Bank of England News Release - Closure of Cyprus Popular Bank Public Co Ltd (Laiki Bank UK) and Transfer of All Deposits to Bank of Cyprus UK

Cyprus Popular Bank Public Co Ltd operating in the UK under the trading name ‘Laiki Bank UK’ has today reached an agreement with Bank of Cyprus UK Ltd to transfer all deposits to Bank of Cyprus UK, a UK subsidiary fully regulated by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) and covered by the UK Financial Services Compensation Scheme (FSCS) up to £85,000 per depositor.

The agreement does not affect access to bank accounts and therefore all customers who had an account with Laiki Bank UK will be able to access funds as normal and do not need to do anything.

Under the legal decree setting out the arrangements put in place by the Cypriot authorities a number of customers whose accounts are in overdraft will not be transferred to Bank of Cyprus UK. These accounts are now frozen at Laiki Bank UK and customers in overdraft will no longer have banking facilities at Laiki Bank UK. Customers in overdraft will need to contact Laiki Bank UK if they have any questions about what this means for them. Customers who had an overdraft facility but were in credit need to be aware that this facility has been cancelled. They will need to contact Bank of Cyprus UK if they want to apply for a new overdraft facility.

Additionally, mortgages and loans that customers have will not be transferred to Bank of Cyprus UK. These services have been transferred to the Bank of Cyprus, Cyprus and customers will be contacted directly in due course. However, customers should continue to make repayments as normal.

 

All other deposits, such as current accounts, will transfer to Bank of Cyprus UK. For further information customers should contact Bank of Cyprus UK.

 

Existing customers of Bank of Cyprus UK have not been impacted by the measures outlined above and the firm continues to operate as normal.  

 

Notes

1.  Until today, there were two Cypriot banks operating in the UK:

a)     Cyprus Popular Bank Public Co Ltd (CPB) which operated in the UK under the trading name ‘Laiki Bank UK’ as the UK branch of an EEA bank under the European Banking Consolidation Directive.  The Central Bank of Cyprus was the home state regulator of this firm, not the UK authorities.  As is the case with other EEA operations customers were covered by the home state deposit guarantee scheme up to 100,000 Euros per eligible depositor.

b)    Bank of Cyprus Public Limited Company operates in the UK through its subsidiary  Bank of Cyprus UK Limited (Bank of Cyprus UK) which is incorporated in the UK and fully regulated by the PRA and FCA.  Eligible deposits with the Bank of Cyprus UK are covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per eligible depositor and £170,000 for joint accounts.

 

2.  Details regarding the UK Financial Services Compensation Scheme (FSCS) are available on the FSCS website

 

3.  On 1 April 2013 the Prudential Regulation Authority (PRA) became responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. In total the PRA regulates around 1,700 financial firms.

 

The PRA’s role is defined in terms of two statutory objectives to promote the safety and soundness of these firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.

 

The PRA was created by the Financial Services Act (2012) and will be part of the Bank of England.

4.  On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of 26,000 financial firms. The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.

The FCA was created by the Financial Services Act (2012).

Swiss Consultation Paper on Adapting FINMA Circular "Capital Buffer and Capital Planning – Banks"

The Swiss Financial Market Supervisory Authority (FINMA) is opening a consultation on adapting FINMA Circular 11/2 "Capital buffer and capital planning – banks". The Circular, which has been in force since 1 July 2011, is based on provisions prescribed in the current Capital Adequacy Ordinance (CAO) pertaining to the requirements for the quality of capital needed for the capital buffer. To date, the quality of capital defined in the CAO has been in accordance with Basel II. Since the CAO is currently being fully revised and adjusted to incorporate the modified definition of the term 'equity capital' as specified in the Basel III reform package, it is also deemed necessary to change the Circular appropriately. Comments on the proposed adjustments to the Circular may be submitted up to 30 April 2012.

FSA Review into Anti-Bribery and Corruption Systems and Controls in Investment Banks and Proposed New Guidance for All Firms

The Financial Services Authority, UK (FSA) publishes the findings of its thematic review into anti-bribery and corruption (ABC) systems and controls in investment banks. 

In response to those findings, the FSA will consult on proposed amendments to the FSA’s regulatory guidance, ‘Financial crime: a guide for firms’. This proposed new guidance applies to all firms within scope of our financial crime rules, not just investment banks.

