Applying Project Management In The Regulatory Space

An Interview with 8of9’s Newest Associate Josh Clemente

8of9 is excited to welcome Josh Clemente to our team! Josh brings a wealth of experience in data and capital markets to his work at 8of9. One of his superpowers is amazing project management skills. Josh’s experience with project management began while working for an e-discovery company in the LegalTech space, where he led teams extracting data from personal electronic devices to then feed into databases for litigation proceedings. With a B.A. in Business from Villanova University, he later continued his education with an M.B.A. from the Stern School of Business at NYU while he enhanced his skills as a project manager at Amalgamated Bank in their technology department.

We sat down with Josh to ask him a few questions about how he hopes to apply his experience with project management to 8of9’s business strategy, and his passions inside and outside of 8of9.

How do you plan to utilize your project management experiences in your work at 8of9?

Consulting work is really where the MBA and project management experience kicks in. Because I know how to work quickly, think on my feet, and understand the inner workings of a financial institution, I am comfortable being thrown into the fire with a new team and a tight deadline. My past experiences working with different types of teams allow me to recognize the strengths of my fellow teammates. Learning how the team fits together always moves the project forward more smoothly.

What are you most excited about regarding your work at 8of9?

What excites me most about 8of9 is how much they value educating and developing their staff. The opportunity to learn a variety of new skills and techniques, and then put them to use to service our clients is a very exciting prospect. There’s also a great atmosphere of collaboration among the talented people in the office, who have such diverse professional backgrounds and love to share their experiences and challenges.

How do you see 8of9 supporting financial institutions with regulatory challenges?

It’s clear to me, as a relative newcomer, that the 8of9 team has their finger on the pulse of the needs of the financial services industry. The leadership team has years and years of experience solving regulatory problems and does a fantastic job of anticipating upcoming challenges. Their robust understanding of the industry combined with the company’s innovation and intense drive prove that they are highly capable of bringing a newfound clarity to financial regulations. 8of9 is also able to bring simplicity to these regulations through RegTech products and thought leadership.

What are some of your interests and passions outside of work?

I love finding different ways to experience the outdoors. This past year, a group of friends and I went to Washington to summit Mt. Rainier. It was a surreal experience and unbelievable challenge, and it taught me a lot about my own perseverance and strength.


Proposed Changes to Volcker Rule

The Fed, OCC, FDIC, SEC and CFTC released a notice of proposed rulemaking on December 18, 2018 to amend the Volcker Rule. These changes have been proposed to create consistency with the statutory amendments under the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was enacted on May 24, 2018.

The proposed modifications include:

1. Clarifying and narrowing the definition of banking entity
2. Amending the restriction on name-sharing between banks and hedge funds or private equity funds

The definition of banking entity will be narrowed to reduce the regulatory burden on community banks by excluding institutions that do not have, and are not controlled by a company that has:

• Total trading assets and liabilities greater than 5% of total consolidated assets; and
• Over $10 billion in total consolidated assets

This proposal makes clear that this exemption only applies to institutions that are below both thresholds.

The name-sharing restriction under the Volcker Rule does not allow a banking entity, or a banking entity affiliate, to share the same name, or a variation of the same name, with a private equity fund or hedge fund that it organized or offered.

The proposed changes would allow name-sharing between a private equity fund or hedge fund and the banking entity that is an investment adviser to that fund, under three conditions:

• The name does not contain the word “bank;”
• The investment adviser is not a bank holding company for purposes of Section 8 of the International Banking Act of 1978 (IBA), an insured depository institution, or a company that controls an insured depository institution; and
• The investment adviser does not share the same name or a variation of the same name with any such entities.

The first condition is part of the Volcker Rule and would remain unchanged. The definition of “sponsor” under the Volcker Rule would also be modified to conform to these proposed amendments.

Written comments from the public must be submitted within 30 days of publication of the proposal in the Federal Register.


Welcome Back & Happy 2019!

Happy New Year! We’re so excited to be back at 8of9 after an amazing holiday season. As we begin 2019, we’re eager to tackle the challenges ahead.

