This is a monthly initiative aimed at updating the Risk Management community with the most recent regulatory changes impacting Banks & Capital Markets firms. We update our comprehensive regulatory database every month by tracking more than 40 regulatory and industry bodies covering North America, EALA and APAC. Every month, we will highlight approximately 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 newsletter is planned to supplement the existing monthly newsletter “Regulatory Insights” which provides a deeper analysis of business implications & Accenture’s point of view on a single or much smaller set of regulatory changes.
Edition Highlights:
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The Basel Committee’s final rule10 would update and replace the existing assessment methodology for global systemically important banks. Among others, indicators used in the assessment of systemic importance have been changed.
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The joint proposed rule8 of the FDIC & the Fed on Basel III leverage ratio would increase the supplementary leverage ratio requirement of large bank holding companies & their subsidiary insured depository institutions from the current level of 3 percent.
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The ESMA’s proposed rules6 on clearing obligations under the European Market Infrastructure Regulation (EMIR) would assess clearing-readiness and determination of classes of OTC derivatives subject to clearing obligation.
Current coverage period: Through July 31st, 2013
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(
Low) ( Medium) ( High)
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(
Low) ( Medium) ( High)
CURRENT REGULATIONS:
Financial Conduct Authority (FCA) (): Capital requirements for investment firms
Publication Date: July 31st 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing, Audit, Legal & Compliance
The FCA’s proposed regulation1 spells out changes to the FCA handbook that are applicable to the investment firms under the Capital Requirements Directive. Key coverage includes a) implications for common reporting and financial reporting, b) capital conservation and countercyclical buffers, c) recovery and resolution planning, d) stress testing, e) changes in the area of remuneration, f) large exposures, g) leverage, and h) liquidity reporting.
China Banking Regulatory Commission (CBRC) (): Capital regulation for Commercial Banks
Publication Date: July 19th 2013
Risks Covered: Compliance Risk, Credit Risk
Business Processes Impacted: Risk Management & Stress Testing, Audit, Legal & Compliance
With the objective of upgrading the capability of risk management of the regulated entities and to enhance market discipline, the CBRC issued the Capital Rules2. Major coverage of the rules includes a) capital requirements for bank exposures to central counterparties, b) enhancing disclosure requirements for composition of capital, c) regulatory policies for implementing Internal Ratings-Based Approach for Credit Risk, and d) policy clarifications of capital rules, including definition of capital.
): Capital regulation for Commercial BanksPublication Date: July 19th 2013
Risks Covered: Compliance Risk, Credit Risk
Business Processes Impacted: Risk Management & Stress Testing, Audit, Legal & Compliance
With the objective of upgrading the capability of risk management of the regulated entities and to enhance market discipline, the CBRC issued the Capital Rules2. Major coverage of the rules includes a) capital requirements for bank exposures to central counterparties, b) enhancing disclosure requirements for composition of capital, c) regulatory policies for implementing Internal Ratings-Based Approach for Credit Risk, and d) policy clarifications of capital rules, including definition of capital.
European Central Bank (ECB) (): Second Report on Card Fraud
Publication Date: July 16th 2013
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal & Compliance, Payments
The ECB’s report3 on fraud related to card payment schemes covering the Single Euro Payment Area (SEPA). Key findings a) while the number of transactions increased from 2010 to 2011, the total value of fraud decreased in the same period, b) levels of fraud were lower in the euro area than in the SEPA as a whole, and c) domestic transactions experienced lower fraud levels than cross-border transactions, highlighting the need to access & share information widely with a view to combating fraud.
): Second Report on Card FraudPublication Date: July 16th 2013
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal & Compliance, Payments
The ECB’s report3 on fraud related to card payment schemes covering the Single Euro Payment Area (SEPA). Key findings a) while the number of transactions increased from 2010 to 2011, the total value of fraud decreased in the same period, b) levels of fraud were lower in the euro area than in the SEPA as a whole, and c) domestic transactions experienced lower fraud levels than cross-border transactions, highlighting the need to access & share information widely with a view to combating fraud.
Financial Stability Board (FSB) (): Recovery and Resolution Planning for Systemically Important Financial Institutions: Guidance on Recovery Triggers and Stress Scenarios
Publication Date: July 16th 2013
Risks Covered: Credit Risk
Business Processes Impacted: Recovery & Resolution planning, Risk Management & Stress Testing
The FSB’s final rules4 make regulators responsible for ensuring credible and implementable recovery plans and the senior management of regulated firms responsible for developing and maintaining recovery & resolution plans. Key coverage includes a) analysis of vulnerabilities associated with nature, size, and complexity of the firm’s operations, b) criteria for building triggers of recovery situation, c) credible options to cope with wide range of scenarios both firm-specific and market wide stress, and d) implementation of recovery options in stress situations.