From August 2011, the FSA visited 15 firms, including eight major global investment banks and a number of smaller operations, to examine how firms mitigate bribery and corruption risk.  Bribery and corruption risk is the risk of the firm, or anyone acting on the firm’s behalf, engaging in bribery and corruption.

The FSA found that, despite a long-standing regulatory requirement to mitigate financial crime risk, the majority of firms in our sample had more work to do to implement effective anti-bribery and corruption systems and controls. In particular, FSA found the following common weaknesses:

• most firms had not properly taken account of our rules covering bribery and corruption, either before the implementation of the Bribery Act 2010 or after;
• nearly half the firms in our sample did not have an adequate ABC risk assessment;
• management information on ABC was poor, making it difficult for us to see how firms’ senior management could provide effective oversight;
• only two firms had either started or carried out specific ABC internal audits;
• there were significant issues in firms’ dealings with third parties used to win or retain business;
• though many firms had recently tightened up their gifts, hospitality and expenses policies, few had processes to ensure gifts and expenses in relation to particular clients/projects were reasonable on a cumulative basis.

Although firms in our sample had been slow and reactive in managing bribery and corruption risk, our visits and the introduction of the Bribery Act had acted as a trigger for firms to focus on ABC issues.

The FSA is considering whether further regulatory action is required in relation to certain firms in its review.

Tracey McDermott, acting director of enforcement and financial crime, said:

“It is imperative that firms have adequate arrangements to control the risks of financial crime. We have seen examples of good practice and some examples of poor practice. Overall, despite the high profile of the issue, the investment banking sector has been too slow and too reactive in managing bribery and corruption risks.

“Firms across all sectors must have appropriate controls to manage their financial crime risks, whether related to bribery and corruption or otherwise. The FSA and, from next year, the Financial Conduct Authority will continue to focus on financial crime risks in this sector and beyond to ensure firms are meeting their legal and regulatory obligations.”

RBI Amended Overseas Direct Investments Route by Resident Individuals

Reserve Bank of India (RBI), amended the Notification No. FEMA 120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004, under circular and circular.

RBI proposed following following changes in ODI Investment Route:

Creation of charge on immovable / movable property and other financial assets

The existing regulations of the Notification do not envisage creation of charge on the immovable movable property and other financial assets (except shares of JV / WOS) of the Indian Party. It has been decided that proposals from the Indian party for creation of charge in the form of pledge / mortgage / hypothecation on the immovable / movable property and other financial assets of the Indian Party and their group companies may be considered by the Reserve Bank under the approval route within the overall limit fixed (presently 400%) for financial commitment subject to submission of a ‘No Objection’ by the Indian Party and their Group companies from their Indian lenders.

Appropriate reporting mechanism for capturing the financial commitment on account of creation of charge on such property / assets shall be introduced shortly.

Reckoning bank guarantee issued on behalf of JV / WOS for computation of Financial Commitment

Presently, the bank guarantee issued on behalf of JV / WOS is not reckoned for the purpose of computing the financial commitment of the Indian Party to its JV / WOS overseas.

It has been decided that the bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party, shall be reckoned for computation of the financial commitment of the Indian Party and reported accordingly.

Appropriate reporting mechanism for capturing the financial commitment on account of issuance of bank guarantee shall be introduced shortly.

Issuance of personal guarantee by the direct / indirect individual promoters of the Indian Party

It has been decided that issuance of personal guarantee by the promoters of the Indian Party as presently allowed under the General Permission shall also be extended to the indirect resident individual promoters of the Indian Party with same stipulations as in the case of personal guarantee by the direct promoters.

Financial Commitment without equity contribution to JV / WOS

Presently, Regulation 6(4) of the Notification ibid prescribes that an Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture / Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian party has made investment by way of contribution to the equity capital of the Joint Venture.

Keeping in view the business requirement of the Indian party, particularly the legal requirement of the host country, it has now been decided that the proposals from the Indian party for undertaking financial commitment without equity contribution in JV / WOS may be considered by the Reserve Bank under the approval route. AD banks may forward the proposals from their constituents after ensuring that the laws of the host country permit incorporation of a company without equity participation by the Indian party.

Submission of Annual Performance Report

Presently, Regulation 15(iii) of the Notification prescribes that Indian party needs to submit to the Reserve Bank through the designated Authorised Dealer bank every year an Annual Performance Report in Form ODI Part III in respect of each Joint Venture or Wholly Owned Subsidiary outside India, set up or acquired by the Indian party, after the finalization of the audited accounts of the Joint Venture / Wholly Owned Subsidiary outside India.