As the year begins, we’re already seeing potential changes in regulation. Two of these proposed changes involve the Volcker Rule.  One proposed change is clarifying the definition of “banking entity” and the second proposed change is allowing name sharing between banks and their respective hedge funds and/or private equity firms.

One of the biggest regulatory challenges this year will be Brexit, with the UK’s exit from the EU scheduled for March 29th, 2019. Many financial institutions are ramping up their efforts to prepare for effects of this exit.

We have a request for our readers: Are you interested in learning more about regulatory developments delivered in a comprehensive format? We’re currently looking for beta testers for a new product. If you’re interested, contact Christine.Min@8of9.nyc.

We have so much planned for 2019 and can’t wait to share it! Thank you for your continuous support.

Keep an eye out for our timeline listing all the important regulatory deadlines internationally and domestically for 2019!

We’re back and ready to tackle 2019!


Introduction to the LIBOR Transition

What is LIBOR?

London Interbank Offered Rate (LIBOR) has been utilized by financial institutions as a reference point for establishing interest rates on a variety of debt instruments. It has become one of the most commonly used tools determining short-term interest rates globally.

LIBOR is an average rate which large banks in London use to borrow unsecured short-term loans from other banks. LIBOR is offered in five different currencies and seven different time frames for maturity. It is issued by the ICE Benchmark Association.

 

Background:

Financial institutions will be transitioning away from LIBOR by the end of 2021. This “end of LIBOR” date was stated by the FCA’s CEO in 2017 and it seems international financial firms and regulators are very much on board with this phase out, especially because of distrust of LIBOR post-scandal. Additionally, LIBOR may no longer be provided or become too risky to be relied upon by the end of 2021.  UK entities are leading the charge away from LIBOR. The FCA has instructed UK banks and insurance companies to submit transition plans by December 25, 2018.

 

The Players:

  • The Financial Conduct Authority (FCA) – UK regulatory body responsible for LIBOR oversight, recommended the expiration date for LIBOR as the end of 2021
  • ICE Benchmark Administration (IBA) – Administers and publishes LIBOR
  • The Federal Reserve – Power to assign responsibility to the ARRC
  • Alternative Reference Rate Committee (ARRC) – Tasked by the Fed, responsible for the transition from US Dollar LIBOR to a new benchmark replacement rate
  • The International Swaps and Derivatives Association (ISDA) – International trade organization governing OTC derivatives, provided reports regarding derivative contracts and LIBOR

 

The Deadlines:

  • Submission of transition plans by UK banks & insurance companies – December 25, 2018
  • Expiration of LIBOR - December 31, 2021

 

What do we do now?

There is a transition from LIBOR to other benchmarks, called “Risk-Free Rates” (RFR), which differ by each currency currently using LIBOR (USD, GBP, CHF, JPY, EUR). In the U.S., we would transfer to SOFR. The U.K. will transfer to SONIA.  Switzerland will transfer to SARON. Japan will transfer to TONA. The European Union will transfer to ESTER (available as of October 2019).

Check back in January for our blog post detailing action steps for your LIBOR transition.

In the meantime, 8of9 would be happy to provide expertise to support your LIBOR transition. Email Christine.Min@8of9.nyc to set up a conversation!

 

 


Happy Holidays from All of Us at 8of9!

What better way to kick off the holiday season than coming together as a team? This past week we were able to celebrate this phenomenal time of year with some of our families and friends! Our very own Aaron Heisler, surprised us with a gauntlet of holiday contests. From mini basketball to regulatory trivia to eating competitions, we were challenged mentally and physically! 

Take a look at some of the fun! 

Happy Holidays from the entire 8of9 team! 


Brexit: the UK’s Temporary Permission Regime

With the UK’s departure from the European Union (EU) set to March 29, 2019, the financial services industries in both the EU and the UK expect to be vastly changed by Brexit.

There are two possibilities for how the UK will exit the EU:

  1. The UK leaves the EU with an implementation period.
  2. The UK leaves the EU without an implementation period, in which case the Temporary Permission Regime (TPR) will go into effect.

