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, EALA and APAC. Every month, we will seek to highlight approximately 10 regulations shortlisted on the basis of geography of 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 Financial Reporting Council’s corporate governance standards3 set out the financial and business reporting responsibilities of bank’s boards of directors.
  • U.S. joint agencies’ final rule10 would require large banks to hold high quality, liquid assets sufficient to tide over a 30-day stress period.
  • Proposed rules8 from the Monetary Authority of Singapore outline approaches to managing outsourcing risks through institution-wide arrangements.

Current coverage period: Through September 30, 2014
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
( Low) (Medium) (High)

CURRENT REGULATIONS:

Bank Negara Malaysia – Central Bank of Malaysia (BNM) ( ):
Compliance – Concept Paper
Publication Date: Sep 25th 2014
Risks Covered: Compliance Risk, Operational Risk, Reputation Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The BNM’s proposed compliance rules1 are aimed at reducing financial, reputational, and operational risks resulting from noncompliance with regulations or legal requirements. Emphasis would be on strong ownership of compliance risk by business lines and more effective interaction between the compliance function and business lines. Key policy requirements set out in the proposal include a) responsibilities of the board of directors and senior management, the compliance function, and the internal audit function, and b) key features of the compliance function for supporting effective management of compliance risk.

European Banking Authority (EBA) ( ):
Draft Guidelines – on the interpretation of the different circumstances when an institution shall be considered as failing or likely to fail under Article 32(6) of Directive 2014/59/EU
Publication Date: Sep 22nd 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Recovery and Resolution planning, Risk Management and Stress Testing
The EBA’s consultation2 would deal with circumstances under which an institution shall be considered as ‘failing or likely to fail’ (triggers for resolution) under the Bank Recovery and Resolution Directive and is aimed at convergence of supervisory and resolution practices. Determination in case of supervisory authorities would be based on the outcomes of Supervisory Review and Evaluation Process, and in the case of resolution authorities, it would be based on capital, and liquidity position, as well as other elements specified in the consultation.

The Financial Reporting Council (FRC) ( ):
Guidance for Directors of Banks on Solvency and Liquidity Risk Management and the Going Concern Basis of Accounting
Publication Date: Sep 17th 2014
Risks Covered: Compliance Risk, Liquidity Risk
Business Processes Impacted: Risk Management and Stress Testing, Finance and Performance Management

The guidance3 from FRC on corporate governance for banks that supplements the FRC’s risk guidance, would assist the Board of Directors of banks in meeting their financial and business reporting responsibilities. In addition to a detailed perspective on solvency and liquidity risk assessments for banks, the supplementary guidance would deal with identification and reporting of going concern material uncertainties in the financial statements and in wider business reporting about solvency and liquidity risks and viability in case of a bank.

Commodity Futures Trading Commission (CFTC) ( ):
Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants; Proposed Rule
Publication Date: Oct 3rd 2014
Risks Covered: Counterparty Credit Risk, Compliance Risk
Business Processes Impacted: Netting and Collateral Management, Audit, Legal and Compliance

The CFTC is proposing rules4 to address margin requirements for uncleared swaps entered into by Swap Dealers (SD) and Major Swap Participants (MSP) that are not subject to oversight by any of the Prudential Regulators. Pursuant to this, SD and MSP would collect initial and variation margins on uncleared swaps from entities other than non-financial end users. The proposed rules are highly similar to international standards issued in 2013 by the Basel Committee and the International Organization of Securities Commissions.

International Organization Of Securities Commissions (IOSCO) ():
Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives
Publication Date: Sep 17th 2014
Risks Covered: Counterparty Credit Risk, Systemic Risk
Business Processes Impacted: Risk Management and Stress Testing, Netting and Collateral Management

The IOSCO’s consultation5 on risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives would promote legal certainty, and facilitate better management of counterparty credit risk. Key coverage includes a) trading relationship documentation, b) trade confirmation, c) valuation with counterparties, d) reconciliation, e) portfolio compression, and f) cross-border transactions. In addition, key considerations for implementation of these risk-mitigation standards and their explanation form part of the consultation.

Consumer Financial Protection Bureau (CFPB) ( ):
Consumer Financial Protection Bureau Finalizes Rule to Oversee Larger NonBank International Money Transfer Providers
Publication Date: Sep 12th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Consumer Protection, Payments

To provide protection to consumers in the US who send remittance transfers, the CFPB has issued a final rule6 that would enable it to supervise certain nonbank international money transfer providers that provide more than 1 million international money transfers annually to the CFPB’s supervisory authority, effective December 1, 2014. Under the rule the Bureau would ensure that such providers are providing protections to the consumers, such as better disclosure of information, option to cancel a remittance and correction of errors made by agents of the providers.

