has announced to open the Saudi equities market to foreign financial institutions/FFIs. Preparations are currently undergoing to cater for increased investments in the Kingdom of Saudi Arabia
Implementation – Q2 2015 - CMA market opening to qualified investors
MiFID II/MiFIRAddresses market regulation and investor protection. Also includes new products and venues
New safeguards for algorithmic and high frequency trading have now been added. This will improve the transparency of trading activities in equity markets, including so-called ‘dark pools’. There is also stronger investor protection in the form of stricter requirements for portfolio management, investment advice and the offering of complex financial products, for the safeguarding of client assets and for clearing members. Current focus is on implementing measures.
Implementation – ESMA to define level 2 Technical Standards in 2015
– MIFID II enters into force with implementation into national law in Member end of 2016
Money Market Funds ReformAmendments to the rules that govern money market mutual funds
Published in August 2014, the final rule intends to (i) reduce the risk of runs in money market funds and (ii) provide tools (fees and gates) that will help protect investors and the financial system, thereby ensuring resilience and transparency in the market. There is also a requirement for institutional funds to maintain floating NAVs
Implementation – October 2016 conformance date for floating NAV, fees and gates
Payment Services DirectiveThe revision of the original Directive that dealt with new developments in the payments space
The Directive was published in 2013. The European Parliament has drafted its position and the Council is currently reviewing. The main components of the proposal include the coverage of online payment initiation services, extended transparency, value dating rules and improved consumer protection against fraud
Legislation – Q2 2015 – Legislative proposal final
– Q4 2016 –Compliance Required
EU Structural reformThe separation of certain trading activity from deposit taking at national and EU level
Several EU countries (FR, UK, DE) have already passed legislation but have very different approaches to separation. The European structural reform proposal, published earlier this year, aims to harmonise these. This is being negotiated so there is a lack of clarity as to what will actually be required.
Implementation (national laws)
Legislation (European Proposal)
– Q3 2015 – vote in EU Parliament
– 2017-18 - European proposal to come into force
TARGET2-Securities (T2S)A single, harmonised, pan-Europe securities settlement platform
The technical platform has been finalised. Testing has begun with satisfactory results. 24 central securities depositories (CSD) have committed to migrating to T2S over four waves, starting in June 2015.
Industry initiative – June 2015 - Migration Wave 1
– July 2015 – Meeting of T2S Advisory Group
– September 2015 – Start of testing for Migration Wave 2
Volcker RuleAims to reduce the amount of speculative investments on larger firms’ balance sheets
The final rule prohibits banking entities from engaging in proprietary trading, as well as from investing, sponsoring, and engaging in certain other relationships with covered funds (hedge funds or private equity). The Volcker Rule effectively covers every bank with a meaningful US trading business, regardless of domicile.
Implementation – July 2015 - conformance deadline to bring activities in line with restrictions
– July 2016 – conformance deadline for certain covered funds and foreign funds
Status Legend:
Planning: Initiative under general discussion, no legislative text availableLegislation: Initiative in political process, legislative text availableImplementation: Legislative text agreed, Implementation measures under discussionCompliance: Compliance milestone reached, rules fully in forceIndustry initiative: No political development, but industry led change
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Deutsche Bank Global Transaction Banking
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For more information, visit db.com/gtb, email [email protected] follow us on Twitter @talkgtb
This advertisement is for information purposes only and is designed to serve as a general overview regarding the services of Deutsche Bank AG and any of its branches and affiliates. The general description in this advertisement relates to services offered by Deutsche Bank AG Global Transaction Banking and any of its branches and affiliates to customers as of April 2015, which may be subject to change in the future. This advertisement and the general description of the services are in their nature only illustrative, do neither explicitly nor implicitly make an offer and therefore do not contain or cannot result in any contractual or non-contractual obligation or liability of Deutsche Bank AG or any of its branches or affiliates. Deutsche Bank AG is authorised under German Banking Law (competent authority: German Banking Supervision Authority (BaFin)) and, in the United Kingdom, by the Prudential Regulation Authority. It is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by the Financial Conduct Authority are available on request. Copyright © April 2015 Deutsche Bank AG. All rights reserved.
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Why is intraday liquidity on everybody’s radar?
Since 2008, much of the focus around Basel III has centred on the Liquidity Coverage Ratio (LCR) as well as the Net Stable Funding Ratio (NSFR). The LCR requires banks to hold high quality liquid assets to better safeguard against a 30 day stress scenario and the NSFR for one year during a market functioning normally. Intraday liquidity risk, until more recently, had not really been in the spotlight. With the publication in 2013 of Monitoring Tools for Intraday Liquidity Management by the Basel Committee on Banking Supervision (BCBS) that all changed.
What are the basis requirements of the BCBS paper including timelines,
objectives, scope and tools to be implemented?
Timelines: As of 1 January 2015, the Basel paper requests internationally-active banks to report intraday liquidity information to their regulator on a monthly basis regardless of whether they are a direct or indirect participant in a clearing mechanism. They will allow phase in by 1 January 2017 in cases of data availability constraints with correspondent banks.
Objective: The aim of the regulators is to enable banking supervisors to better monitor a bank's management of intraday liquidity risk and its ability to meet payment and settlement obligations on a timely basis.
