Picture: Globe License: Public Domain
Last year, global financial markets awaited new international regulatory
measures, grappled with new market entrants, and responded to significant legal
changes in a number of municipalities. The below events review 2017’s most
significant developments for the international finance world.
Basel III – Once
set to be fully implemented in 2018, the Third Basel Accord devised a
regulatory framework aimed at fostering market stability. Although final implementation was delayed, internationally-active
banks subject to Basel III’s minimum
capital, leverage ratio, and liquidity requirements should continue to prepare
for the full implementation in 2019.
Basel IV – In
December 2017, the Basel Committee approved a new set of financial regulation
rules, dubbed
‘Basel IV,’ which address deficiencies in banks’ internal models for risk-weighted
assets by permitting banks to only take a maximum 27.5% cut through internal
models, thereby increasing capital requirements. By implementing a floor for
risk-weighted assets, the Basel Committee hopes to create uniformity despite
variances among banks’ internal models.
Brexit – The
United Kingdom’s vote to leave the European Union continues to impact the
financial world, with market observers unsure
if foreign bank branches operating in Great Britain will be permitted to
continue interacting with clients in the European Union.
Cryptocurrencies –
Cryptocurrencies such as Bitcoin and Ethereum greatly increased
in popularity and value over the last year, before leveling
off towards the end of 2017. Proponents claim
that the non-governmentally regulated currency will lead to much positive
social and financial change, while skeptics remain critical
of claimed benefits and increasing environmental costs. U.S.
and European
government bodies have indicated they will increase regulation of
cryptocurrencies, and market investors should monitor progressing regulatory
developments.
MiFID II – The
European Union’s new investment services regulations, MiFID II,
took effect in early 2018. The newly-effective measures aim to increase
transparency in the European trading market as well as create uniform market structures.
New Fed
Chair – In November 2017, U.S. President Trump forewent
nominating incumbent Fed Chair Janet Yellen for a second term, instead
successfully nominating former investment banker Jerome Powell to the position.
United
States Tax Reform – The Tax Cuts and Jobs Act, the 2017 U.S.
tax reform bill, significantly affected the American private equity industry.
The new carried-interest rules, limits on loss deductions, and ceiling on
interest deductions alter
tax incentives for private equity. In light of these changes, a number of
private equity firms have indicated
interest in changing corporate form to a corporation for more beneficial tax
treatment.
Looking ahead, international finance market participants should
continue to monitor the impacts of new regulations and market players - legal
advisors must ensure their clients comply with the newly-effective and
soon-to-be implemented regulations.
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