Action Line Update
August 20, 2007
Highlights
- Joint Industry Response to FSA Consultation on Conduct of Business Reform
- MiFID Connect Guideline on "Suitability and Appropriateness" gains FSA Recognition
- CEBS Publishes Technical Advice on Liquidity Risk Management
- CESR Publishes its Advice to EU Commission on Non-Equities Transparency
- FSA Policy Statement on MiFID Best Execution Requirements
- IOSCO Publishes Comments on 2007 Work Programme
- EU Commission Publishes Feedback Statement on Commodity and Exotic Derivatives
- EU Commission Publishes Draft Regulation Establishing Mechanism for Determining Equivalence of Third Countries' GAAP to IFRS
- CSSF Circular 07/307 Implementing MIFID Requirements as Regards Rules of Conduct in the Financial Sector
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Indicates a new item. Items that are solely informational are generally removed after two weeks. New items normally will be posted to the website weekly.
CROSS MARKET ISSUES
No updates.
CORPORATE CREDIT MARKETS
No updates.
FUNDING
No updates.
GOVERNMENT AND FEDERAL AGENCY MARKETS
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Federal Agency Securities Committee Meeting: There will be a meeting of the Federal Agency Securities Committee on Tuesday, September 18, 2007 at 4:00 p.m., at SIFMA's 360 Madison Avenue offices. A meeting agenda will be circulated to the Committee prior to the meeting. Please contact Robert Toomey at 646.637.9224 with any questions or comments.
MBS AND SECURITIZED PRODUCTS
Federal Financial Regulators Propose Illustrations of Consumer Information to Support Their Statement on Subprime Mortgage Lending: The federal financial regulatory agencies today issued proposed illustrations of consumer information for certain adjustable-rate mortgage (ARM) products described in the agencies' Statement on Subprime Mortgage Lending (Subprime Statement), effective July 10, 2007. The Subprime Statement recommends communications that ensure consumers have clear, balanced, and timely information about the relative benefits and risks of certain ARM products. The illustrations are intended to assist institutions in providing this information. The illustrations consist of (1) an explanation of some key features and risks that the Subprime Statement identifies, including payment shock, and (2) a chart that shows the potential consequences of payment shock in a concrete, readily understandable manner. The agencies seek public comment on all aspects of the proposed illustrations. Comments are due 60 days after publication in the Federal Register.
MUNICIPAL MARKETS
EUROPEAN MARKETS
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Joint Industry Response to FSA Consultation on Conduct of Business Reform: Nine industry associations including SIFMA, LIBA, ISDA, BBA and ICMA have published a joint response to the Financial Services Authority (FSA) Consultation Paper 07/9 (CP07/9) on proposals to reform the remaining elements of the UK conduct of business regime that fall outside the scope of the Markets in Financial Instruments Directive (MiFID) and were not consulted on in Consultation Papers 06/19 or 06/20. The response, which focuses on Chapters 18 and 19 of the consultation paper, opposes: (i) the proposal to apply Section 150 of the Financial Services and Markets Act 2000 (FSMA) rights of action in respect of high-level principle-based rules in the new Conduct of Business Sourcebook (NEWCOB); and (ii) the proposal to introduce new requirements to record voice conversations and electronic communications. The response urges the FSA not to proceed with these proposals.
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MiFID Connect Guideline on "Suitability and Appropriateness" gains FSA Recognition: Guidelines for financial firms on meeting the "suitability and appropriateness" provisions of the forthcoming MiFID have received recognition from the FSA. This means that the FSA will take into account a firm's use of the guidelines when exercising its regulatory functions. The guidelines come from MiFID Connect, a joint project between eleven trade associations, including SIFMA, to ease the transition from the current FSA rulebook to the implementation of the new EU-wide requirements. MiFID Connect will make the guidelines available to firms, who are working to comply with MiFID, which comes into force on November 1, 2007. The guidelines set out points firms might consider in assessing whether their advice-based investment services are suitable for their customers, and whether other services they provide may be appropriate for the client under new requirements introduced by MiFID.
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CEBS Publishes Technical Advice on Liquidity Risk Management: The Committee of European Banking Supervisors (CEBS) has published the first part of its technical advice to the EU Commission on liquidity risk management. The advice, which responds to the March 2007 Commission Call for Technical Advice No. 8, contains a survey of the regulatory framework for liquidity risk management adopted by Member States.
