This is a monthly initiative aimed at updating the Risk Management community with the most recent regulatory changes impacting banks and capital markets firms. We update our comprehensive regulatory database every month by tracking more than 45 regulatory and industry bodies covering North America, Europe, Africa, Latin America and Asia Pacific. Every month, we will highlight 10 regulations shortlisted on the basis of geography of coverage and anticipated business impacts. Our summaries will highlight the risks covered and business processes affected by the regulatory reforms. This item in the blog is planned to supplement an existing monthly feature namely, “Regulatory Insights” which provides a deeper analysis of the business implications of a single or much smaller set of regulatory changes.
Edition Highlights:
  • The FDIC leadership speech1 strongly advocates the use of leverage ratio to judge capital adequacy and balance sheet strength of banks as a superior alternative to Basel tier 1 capital ratio2. In addition to better clarity and comparability across institutions and geographies, the leverage ratio is found to be more forward looking, and less amenable to manipulation.
  • The proposed regulation of International Organization of Securities Commissions3 would address issues of investor protection arising out of design, selling, and post-sale controls associated with offerings of structured products to retail investors. Mitigation of conflicts of interest and robust compliance function are major areas addressed in the consultation.
  • The report from Bank for International Settlements4 highlights the need for improved data management standards for assessing and managing bilateral exposures of banks as a part of management of systemic risk. Priorities for new data collection include comprehensive financial information of banks on a consolidated and global basis, and better property prices.
Current coverage period: Through April 30, 2013
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
( Low) ( Medium) ( High)


Consumer Financial Protection Bureau (CFPB)(): Truth in Lending (Regulation Z)
Publication Date:
April 29, 2013
Risks Covered: Compliance Risk, Credit Risk
Business Processes Impacted: Audit, Legal & Compliance, Lending & Investment
Regulation Z currently requires that credit card issuers consider the consumer’s independent ability to pay regardless of the consumer’s age for opening a credit card account or increasing the credit limit applicable to a credit card account. In contrast, the Truth in Lending Act (TILA) requires consideration of independent ability to pay only for applicants who are under the age of 215. The CFPB’s final rule amends Regulation Z to remove the requirement of independent ability to pay in case of applicants who are 21 or older, and permits issuers to consider income and assets that are possessed by the consumers.

Bank for International Settlements (BIS)(): Structural bank regulation initiatives: approaches and implications
Publication Date:
April 26, 2013
Risks Covered: Systemic Risk
Business Processes Impacted: Risk Management & Stress Testing
With the number of jurisdictions considering regulations that impose restrictions on the scope of banking activity (these include the Volcker Rule6 in the U.S., the Vickers Commission7 in the U.K., and the European Commission’s Liikanen report8), the Basel committee’s report9 examines systemic risk-reducing effects of the restrictions and challenges. Major challenges include a) shifting of risk outside the boundary of regulation, b) creation of business models that are difficult to supervise, and c) implications of different capital and liquidity standards applied to entities within a single banking group.

International Swaps and Derivatives Association (ISDA)(): 2013 ISDA Operations Benchmarking Survey
Publication Date:
April 25, 2013
Risks Covered: Counterparty Risk (CCR), Operational Risk
Business Processes Impacted—Clearing & Settlement – Exchange Traded & OTC
The ISDA’s survey covered 77 member firms in five OTC derivative product groups (namely, interest rate derivatives, credit derivatives, equity derivatives, currency options and commodity derivatives). Benchmarks are available in the areas of a) volumes, b) errors in trade capture, c) electronic confirmation, d) settlements, e) clearing, f) automation, g) staffing, and h) industry initiatives. Improvements in infrastructure led to continuing decrease in outstanding confirmations across different categories of respondents measured by monthly trading volume.

European Central Bank (ECB) (): Retained intrests in securitisations and implication for bank survey
Publication Date:
April 24, 2013
Risks Covered: Credit Risk, Counterparty Risk (CCR)
Business Processes Impacted: Risk Management & Stress Testing, Trading
Using US bank holding company data for the period 2001 to 2007, the ECB’s report analyses the relationship between insolvency risk and nature of securitization interest retained by the banks. While risk of insolvency of large-scale securitizes is expected to increase with retained interests, in case of small-scale and / or first-time securitizes there is a likelihood of reduction in insolvency risk. Additionally, type of facility and nature of subordination are found to have impact on the risk of insolvency. Findings of the study have implications for regulations, calling for retention of securitization interests by banks.

International Organization Of Securities Commissions (IOSCO)(): Regulation of Retail Structured Products, Proposed Consultation
Publication Date:
April 18, 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Consumer Protection, Audit, Legal & Compliance
Purpose of the proposed consultation from the International Organization Of Securities Commissions is to conduct a survey among members on the retail structured products market and to develop a regulatory response to issues faced by the member countries. Major areas addressed by consumer protection principles include a) classification of customers, b) mitigation of conflicts of interest by c) intermediaries’ disclosure requirements, d) structure of compliance function, e) robust policies and procedures, f) incentives and g) enforcement.