Scope: Although intraday liquidity reporting will be mandatory for internationally-active
FeatureIntraday liquidity in the spotlight
Category Monitoring Tools
Category A
– Applicable to all reporting banks
– Daily maximum intraday liquidity usage
– Available intraday liquidity at the start of the business day
– Total payments
– Time-specific obligations
Category B
– Applicable to reporting banks providing correspondent banking services
– Value of payments made on behalf of correspondent banking customers
– Intraday credit lines extended to customers
Category C
– Applicable to reporting banks which are direct participants
– Intraday throughput
One of the major focus areas for our industry in 2015 is intraday liquidity, and in particular, intraday liquidity reporting. Christian Goerlach, Head of GTB ICSS Liquidity & Balance Sheet Discipline, answers questions put to us by some of our financial institution clients on the topic of intraday liquidity and explains what regulators are trying to achieve.
Christian Goerlach Head of GTB ICSS Liquidity & Balance Sheet Discipline
Timeline May 2015
Basel III
June 2015 June 2015
TARGET2-Securities
June 2015
CSDR Kingdom of Saudi-Arabia Market Opening
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banks, it is up to each national supervisor to determine applicability to non-international active banks. This will affect the liquidity positions resulting from direct participation in Large Value Payment Systems (LVPS) - including settlement of ancillary systems (e.g. CLS) - as well as payment services via corresponding banking (nostro accounts). All currencies are affected (including euros and US dollars).
General reporting principles: Although no real-time monitoring is required per se, many banks are already focusing on developing systems that go beyond minimum monthly requirements and actively looking to establish real-time intraday liquidity monitoring.
Tools to be implemented: Seven monitoring tools have been developed which are classified into three categories (see table). Additionally, the BCBS requires banks to consider impact under four stress scenarios, including the bank’s own financial stress, counterparty stress, customer bank stress and market-wide or liquidity stress.
Is the Basel Paper legally binding?
The BCBS put forward ‘recommendations’ in its report. Not only are these open to interpretation, but it is the responsibility of each regulator to ensure they are passed into local law. While some regulators have issued guidance many – including the European Banking Authority (EBA) and the Federal Reserve - have yet to do so on an official basis . It is expected that more regulators will initiate implementation throughout 2015. Until now, only a limited number of countries including, for example, Switzerland and India have formally initiated steps.
How does this topic affect banks’ business?
The tools being implemented require a rethink for international banks with regards to monitoring and managing intraday liquidity. Implementing tools will be particularly challenging for financial institutions using correspondent banking services. Indeed, correspondent banks will have to provide customers with timing
information related to payments made and received throughout the day over settlement accounts. This marks a break with today’s practice which has been based on end of day.
The major concern is that recommendations will not be applied unilaterally across multiple jurisdictions
What are the outstanding challenges to the industry as a whole?
The challenges the industry faces primarily relate to interpretation, timelines and agreements on technical issues. The Basel paper is open to interpretation (on issues such as currencies in scope and legal entity structure for reporting) and each regulator has to ensure implementation into local law. The major concern is that recommendations will not be applied unilaterally across multiple jurisdictions. With regards to timelines, the fact that guidance has only been given by some regulators means implementation will not be applied simultaneously. This is of greater concernas we have no common approach on technical issues. Open questions include: Which is the relevant time stamp to be reported?; which intervals are required?; should data be available real time or as batch?; and which data delivery format/ channel should be used (MT900/ MT910, MT942, reports)?
How is Deutsche Bank involved in industry discussions?
Given the lack of common ground across the industry as a whole, Deutsche Bank took the initiative following Sibos in Boston last September to set up a peer group workshop in November 2014 whereby a number of large clearing banks met to discuss technical and strategic challenges. The group convenes on a regular basis within the BAFT (Bankers Association of Trade and Finance), with the view of addressing the above challenges in further detail and establishing better uniformity and harmonisation in discussions with regulators.
Which bodies are facilitating industry discussions?
BAFT and SWIFT are currently the main bodies facilitating the industry dialogue. Deutsche Bank is the co-chair of the BAFT working group which focuses on market advocacy and plans to interface with regulators. BAFT will closely cooperate with SWIFT, which will focus primarily on solving questions on data formats and channels.
Is intraday liquidity reporting a tick in the box exercise or are regulators ultimately concerned with how banks manage their intraday liquidity management?
The BCBS requires banks to consider impact under four stress scenarios
In the longer term, regulators will naturally want to ensure that banks have sustainable intraday liquidity models in place. Having a standard set of monitoring tools and reporting requirements ultimately complements the Liquidity Coverage Ratio and Net Stable Funding Ratio. There are undoubtedly advantages to be gained by moving to a model with intraday monitoring. Essentially, banks will gain a better understanding of intraday payment flows, have reduced intraday short balances and greater payment control which, in turn, leads to smaller required liquidity buffers. An intraday liquidity model will also help achieve real-time conciliation of payments and receipts allowing for intraday alerts on credit lines.
While bringing about the benefits mentioned above, caution must be used when designing and implementing mechanisms to increase payment control through greater transparency. Additional requirements and systems could result in inefficiencies – including delayed payments. Should this occur, the market's payment liquidity could be adversely impacted – which of course is not the regulation's aim.
