This is a monthly initiative aimed at updating the Risk Management community with some of 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:
  • The CFTC’s paper6 on risk controls in automated trading environments evaluates the need for additional measures in the light of rapid technology-driven changes in trading. Key requirements would include pre-trade risk controls, post-trade reporting, and system safeguards.
  • The APRA’s guidance10 on data risk management would call for a systematic, principles-based approach for data life cycle management, and for strengthening of controls on outsourcing / offshoring of data management responsibilities.
  • The FSB’s progress report8 on financial sector reforms highlights key achievements of improvements in resilience of financial institutions, and strengthening of market infrastructure. Challenges remain in timely implementation, and information sharing.
Current coverage period: Through September 30th, 2013
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(Low) ( Medium) ( High)

CURRENT REGULATIONS:

Board of Governors of the Federal Reserve System (the Fed) (): Regulations Y and YY: Application of the Revised Capital Framework to the Capital Plan and Stress Test Rules
Publication Date:
September 30th 2013
Risks Covered: Credit Risk, Market Risk
Business Processes Impacted: Risk Management & Stress Testing
Purpose of the Fed’s interim final rule1, applicable to bank holding companies (BHC) with $ 50 billion or more in total consolidated assets, is to explain how BHCs should incorporate the Basel III regulatory capital reforms into their capital planning projections and stress testing under the Dodd-Frank Act. To ensure consistency with the previous stress testing exercises, capital adequacy for the upcoming cycle would continue to be measured against a minimum 5 percent tier 1 common ratio computed using the same methodology as that of the previous exercises.

Monetary Authority of Singapore (MAS) (): Complaints Handling and Resolution
Publication Date:
September 30th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Consumer Protection, Audit, Legal &Compliance
The proposed regulation of MAS2 would be aimed at financial advisors towards strengthening complaints handling & resolution under the Financial Advisors Act. Major requirements include a) independent and prompt complaints handling & resolution processes for retail clients, b) nominating a person or a committee to be responsible for ensuring compliance with regulatory requirements, c) centralized complaints management system, d) transparency & provision of information to public, and e) reporting to MAS on a biannual basis.

Federal Deposit Insurance Corporation (FDIC) (): Supervisory Approach to Payment Processing Relationships With Merchant Customers That Engage in Higher-Risk Activities
Publication Date:
September 27th 2013
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Risk Management & Stress Testing, Payments
The FDIC’s note3 would clarify its policy and supervisory approach related to facilitating payment processing services by commercial and savings banks for merchant customers engaged in higher-risk activities. Major requirements include a) robust risk assessment & due diligence to decide if the activities of merchant customers are lawful, b) effective management of relationship with merchant customers to help ensure that illegal activities are not facilitated, and c) appropriate systems and controls for monitoring transactions that are processed.

Bank for International Settlements (BIS) (): Basel III Monitoring Report
Publication Date:
September 25th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
With participation from 101 group 1 banks (that have tier 1 capital in excess of Euro 3 billion) and 122 group 2 banks (other than group 1 banks), the Basel Committee’s semi-annual monitoring report4 highlights outcomes in three areas. Key ones include a) decrease in capital shortfall for group 1 banks compared to the previous period and its increase in case of group 2 banks, b) the weighted average Basel III tier 1 leverage ratios of both groups of banks are approximately the same, with the average leverage ratio at 4.1%, and c) higher weighted average liquidity coverage ratio for group 2 banks, reflecting better position of group 2 banks.

Central Bank of Ireland (): Competent Authority Discretions and Options in CRD IV and CRR
Publication Date:
September 20th 2013
Risks Covered: Credit Risk, Liquidity Risk
Business Processes Impacted: Risk Management & Stress Testing, Recovery & Resolution planning
The consultation5 would deal with national discretion and options available to national regulatory authorities under the European Union’s Capital Requirements Directive IV and the Capital Requirements Regulation. Key coverage includes a) capital buffer provisions, b) corporate governance code, c) recovery and resolution planning, d) supervisory benchmarking of internal approaches, e) credit, counterparty credit and market risks, f) own funds and its reporting, g) liquidity ratios, and h) leverage ratio.

