The “Regulatory Reform” newsletter is the monthly initiative aimed at updating the Finance and Risk community with the most recent regulatory changes impacting banks and capital markets firms. We update our regulatory database every month by tracking more than 40 regulatory and industry bodies covering North America, Europe and Asia-Pacific. Every month, we will seek to highlight approximately 10 regulations shortlisted on the basis of geographic coverage and anticipated business impacts. Our summaries will seek to highlight the risks covered and business processes affected by the regulatory reforms. This newsletter is planned to supplement the existing newsletter “Regulatory Insights” which provides a deeper analysis of business implications and Accenture’s point of view on a single or much smaller set of regulatory changes.

Edition Highlights:

  • The Basel Committee’s progress report on risk data aggregation and reporting focuses on the level of preparedness and challenges faced by global systemically important banks.2
  • The SEC’s new rules would govern the registration process, duties, and core principles covering the operations of swap data repositories.8
  • The Prudential Regulation Authority’s proposed changes to its Pillar 2 framework would include new approaches for assessing capital requirements of banks and associated data requirements.4

Current coverage period: Through January 31, 2015
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
( Low) (Medium) (High)

CURRENT REGULATIONS:

Bank for International Settlements (BIS) ():
Revised Pillar 3 disclosure requirements
Publication Date: Jan 28th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Reporting, Risk Management and Stress Testing
The Basel Committee’s final standards would revise the existing Pillar 3 disclosure requirements and are aimed at improving comparability of disclosures both across banks and over time.1 The revisions to the disclosure framework represent an important shift in both the format and granularity of required bank disclosures. Key changes include a) streamlining the requirements related to disclosure of credit risk exposures and risk mitigation techniques, and b) clarifying and streamlining the disclosure requirements for securitization exposures.

Bank for International Settlements (BIS) ( ):
Progress in adopting the principles for effective risk data aggregation and risk reporting
Publication Date: Jan 23rd 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Data Quality Management, Reporting
The Basel Committee’s second progress report on banks’ adoption of principles aimed at strengthening risk data aggregation and risk reporting, outlines the measures banks have taken to improve their preparedness as well as the challenges they face.2 In spite of increased awareness in the importance of this topic, close to half of the banks that participated in a self-assessment survey may be unable to fully comply with the principles by the 2016 deadline. The three principles with the lowest reported compliance were a) data architecture/IT infrastructure, b) adaptability, and c) accuracy/integrity.

Bank for International Settlements (BIS) ( ):
The rewards of an ethical culture – by Mr Thomas C Baxter, Executive Vice President and General Counsel of the Federal Reserve Bank of New York
Publication Date: Jan 21st 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing, Training and Development

The leadership speech highlights some of the important practical features of a strong ethical culture, and concludes by setting out a few rewards that might result from it.3 The components of a strong ethical culture are a) compensation and promotion, b) character displayed by people who occupy the upper most positions, and c) rules that are built on a foundation of the shared and well-understood values of the institution. The principal benefit in having a strong ethical culture is the avoidance of bad banker behavior which often leads to enforcement actions that can carry significant monetary fines.

Prudential Regulation Authority (PRA), Bank of England ( ):
Assessing capital adequacy under Pillar 2
Publication Date: Jan 19th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing, Capital Adequacy and Capital Planning

The consultation paper sets out proposed changes to the PRA’s Pillar 2 framework for the banking sector and is intended to ensure that firms have adequate capital and appropriate processes to ensure compliance with the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD).4 Major coverage include a) Pillar 2 methodologies and the proposed new approaches for assessing Pillar 2 capital including associated data requirements, b) buffer and approaches to operating the buffer regime, c) governance and risk management, including proposals to tackle significantly weak governance and risk management, and d) disclosures for a more transparent regime.

Office of the Comptroller of the Currency (OCC) ():
Litigation and Other Legal Matters
Publication Date: Jan 16th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing

The OCC’s revised guidance to examiners deals with managing legal risks, as pending or potential litigation could pose significant compliance and reputation risks to banking organizations.5 Highlights of the guidance include: a) detailed approaches to identifying risks, along with related risk factors; b) establishing supervisory expectations, c) expanded examination procedures to assess the quantity of risk and quality of risk management (including internal and external audit activities); and d) addressing risk mitigation through insurance.