Timeline
TARGET2-Securities
September 2015
Community testing for wave 2
FATCA
July 2015
Begin withholding on any undocumented pre-existing individual high value accounts
Continue remediation of pre-existing clients and FATCA reporting
Volcker
July 2015
Conformance with rules required
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Deutsche Bank’s Market Advocacy team has been at the forefront of many industry-wide discussions, advising clients on relevant regulatory developments. Angus Fletcher, Global Transaction Banking’s Head of Market Advocacy, looks at upcoming regulation in 2015
We have already seen a huge wave of new regulation. What can we expect in 2015?Many commentators have talked about a so-called tsunami of regulation facing the financial industry, but we are facing a far more sustained wave of legislation that may be here to stay – a constantly shifting regulatory landscape may well be “the new normal”. It is clear 2015 will be a year of implementation with the details of many key legislative dossiers being finalised and some key market initiatives finally coming to fruition. At the same time, there will be important new proposals coming to market. The challenge for banks and their customers will be in handling the implementation as well as keeping a close eye on the future pipeline.
What trends have you identified and what will be the main focus this year?The first big trend will be the refinement of “too big to fail” measures. We see that Basel ratios should be agreed and set during the year, hopefully bringing some consistency to the approach across the globe. This will remove some of the uncertainty around the treatment of transaction products, especially trade finance. However, there will still be some scope, on a regional and national basis, for discretion, placing varied capital burdens and restrictions on different institutions depending on who their dominant home regulator is. Although ratios are more consistent, there are still concerns that the leverage ratio will encourage a move away from lower risk products such as trade finance loans in order to maximise returns.
In the ring-fencing space, the summer of 2015 we will see the final implementation of the far-reaching Volcker legislation for proprietary trading activities and certain covered funds along with the agreement of the full scope of the German Separation Law (GSL). It is still too early to know how the final Liikanen proposal will take shape but this remains top priority for the European Commission. Although agreed in 2014, how individual countries implement the Banking Recovery & Resolution Directive (BRRD) will only emerge this year. This is a complex topic, not least because of the inclusion of corporate deposits and contingent liabilities as bail-in eligible products, which could give rise to legal challenges unless addresses in national implementation. Moreover, the German authorities have already started implementation of BRRD at a national level, even though the Financial Stability Board (FSB) have yet to finalise their own guidelines on this topic, so remaining close to the local, regional and global approach during 2015 will be crucial to ensure all efforts remain coherent.
Finally, there will be a renewed focus on market infrastructure recovery and resolution as more business is routed to these venues for execution, clearing, settlement and reporting.
Another big trend is transparency and accountability in financial chains. Following the fines imposed on a number of financial institutions for
Angus Fletcher Head of Market Advocacy for Global Transaction Banking
Surveying the landscapeInterview: Angus Fletcher
Timeline September 2015
Memorandum of understanding to be signed by participating countries
Asia region funds passport initiative EU Capital Markets Union
October 2015
EC to publish plan of action to achieve capital markets union objectives
CSDR
Implementation of T+2 settlement cycle for Spanish equities
Impact on exchange transaction and OTC transactions
November 2015
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sanction breaches alongside heightened geopolitical tension, we started to see more regulators and financial institutions looking to better understand the concept of “beneficial owners”. This has materialised in Europe in the form of key proposals around anti money laundering and Funds Transfer Regulation, which will require enhanced customer due diligence and a transaction level determination of payees and payers. It also manifests itself in EMIR, CSDR, MiFID II and UCITS/AIFMD where there are mandatory requirements to offer segregated account structures. Furthermore, in FATCA and the forthcoming OECD Common Reporting Standards, intermediaries are required to report on underlying ownership. There will be many challenges for intermediaries: what changes to the business model will be required in a more segregated account world? How can we acquire the necessary underlying beneficiary data in a timely manner (without annoying our clients or contravening data privacy rules) and where will we store it? What new risks, liabilities and obligations will be imposed on us and how do we account for these? The key to handling these challenges will be to work with other industry participants facing the same issues and with industry utilities where it makes sense to reduce costs burdens. At the same time opportunities will need to be identified in the changing business models that emerge.
The challenges for Banks will be to create an efficient way of handling this demand
Connected to the transparency trend, more and more reporting requirements are being imposed on market participants. The 2009 G20 agenda pushed for significant transparency in the derivatives market in areas where the greater risks were perceived to be. Global, regional and national regulatory bodies have taken this further and what is clear is that every transaction will need to be reported in some form or another, and often to multiple sources. In both 2015 and 2016 we will see marked increases in reporting demands, whether intra-day liquidity (BASEL measures), securities (CSDR settlement internaliser, MiFID pre and post trade transaction reporting, SFT reporting) or cash (PSD, FTR, ECB payment statistics). The challenges for Banks will be to create an efficient way of handling this demand, allowing aggregation of data with other parts of the bank where required, and to look at how best to support clients in the delivery of their reporting. One key aspect will be the use of Legal Entity Identifier in the securities and cash space. Today, it tends to only be used in Derivatives, but all the aforementioned securities legislation will also make use of it.
What can you tell us about plans to develop the market further?There has been widespread recognition that, on the back of a stagnating economy, policy makers need to supplement the measures they have taken in recent years with growth focused measures. As a result significant focus will be placed on the
creation of a Capital Markets Union in Europe, designed to enhance the regulatory and standards harmonisation that creates the optimal backdrop for growth. The recent publication of a "green paper" seeks industry views on future policy objectives. Some will be implemented easily while others, which would complete the “Single Rule Book” in the securities space, may take longer to agree upon. The feedback to the paper will help to shape the political agenda for the coming years. A similar initiative has been brought forward in the ASEAN region. So this will require analysis on a global scale.
