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Article (21/400)
European regulation update: shadow banking
European regulation update: shadow banking

European regulation update: shadow banking


Focus on the latest European regulatory developments

Money Market Funds Regulation (MMF)


On 30 November 2016, the EU Council Presidency published the final compromise text of the proposed regulation on money market funds following a provisional agreement with representatives of the EU Parliament at negotiations on 14 November 2016. The publication of the final text in the Official Journal of the European Union (OJEU) is expected shortly. In addition, the European Securities and Markets Authority (ESMA) publication of regulatory technical standards (RTS) is expected by the end of 2017 for an effective date in 2018.

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Securities Financing Transactions Regulation (SFTs)


On 19 December 2016, ESMA published a consultation paper on draft technical advice to the EU Commission on ESMA's fees TRs under SFT Regulation, and to ensure fairness, changes to the way ESMA's fees for TRs under European Market Infrastructure Regulation (EMIR) are calculated.

In January 2016, the Commission asked ESMA to provide technical advice to assist the formulation of an EU Regulation on fees for TRs under SFTR by delegated act.  ESMA proposes a mixed system of levying fees on specific administrative actions such as registration, extension of registration or recognition, and an annual fee for on-going supervision which is proportionate to the level of turnover of the TRs. The comments to the consultation closed on 31 January 2017. ESMA intends to submit a final report of the technical advice to the Commission for endorsement by end of Q1/beginning of Q2 2017.

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On 25 January 2017, the Financial Stability Board (FSB) published two reports on the re-hypothecation of client assets and collateral re-use.  The FSB notes that these practices have the effect of increasing the availability of collateral in the financial system and reducing the cost of using collateral but it is also concerned that, as highlighted during the global financial crisis, re-hypothecation and collateral re-use may also pose potential risks to the financial system.

The FSB also published a report which finalises the measures and metrics of non-cash collateral re-use in securities financing transactions, which authorities will monitor for financial stability purposes.  The report follows a consultation published in February 2016 and forms part of the FSB's work to transform shadow banking into resilient market-based finance, in particular its work to improve reporting and transparency of securities financing markets.

Click here to access the report on re-hypothecation and collateral re-use.

Click here to access the report on non-cash collateral reuse – measures and metrics.


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