Implementation Period: With an implementation period, the UK has until December 31, 2020, to fully transition out of the EU. This allows the continuation of passporting, allowing financial firms in any EU member state to sell services in all other member states, which is a right that majority of EU/UK financial firms have utilized. After the UK’s departure, passporting will no longer be a viable option for EU firms that operate in the UK or vice versa. An implementation will extend the ability to passport until the end of 2020, allowing financial firms time to seek alternate authorizations between the EU and the UK.

TPR: Without an implementation period, EU firms that operate in the UK and UK firms that operate in the EU would lose passporting rights on the exit day of March 29th, 2019. To prevent disruption to EU firms operating in the UK, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have proposed the Temporary Permission Regime (TPR). TPR is expected to last no longer than three years after the exit day. This plan allows for EU firms to seek the appropriate authorization and/or recognition needed by UK regulators to continue operation.

How they differ: The implementation period and the Temporary Permission Regime differ in that the implementation period was agreed to by both EU and UK governments. During the implementation period, the UK would be permitted to act as a member state, without voting rights in the EU body. TPR will only come into effect if the UK leaves the EU without an implementation period. It was created by UK regulators to deter problems created by the UK leaving the EU without a withdrawal agreement.

In the event that TPR or an implementation period doesn’t go into effect, Brexit-related regulatory issues may arise:

  1. There are trillions of pounds in existing derivatives and insurance contracts.

For derivatives to be cleared, firms are required to use a recognized venue. When the UK departs from the EU, it is likely that London would no longer be recognized as a venue to clear derivatives. This could potentially cause banks to breach existing regulations. Firms have already voiced concerns on this issue that due to the sheer volume of their positions, it would be impossible to move to an approved EU venue by the exit day. UK regulators have responded that they are prepared to issue temporary licenses to EU firms and EU regulators will likely respond in kind. However, some member states, such as France, do not have the authority to issue temporary licenses.

  1. UK firms cannot continuously trade securities with the EU unless permission is granted by the European Commission (EC).

The UK is required to demonstrate to the EC that UK financial and securities regulations are equivalent to those enforced by the EU. The commission in Brussels has issued a statement that the financial industry needs to be prepared for a variety of Brexit outcomes and should have contingency plans prepared.

 


Overview of the 2018 U.S. Resolution Stay Rule & Protocol

For an in-depth overview of the FSOC's QFC Recordkeeping and Reporting Rules, take a look at our explainer presentation here.

Why are these regulations necessary?

The U.S. Resolution Stay Rule and the U.S. Resolution Stay Protocol are regulatory reforms introduced post financial crisis.  They were part of the initiative to improve financial stability in the event that a U.S. global systemically important bank (G-SIB) entered resolution or filed for bankruptcy.

Before the collapse of Lehman Brothers, Lehman’s parent company acted as a guarantor on its subsidiaries’ financial contracts. When the parent filed for bankruptcy, counterparties on those existing financial contracts were permitted to exercise their rights to terminate their agreements.  These “cross-default rights” terminated contracts and resulted in great losses. Subsidiaries attempted to quickly meet contractual obligations by selling assets to produce cash and selling collateral that secured the now-terminated contracts.  This compromised the viability and stability of Lehman and its subsidiaries, creating a ripple effect throughout the global economy.

Currently, many financial contracts at G-SIBs contain similar cross-default clauses, allowing counterparties to exercise their default rights if a G-SIB or its subsidiaries file for bankruptcy or require resolution.  To mitigate risk and ensure that the global financial system is not thrown into chaos once again, international and domestic regulatory bodies introduced the U.S. Resolution Stay Rule and Protocol.

 

Who is affected by the new regulations?

The Rule and the Protocol apply to the following entities (referred to as “Covered Entities”):

  • The 17 U.S. G-SIBs and their subsidiaries (U.S. and non-U.S.)
  • The U.S. subsidiaries, branches, and agencies of the 18 non-U.S. G-SIBs

 

Which regulators are involved?

