REGULATIONS:

FEMR – Fair and Effective Markets Review

FSA (Financial Security Authority) was separated in two Orgs – FCA & PRA - UK
FCA – Financial Conduct Authority in UK (under Treasury)
We are an independent financial regulator, accountable to the Treasury and, through it,
to Parliament.
PRA – Prudential Regulation Authority in UK (under Bank of England)
The Prudential Regulation Authority (PRA) is responsible for the prudential regulation
and supervision of around 1,700 banks, building societies, credit unions, insurers and
major investment firms. It sets standards and supervises financial institutions at the
level of the individual firm.

The PRA's role is defined by three statutory objectives: i) to promote the safety and
soundness of its firms; ii) specifically for insurers, to contribute to the securing of an
appropriate degree of protection for policyholders; and iii) a secondary objective to
facilitate effective competition.

OCC – Office of Comptroller of the Currency in US

About: The OCC charters, regulates, and supervises all national banks and federal
savings associations as well as federal branches and agencies of foreign banks. The
OCC is an independent bureau of the U.S. Department of the Treasury.
Mission: To ensure that national banks and federal savings associations operate in a safe
and sound manner, provide fair access to financial services, treat customers fairly, and
comply with applicable laws and regulations.

Lines on Conduct Risk as blurred as FCA is focusing on “consumer protection,” which

is largely an extension of Financial Consumer Protection.
Scandal – PPI (Payment Protection Insurance) was mis-sold alongside loans as it was
essentially ineffective to provide claims to customers if they came to it.

1. BASEL 3 (Stricter Bank Capital Limits causing concern of Liquidity and Credit
Availability)
a. Basel III (or the Third Basel Accord) is a global, voluntary regulatory framework on bank capital
adequacy, stress testing and market liquidity risk.
b. Key Principles:
i. Capital requirements – CommonEquityTier1/RWAs >= 4.5% up from 2%
ii. Leverage Ratio - Basel III introduced a minimum "leverage ratio". This is a non-risk-
based leverage ratio and is calculated by dividing Tier 1 capital by the bank's average
total consolidated assets (sum of the exposures of all assets and non-balance sheet
items). The banks are expected to maintain a leverage ratio in excess of 3%.
Tier1Capital/TotalExposure>=3%
iii. 2 Liquidity Ratios:
1. Liquidity Coverage Ratio-The "Liquidity Coverage Ratio" was supposed to
require a bank to hold sufficient high-quality liquid assets to cover its total
 net cash outflows over 30 days. Mathematically it is expressed as follows:
High Quality Assets/Total Net Outflows over last 30 days >= 100%
2. Net Stable Funding Ratio –

The problem is, it’s hard to figure out exactly what anyone means when they
say “liquidity,” let alone how it’ll spur financial Armageddon. Yes, it may
take longer to execute bigger bond trades than it did before the 2008 crisis as
banks reduce their inventories to comply with new regulations. And, yes,
everyone has crowded into the same trades, scooping up risky assets in search
of that extra basis point of yield amid unprecedented central bank stimulus.
2. MIFID II (Greater Transparency– minimum standards for pre&post trade price
transparency)) - The price discovery and trade execution process is changing, 0creating opportunities
for more agency-driven models in OTC derivatives and cash fixed-income products. Data availability is as a
result improving both in terms of availability and quality.
3. DODD-FRANK (US Only – Greater Transparency – minimum standards for pre&post
trade price transparency) - The price discovery and trade execution process is changing, 0creating
opportunities for more agency-driven models in OTC derivatives and cash fixed-income products. Data
availability is as a result improving both in terms of availability and quality.
NEWS:

Wall Street banks will escape billions of dollars in additional collateral costs after U.S.
regulators softened a rule that would have made their derivatives activities much more
expensive.

Two agencies approved a final rule on Thursday that will govern how much money
financial firms must set aside in derivatives deals. A key change from recent draft
versions of the rule -- and the focus of months of debate among regulators -- cut in half
what the companies must post in transactions between their own divisions.

A version proposed last year called for both sides to post collateral when two affiliates
of the same firm deal with one another, such as a U.S.-insured bank trading swaps with
a U.K. brokerage. The final rule requires that only the brokerage post, cutting collateral
demands by tens of billions of dollars across the banking industry. Those costs would
still be significantly higher than the collateral they currently set aside.

“Establishing margin requirements for non-cleared swaps is one of the most important
reforms of the Dodd-Frank Act,” Federal Deposit Insurance Corp. Chairman Martin
Gruenberg said before his agency’s vote, noting that changes were made in response to
objections raised by the industry.
Parallel Rule

While the bank regulators’ approach is good news for Wall Street, all eyes now turn to
the Commodity Futures Trading Commission, which is writing a parallel rule. Firms
also would need that rule to be softened before claiming a clear victory. Like the CFTC,
the Securities and Exchange Commission is also drafting a final version of similar
requirements to be imposed on separate parts of banks.

CFTC Chairman Timothy Massad said on Wednesday that his agency may have
different goals in the rule than the bank regulators overseeing firms that have federal
deposit insurance.

“It is important to remember that the entities they regulate are different than ours,”
Massad said. “There’s a safety and soundness concern there. And that difference is
something we’re thinking about.”

Senator Elizabeth Warren, a frequent critic of Wall Street, urged the CFTC to follow the
lead of the bank regulators and warned against a more lenient rule.

“If the CFTC’s rule is weaker than those issued by other federal regulators, it will create
opportunities for big banks to game the rules,” Warren, a Massachusetts Democrat, said
in a statement before the bank regulators’ version was released.
Thursday’s approval by the FDIC and the Office of the Comptroller of the Currency
also needs to be backed by the Federal Reserve -- which hasn’t yet announced a meeting
date -- and other government agencies.
Complex Market

It’s difficult to estimate how much is at stake for banks such as JPMorgan Chase & Co.
and Morgan Stanley, given the complexity of the market. Even tens of billions in
collateral between affiliates is just a slice of about $315 billion in collateral that would
be posted by U.S. firms in all non-cleared swap trades, according to estimates released
by the agencies. That estimate is less than half of an earlier figure released by the OCC.

The Clearing House Association, a lobbying group for big banks, said regulators
shouldn’t have required collateral for the internal trades because the transactions don’t
increase risk to lenders. Still, the group said the final rule was an improvement from
past drafts.

“While one-way posting of margin between affiliates is clearly better than two-way, this
rule increases the cost of serving clients and hedging risk while doing nothing to
enhance the safety and soundness of the organization,” Greg Baer, president of the
Clearing House Association, said in a statement after the rule was approved.

The rule is one of the last major requirements stemming from U.S. regulators’ swap-
market overhaul, which began after largely unregulated credit-default trades helped fuel
the 2008 market meltdown. The 2010 Dodd-Frank Act sought to increase the amount of
collateral backing swaps in an effort to reduce broader systemic risks stemming from a
default. The law called for most swaps to be guaranteed at third-party clearinghouses
that stand between buyers and sellers. Still, many trades in the multi-trillion global swap
market remain uncleared.

In other ways the rule has been eased from the earlier proposal, the new requirement
will be phased in over four years, starting Sept. 1, 2016, for the biggest firms -- with no
retroactive demand. It also expands what type of assets may be used for collateral.

A related rule, also conditionally completed on Thursday, exempts commercial energy

and agricultural firms from the collateral requirements.

Other government officials have objected to easing the earlier draft -- most prominently
FDIC Vice Chairman Thomas Hoenig. He said in a statement that the financial system
would have been “best served” by demanding collateral from both sides of every
internal transaction, but that “much is accomplished with the requirement that the
insured bank collect margin.”