Financial Stability Board (FSB)(): Progress report on implementation of OTC derivatives market reforms
Publication Date:
April 15, 2013
Risks Covered: Counterparty Risk (CCR), Compliance Risk
Business Processes Impacted: Clearing & Settlement – Exchange Traded & OTC, Trading
Noting that progress in implementing regulatory reforms in global OTC derivative markets is expected to accelerate during 2013, the FSB’s report reveals that less than half of the member jurisdictions currently have legislative and regulatory frameworks in place. Key outstanding policy issues to be resolved include a) application in cross-border contexts, b) trade reporting and data access, c) central clearing and incentives, and d) organized platform trading.

Australian Prudential Regulation Authority (APRA)() —: Basel III disclosure requirements: composition of capital and remuneration, Proposed Consultation
Publication Date:
April 9, 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing, Audit, Legal & Compliance
With a view to give effect to measures introduced by the Basel Committee, the APRA’s proposed consultation would require additional disclosures under Pillar 310 of the Basel Accord, in relation to composition of capital and remuneration. Major coverage includes a) adhering to common disclosure template, b) reconciliation of regulatory capital elements back to the audited balance sheet, c) scope of application of remuneration disclosure, and d) interaction with remuneration disclosure under the Corporations Act11.

Federal Deposit Insurance Corporation (FDIC) (): Basel III Capital: A Well-Intended Illusion
Publication Date:
April 9, 2013
Risks Covered: Market Risk, Credit Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
Citing strong and recent international evidence against Basel tier I regulatory capital ratio12 (tier 1 capital as a proportion of risk weighted assets), to judge adequacy of bank capital and balance sheet strength, the report argues in favor of implementing the tangible leverage ratio as a superior alternative. Major considerations in choosing tangible leverage ratio over tier 1 regulatory capital ratio include a) clarity of understanding, b) comparability across institutions, c) confidence that it cannot be easily manipulated and d) forward looking approach.

Bank for International Settlements (BIS)(): The Great Financial Crisis: setting priorities for new statistics
Publication Date:
April 4, 2013
Risks Covered: Systemic Risk, Counterparty Risk (CCR)
Business Processes Impacted: Risk Management & Stress Testing
Citing failure to interpret data correctly and to take remedial action as causing crises rather than lack of data, the report from the Basel Committee highlights the need for improved data management standards for management of systemic risks. Priorities for new data collection include a) better property prices, b) comprehensive financial information for banks on a consolidated and global basis covering their balance sheets and income statements, and c) timely and more granular data on banks’ bilateral exposures.

Prudential Regulation Authority (PRA)(): The Prudential Regulation Authority’s approach to banking supervision
Publication Date:
April 1, 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
The report sets out how the Prudential Regulation Authority would proceed with its regulatory and supervisory objectives in relation to deposit-takers and designated investment firms. Its approach to regulation and supervision include a) management and governance, b) culture and behavior, c) competence, accountability and responsibility, and a robust risk management framework covering capital adequacy, leverage, liquidity, resolvability, and internal control. Principle of proportionality that calls for adjusting the Prudential Regulation Authority’s supervisory standards13 in terms of threats that firms can pose to its statutory objectives would be a key consideration.


Financial Conduct Authority (FCA) — The importance of culture in driving behaviors of firms and how the FCA will assess this
The Financial Conduct Authority leadership speech identifies cultural issues as heart of the problem that caused mis-selling of products to retail investors or manipulation of LIBOR for financial benefits. Key drivers of culture include a) setting the tone from the top, b) business practices and ways of behaving, and c) performance management, employee development, and reward programs. A variety of approaches for assessing culture and encouraging positive culture are part of the FCA’s plan that includes placing greater emphasis on individuals, as well as corporate accountability.


  1. Federal Deposit Insurance Corporation, Basel III capital: a well-Intended illusion, April 9, 2013.
  2. Basel Committee on Banking Supervision, Basel III: a global regulatory framework for more resilient banks and banking systems, June 2011.
  3. International Organization of Securities Commissions, Regulation of retail structured products, April 18, 2013.
  4. Bank for International Settlements, The great financial crisis: setting priorities for new statistics, April 4, 2013.
  5. Bureau of Consumer Financial Protection, Truth in Lending (Regulation Z).
  6. Sec. 619, Prohibition on proprietary trading and certain relationships with hedge funds and private equity funds, The Dodd-Frank Wall Street Reform and Consumer Protection Act, January 2010.
  7. Independent Commission on Banking, final report, September 2011.
  8. High-level Expert Group on reforming the structure of the EU banking sector, final report, October 2012.
  9. Bank for International Settlements, Structural bank regulation initiatives: approaches and implications, April 26, 2013.
  10. Basel Committee on Banking Supervision, Basel II: International Convergence of Capital Measurement and Capital Standards, June 2006.
  11. Australian Government, Corporations Act 2001, January 2013.
  12. Basel Committee on Banking Supervision, Basel III: a global regulatory framework for more resilient banks and banking systems, June 2011.
  13. Prudential Regulation Authority, The Prudential Regulation Authority’s approach to banking supervision, April 1, 2013.

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