Commodity Futures Trading Commission (CFTC) (): Risk Controls and System Safeguards for Automated Trading Environments
Publication Date:
September 12th 2013
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Trading, Risk Management & Stress Testing
Rapid technological changes characterized by a combination of automated trading systems and electronic trading platforms have rendered traditional, human judgment–based risk controls and safeguards obsolete. The CFTC’s concept paper6 documents current practices, and evaluates the need for additional measures to safeguard the U.S. derivatives markets. Major requirements include a) pre-trade risk controls, b) post-trade reports and other post-trade measures, and c) system safeguards & other protections.

Financial Conduct Authority (FCA) (): Competition and conduct regulation in financial services
Publication Date:
September 9th 2013
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Consumer Protection, Audit, Legal & Compliance
Focus of the FCA leadership speech7 is on issues arising from competition across financial services and the new mandate to promote effective competition as a dominant driver of good conduct and fair outcomes to consumers, both individuals and businesses. Major actions that could follow include a) removal of the barriers to competition created by regulation itself, b) considering promotion of competition in addition to other objectives when new rules are written, and c) deep analysis of financial markets for weaknesses in competition with a view to addressing them.

Financial Stability Board (FSB) (): Overview of Progress in the Implementation of the G20 Recommendations for Strengthening Financial Stability
Publication Date:
September 5th 2013
Risks Covered: Business Cycle Risk, Systemic Risk
Business Processes Impacted: Risk Management & Stress Testing
The FSB’s progress report8 on financial sector reforms highlights achievements and challenges faced in securing financial stability through the reforms. Some key achievements include a) improvement in resilience of financial institutions, b) improved transparency through disclosures, c) significant progress in ending too-big-to-fail, and d) strengthening of market infrastructure. Challenges remain in the areas of timely implementation of new regulatory standards, cooperation between regulatory authorities, and better information sharing.

China Banking Regulatory Commission (CBRC) (): Banking Consumer’s Rights Protection
Publication Date:
September 4th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance, Consumer Protection
With the view to improving consumer protection in banking, the CBRC’s guidelines9 would pave the way for a new regulatory framework. Some major prohibitions include a) concealing of risks or overstating of returns to consumers, b) selling of products that are inconsistent with risk tolerance of consumers, and c) sharing of personal financial information of consumers without their consent. Supervision departments of banks have been entrusted with the responsibility of ensuring consumer protection in consistency with the guidelines.
Australian Prudential Regulation Authority (APRA) (): Managing Data Risk
Publication Date:
September 2nd 2013
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Risk Management & Stress Testing
Positioning data risk as a part of operational risk, the APRA’s guidance10 seeks to overcome deficiencies in data management practices of firms. Key recommendations include a) implementation of a systematic, principles-based approach with ongoing assessment of effectiveness, b) improving staff awareness through training programs, c) data lifecycle management with consideration of data risk at all stages, and d) control considerations including outsourcing / offshoring of data management responsibilities.

FORTHCOMING REGULATIONS:

European Banking Authority (EBA)
EBA Work Programme 2014
With a view to achieving a level playing field for financial institutions and to raise the quality of financial regulation, the EBA would continue to play a pivotal role in the development of the single rule book. With the main focus on legislation of Capital Requirements Directive IV / Capital Requirements Regulation, sizeable work is planned11 in the areas of bank capital requirements, capital buffers, regulatory framework for liquidity & on leverage, and additional capital surcharge for systemically important financial institutions.

Footnotes

  1. Board of Governors of the Federal Reserve System: Regulations Y and YY: Application of the Revised Capital Framework to the Capital Plan and Stress Test Rules
  2. Monetary Authority of Singapore: Complaints Handling and Resolution
  3. Bank for International Settlements: Basel III Monitoring Report
  4. China Banking Regulatory Commission: Banking Consumer’s Rights Protection
  5. Australian Prudential Regulation Authority: Managing Data Risk
  6. European Banking Authority: EBA Work Programme 2014
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. If you require advice or further details on any matters referred to, please contact Accenture.

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