Financial Conduct Authority (FCA) ():
FCA Competition Concurrency Guidance and Handbook amendments
Publication Date: Jan 15th 2015
Risks Covered: Liquidity Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing

The FCA on account of receiving competition powers on April 1, 2015, will become a “concurrent regulator” with the power to carry out market studies and make market investigation references to the Competition and Markets Authority (CMA), and would be able to enforce the prohibitions on anti-competitive behavior in the Competition Act 1998 (CA98) and the Treaty of the Functioning of the European Union. Through this consultation paper, the FCA is inviting comments on three documents: a) draft guidance on its powers under CA98, b) draft guidance on market studies, and market investigation references, and c) draft legal instrument to introduce minor amendments to the FCA Handbook.6

Monetary Authority of Singapore (MAS) ():
Proposed Amendments to the Banking Act
Publication Date: Jan 15th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance

The MAS has issued a consultation paper seeking feedback on legislative amendments that would help implement a number of significant changes to the Banking Act, with the objective of strengthening its supervisory oversight of banks and laying out its regulatory expectations and requirements.7 This follows its previously published paper on policy amendments. Key amendments to the act cover implementation of MAS’s policies to enhance depositor protection, ensure adequate risk management controls, strengthen corporate governance, while other proposals include MAS approving a bank’s place of business and declaring bank holidays.

Securities and Exchange Commission (SEC) ():
Security-Based Swap Data Repository Registration, Duties, and Core Principles
Publication Date: Jan 14th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Reporting

The SEC is adopting rules under the Securities Exchange Act of 1934, governing the security-based Swap Data Repository (SDR) registration process, duties and core principles, in addition to a new registration form.8 In addition, the Commission is also amending a number of existing rules and regulations in order to accommodate SDRs. The primary ones include: amendments to Regulation S-T and Exchange Act Rule 24-b2 and amendments to Regulation S-T.

International Swaps and Derivatives Association (ISDA) ( ):
ISDA Insight Survey: A Survey of issues and trends for the derivatives end-user community
Publication Date: Jan 6th 2015
Risks Covered: Counterparty Credit Risk
Business Processes Impacted: Netting and Collateral Management, Clearing and Settlement – Exchange Traded and Over-The-Counter

As per the survey conducted by the ISDA and covering 400 respondents, a third of them were uncertain about whether the new rules around margin requirements for non-cleared derivatives would apply to them, while two-third of those who knew they had to comply were concerned about their ability to meet the requirements.9 The top three challenges as per the end users were: a) increased cost of hedging (59%), b) regulatory uncertainty (38%), and c) concerns about the scope of cross-border derivatives regulation (36%).

FORTHCOMING REGULATIONS:

Securities and Exchange Commission (SEC) : Examination Priorities for 2015
Focus of the SEC’s examination priorities would be on protecting retail investors, assessing market-wide risks, and using data analytics to identify signs of potential illegal activity.10 The SEC will seek to address issues across a variety of financial institutions, including investment advisors, investment companies, broker-dealers, transfer agents, clearing agencies, and national securities exchanges.

Footnotes:

  1. Bank for International Settlements (BIS): Revised Pillar 3 disclosure requirements
  2. Bank for International Settlements (BIS): Progress in adopting the principles for effective risk data aggregation and risk reporting
  3. Bank for International Settlements (BIS): The rewards of an ethical culture – by Mr Thomas C Baxter, Executive Vice President and General Counsel of the Federal Reserve Bank of New York
  4. Prudential Regulation Authority (PRA), Bank of England: Assessing capital adequacy under Pillar 2
  5. Office of the Comptroller of the Currency (OCC): Litigation and Other Legal Matters
  6. Financial Conduct Authority (FCA): FCA Competition Concurrency Guidance and Handbook amendments
  7. Monetary Authority of Singapore (MAS): Proposed Amendments to the Banking Act
  8. Securities and Exchange Commission (SEC): http://www.sec.gov/rules/final/2015/34-74246.pdf
  9. International Swaps and Derivatives Association (ISDA): ISDA Insight Survey: A Survey of issues and trends for the derivatives end user community
  10. Securities and Exchange Commission (SEC): Examination Priorities for 2015

DISCLAIMER: This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.

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