Bank for International Settlements (BIS) ( ):
Analysis of the trading book hypothetical portfolio exercise
Publication Date: Sep 9th 2014
Risks Covered: Market Risk
Business Processes Impacted: Risk Management and Stress Testing, Trading

This report7 issued by the Basel Committee contains results of the test conducted on banks’ hypothetical portfolios focusing on the revised internal models-based approach for market risk, as set out in the second consultative paper of the committee’s fundamental review of the trading book. The exercise provided encouraging results as banks were able to implement the new requirements with some simplified assumptions, and the outcomes would be used to refine the instructions for subsequent quantitative impact studies in the future.

Monetary Authority of Singapore (MAS) ( ):
Consultation Paper on Guidelines on Outsourcing
Publication Date: Sep 5th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing

MAS has proposed8 revisions to its earlier guidelines promoting sound risk management practices of outsourcing arrangements. Specifically, the practices relate to the “responsibility of the board and senior management” and the “monitoring and control of outsourcing arrangements”. These would be used to assess the quality of an organization’s board and senior management oversight and governance, internal controls and risk management.

Securities and Exchange Commission (SEC) ( ):
Asset-Backed Securities Disclosure and Registration; Final Rule
Publication Date: Sep 24th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Reporting

The SEC is adopting a number of changes to Regulation AB and other rules governing the offering process, disclosure, and reporting for Asset-Backed Securities (ABS). Under the revised rules9, it would be required that prospectuses for certain public offerings and reports of specific asset-based securities contain specified asset-level information. The rules would also impact filing deadlines for ABS offerings, would bring in new registration forms and establish new shelf eligibility criteria for ABS issuers.

Board of Governors of the Federal Reserve System (the Fed), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) ( ):
Federal Banking Regulators Finalize Liquidity Coverage Ratio
Publication Date: Sep 3rd 2014
Risks Covered: Liquidity Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing, Funding and Liquidity Management

In order to strengthen the liquidity positions of large and internationally active banking institutions, a rule has been finalized10 that would create a standardized minimum liquidity requirement for such organizations. The rule would also apply a less stringent, modified liquidity coverage ratio to bank holding companies and savings and loan holding companies that do not meet the thresholds defined for the large organizations. The rule comes into effect on January 1, 2017.

FORTHCOMING REGULATIONS:

Financial Stability Board (FSB): Meeting of the Financial Stability Board in Cairns on 17-18 September
At its meeting in Cairns, the FSB reviewed work plans11 for completing core financial reforms in the areas of a) ending too-big-to-fail, b) shadow banking, c) making derivatives markets safer, d) foreign exchange benchmark reform, and e) accounting, auditing and disclosure. These areas were found to be important from the perspective of achieving the goal of substantially completing the key post-crisis financial reforms in 2014.

Footnotes:

  1. Bank Negara Malaysia (BNM): Compliance – Concept Paper
  2. European Banking Authority (EBA): Draft Guidelines – on the interpretation of the different circumstances when an institution shall be considered as failing or likely to fail under Article 32(6) of Directive 2014/59/EU
  3. The Financial Reporting Council (FRC): Guidance for Directors of Banks on Solvency and Liquidity Risk Management and the Going Concern Basis of Accounting
  4. Commodity Futures Trading Commission (CFTC): Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants; Proposed Rule
  5. International Organization Of Securities Commissions (IOSCO): Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives
  6. Consumer Financial Protection Bureau (CFPB): Consumer Financial Protection Bureau Finalizes Rule to Oversee Larger Non-Bank International Money Transfer Providers
  7. Bank for International Settlements (BIS): Analysis of the trading book hypothetical portfolio exercise
  8. Monetary Authority of Singapore (MAS): Consultation Paper on Guidelines on Outsourcing
  9. Securities and Exchange Commission (SEC): Asset-Backed Securities Disclosure and Registration; Final Rule
  10. Board of Governors of the Federal Reserve System (the Fed), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC): Federal Banking Regulators Finalize Liquidity Coverage Ratio
  11. Financial Stability Board (FSB): Meeting of the Financial Stability Board in Cairns on 17-18 September

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.

About Accenture
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