Where the law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS, the Annual Performance Report (APR) may be submitted by the Indian party based on the un-audited annual accounts of the JV / WOS provided:

1. The Statutory Auditors of the Indian party certifies that ‘The un-audited annual accounts of the JV / WOS reflect the true and fair picture of the affairs of the JV / WOS’ and
   
2. That the un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of the Indian party.
   

Compulsorily Convertible Preference Shares (CCPS)

The extant provisions of Overseas Direct Investments envisage setting up / acquiring JV / WOS abroad by subscribing / contributing to the equity capital of the JV / WOS. Therefore, contribution to the preference share capital (whether convertible or non-convertible) of the JV / WOS abroad by the Indian party is treated as loan to them.

Keeping in view the nature of the Compulsorily Convertible Preference Shares (CCPS), it has been decided that Compulsorily Convertible Preference Shares shall be treated at par with equity shares and the Indian party is allowed to undertake financial commitment based on the exposure to JV by way of CCPS.

Acquiring qualification shares of an overseas company for holding the post of a Director 

 

In terms of Regulation 24(1)(a) of the Notification ibid, a person resident in India being an individual may acquire foreign securities as qualification shares issued by a company incorporated outside India for holding the post of a Director in the company provided that:

1. the number of shares so acquired shall be the minimum required to be held for holding the post of director and in any case shall not exceed 1 (one) per cent of the paid-up capital of the company, and
   
2. the consideration for acquisition of such shares does not exceed the ceiling as stipulated by RBI from time to time.
   

Since the necessity of having certain qualification shares by an individual to be appointed as a Director of the company is governed by the law of the host country, it has been decided to remove the existing cap of 1 (one) per cent on the ceiling for resident individuals to acquire qualification shares for holding the post of a Director in the overseas company. Accordingly, henceforth, remittance shall be allowed from resident individuals for acquiring the qualification shares for holding the post of a Director in the overseas company to the extent prescribed as per the law of the host country where the company is located. The limit of remittance for acquiring such qualification shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.

Acquiring shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration

 

Presently, Regulation 20 of the Notification ibid prescribes that a Resident individual may apply to the Reserve Bank for permission to acquire shares in a foreign entity offered as consideration for professional services rendered to the foreign entity and the Reserve Bank may, after taking into account certain factors, grant permission subject to such terms and conditions as are considered necessary.

It has been decided to grant General Permission to the resident individuals to acquire shares of a foreign entity in part / full consideration of professional services rendered to the foreign company or in lieu of Director’s remuneration. The limit of acquiring such shares in terms of value shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.

Acquiring shares in a foreign company through ESOP Scheme

 

As per the extant Regulation 22(2) of the Notification ibid, General permission has been granted to a resident individual to purchase equity shares offered by a foreign company under its ESOP Schemes, if he is an employee, or, a Director of an Indian office or branch of a foreign company, or, of a subsidiary in India of a foreign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV), is not less than 51 per cent.

Accordingly, AD Category – I banks are permitted to allow remittances for purchase of shares by eligible persons under this provision irrespective of the method of operationalisation of the scheme i.e. where the shares under the scheme are offered directly by the issuing company or indirectly through a trust / a Special Purpose Vehicle (SPV) / step down subsidiary, provided:

1. the company issuing the shares effectively, directly or indirectly, holds in the Indian company, whose employees / directors are being offered shares, not less than 51 per cent of its equity,
   
2. the shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and
   
3. an Annual Return is submitted by the Indian company to the Reserve Bank through the AD Category – I bank giving details of remittances / beneficiaries, etc.
   

It has now been decided that resident employees or Directors may be permitted to accept shares offered under an ESOP Scheme globally, on uniform basis, in a foreign company irrespective of the percentage of the direct or indirect equity stake in the Indian company subject to:

1. the shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and
   
2. an Annual Return is submitted by the Indian company to the Reserve Bank through the AD Category – I bank giving details of remittances / beneficiaries, etc.

Reserve Bank of India Issued Guidelines on Fair Practices Code for NBFCs

The Reserve Bank of India (RBI) vide its circular dated September 28, 2006, issued guidelines on Fair Practices Code (FPC) for all NBFCs to be adopted by them while doing lending business. The guidelines inter alia, covered general principles on adequate disclosures on the terms and conditions of a loan and also adopting a non-coercive recovery method.