A second focus area, clearly linked to the Capital Markets Union, is the push to revive the securitisation market in Europe. This should help to widen funding sources for the industry. Work on this topic is already underway following the commitment by the BIS to look at this globally.
As in the US, the intention to create a single digital market in Europe is high on the agenda. The focus here will be on removing barriers to the growth of innovation in this space but at the same time ensuring there is sufficient regulation to provide consumers with confidence in the banking infrastructure. In this respect, we see the finalisation of the revised Payment Services Directive with a focus on payment intermediaries and mobile payment minimum standards as a key development.
In conclusion, what do we make of all this?Seven years after the crisis, the regulatory agenda remains a challenge for all financial players. As we to move to full implementation of the original post-crisis objectives during the next 18 months to two years, it is important we remain focused on the detail as a lack of clarity and hidden issues can fundamentally impact the ability to comply and maintain a profitable business model. At the same time, we must continue to scan the horizon for the next set of regulatory objectives, ensuring we anticipate their focus and turn challenges into opportunities. All along this path, it is imperative we stay close to our clients, looking at how we can help them to navigate the complexity, and where necessary, where they can help us to advocate on key concerns (the corporate or buy-side voice is often louder). We must also work with our industry competitors and stakeholders to create a single, unified voice and to tackle the regulatory challenges in an efficient and most cost-effective way.
Timeline
CSDR
Earliest entry into force of Implementing Measures
Q1 2016November 2015
EU and US rules to implement NSFR expected
Basel III EMIR
Possible start of derivatives clearing for select instruments
November 2015
TARGET2-Securities
Q1 2016
Go-Live of Wave 2 Migration
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Marko Niederheide, from Deutsche Bank’s Market Advocacy team, considers the potential impact the proposed technical standards could have on the industry if implemented as consulted
When CSD-Regulation became effective in September last year, the finalisation of the securities value chain regulation took a huge step forward. With MiFID (trading venues/execution) and EMIR (central counterparties/clearing), a single framework is now in place for execution, clearing and settlement. The one element outstanding will be the European approach to Securities Law.
The publication of the CSD-Regulation made clear that late settlements will incur penalties and very late settlements subject to buy-in procedures. Deutsche Bank, together with the industry, has always been supportive of the
objective to increase settlement efficiency. ESMA has been tasked to provide the appropriate standards that will aid the planning of industry and infrastructures. With the consultation period finished, the industry now has a clearer understanding of a regime that appears to be rather challenging.
The main issuesOn a technical level, an additional message field shall be used for the matching of transactions at a CSD level – “transaction type”. The industry agreed that the use of such a field is important in the communication with agents and CSDs but applying the field to
Marko Niederheide Market Advocacy Global Transation Banking
Segment Focus – CSD-Regulation: Practical consequences of a 'technical dossier'By Marko Niederheide
Timeline Q1 2016
Launch of Funds Passport Initiative
Asia region funds passport initiative UCITS V
Transposition of Directive into local law
Q1 2016
FATCA
Q1 2016
Continue remediation of pre-existing clients and FATCA reporting
OECD CRS
Enhanced AOP must be in place to establish OECD CRS status of all new accounts
Q1 2016
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the matching algorithm would mean significant additional investments for the CSDs and their participants - not to mention T2S - which after long discussions agreed to use the field for information but not for matching. This is in line with other settlement platforms which use the field in this way. With this solution, CSDs would be able to report to authorities the number of cash transactions they have settled versus repurchase transactions or portfolio transfers.
The use of the field is also very important when it comes to the definition of exemptions on another big element of the CSDR – the buy-in. CSDR leaves little room for interpretation: if transactions have not been settled after a given time period, a buy-in process should be initiated. While buy-ins are currently used as a tool to rectify long-standing fails, especially in the CCP clearing space, they are used less frequent in the area of non-cleared settlements (where they are not mandatory). European CSDs (ECSDA) have estimated that on a daily basis more than 7,500 buy-ins would need to be initiated. This would account for approximately 1.8 million buy-ins annually, amounting to a total value of EUR 2.5 trillion. A whole new industry looks likely to develop to execute and manage buy-ins. Furthermore, the draft requirements apply the buy-in to the CSD participant. While this might be a sensible thing to do in some cases, in most scenarios, executing a buy-in on the CSD participants would target the wrong party, such as an agent or intermediary.
By design, a buy-in is a tool to manage counterparty risk. The industry therefore has argued that buy-ins should only be executed at the level of trading counterparties, and be managed by them, a process consistent with current market practice. In addition, this suggestion would prevent unequal treatment of cleared versus uncleared settlement transactions. For CCP-cleared transactions, the buy-in would be initiated by the CCP to manage its counterparty risk. Translating this to trading venue and OTC transactions would mean that only parties to the trade should initiate a buy-in.
Any other solution would significantly increase the risk-profile of settlement agents. As a matter of fact they would then become a guarantor for the settlement transactions of their clients. CSD participants acting as custodian will probably have to take steps to reduce their exposure to these risks by withholding orders when clients lack the securities or necessary cash for settlement or asking clients to post collateral based on these risks.
