Building on our Friday alert on key recommendations in Treasury’s capital-markets report, this report begins our drill down on critical issues with an assessment of how Treasury wants to change the U.S. approach to financial market utilities (FMUs). Despite Treasury’s clear inclination now against systemic designation, the report not only does not disavow SIFI-style regulation for FMUs, but also makes it clear that Treasury wants FSOC to name names and drive U.S. policy. In the near term, this could realign the SIFI structure first established by the Obama FSOC to reflect Treasury’s concerns about London-based FMUs post Brexit (with near-term designation of LCH now suggested by the report’s conclusions).
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