A review of the guidelines is made in view of the creation of a new category of NBFCs viz; NBFC-MFIs and also rapid growth in NBFCs’ lending against gold jewellery. The revised guidelines issued under Section 45 L of the Reserve Bank of India Act, 1934 (Act 2 of 1934) and of all the powers enabling it in this behalf, in supercession of the CC dated September 28, 2006, is enclosed in the annex. 

The Guidelines have also incorporated the instructions issued vide CC No. 95 dated May 24, 2007 on ‘Complaints about excessive interest charged by NBFCs’ and CC No. 139 dated April 24, 2009 on ‘Clarification regarding re-possession of vehicles financed by NBFCs’ for reference.

The NBFCs is required to make suitable amendments in their existing FPC. The FPC so modified should be put in place by all NBFCs with the approval of their Boards within one month from the date of issue of this circular and should be published and disseminated on the web-site of the company, if any, for the information of the public.

European Commission Published a Consultation Paper on Shadow Banking

The European Commission (EC)  Published a Consultation Paper on Shadow Banking that is the first step in its plan for regulating this part of business of Banking sector. The Paper marks the start of a long awaited process targeted at an Industry worth an estimated 46 trillion Euro.

In Introduction of this Paper, EC expressed that the 2008 crisis was global and financial services were at its heart, revealing inadequacies including regulatory gaps, ineffective supervision, opaque markets and overly-complex products. The response has been international and coordinated through the G20 and the Financial Stability Board (FSB).

The European Union has shown global leadership in implementing its G20 commitments. In line with EU's Roadmap for Financial Reform, the Union is very advanced in implementing the reforms linked to the G20 commitments. Most of the reforms are now going through the legislative process. In particular, a major achievement has been the recent adoption by the Council and the Parliament of landmark legislation on over-the-counter derivatives.

Negotiations are also well developed on measures to revamp capital requirements for the banking sector. Overall, the reforms will equip the EU with the tools designed to ensure that the financial system, its institutions and markets are properly supervised. More stable and responsible financial markets are a pre-condition for growth and for the creation of a business environment that allows companies to thrive, innovate and expand their activities. This in turn enhances the confidence and trust of citizens.

However, there is an increasing area of non-bank credit activity, or shadow banking, which has not been the prime focus of prudential regulation and supervision. Shadow banking performs important functions in the financial system. For example, it creates additional sources of funding and offers investors alternatives to bank deposits. But it can also pose potential threats to long-term financial stability.

In response to the invitations by G20 in Seoul in 2010 and in Cannes in 2011, the FSB is therefore in the process of developing recommendations on the oversight and regulation of this activity.

The FSB's work has highlighted that the disorderly failure of shadow bank entities can carry systemic risk, both directly and through their interconnectedness with the regular banking system. The FSB has also suggested that as long as such activities and entities remain subject to a lower level of regulation and supervision than the rest of the financial sector, reinforced banking regulation could drive a substantial part of banking activities beyond the boundaries of traditional banking and towards shadow banking.

Against this background, the Commission considers it a priority to examine in detail the issues posed by shadow banking activities and entities. The objective is actively to respond and further contribute to the global debate; continue to increase the resilience of the Union’s financial system; and, ensure all financial activities are contributing to the economic growth.

The purpose of this Green Paper is therefore to take stock of current development, and to present on-going reflections on the subject to allow for a wide-ranging consultation of stakeholders.

RBI Proposed Changes in Investment in Indian Venture Capital Undertakings and /or domestic Venture Capital Funds by SEBI registered Foreign Venture Capital Investors

As per new Circular of Reserve Bank of India (RBI), the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to time, in terms of which, a SEBI registered Foreign Venture Capital Investor (FVCI) may invest in equity, equity linked instruments, debt, debt instruments, debentures of an Indian Venture capital Undertaking (IVCU) or of a Venture Capital Funds (VCF) through Initial Public Offer or Private Placement or in units of schemes / funds set up by a VCF, subject to such terms and conditions mentioned therein.

RBI has now been decided, to allow FVCIs to invest in the eligible securities (equity, equity linked instruments, debt, debt instruments, debentures of an IVCU or VCF, units of schemes / funds set up by a VCF) by way of private arrangement / purchase from a third party also, subject to terms and conditions as stipulated in Schedule 6 of Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to time. It is also being clarified that SEBI registered FVCIs would also be allowed to invest in securities on a recognized stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000, as amended from time to time, as well as the terms and conditions stipulated therein.

