Edition Highlights:

  • Jointly proposed by the Federal Deposit Insurance Corporation and the Securities and Exchange Commission, Title II of the Dodd-Frank Act provides an alternative insolvency regime for the orderly liquidation of large financial companies that meet specified criteria.
  • The European Securities and Markets Authority expects its guidelines on complex debt instruments and structured deposits to strengthen investor protection and promote greater convergence in the classification of “complex” or “non-complex” financial instruments or structured deposits.
  • Under the Probability Risk and Impact SysteM, firms with the potential to have the greatest impact on financial stability and the consumer, will receive a high level of supervision under structured engagement plans.

Current coverage period: Through February 29, 2016

Note: Anticipated business impact for covered regulations is shown using the following rating legend:       (*Low) (** Medium) (*** High)

CURRENT REGULATIONS:

Securities and Exchange Commission (SEC)(***):
Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act
Publication Date: Feb 17th 2016

Risks Covered: Systemic Risk, Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance
The Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) in accordance with section 205(h) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), are proposing a rule to implement provisions applicable to the orderly liquidation of covered brokers and dealers under Title II of the Dodd-Frank Act (Title II). The FDIC and the SEC are jointly proposing this rule to implement provisions applicable to the orderly liquidation of covered broker-dealers pursuant to section 205(h) of the Dodd-Frank Act. The liquidation would have to be conducted in a manner that protects market participants by clearly establishing expectations and equitable treatment for customers and creditors of failed broker-dealers, as well as other market participants. The proposed rule addresses only the process to be used in the liquidation of the covered broker-dealer.1

International Swaps and Derivatives Association (ISDA)(**):
Industry response to the EBA consultative paper on the guidelines on the treatment of CVA risk under the Supervisory Review and Evaluation Process, published on 12 November 2015
Publication Date: Feb 12th 2016
Risks Covered: Counterparty Credit Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing
According to the letter, the industry expects current shortcomings with the Credit Value Adjustment (CVA) framework to be addressed at the Basel level. The industry acknowledges that CVA risk (on exempted names) exists, and these risks should be adequately assessed and monitored by banks. As for National supervisors, they should carefully consider the actual CVA risk using existing Supervisory Review and Evaluation Processes (SREPs) to identify unmanaged CVA risk that is material in nature. The industry strongly urges the European Banking Authority (EBA) not to proceed with the proposed benchmark approach based on the current pillar 1 calculation. Instead they should consider reinforcing the existing SREP through guidance that focuses on the assessment of actual CVA risk. The EBA should wait for the completion of the CVA capital charge framework at the Basel level, and promoting a flawed CVA risk charge under Pillar II would reduce end-users’ hedging. The EBA should not use Guidelines to set Level 1 Policy as these are based on a flawed supervisory benchmark. The industry also strongly believes that the existing exemption for intragroup transactions in the CVA capital framework should be retained.2

European Banking Authority (EBA)(**):
The EBA’s regulatory review of the IRB approach: Conclusions from the consultation on the discussion paper on the ‘Future of the IRB Approach’
Publication Date: Feb 4th 2016

Risks Covered: Credit Risk
Business Processes Impacted: Risk Management and Stress Testing
The European Banking Authority (EBA) outlined its considerations on the regulatory review of the Internal Ratings Based (IRB) approach in its 2015 discussion paper on “The Future of the IRB Approach.” This new report contains a summary of industry responses to the 2015 discussion paper and outlines the EBA’s intentions and timelines concerning the regulatory review in the area of the IRB approach and models. The EBA considers it important to complete the regulatory review in four phases, with the last phase to be completed by the end of 2017.The implementation of the changes in the institutions’ models and processes should be completed by the end of 2020 at the latest as outlined in a separate EBA Opinion.3

European Banking Authority (EBA)(***):
2016 EUWide Stress Test – Methodological Note
Publication Date: Feb 24th 2016

