On December 8, 2020, the House passed the National Defense Authorization Act (the “NDAA” or “Act”), which includes over 200 pages of significant reforms to the Bank Secrecy Act (“BSA”) and other anti-money laundering (“AML”) laws that have been working their way through Congress for several years. Despite some remaining objections from President Trump and
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CFTC News Roundup for October and November and a Look Ahead
There has been a flurry of activity at the Commodity Futures Trading Commission (“CFTC”) in recent weeks. As we reported previously, the CFTC approved three final rules, including the much-anticipated position limits rule, at its October 15 open meeting, and announced significant organizational changes to its operating divisions on November 3. This post highlights additional significant actions by the CFTC in October and November and previews what is next for the CFTC under a Biden Administration.
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CFTC Announces Organizational Changes to Agency Divisions
On November 2, 2020, the U.S. Commodity Futures Trading Commission (CFTC) issued a press release announcing organizational changes to several areas of the agency’s operating divisions. According to CFTC Chairman Heath P. Tarbert, these changes are intended to better align the agency’s structure with its strategic objectives.
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Recent Developments on the German Ringfencing Regulation
I. The German Ringfencing Act
As a reaction to the financial crisis in 2007/2008 and to address risks in connection with the “too big to fail” phenomena, the German legislature issued the Ringfencing Act in 2014 (the “Act”).
In a nutshell, the Act forbids big CRR-credit institutions (depending on certain balance sheet thresholds) to engage in proprietary business (Eigengeschäft), proprietary trading (Eigenhandel) and credit/guarantee business with hedge funds (i.e., AIFs whose leverage exceeds three times their NAV).…
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CFTC Approves Three Final Rules at Open Meeting
At an open meeting on October 15, 2020, the Commodity Futures Trading Commission (“CFTC” or the “Commission”) voted to adopt three final rules. First, the Commission adopted by a 3–2 vote a final rule overhauling its regulatory framework governing speculative position limits on a large variety of commodities. Second, the Commission unanimously approved amendments to margin requirements for uncleared swaps for swap dealers and major swap participants. Third, the Commission unanimously voted to finalize amendments to Regulation 3.10(c), which sets forth exemptions from registration for certain foreign intermediaries.
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OCC Issues Guidance on National Banks and Stablecoin Activities
On September 21, 2020, the Office of the Comptroller of the Currency (“OCC”) published a letter addressing the authority of nationals banks to hold deposits that serve as reserves for stablecoins, which is a type of cryptocurrency designed to have a stable value. The OCC concludes that national banks and federal savings associations may engage in certain stablecoin activities as described in the letter.
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Financial Action Task Force (FATF) Issues Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing
On September 14, 2020, the Financial Action Task Force (“FATF”) — an inter-governmental anti-money laundering (“AML”) and counter-terrorist financing (“CFT”) standard-setting organization — issued a report on red flag indicators of money laundering and terrorist financing for virtual assets (the “Report”).
Based on over 100 case studies, the Report highlights potential red flag indicators of virtual assets being used for criminal activity. The Report is the latest guidance related to FATF’s Focus on Virtual Assets and is meant to complement FATF’s June 2019 guidance on developing a risk-based approach to virtual assets and virtual asset service providers.…
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FinCEN Issues Final Rule on Bank Secrecy Act Requirements for Banks Without a Federal Functional Regulator
On Monday, September 14, 2020, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule (the “final rule”) requiring minimum standards for anti-money laundering (“AML”) programs for banks without a federal functional regulator (“covered banks”). The final rule implements a notice of proposed rulemaking issued on August 25, 2016.
The final rule applies to a limited set of specialized institutions, including, among others: state-chartered non-depository trust companies, non-federally insured credit unions, and a small number of other non-federally insured state-chartered institutions, private banks, and international banking entities. The date for these covered banks to come into compliance with the final rule is March 15, 2021, which is 180 days after the final rule was issued.…
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CFTC To Consider Proposals for Refining Uncleared Margin Rules
During an open meeting on July 22, 2020, the CFTC Commissioners heard a staff presentation on three specific recommendations for changes to the margin requirements for uncleared swaps for swap dealers and major swap participants. These changes would:
- Align the timing and methodology for both the material swaps exposure calculations and the post phase‐in compliance periods with the Basel Committee on Banking Supervision and the International Organization of Securities Commissions and other global regulations;
- Codify relief related to minimum transfer amounts as addressed by CFTC staff letters 17‐12 and 19‐25; and
- Codify an alternative method for calculating the initial margin that must be collected from the counterparty, in which small swap dealers may rely on the initial margin models of a larger swap dealer counterparty.
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CFTC Adopts Final Rules on Capital Requirements and Cross-Border Application of the Registration Thresholds for Swap Dealers and Major Swap Participants
At open meetings on Wednesday, July 22, and Thursday, July 23, the CFTC approved, by a 3-2 vote, two significant final rules implementing provisions in the Dodd-Frank Act. The first rule imposes capital requirements on swap dealers (“SDs”) and major swap participants (“MSPs”) that are not subject to supervision by a banking regulator, as well as financial report requirements for all SDs and MSPs. The second rule addresses the cross-border application of the SD and MSP registration thresholds and establishes a formal process for requesting comparability determinations for such requirements from the CFTC. Each final rule is summarized below.
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