): Recovery and Resolution Planning for Systemically Important Financial Institutions: Guidance on Recovery Triggers and Stress ScenariosPublication Date: July 16th 2013
Risks Covered: Credit Risk
Business Processes Impacted: Recovery & Resolution planning, Risk Management & Stress Testing
The FSB’s final rules4 make regulators responsible for ensuring credible and implementable recovery plans and the senior management of regulated firms responsible for developing and maintaining recovery & resolution plans. Key coverage includes a) analysis of vulnerabilities associated with nature, size, and complexity of the firm’s operations, b) criteria for building triggers of recovery situation, c) credible options to cope with wide range of scenarios both firm-specific and market wide stress, and d) implementation of recovery options in stress situations.
International Organization Of Securities Commissions (IOSCO) (): Cyber-crime, systemic risk and global securities markets
Publication Date: July 16th 2013
Risks Covered: Systemic Risk, IT Risk
Business Processes Impacted: Audit, Legal & Compliance
The IOSCO’s report5 highlights the growing nature of cyber-crime in securities markets and the danger it poses to efficient functioning of securities markets globally. Major findings include rapidly evolving nature of cyber-crime, and increase in high-profile and critical ‘hits’. In the light of growing underestimation of severity of the emerging risk, the report5 calls for pressing need to consider cyber threats as systemic risk.
): Cyber-crime, systemic risk and global securities marketsPublication Date: July 16th 2013
Risks Covered: Systemic Risk, IT Risk
Business Processes Impacted: Audit, Legal & Compliance
The IOSCO’s report5 highlights the growing nature of cyber-crime in securities markets and the danger it poses to efficient functioning of securities markets globally. Major findings include rapidly evolving nature of cyber-crime, and increase in high-profile and critical ‘hits’. In the light of growing underestimation of severity of the emerging risk, the report5 calls for pressing need to consider cyber threats as systemic risk.
European Securities and Markets Authority (ESMA) (): The Clearing Obligation under EMIR
Publication Date: July 12th 2013
Risks Covered: Compliance Risk, Counterparty Risk (CCR)
Business Processes Impacted: Clearing & Settlement – Exchange Traded & OTC
The ESMA’s proposed rules6 would deal with clearing obligations for OTC derivatives under European Market Infrastructure Regulation (EMIR). Key coverage includes a) determination of classes of OTC derivatives to be subject to the clearing obligation, b) analysis of clearing readiness of each asset-class, c) criteria for deriving dates from which the clearing obligation should apply for various types of counterparties, and d) procedure for the determination of clearing obligation for certain types of contracts.
): The Clearing Obligation under EMIRPublication Date: July 12th 2013
Risks Covered: Compliance Risk, Counterparty Risk (CCR)
Business Processes Impacted: Clearing & Settlement – Exchange Traded & OTC
The ESMA’s proposed rules6 would deal with clearing obligations for OTC derivatives under European Market Infrastructure Regulation (EMIR). Key coverage includes a) determination of classes of OTC derivatives to be subject to the clearing obligation, b) analysis of clearing readiness of each asset-class, c) criteria for deriving dates from which the clearing obligation should apply for various types of counterparties, and d) procedure for the determination of clearing obligation for certain types of contracts.
Department of Treasury, Internal Revenue Service (US) (): Revised Timeline and Other Guidance Regarding the Implementation of The Foreign Account Tax Compliance Act (FATCA)
Publication Date: July 12th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance
Through the notice7, the U.S Internal Revenue Service (IRS) seeks to amend the final regulations to postpone by 6 months the start of FATCA withholding, and to make the conforming adjustments to a number of related timelines in the final FATCA regulations. Additional guidance relates to foreign financial institutions in jurisdictions that have signed an intergovernmental agreement but have not yet enacted legislation to bring give effect to the agreement.
): Revised Timeline and Other Guidance Regarding the Implementation of The Foreign Account Tax Compliance Act (FATCA)Publication Date: July 12th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance
Through the notice7, the U.S Internal Revenue Service (IRS) seeks to amend the final regulations to postpone by 6 months the start of FATCA withholding, and to make the conforming adjustments to a number of related timelines in the final FATCA regulations. Additional guidance relates to foreign financial institutions in jurisdictions that have signed an intergovernmental agreement but have not yet enacted legislation to bring give effect to the agreement.
Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (the Fed) (): Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository Institutions
Publication Date: July 9th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Finance, Audit, Legal & Compliance
The joint proposed rule8 of the U.S. federal banking agencies, applicable to the largest, most systemically important banking organizations (covered Bank Holding Companies or BHCs) and their subsidiary insured depository institutions (covered IDIs), would increase the supplementary leverage ratio requirement of 3 percent. As a result, a) covered BHCs would require a supplementary leverage ratio of 5 percent to avoid restrictions on capital distributions and b) covered IDIs would require a supplementary leverage ratio of 6 percent to be regarded as well-capitalized for prompt corrective action.
): Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository InstitutionsPublication Date: July 9th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Finance, Audit, Legal & Compliance
The joint proposed rule8 of the U.S. federal banking agencies, applicable to the largest, most systemically important banking organizations (covered Bank Holding Companies or BHCs) and their subsidiary insured depository institutions (covered IDIs), would increase the supplementary leverage ratio requirement of 3 percent. As a result, a) covered BHCs would require a supplementary leverage ratio of 5 percent to avoid restrictions on capital distributions and b) covered IDIs would require a supplementary leverage ratio of 6 percent to be regarded as well-capitalized for prompt corrective action.
Bank for International Settlements (BIS) (): Regulatory consistency assessment programme – Analysis of risk-weighted assets for credit risk in the banking book
Publication Date: July 5th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
Data for the Basel Committee’s study9, that investigated differences in Risk Weighted Assets (RWA) for credit risk, were from 100 major banks as well as 32 large international banking groups from 13 jurisdictions. Major findings include a) considerable variations across banks in average RWAs for credit risk, similar to that observed for market risk in the trading book, b) up to three-fourths of the variation is explained by differences in composition of banks’ portfolios, reflecting differences in risk preferences of banks, and c) the driver for the remaining variation is differences in both bank and supervisory practices.
): Regulatory consistency assessment programme – Analysis of risk-weighted assets for credit risk in the banking bookPublication Date: July 5th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
Data for the Basel Committee’s study9, that investigated differences in Risk Weighted Assets (RWA) for credit risk, were from 100 major banks as well as 32 large international banking groups from 13 jurisdictions. Major findings include a) considerable variations across banks in average RWAs for credit risk, similar to that observed for market risk in the trading book, b) up to three-fourths of the variation is explained by differences in composition of banks’ portfolios, reflecting differences in risk preferences of banks, and c) the driver for the remaining variation is differences in both bank and supervisory practices.
Bank for International Settlements (BIS) (): Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement
Publication Date: July 3rd 2013
Risks Covered: Credit Concentration Risk, Business Cycle Risk
Business Processes Impacted: Risk Management & Stress Testing
The Basel committee’s final rule10 would update & replace the November 2011 assessment methodology for global systemically important banks (G-SIB). Main ones include a) change in indicators used to measure systemic importance, b) publication of template and reporting instructions, c) process for normalizing banks’ scores, d) fixing the cutoff score and bucket thresholds, e) frequency of updating the denominators, and f) disclosure requirements. Periodically the committee will review the methodology & issue further guidance.
): Global systemically important banks: updated assessment methodology and the higher loss absorbency requirementPublication Date: July 3rd 2013
Risks Covered: Credit Concentration Risk, Business Cycle Risk
Business Processes Impacted: Risk Management & Stress Testing
The Basel committee’s final rule10 would update & replace the November 2011 assessment methodology for global systemically important banks (G-SIB). Main ones include a) change in indicators used to measure systemic importance, b) publication of template and reporting instructions, c) process for normalizing banks’ scores, d) fixing the cutoff score and bucket thresholds, e) frequency of updating the denominators, and f) disclosure requirements. Periodically the committee will review the methodology & issue further guidance.
The FCA’s strategy, as per the plan11, is to transform through regulatory changes, the culture of financial firms to enable them to learn from their past mistakes and to prevent them from repeating the mistakes. Key areas of focus include a) product intervention, b) product design & oversight – fund fee structure, c) mortgage and forbearance management, d) competition among financial firms, e) consumer protection issues relating to promotions by financial firms, f) financial incentives, and g) new payment methods / mobile banking and payments.
Footnotes
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Financial Conduct Authority: Capital requirements for investment firms
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China Banking Regulatory: Capital regulation for Commercial Banks
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European Central Bank: Second Report on Card Fraud
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International Organization Of Securities Commissions: Cyber-crime, systemic risk and global securities markets
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European Securities and Markets Authority: The Clearing Obligation under EMIR
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Department of Treasury, Internal Revenue Service (US): Revised Timeline and Other Guidance Regarding the Implementation of FATCA
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Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository Institutions
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Bank for International Settlements: Regulatory consistency assessment programme – Analysis of risk-weighted assets for credit risk in the banking book
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Bank for International Settlements: Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement
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Financial Conduct Authority: Business Plan 2013/14
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