  • U.S. Resolution Stay Protocol (“the Protocol”): ISDA (International Swaps & Derivatives Association)
  • U.S. Resolution Stay Rule (“the Rule”): The Federal Reserve, FDIC (Federal Deposit Insurance Corporation), Office of the Comptroller of Currency (OCC)

It is important to note that there is a distinction between the “Rule” and the “Protocol.”

 

What is the difference between the Protocol and the Rule?

In 2015, the original ISDA Protocol came into effect as a suggestion by regulators. Covered Entities agreed to comply with the new resolution protocols, however, buy-side entities were not able to come to agreeable terms with regulators.  After years of negotiation, the 2018 version of the ISDA Protocol included terms that affected buy-side entities, Covered Entities must have their buy-side counterparties agree to new resolution protocols.

 

The Rule, when implemented, is the governing regulation which G-SIBs must comply with as it relates to their existing and new financial contracts.  The Protocol refers to the actions that are required of G-SIBs in amending existing contracts.

 

What type of financial contracts are subject to the new regulations?

Covered Qualified Financial Contracts (QFCs) are agreements pertaining to derivatives, securities lending, and short-term funding transactions.  A QFC is within the scope of the Rule and Protocol if it meets any of the following criteria:

  • It contains one or more “default rights” that may be exercised against a Covered Entity. Default rights include:
    • Direct default rights: right to terminate the QFC or exercise other default rights based on its direct counterparty becoming subject to an insolvency proceeding
    • Cross-default rights: right to terminate the QFC or exercise other default rights based on a parent or other affiliate of the direct counterparty becoming subject to an insolvency proceeding
  • It explicitly restricts the transfer of the contract from a Covered Entity
  • It was entered into on or after January 1, 2019, by a Covered Entity

 

What are the deadlines for compliance?

  • January 1, 2019: for covered QFCs between two Covered Entities
  • July 1, 2019: for covered QFCs, between a Covered Entity and a counterparty (excluding small financial institutions), entered into in order to apply the final U.S. margin rules applicable to swaps
  • January 1, 2020: for covered QFCs between a Covered Entity and any other counterparty (including small financial institutions)

 

What are the requirements of the new regulations?

Covered Entities must add two amendments to existing QFCs:

  1. Buy-side counterparties must “opt in” to certain resolution protocols that would be followed should the Covered Entity require resolution or file for bankruptcy. These resolution protocols contain requirements related to the exercise of default rights that buy-side counterparties must follow.
  2. Buy-side counterparties must be restricted from exercising cross-default rights to terminate contracts immediately, through a 48 hour stay.

International Blockchain & Bitcoin Regulations

Blockchain and Bitcoin Regulations Around the World

Virtual currency and distributed ledger technology (DLT) are disrupting many industries including finance, retail, entertainment and everything in between. These technologies enable financial transactions to be processed, contracts to be signed, and records to be securely stored without middle men – decreasing the role of lawyers, data storage providers, financial institutions, and others.  Because of this, governments and agencies around the world are attempting to regulate blockchain and virtual currency. Without uniformity of regulation, growth may be stunted, and innovation stifled. As blockchain and virtual currency have increased in popularity, so has the importance of consistent international regulations.

Approaches to regulating DLT and virtual currency vary immensely country by country. Laws and regulatory guidance in these areas range from nonexistent to stringent. A few countries have even gone as far as banning virtual currency completely. Others are considering creating a national virtual currency, potentially eliminating the need for cryptocurrency such as Bitcoin. Yet some countries have not legislated at all, continuing to study the possible risks and benefits of virtual currency use and blockchain in government. For a summary of international regulations, refer to the table below.

Please note that regulations in the European Union and United Arab Emirates may differ among member nations. EU regulatory actions are issued by the European Commission, European Parliament, the EBA and ESMA. This table displays existing law, guidance and pending legislation in the form of bills (which are marked appropriately).

To learn about blockchain and virtual currency regulations in the United States, check out our Overview of Blockchain & Bitcoin 50 State Law!

 

New to blockchain and/or virtual currency? Check out our free Blockchain Glossary to learn key terms.  

