/ Finance

Brief Summary of the Post-'08 Regulatory Environment (Notes on Finance)

  • EU:
    • MiFID 2[1] (Markets in Financial Instruments Directive, 2018–):
      • Unbundling of research and trade execution.
      • OTC trading moved to regulated exchanges & clearing houses.
      • Commission payments from platforms to financial advisors banned.
      • More extensive reporting requirements.
    • PSD2[2] (Second Payment Services Directive, 2018–):
      • 'Open banking': Forcing retail banks to open up customer data (with consent) to third-parties, via open APIs .
      • Expansion of businesses covered by legislation.
      • Consumer protection (Fees, refunds, overdrafts, ...).
    • GDPR[3] (General Data Protection Regulation, 2018–):
      • Summary:
        • Explicit consent.
        • Data portability.
        • 'Right to be forgotten'.
        • Data protection by design.
        • Data breach notification.
      • Fines (4%/€20m).
  • US:
    • Dodd-Frank[4] (Dodd–Frank Wall Street Reform and Consumer Protection Act, 2010–):
      • Greater supervision of financial instittuions (Incl. HFs, PE funds.), greater SEC enforcement powers + whistleblower bounty.
      • Volcker Rule[5] (2015–): Ban on proprietary trading.
      • Derivatives move to exchanges/clearing houses.
      • Bank and non-bank financial institutions designated as 'SIFIs' and have to write a 'living will'.
  • UK:
    • Banking Reform Act[6] (Financial Services (Banking Reform) Act 2013, 2019–)
      • UK banks to separate ('ringfence') retail banking division from investment banking division[7].
      • Divided the Financial Services Authority into 3 bodies[8], with a 'twin peaks'/dual regulation approach[9]:
        1. FCA (Financial Conduct Authority): Focusses on financial institutions' conduct, market integrity and promoting consumer protection[10].
        2. PRA (Prudential Regulation Authority, part of the Bank of England): Focusses on financial institutions' prudential obligations (Prudential = Managing risk, and monitoring capital requirements.).
        3. FPC (Financial Services Authority, part of the Bank of England): Focusses on systemic risks and economic resilience[11].
  • Intergovernmental:
    • Basel 3[12] (Third Basel Accord, 2019(?)–):
      • Covers bank capital adequacy, stress testing, market liquidity risk.
        • Intended to strenghten bank capital requirements by increasing bank liquidity & decreasing bank leverage.
      • Summary:
        • Capital requirements: Tier 1 capital (Equity+cash) + Tier 2 (Accounting) + Capital conservation buffer (Equivalent to risk-weighted assets) + Counter-cyclical buffer (National regulator discretion, during high credit growth period.).
        • Minimum leverage ratio.
        • Liquidity requirements.

  1. JPMorgan Chase & Co., 'EMEA Regulatory Developments; MiFID 2' (2011) <https://www.jpmorgan.com/cm/BlobServer?blobkey=id&blobwhere=1320534777268&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs&blobheadername1=Content-disposition&blobheadervalue1=attachment;filename=White_Paper_A4.pdf> ↩︎

  2. Payments UK, 'The Second Payment Services Directive (PSD2): A briefing from Payments UK' (2016) <https://www.paymentsuk.org.uk/sites/default/files/PSD2%20report%20June%202016.pdf> ↩︎

  3. 'Overview of the General Data Protection Regulation (GDPR)' (Information Commissioner's Office, 13 September 2017) <https://ico.org.uk/for-organisations/data-protection-reform/overview-of-the-gdpr/> ↩︎

  4. David S. Huntington, 'Summary of Dodd-Frank Financial Regulation Legislation' (Harvard Law School Forum on Corporate Governance and Financial Regulation, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 7 July 2010) <https://corpgov.law.harvard.edu/2010/07/07/summary-of-dodd-frank-financial-regulation-legislation/> ↩︎

  5. Davis Polk & Wardwell LLP, 'Volcker Rule Materials: Final Volcker Rule with Linked TOC' (Davis Polk, 10 December 2013) <http://volckerrule.com/docs/Volcker.Final.Rule.with.TOC.pdf> ↩︎

  6. Financial Services (Banking Reform) Act 2013 <http://www.legislation.gov.uk/ukpga/2013/33/contents/enacted> ↩︎

  7. Shearman & Sterling LLP, 'Vickers Recommendations on Bank Ring-fencing Made Law in the UK' (2013) <http://www.shearman.com/~/media/Files/NewsInsights/Publications/2013/12/VickersRecommendationsonBankRingfencingMadeLawintheUKFIAFR121913.pdf> ↩︎

  8. HM Treasury, 'Financial Services Bill receives Royal Assent' (Her Majesty's Government, 19 December 2012) <https://www.gov.uk/government/news/financial-services-bill-receives-royal-assent> ↩︎

  9. Brooke Masters, 'FSA to give way to ‘twin peaks’ system', Financial Times (London, 1 April 2013) <https://www.ft.com/content/32ebdd78-97bf-11e2-97e0-00144feabdc0> ↩︎

  10. Wipro, 'The New UK Regulatory Framework: Impact and Implications on Financial Institutions' (2013) <http://www.wipro.com/documents/the-new-UK-regulatory-framework.pdf> ↩︎

  11. Bank of England, 'Financial Policy Committee' (Bank of England) <http://www.bankofengland.co.uk/financialstability/Pages/fpc/default.aspx> ↩︎

  12. 'Basel III overview table' (Bank for International Settlements, 20 March 2015) <http://www.bis.org/bcbs/basel3/b3summarytable.pdf> ↩︎