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CESR Publishes its Advice to EU Commission on Non-Equities Transparency: The Committee of European Securities Regulators (CESR) has published its advice to the EU Commission on non-equities transparency, as well as a report on commodity and exotic derivatives. This follows CESR's May 2007 consultation on questions connected to the November 2006 EU Commission request for advice on transparency in non-equities markets with regard to its work under Article 65(1) of the Markets in Financial Instruments Directive (MiFID). In relation to non-equities transparency, CESR concluded, amongst other things, that it had not recognised evident market failure in relation to market transparency which would warrant mandatory transparency for bonds. In relation to commodities, the published document (based on responses from individual CESR members) covers the first part of the Commission's request and includes an initial fact-finding exercise on the regulation and operation of commodity and exotic derivatives in member states. CESR has also announced (in the published document) the appointment of Jean-Paul Servais as Chair of the MiFID Level 3 Expert Group and Maria Jose Yubero as Chair of the Intermediaries Sub-Group.
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FSA Policy Statement on MiFID Best Execution Requirements: The FSA has published Policy Statement 07/15 (PS07/15), which provides feedback on the remaining issues raised by respondents in respect of: (i) Discussion Paper 06/3, which focused on the requirement for financial services firms to take all reasonable steps to provide best execution to their clients under Article 21 of MiFID; and (ii) Consultation Paper 06/19, which contained proposals for significant amendments to the UK conduct of business regime, in order to implement aspects of MiFID. PS07/15 also provides feedback on certain issues that CESR did not address in its May 2007 Q&As on best execution.
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IOSCO Publishes Comments on 2007 Work Programme: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a paper containing comments received on its March 2007 consultation report, which provided an outline of the Technical Committee's short-term priorities, in order to invite comment on its work in respect of prioritisation and relevance. The paper includes the responses of seventeen industry organisations covering the Technical Committee's work on, amongst other things: (i) the monitoring and enforcement of accounting standards; (ii) bond market transparency; (iii) direct market access; and (iv) price formation on fragmented markets.
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EU Commission Publishes Feedback Statement on Commodity and Exotic Derivatives: The EU Commission has published a summary of responses to its December 2006 Call for Evidence concerning commodity and exotic derivatives and related business, which forms part of the Commission's review of the sector as required by MiFID and the recast Capital Adequacy Directive (2006/49/EC) (CAD). The summary concludes that there are, or may be, problems emerging from the current structure and nature of the EU regulatory framework related to commodity and exotic derivatives for various reasons, including: (i) the uneven or divergent transposition and implementation of the Directives; (ii) the potential for competitive distortions arising either because of uneven implementation or because of exemption of certain entities from regulation; and (iii) a lack of rules which are adapted to the specificities of the commodity and exotic derivatives sectors.
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EU Commission Publishes Draft Regulation Establishing Mechanism for Determining Equivalence of Third Countries' GAAP to IFRS: The EU Commission has published a draft regulation establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities under the Prospectus Directive and the Transparency Directive to IFRS. The draft regulation states that an assessment of equivalence may be made: (i) on the Commission's own initiative; (ii) following an application to the Commission by the competent authority of a member state; or (iii) following an application to the Commission by the authority responsible for accounting standards or market supervision of a third country.
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CSSF Circular 07/307 Implementing MIFID Requirements as Regards Rules of Conduct in the Financial Sector: Following the publication on July 13, 2007 of the law implementing MiFID in Luxembourg (the Law) and the Grand-Ducal Regulation on organisational requirements and rules of conduct in the financial sector, which implements in Luxembourg the MiFID Implementing Directive 2006/73/EC (the Regulation), the Commission de Surveillance du Secteur Financier (Commission for the Surveillance of the Financial Sector) (CSSF) has published Circular 07/307. The Circular provides credit institutions, investment firms and managements companies with explanations regarding some rules of conduct imposed on them under the Law and the Regulation. Amongst other things, the CSSF elaborates on the notions of: (i) responsibility of the board of management; (ii) clients' categorisation; (iii) supervision by an external auditor; (iv) suitability and appropriateness; (v) conflicts of interest; (vi) inducements; (vii) information to existing and potential clients; and (viii) reporting to clients.