Risks Covered: Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing
This document describes the common methodology that should be used by banks to calculate the stress impact of the common scenarios. It should also be used to set constraints for the banks’ bottom-up calculations. In addition to setting these requirements, it aims to provide banks with adequate guidance and support for performing the EU-wide stress test.4

European Banking Authority (EBA)(***):
Adverse macro-financial scenario for the EBA 2016 EU-wide bank stress testing exercise
Publication Date: Feb 24th 2016
Risks Covered: Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing
The European Banking Authority’s 2016 European Union (EU)-wide stress testing exercise will require banks to use the presented outcome of the adverse macro-financial scenario for variables such as GDP, inflation, unemployment, asset prices and interest rates in order to estimate the potential adverse impact on profit generation and capital. The adverse scenario are to cover three years, starting with the first quarter of 2016, when the shocks are assumed to occur, and ending in 2018. Sections include main risks to the stability of the EU financial sector; macro-financial shocks driving the outcome of the adverse scenario and results for the euro area and European Union.5

European Securities and Markets Authority (ESMA)(***):
Guidelines: Guidelines on complex debt instruments and structured deposits
Publication Date: Feb 4th 2016

Risks Covered: Compliance Risk
Business Processes Impacted: Reporting, Pricing and Valuation, Trading
The purpose of the European Securities and Markets Authority (ESMA) guidelines is to specify the criteria for the assessment of; debt instruments incorporating a structure which makes it difficult for the client to understand the risk involved; and structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term. The guidelines also clarify the concept of “embedded derivatives,” thus providing a framework for applying Article 25(4)(a) of the Markets in Financial Instruments Directive (MiFID) II in relation to debt instruments.6

Bank for International Settlements (BIS)(**):
BIS Working Papers No 543 – Fiscal policy and the cycle in Latin America: The role of financing conditions and fiscal rules
Publication Date: Feb 1st 2016
Risks Covered: Business Cycle Risk
Business Processes Impacted: Risk Management and Stress Testing
A stronger macroeconomic position by Latin American economies allowed them to mitigate the impact of the last financial crisis through fiscal expansion, thus reversing the characteristic procyclical behavior of fiscal policy. As well, during the last two decades, fiscal rules have been extensively adopted in the region. The document analyzes the stabilizing role of discretionary fiscal policy over time, and the role of fiscal financing conditions and fiscal rules in this evolution via a sample of eight Latin American economies. The analysis shows: i) fiscal policies became countercyclical during the crisis, but have turned procyclical in recent years; ii) financing conditions are confirmed to be a key driver of the fiscal stance, but their relevance has diminished; and iii) fiscal rules are associated with a more stabilizing role for fiscal policy.7

International Organization Of Securities Commissions (IOSCO)(*):
Second review of the implementation of IOSCO’s principles for financial benchmarks by administrators of EURIBOR, LIBOR and TIBOR
Publication Date: Feb 26th 2016
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance, Trading, Reporting, Pricing and Valuation
This report sets out the findings from a review of the implementation of the International Organizations of Securities Commissions’ (IOSCO’s) Principles for Financial Benchmarks. The review was conducted by the administrators of the: Euro Inter-Bank Offer Rate (EURIBOR); the London Inter-Bank Offer Rate (LIBOR); and the Tokyo Inter-Bank Offer Rate (TIBOR). This report is a follow-up to IOSCO’s review of the benchmarks (IBORs) published in July 2014. This report presents the findings in implementing the recommendations of the IBORs review. This included: all three administrators have been proactively engaged in addressing the issues raised by the IBOR review; and that there was an important distinction between the level of progress made in implementing the Principles related to the quality of the benchmark and the other Principles which deal with governance, transparency and accountability.8