FSA Policy Statement: Distribution of Retail Investments: RDR Adviser Charging and Solvency II Disclosures

Financial Services Commission (FSA), capital market regulator in UK publishes Policy Statement – Distribution of retail investments – RDR Adviser Charging and Solvency II disclosures, based on feedback to Consultation Paper 11/25 and final Adviser Charging rules – here FSA outlines the proposals.

This Policy statement will be of interest to firms advising on retail investment products and to product providers offering these products. The Solvency II changes to the COBS product disclosure rules will be of interest primarily to insurers.

The new rules will come into effect as follows:
• rules on the facilitation of payment of adviser and consultancy charges – on 31 December 2012, at the same time as the main RDR Adviser Charging rules; and
• the rule on reporting investment amounts where payment of adviser charges or consultancy charges is being facilitated – this will apply to firms’ first full reporting period after 31 December 2012.

The Solvency II disclosure rules are ‘near final’, as they include new Glossary definitions to be made with the main Solvency II rules.
They will be made at the same time as the main Solvency II rules, which we expect to be at the end of this year; we currently expect them to come into effect on 1 January 2014.
 

In November 2011 FSA published Consultation Paper (CP) 11/251, which covered:
• issues on facilitating the payment of adviser and consultancy charges under the Retail Distribution Review (RDR) rules;
• whether product providers should, when reporting data under our data requirements such as Product Sales Data (PSD), report investment amounts on a basis net or gross of any adviser or consultancy charges being facilitated; and
• minor changes to the disclosure requirements in Chapters 13 to 16 of the Conduct of Business sourcebook (COBS) to implement Solvency II2 Directive (Solvency II) requirements.

EBA Publishes a Consultation Paper on Draft ITS on Reporting of Large Exposures

The European Banking Authority (EBA) published today a consultation paper on a draft Implementing Technical Standard (ITS) on reporting of large exposures (CP51). The public consultation starts today and runs until 26 March 2012. 

The European Banking Authority was established by Regulation (EC) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010.

The EBA has officially come into being as of 1 January 2011 and has taken over all existing and ongoing tasks and responsibilities from the Committee of European Banking Supervisors (CEBS).

The EBA acts as a hub and spoke network of EU and national bodies safeguarding public values such as the stability of the financial system, the transparency of markets and financial products and the protection of depositors and investors.

Main features of this ITS

This consultation paper puts forward a draft ITS on reporting of large exposures as requested by Article 383 of the Capital Requirements Regulation (CRR) and represents an addendum to the ITS proposal on supervisory reporting requirements published on the EBA’s website on 20 December 2011.

This draft ITS aims at implementing uniform reporting requirements which are necessary to ensure fair conditions of competition between comparable groups of credit institutions and investment firms. Uniform requirements will ultimately make institutions more efficient and result in a greater convergence of supervisory practices.

The ITS on reporting has been developed on the basis of the guidelines on common reporting of large exposures. The draft ITS will be covering both (i) information needed to check institutions’ compliance with the large exposure regime as set out in Articles 376 – 392 of CRR and (ii) information on concentration risk which competent authorities need to analyse as per Article 79 of the Capital Requirements Directive (CRD). The scope and level of application are in line with the CRR, currently under discussion by the EU legislators.

The Bank of Mauritius and the Financial Services Commission, Mauritius reinforce the framework for effective exchange of information

The Financial Services Commission (FSC) Mauritius and the Bank of Mauritius (BoM) have signed a Protocol to amend the Memorandum of Understanding (MoU) between BoM and the FSC at the Bank of Mauritius Tower, Port Louis, on Wednesday 08 February 2012. The signatories of the Protocol are Mr Yandraduth Googoolye, First Deputy Governor of the Bank of Mauritius and Ms Clairette Ah‐Hen, Chief Executive of the Financial Services Commission.

The MoU was originally signed in December 2002 to set out the framework for cooperation between BoM and the FSC in their common pursuit to maintain a safe, efficient and stable financial system in Mauritius.

The reputation of the Mauritius International Financial Centre, however, lies on compliance with standards set by international standard‐setting organisations and international norms relating, inter

alia, to the disclosure and exchange of information.