 

Topic of Regulatory Action
Japan
SwitzerlandChinaEUSouth KoreaCanadaIndiaUnited Arab Emirates (varies state by state)SingaporeMexicoUKDenmark Sweden
Legal status of virtual currency
Currency/Monetary Instrument; Legal TenderLegal TenderBannedLegal Tender No status designation Commodity BannedBanned; Commodity
Defined as not Legal Tender No status designationNo status designationDefined as neither Currency nor Monetary InstrumentDefined as neither Currency nor Monetary Instrument
Established DLT/virtual currency working group YesYesYes-YesYesYesNoNoNoYesNoNo
Created taxes for DLT/virtual currency businessesYesYes-NoYesYes--Yes (pending legislation)-YesYesYes
Permitting payment of state fees or taxes with virtual currency -Yes-----------
Required virtual currency businesses to meet registration or licensing standardsYesYes--YesYes-YesYes (pending legislation)YesYes--
Virtual currency is subject to Anti-Money Laundering and Counter Terrorist Financing LawsYesYes-YesYesYes--YesYesYesYes (pending legislation)-
Support of DLT initiatives--YesYesYes---Yes-YesYes-
Initial Coin Offerings (ICOs) are actively regulatedNoYesYes-Yes (pending legislation)--NoYes--YesNo
Exploring creation of national virtual currency--YesNo---Yes----Yes
Issued consumer warnings on the risks of virtual currency--YesYes--YesYesYesYes-YesYes

8of9's Client Appreciation Party!

8of9 was thrilled to invite clients to the new office for our Client Appreciation Party on Thursday, October 18, 2018. A huge thank you to everyone who attended. It was wonderful to see our supporters and friends – both old and new. As we continue providing regulatory consulting services and building RegTech products, we appreciate the support and loyalty you’ve shown us throughout the years. We love and appreciate you all so much!  


Our Values

Intelligence | Inspiration | Initiative | Innovation | Integrity | Inclusion

The 6I's above represent our goals as a company and as a team. At 8of9, we strive for excellence within the FinTech/RegTech space and regulatory consulting industry by sticking to these six values. This is the foundation of our company:

Intelligence. Our team isn’t just intellectually capable, but also intellectually curious. We have a genuine desire to educate ourselves and others on the rapidly changing regulatory space. By attending training seminars, speaking on panels alongside other industry leaders, teaching classes on blockchain regulations or speaking in on industry group calls, we ensure that we are up to date with the latest information in our industry. Taking the time to learn and teach our colleagues as well as our clients are a large part of what sets us apart.

Inspiration. Our team maintains the mentality that the glass is half full rather than half empty. At 8of9, we find it essential to go about our day with a positive attitude. We pride ourselves on finding simple solutions to complex regulatory issues, which isn’t always the easiest task. By bringing a can-do attitude to client projects, we inspire not only our team but those around us.

Initiative. We are problem solvers! We are committed to coming up with creative solutions for regulatory issues and attempt to recognize problems before they even arise. Taking initiative comes as second nature to us. In the field of financial regulations, 8of9 is always ready and eager to tackle new challenges.

Innovation. We believe in a world where compliance should create fewer headaches. Through our products and the way in which we deliver consulting services, we bring future focused thinking to the regulatory community. This fall, we’re excited to launch an informational product, “Overview of Cryptocurrency & DLT 50 State Law.” This is the most comprehensive overview available of blockchain and Bitcoin-related regulations in all 50 states. Our products serve the purpose of creating a more effective financial services industry.

Integrity. The culture at 8of9 values integrity, hard work, and perseverance, which goes hand in hand with delivering value to our clients. We focus on what is right rather than who is right. Instead of focusing on getting credit, we focus on solving the problem at hand. We maintain our integrity through our ethical principles, respectful conduct and the way we treat every person we interact with.

Inclusion. Our sixth value is fostering inclusivity. We practice inclusion within large financial institutions by reaching across all departments and specialties, to ensure the best possible work is done with input from multiple perspectives. More importantly, we value having a diverse team with a variety of backgrounds and areas of expertise. Our culture allows for people with unique viewpoints to come to the table and communicate openly.