Furthermore, looking at the potential volume of buy-ins and the risks involved, the only solution would be to automate the communication process. New machine-readable messages will have to be developed and agreed upon. In addition, a secure and reliable source of lending for clients should be arranged to minimise the risk of buy-in.
The consequences of this are:
(i) Potentially higher trading costs resulting from the mandatory buy-in regime itself. An ICMA study estimated the annual additional trading costs to be in the EUR 1 bn range as trading spreads will widen or
(ii) Trading liquidity will disappear as participants may choose not to quote prices anymore unless they already own securities.
(iii) Custody costs may increase significantly to cater for the buy-in risk that agents face in the future
The other element adding to the bill for cost of settlement will be the penalties charged for any unsettled transaction at the end of each day up to buy-in date. And that bill will be significant. Based on last year’s figures, annual settlement penalties could amount to EUR 183 million per month or EUR 2.2 billion annually. The industry largely welcomed the proposal for applying such penalties and the proposal of penalising the responsible party for a late settlement and crediting the injured party. For parties in the middle of a transaction chain, this would be a positive development, especially as a penalty for a failing receipt should be as high as the penalty for a failed delivery.
Nevertheless, the additional costs will have to be recovered somehow. In addition, the industry has raised a number of technical questions which should be clarified to make the process of calculating and processing settlement fines workable. And the actual size of the penalties remains a subject of debate - some think it has been too low to count as a real deterrent, others believe they are prohibitively high and would drive liquidity out of the market.
What comes next and what is still missing? It is still unclear when the market will have to be compliant. The Regulation text suggests the earliest compliance date could be as early as Q1 2016. However, given the significant changes to be implemented, the industry advocated a minimum implementation period of 24 months. In addition, many respondents called for a phase-in allowing participants to “taste” the medicine before it has to be “swallowed”. This suggestion is mainly driven by the conviction that banks will have to closely monitor their settlements and apply fixes should some amendments not work to plan. Any early implementation outside the suggested timeframe could cause interference to the migration of the ECB’s significant infrastructure project TARGET2-Securities which is now in its final testing stages.
ESMA is currently analysing the many responses received. Apparently, the consultation has generated significant attention amongst all the industry participants. By mid-June, ESMA will then submit its final draft suggestions to the European Commission. At this stage, the industry will get clarity if the arguments provided have been heard and reflected in the standards. If not, a very hot summer and autumn lay ahead for the industry. In any case, significant developments will be required in addition to the preparations for T2S to achieve the ultimate goal of new regulations -increased settlement efficiency in Europe.
Timeline
Enhanced prudential standards for FBOs Money Market Fund Reform
Q3 2016 Q3 2016
IHC Formation (Jul 1)
IHC to meet US Basel III requirements (Jul 1)Money Market Fund rule conformance (Oct 16)
Q3 2016
Transposition of Directive into local law
MiFID2 TARGET2-Securities
Q3 2016
Go-Live of Wave 3 Migration
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Asia: Towards greater financial market connectivity Asia has had a sustainable agenda over the past few years that we expect to continue throughout the year.. This can be seen by the many intra-regional, inter-market initiatives such as ASEAN exchange and post trade initiative, AEC 2015 Stock Connect, ASEAN funds initiative, RMB liberalisation and the proposed regional bond settlement intermediary.
New ways of doing things are being forged together with new regulatory frameworks including cross-border information exchange and supervision approaches. All these and more will challenge market participants and users of the ever-changing transaction banking industry. But if adaptation to these changes is successful, the future will be exciting and could offer substantial business potential in a more resilient, competitive and intense environment.
While the strong growth fundamentals and diversity of Asia Pacific is well recognized, the impact of this diversity on opportunities, risks and costs has often been underestimated.
For many years, the 16 economies that make up most of the Asia Pacific region and their individual development has been a reflection of their own market needs, dynamics and characteristics. Thus, Asia Pacific cross-border investors face 16 different vertical market access channels, repatriation requirements and financial market infrastructures with their own market practices. All this multiplies costs investors have to take into consideration when they consider entering a market.
When cross-border investors access a market, they would typically undergo a seven-stage-process, the Market Access and Repatriation framework. This process covers account opening, market entry/capital injection, Foreign Exchange execution, clearing and settlement, corporate action, repatriation and tax reclaims. The heterogeneous nature of market practices and financial market infrastructures impose various indirect costs on cross-border investors. It is not without difficulties, but at least the complexities are within the markets’ borders.
Today, closer financial market integration in Asia Pacific is gathering momentum and is opening up new synergies and strengths. This is bringing new “horizontal-regional” dynamism - in addition to the established “vertical-country” basis - that is driving excitement for Asia Pacific’s future. Depending on the decisions taken today on the choice of integration models, these initiatives will also add to the recently-
linked regional market changes and complexities, and raise investors’ need to better assess the opportunities and risks of these new channels .
The table on page 15 outlines the different benefits and required changes around regional integration models. Clearly, this is not an exhaustive list of items, but it shows that integration cannot be achieved in isolation.