While the FSC has been complying with the International Organization of Securities Commissions (IOSCO) principles for the past years in matters of exchange of information with its counterparts, there were a few amendments that were required within our legal framework to enable Mauritius to fully subscribe to the IOSCO Multilateral Memorandum of Understanding (MMoU).

The present amendment to the MoU reinforces the framework for effective exchange of information between BoM and the FSC and enables Mauritius to comply with one of the requirements imposed under the IOSCO MMoU.

BoM and the FSC are pleased that the signature of this Protocol will bring Mauritius on the same level as other internationally recognized‐financial centres and reaffirm their commitment to collaborate further to safeguard the stability of the domestic financial system.

SEC Issued Joint Report on International Swap Regulation

Securities and Exchange Commission (SEC), capital market regulator of United States issued "Joint Report on International Swap Regulation" in line of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SEC has quoted in the report that effectively regulated financial markets are a necessary component of a strong economy. When the financial system failed three years ago, over-the-counter (“OTC”) derivatives were unregulated, and financial systems and participants were interconnected to a greater extent than ever before. The global nature of OTC derivatives requires comprehensive international cooperation and coordination.

Efforts to regulate OTC derivatives are under way in the United States and abroad. The financial crisis of 2008 has led to broad international consensus on the need for improved transparency, mitigation of systemic risk, and protection against market abuse, and extraordinary coordination on how best to achieve sound regulation appropriately tailored to the OTC derivatives market.

Jurisdictions with major OTC derivatives markets have taken steps toward regulating OTC derivatives – with variance in pace, but with consistency among many of the ultimate policy goals. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) provides the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC” and, together with the CFTC, the “Commissions”) with the authority to regulate certain types of derivatives that currently are entered into bilaterally and that typically are not cleared. Subject to certain exceptions, Title VII of the DFA (“Title VII”) requires the CFTC to regulate those derivatives defined as swaps, and requires the SEC to regulate derivatives defined as security-based swaps. The Commissions are in the midst of promulgating regulations to implement this statutory mandate.

DFA Section 719(c) requires the Commissions jointly to conduct a study (“Study”) and then to report to Congress (“Report”) on how swaps and security-based swaps (collectively “Swaps”, unless otherwise indicated) are regulated in the United States, Asia, and Europe and to identify areas of regulation that are similar and other areas of regulation that could be harmonized. Section 719(c) also calls for the Report to identify major dealers, exchanges, clearinghouses, clearing members, and regulators in each geographic area and to list the major contracts (including trading volumes, clearing volumes, and notional values), the methods for clearing swaps, and the systems used for setting margin in each geographic area.

The Study is one facet of the CFTC’s and the SEC’s work in analyzing the international context and implications of the DFA. Congress directed the Commissions (and prudential regulators) in Section 752(a) of the legislation to “as appropriate . . . consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation … of swaps, security-based swaps, swap entities, and security-based swap entities” in order to “promote effective and consistent global regulation of swaps and security-based swaps”.

This Report includes four sections. Section I discusses the Congressional mandate for the Study and Report, including the process and approach used by CFTC and SEC staff. Section II describes the regulatory framework for OTC derivatives in the Americas, European Union, and Asia, and Section III analyzes the similarities and differences across jurisdictions, discusses potential areas for harmonization, and makes recommendations for next steps.10 Finally, Section IV provides the conclusion of the Study and Report.

Reserve Bank of India: New Master Circular on External Commercial Borrowings and Trade Credits

Reserve bank of India (RBI) issued Master circular no. RBI/2011-12/ 356, consolidates the existing instructions on the subject of "External Commercial Borrowings (ECB) and Trade Credits" at one place revised upto January 05, 2012.

Typically,  ECB is one of the method allowed by RBI to access funds from abroad. ECB refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares) availed of from non-resident lenders with a minimum average maturity of 3 years.

RBI has allowed ECB under two routes, viz., (i) Automatic Route and (ii) Approval Route. Automatic Route allows Indian company to have external borrowing without any prior permission of RBI, however certain reporting obligations will always be on Indian borrower and RBI has categorized automatic route based on Industries and cap of external borrowing. Approval route is for more bigger and sensitive sectors in the light of economy sustainability, where borrower requires prior approval of RBI before initiating any ECB process.

In present Master circular, RBI has widely covered issues related to ECB and Trade credits and provided comprehensive document with inclusion of all circulars related to the subject issued by RBI.