Regulation Update

Sakhila Mirza

General Counsel, LBMA

REGULATION: WORLD OF ACRONYMS Key Points

EMIR NSFR/

Basel III

FEMR

SFTR

REACH

Benchmark IOSCO

Principles

Conflict Mineral

s

Precious Metals

Code

MAD/ MAR

BREXIT

MIFIR/ MIFID

EU CONFLICT MINERALS UPDATE Regulation on Responsible Sourcing of minerals from conflict-affected and high-risk areas (global focus)

► European Commission and European Parliament moving towards anagreement by Q1 2017.

► Support for Industry Schemes to be recognised:► OECD Alignment Assessment.

► Voluntary reporting:► Downstream to report on voluntary basis, subject to the results of a study;

► What % of downstream use 3TG;► Who is actually reporting.

► Potential for voluntary to move to mandatory.

Requirement for all importers of gold into the EU (including bullion & coins)

NET STABLE FUNDING RATIO 85% Haircut on banks’ gold holdings Purpose

► Banks should hold a minimum amount of stable funding based on the liquidity characteristics of theirassets and activities over a one year horizon.

Impact

► Fall in liquidity – banks departure from business.

► Increase in costs – transferred potentially to end user.

Lobbying

► Basel Committee on Banking Supervision, European Commission.

► Proposal: carve out for short term loans i.e. less than 3 months.

► Need engagement from wider membership.

PRECIOUS METALS CODE New Code to be launched in May 2017: replaces NIPS

Purpose

To promote integrity and effective functioning

To provide guidance to the precious metals market

FX Code (BIS); Wholesale Money Markets (Bank of

England)

Applicability

Supply Chain

Guidance provided where it only

applies to Financial Institutions

Mandatory – input important

PRECIOUS METALS CODE Public Consultation : November 2016 – January 2017

Content Ethics

Governance, risk management and compliance

Information sharing

Business conduct: pre-trade and execution

Business conduct: post-trade (confirmation process, netting, settlement, shipping)

Illustrative examples: definitions, conventions

Global Consultation: Open to ALL

Members; Non-members; International Associations; Government authorities

IMPORTANT: opportunity to shape a code that will apply to you

What would you like to see covered?

How should this apply?

What aspects of the market practices require further clarity?

Are there examples missing

How to demonstrate compliance?

Available on the LBMA website

FAIR AND EFFECTIVE MARKETS REVIEW Joint report by Bank of England, UK Financial Conduct Authority and HM Treasury

Recommendations provided to improve the fairness and effectiveness of the FICC markets

► “…authorities and firms look for ways to improve transparency in ways that maintain or enhancethe benefits of diverse trading models, including over-the-counter (OTC) transactions.”

► “…(LBMA) issued a formal ‘Request for Information’ inviting potential solution providers to assistit in delivering greater bullion market transparency through, for example, trade reporting andincreased reporting and risk management efficiency via enhanced IT solutions. Following thisprocess, the LBMA launched a specific ‘Request for Proposal’, focusing on trade reporting as apriority in response to the market commitment by LBMA members to enhance transparency.”

REPORTING LBMA’s commitment to enhance transparency

Benefits

► Transparency and help to meet regulators agenda.

► Self regulation, provides the market the flexibility to shape a fit-for-purpose solution.

► Data to support better understanding of the market.

► Assist with lobbying efforts (e.g. NSFR).

► End of valuation curves – revitalise the forward market.

REPORTING The market needs credibility, the ability to act with authority on regulatory issues and due diligence benefits

Boat ► Establish a strong equal partnership, through which LBMA and its members

retain control over scope or reporting, pricing and future services;

► Partnering directly with the underlying technology provider, rather thanrelying on an intermediary;

► Allows LBMA to remain agnostic in terms of any other new market offerings;

► Leading in reporting capabilities;

► Existing infrastructure;

► Cost effective.

DESIGN STUDY LBMA as competent authority for Precious Metals market retains the ability to control and shape services through member consultation: Launching in October

Define the scope of reporting ►reportable instruments: Loco London -spot, forwards, options.►participant structure – anyone trading loco London anywhere in the world.

Determine ►IT requirements - most have it.►reporting mechanisms and methodology – governance is critical.►market surveillance – protect integrity.

Advise on supporting services ►What else would the market like to see from this data?

Implementation ►Implementation Plan.►Q1 2017 launch.

LBMA Interface Aurum

Post Trade

Vaults

s Trade Repositories

Clearing Houses Clearing

Houses

CCP’s CCPs

Data Warehouse Data Warehouse

Pre Trade

Bilateral/OTC Trading

Exchange Traded Other Venues

Executed Trade Detail Flow

Matching and Settlement

Benefits

• Re-establish

Curves and GOFO

• Trade Compression

• Executed trade data

• Regulatory

Compliance

Post phase 1 Phase 1 – Q1 2017

MARKET DEVELOPMENT CONTINUES Build Evolution from an LBMA Interface

Regulation…regulation…regulation… Never enough time!

•PlatinumGroupMetals

•Silver

REACH

•Market Abuse Regime

•Affects all trading desks

•Physical trading impacts financial instruments

MAR

• European Market Infrastructure Regulation

• Margin rules

for

non-cleared trades

EMIR

•Markets in Financial Instruments Directive

•Position limits

•OTC Spot•Forwards

MiFID I and II •Securities

Financing Transactions Reporting

•Reporting requirements covering “repurchase transactions”, “securities/commodities lending and borrowing”

• Significant or critical?

• Gold, silver, platinum?

Benchmark Regulation

SFTR

BREXIT What does this mean for the UK?

For the next few years, NOTHING CHANGES. Thereafter ???

What does it mean for the UK? ► The Prime Minister in October 2016, announced the government will

trigger Article 50 no later than end of March 2017.

► Re-negotiations – equivalence?

► Uncertainty.

► Swiss Model?

What does this mean for the Precious Metals Markets?

► Loco London will remain.

► Implementation of regulations will continue.

Contact:

sakhila.mirza@lbma.org.uk

Further Information: The LBMA has launched regulatory briefings: • The first issue focused on Brexit, the second on Market Abuse. • Members to suggest topics.