Other aspects that that should not be underestimated, are the regulatory developments taking place outside of Asia. The level of “horizontal-vertical” market complexity in Asia is further amplified by the far-reaching effects of non-Asia Pacific regulations. This list includes:
Regional focus
Timeline
16 economies x market access & repatriation areas x financial market infrastructure areas = many areas of aggregated changes
Q1 2017
Main elements of Regulation are applicable
Transposition of Directive to become applicable
MiFIR / MiFID2 TARGET2-Securities
Q1 2017
Go-Live of Wave 4 Migration
AIFMD
Assessment of AIFMD by EC due
Q1 2017
Enhanced prudential standards for FBOs
Q1 2018
IHC to meet leverage ratio requirement (1 Jan )
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– Foreign Account Tax Compliance Act
– OECD Common Reporting Standards
– Basel III
– European Market Infrastructure Regulation
– Markets in Financial Instruments Directive
– The Directive on Undertakings for Collective Investment in Transferable Securities V
As a result, market participants in the region will need to comply not only with local regulations but will also have to ensure they act in line with some regulations imposed on them from outside the region.
Today, regional inter-connectivity is bolstered by several ongoing financial market initiatives. ASEAN is now at the tail-end of the implementation of the ASEAN Economic Community (AEC) Blueprint launched in 2007. It has implemented 82.1% of the 229 AEC key deliverables targeted for completion by 2013. The ASEAN Exchanges have selected Deutsche Bank for providing custody and settlement services on the ASEAN Trading link. The link would enable the ASEAN exchanges to provide streamlined and cost-effective post trade procedures for cross-border transactions conducted through the trading link. In February 2015, the ASEAN Capital Markets Forum (ACMF) launched a market survey to collect feedback on issues, barriers, needs of market participants to identify key areas of focus and possible new initiatives for further integration of ASEAN capital markets.
On funds management, the Asia-Pacific Economic Cooperation (APEC) launched the second consultation paper for the Asia Region Funds Passport (ARFP) scheme. Published in February 2015, the paper set out the proposed rules that will govern
the scheme’s operation. In January 2015, the ASEAN Working Committee on Payment and Settlement Systems (WC-PSS) adopted the Principles of Product Transparency and Disclosure (Principles) to improve the level of transparency on charges and service level offered by financial institutions in the ASEAN region for cross-border trade settlement. This would facilitate a more efficient service cost of cross-border trade. For the banking sector, competitive levels of service, and a bank’s economies of scale in cross-border trade, will also be more transparent to clients. Thus, this can spur, in time, more competitiveness in ASEAN cross-border trade activity.
The intersections of the Asia regional financial market integration initiatives – with individual market practices and with global effects evolving market behaviour - will create future implications. These are important areas that need to be rigorously debated to pave a clearer road to unlocking Asia’s strengths and potentials.
Indeed, part of this analysis and debate should include: the cost of non-integration; the cost of failure of today’s initiatives; how to better integrate different regulatory frameworks and development stages between participating Asia Pacific economies; and the ongoing global effects.
TimelineQ1 2018
Net Stable Funding Ratio (NSFR) standards expected to go live globally (Jan 1)
Basel III ASEAN Cross-border Bond Settlement Intermediary ASEAN Cross-border Bond Settlement Intermediary
Q1 2018 2020
CSD – RTGS linkages to be developed Development of an integrated solution
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The road aheadWhenwill it happen?
Whowill be impacted?
Whichregulation or initiative does it relate to?
Whatwill happen?
2015
May – Banking institutions Basel III – First US Basel III standardised capital reporting submission for Q1 2015
June – CSDs
– Market participants
CSDR – ESMA to deliver Draft RTS to European Commission
June – CSDs
– NCBs
– Custodians
– Market participants
TARGET2-Securities – Go-live of wave 1 migration
June – Financial institutions Kingdom of Saudi-Arabia Market Opening
– Foreign investors can apply for QFI Status in Saudi Arabia for direct investments
July – Universal banks Volcker – Conformance with rules required
July – Financial institutions FATCA – Begin withholding on any undocumented pre-existing individual high value accounts
– Continue remediation of pre-existing clients and FATCA reporting
September – CSDs
– NCBs
– Custodians
– Market participants
TARGET2-Securities – Community testing for wave 2
September – Fund managers
– Depositories
Asia Region Funds Passport initiative
– Memorandum of understanding to be signed by participating countries
October/ November – Market participants EU Capital Markets Union – EC to publish plan of action to achieve capital markets union objectives
November – CSDs
– Market participants
CSDR – Implementation of T+2 settlement cycle for Spanish equities
– Impact on-exchange transactions and OTC transactions
November/ December
– Market participants
– CCPs
EMIR – Possible start of derivatives clearing for select instruments
November/ December
– Banking institutions Basel III – EU and US rules to implement NSFR expected
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Whenwill it happen?
Whowill be impacted?
Whichregulation or initiative does it relate to?
Whatwill happen?
2016
Q1 – CSDs
– Market Participants
CSDR – Earliest entry into force of Implementing Measures
– CSDs,
– NCBs,
– Custodians
– Market participants
TARGET2-Securities – Go-Live of Wave 2 Migration
– Fund manager
– Depositories
Asia Region Funds Passport Initiative
– Launch of Funds Passport Initiative
– Fund Manager
– Depositories
UCITS V – Transposition of Directive into local law
– Financial Institutions FATCA – Continue remediation of pre-existing clients and FATCA reporting
– Financial Institutions OECD CRS – Enhanced AOP must be in place to establish OECD CRS status of all new accounts
Q3 – Foreign banking organisations
Enhanced prudential standards for FBOs
– IHC Formation (Jul 1)
– IHC to meet US Basel III requirements (Jul 1)
– Financial institutions
– Broker, Dealer
MiFID2 – Transposition of Directive into local law
– Financial institutions
– Corporates
Money Market Fund Reform – Money Market Fund rule conformance ( Oct 16)
– CSDs
– NCBs
– Custodians
– Market participants
TARGET2-Securities – Go-Live of Wave 3 Migration
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Whenwill it happen?
