Since last Thursday’s edition of Cabinet News and Views, we’ve experienced quite a week for financial regulation on both sides of the Atlantic.
The U.S. Supreme Court began its term this week, and among the first cases it heard oral argument in was CFPB v. Community Financial Services Association of America to decide whether the CFPB’s funding structure violates the Constitution’s Appropriations Clause. My colleagues, Rachel Rodman, Ken Bergman and Keith Gerver, note that the arguments have yielded some interesting takeaways, most notably a sense of skepticism among certain justices.
The UK’s Prudential Regulation Authority published a consultation paper on the “Capitalisation of foreign exchange positions for market risk" that my colleague Alix Prentice discusses. The paper proposed changes to implement upcoming Basel 3.1 requirements for the maintenance of capital against position exposed to FX risks covering several key areas, including the treatment of items held at historical FX rates, structural FX, and Pillar 1 FX risk calculations and SFX mitigation.
My colleague Jed Miller and I discuss the Federal Reserve Board’s posting of three new FAQs to its website regarding Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks). The FAQ guidance provides additional clarity on the use of credit-linked notes to transfer credit risk. Such transactions can go by various names, such as capital relief trades, credit risk transfers, or just CRTs, but whatever you call it, the written guidance from the Fed offers U.S. banks another tool to manage their capital adequacy.
We’re covering these latest developments and more this week, including two recent CFTC developments impacting event contracts for political events and the Commission’s position regarding certain large trader reporting obligations for futures, options and swaps; the European Commission’s recent announcement on sustainability-related disclosures in the financial services sector; and the European Securities and Markets Authority’s decision to include climate risk for the first time in its framework for stress test exercises for central counterparties.
We’re always here for comments and questions. Just drop me a note here.
Daniel Meade
Partner and Editor, Cabinet News and Views