Whowill be impacted?
Whichregulation or initiative does it relate to?
Whatwill happen?
Beyond 2016
Q1 2017 – Financial institutions
– Investors
– Broker dealers
MiFIR / MiFID2 – Main elements of Regulation are applicable
– Transposition of Directive to become applicable
– CSDs
– NCBs
– Custodians
– Market participants
TARGET2-Securities – Go-Live of Wave 4 Migration
– Fund managers
– Depositories
AIFMD – Assessment of AIFMD by EC due
Q1 2018 – Foreign banking organisations
Enhanced prudential standards for FBOs
– IHC to meet leverage ratio requirement (1 Jan )
– Banking Institutions Basel III – Net Stable Funding Ratio (NSFR) standards expected to go live globally (Jan 1)
– CSDs
– Market participants
– Custodians
ASEAN Cross-border Bond Settlement Intermediary
– CSD – RTGS linkages to be developed
2020 – CSDs
– Market participants
– Custodians
ASEAN Cross-border Bond Settlement Intermediary
– Development of an integrated solution
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Contact our Market Advocacy team
Region Contact Focus Area
Global Angus Fletcher
+44 20 7545 [email protected]
– Prudential Regulation
– Basel III
Americas Mildred C Brown
+1 212 250 [email protected]
– US Basel III
– Volcker Rule
– Money Market Funds Reform
– FBO Rule
EMEA Tanja Schrum
+49 69 9104 [email protected]
– DGS
– Separation Law
Mike Collier
+44 20 7547 [email protected]
– T2S
– Shareholder Rights
Polina Evstifeeva
+44 20 7547 [email protected]
– AIFMD
– UCITS
– BRRD
Marko Niederheide
+49 69 9106 [email protected]
– CSDR
– EMIR
– FTT
Britta Woernle
+49 69 9106 [email protected]
– MiFID / MiFIR
– PSD
– T2S
Sebastian Brutscher
+49 69 9104 [email protected]
– FATCA
– OECD CRS
Asia Pacific Boon Hiong Chan
+65 6423 [email protected]
– Extraterritorial effects – Basel III, e-procurement, etc related to
Trade & Supply Chain Finance – Cross-border securities and funds
initiatives – Market’s Clearing and Settlement
changes – Market access, KYC/AML and
repatriation issues
Cherine Yeo
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Glossary4CB – Four Central Banks
Comprise the four Central Banks of Banca d’Italia, Banque de France, Banco de Espana and Deutsche Bundesbank which have been mandated by the ECB to build and operate the T2S platform.
A
AIFMD – Alternative Investment Fund Manager Directive
European Union directive that regulates EU alternative investment fund managers, essentially hedge funds and private equity funds, as well as fund managers that manage alternative investment funds established in the EU and those that market the units or shares of such funds in the EU. (http://www.gtb.db.com/content/en/1604_2708.html)
AMLD – Anti-Money Laundering Directive
European Union directive, the fourth revision of which is currently under negotiation and expected to be finalised in Q2 2015. The latest version intends to move to a risk-based and evidence-based approach to identifying and managing money laundering and counter-terrorist risks.
APEC – Asia Pacific Economic Cooperation
The leading forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region.
ASEAN – Association of South-East Asian Nations
A political and economic organisation of 10 countries located in Southeast Asia, including the following countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam.
B
Basel III
Global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Agreed upon by the Basel Committee on Banking Supervision 2010-11. The global standards need implementation into local law, i.e. CRD for Europe.
C
CMU – Capital Markets Union
Initiative by the European Commission to promote and develop a single market in capital across the 28 member states. It aims to diversify bank funding to the economy and focuses particularly on SME lending, securitisation and long-term projects.
CCP – Central Counterparty
Financial market infrastructures that can reduce and ‘mutualise’ — that is, share between their members — counterparty credit risk in the markets in which they operate.
CTFC – Commodities Futures Trading Commission
US-based independent agency of the United States government that regulates futures and option markets. (http://www.cftc.gov/index.htm)
CRD – Capital Requirements Directive
European Union legislative package covering prudential rules for banks, building societies and investment firms. The fourth revision of the Directive proposal is transposing the BASEL III requirements into European law. CRD IV is made up of: the Capital Requirements Regulation (CRR), which is directly applicable to firms across the EU, and the Capital Requirements Directive (CRD), which must be implemented through national law.
CSD/CSDR – Central Securities Depository
A specialist financial organization holding securities such as shares or bonds either in certified or uncertified form so that ownership can be easily transferred through a book-entry rather than the transfer of physical certificates. CSDR is the European Commission new legislation to govern CSDs, aimed at aligning settlement periods across European Economic Area countries, increased settlement discipline and CSD prudential requirements .
D
DCP – Directly Connected Participants
TARGET2-Securities participants, that connect directly to the T2S platform. This connectivity option can be only be used if the participants are authorized by the Central Securities Depository of their choice. A DCP will in any case have to maintain an account with the CSD, but can place settlement instructions directly in T2S.
Dodd-Frank Act
Legislation aimed at promoting the financial stability of the United States by improving accountability and transparency in the financial system, and also to end ‘too big to fail’. Also protects the American taxpayer by ending bailouts and to protect consumers from abusive financial services practices.
E
EAT – Eurosystem Acceptance Testing
The EAT is the testing and acceptance process of the T2S application by the ECB project team as coded and delivered by 4CB.
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EBA – European Banking Authority
European Union financial regulatory institution and European supervisory authority overall, which was set up to maintain financial stability in the EU and to safeguard the integrity, efficiency and orderly functioning of the banking sector. It took over all existing responsibilities and tasks of the Committee of European Banking Supervisors.
EC – European Commission
The executive body of the European Union responsible for proposing legislation, implementing decisions, upholding the Union's treaties and day-to- day running of the EU. (http://ec.europa.eu/index_en.htm)
ECB – European Central Bank
The central bank for the euro and administers the monetary policy of the Eurozone, which consists of 18 EU member states and is one of the largest currency areas in the world. (http://www.ecb.europa.eu/home/html/index.en.html)
EMIR – European Market Infrastructure Regulation
European Union regulation designed to increase the stability of the over-the-counter (OTC) derivative markets throughout the EU. In addition EMIR provides strict rules for CCPs and Trade Repositories active in the European Union.
ESMA – European Securities Markets Authority
European Union financial regulatory institution and European supervisory authority which contributes to the development of a single rule book for securities transactions in Europe. It replaced the Committee of European Securities Regulators. (http://www.esma.europa.eu/)
FTFR – Funds-Transfer-Regulation
The Funds Transfers Regulation lays down rules for payment service providers to send information on the payer throughout the payment chain for the purposes of prevention, investigation and detection of money laundering and terrorist financing. The requirements are based on the recommendations by the Financial Action Task Force (FATF).
FTT – Financial Transaction Tax
A levy placed on a specific type of monetary or securities transaction. Different regimes already exist in different countries.
G
G20 – Group of Twenty
The Group of Twenty (G20) is the premier forum for its members’ international economic cooperation and decision-making. Its membership comprises 19 countries plus the European Union, i.e.: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, USA. (https://www.g20.org/)
M
MiFID2 – Revised Markets in Financial Instruments Directive
European Union law that provides harmonised regulation for investment services across the European Economic Area. The main objective of the Directive is to increase competition and consumer protection in investment services. In addition to MiFID emerged MiFIR - Markets in Financial Instruments Regulation on OTC derivatives, central counterparties and trade repositories.
Money market fund reform
A revision to the currently existing rules for Money Market Funds. There are similar initiatives ongoing in the United States and the EU.
F
FATF – Financial Action Task Force
Intergovernmental organisation which develops policies to combat money laundering and terrorism financing. The recommendations are usually transposed into local laws like the Anti-Money Laundering Directive in Europe.
FATCA – Foreign Account Tax Compliance Act
A US federal law requiring US persons, including individuals who live outside the US, to report their financial accounts held outside of the country. Also requires financial institutions to report to the Internal Revenue Service about their US clients.
FCA – Financial Conduct Authority
UK regulatory body, formed as one of the successors to the Financial Services Authority. Operating independent of the United Kingdom government, it regulates financial firms providing services to consumers and maintains the integrity of the UK’s financial markets. (http://www.fca.org.uk/)
FFI – Foreign Financial Institution
The definition of an FFI is very broad and is expected to encompass a number of entities generally not considered to be financial institutions. In context with FATCA the term financial institution generally includes banking institutions but may include also other entities, such as hedge funds and private equity funds.
FMI – Financial Market Infrastructure
Are seen as the plumbing of the financial system as they provide the basis for getting the financial transactions finalized. Regulators distinguish between payment systems, securities settlement systems, central securities depositories, central counterparties and trade repositories.
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N
NAV – Net Asset Value
A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share currency amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
NSFR – Net Stable Funding Ratio
The NSFR is a key component of the Basel III reforms to promote a more resilient banking sector. It limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.
O
OTC – Over-the-Counter
A security traded outside a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.
P
PSD 2 – Revised Payment Services Directive
A regulatory initiative from the European Commission which regulates payment services and payment service providers as defined in the directive throughout the European Union and European Economic Area.
R
RMB Offshore
Chinese Renminbi that can be held outside of China and have the ability to flow in and out of China for the payment of goods and services and for certain investment purposes.
RTS – Regulatory Technical Standards
RTS are defined by European Supervisory Authorities as part of the so called “level 2” legislation for areas indicated in the level 1 legislation.
S
SEPA – Single Euro Payments Area
A payment integration initiative of the European Union for simplification of bank transfers denominated in euro. The project’s aim is to improve the efficiency of cross-border payments and turn the fragmented national markets for euro payments into a single domestic one. (http://www.gtb.db.com/content/en/sepa.html)
T
T2S – Target 2-Securities
T2S is an integrated settlement engine with multicurrency capabilities that will provide commoditized and harmonized securities settlement and clearing in central bank money across all participating European securities markets. (http://www.gtb.db.com/content/en/t2s.html)
U
UCITS - Undertakings in Collective Investments in Transferable Securities Directive
A set of European Union directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state.
V
Volcker Rule
Refers to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and aimed at restricting US banks from making certain kinds of speculative investments that do not benefit their customers.
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