Central Bank of Ireland(**):
PRISM explained – how the Central Bank of Ireland is implementing risk-based regulation
Publication Date: Feb 16th 2016
Risks Covered: Systemic Risk
Business Processes Impacted: Risk Management and Stress Testing, Consumer / Investor Protection
Under the Probability Risk and Impact SysteM (PRISM), those firms with the greatest possible impact on financial stability and the consumer, will receive a high level of supervision under structured engagement plans, thus leading to early interventions to mitigate potential risks.9

Monetary Authority of Singapore (MAS)(*):
Thematic review of credit underwriting standards and practices of corporate lending business
Publication Date: Feb 29th 2016
Risks Covered: Credit Risk
Business Processes Impacted: Lending and Investment
The low interest rate environment and increased level of liquidity over the last few years have led to a very competitive market and reduced interest margins for banks. In this environment, some banks may have relaxed loan structures and covenants, including underpriced risks in their corporate lending activities. In response, the Monetary Authority of Singapore (MAS) conducted a thematic inspection of several Singapore banks to assess the credit underwriting standards and practices of their corporate lending business.10

FORTHCOMING REGULATIONS:

Board of Governors of the Federal Reserve System (the Fed)
Annual Performance Plan 2016
The Annual Performance Plan 2016 sets forth the Fed’s planned projects, initiatives, and activities for meeting their critical organizational challenges. There are six strategic pillars to the plan: Project Development and Resource Allocation; Workforce; Physical Infrastructure; Technology; Data; and Public Engagement and Accountability.11

Securities and Exchange Commission (SEC)
FY 2017 Congressional budget justification; FY 2017 Annual performance plan; FY 2015 Annual performance report
The Congressional Budget Justification (CBJ) is the annual presentation to the US Congress that justifies the US Securities and Exchange Commission’s (SEC) budget request. The report also provides information to satisfy requirements contained in the following laws and regulations: GPRA Modernization Act of 2010; the Office of Management and Budget Circular A-11, Preparation, Submission and Execution of the Budget; the Government Management Reform Act of 1994; the Reports Consolidation Act of 2000; and the Office of Management and Budget Circular A-136, Financial Reporting Requirements.12

 

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References:

  1. “Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act,” Federal Deposit Insurance Corporation, Securities and Exchange Commission, Notice of Proposed Rulemaking. Access at:
    Consultation paper on covered broker-dealer provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act
  2. “Re: Industry Response to the EBA Consultative Paper on the Guidelines on the treatment of CVA risk under the Supervisory Review and Evaluation Process, published on 12 November 2015,” International Swaps and Derivatives Association and Association for Financial Markets in Europe, letter to the European Banking Authority, February 12, 2016. Access at:
    Industry response to the EBA consultative paper on the guidelines on the treatment of CVA risk under the Supervisory Review and Evaluation Process
  3. “The EBA’s Regulatory Review of the IRB Approach – Conclusions from the Consultation on the Discussion Paper on the ‘Future of the IRB of the IRB Approach’,” European Banking Authority. Access at:
    Regulatory review of the IRB approach: Conclusions from the consultation on the discussion paper on the ‘Future of the IRB Approach’
  4. “2016 EU-Wide Stress Test,” European Banking Authority, Methodological Note, February 24, 2016. Access at: EU-Wide stress test – methodological note
  5. “Adverse macro-financial scenario for the EBA 2016 EU-wide bank stress testing exercise,” European Systemic Risk Board, January 29, 2016. Access at:
    Adverse macro-financial scenario for the EBA 2016 EU-wide bank stress testing exercise
  6. “Guidelines on complex debt instruments and structured deposits,” European Securities and Markets Authority, Guidelines, February 4, 2016. Access at:
    Final rule provides guidelines on complex debt instruments and structured deposits
  7. “Fiscal policy and the cycle in Latin America: the role of financing conditions and fiscal rules,” Bank for International Settlements, BIS Working Papers, No 543, January 2016. Access at:
    Paper on fiscal policy and the cycle in Latin America: The role of financing conditions and fiscal rules
  8. “Second Review of the Implementation of IOSCO’s Principles for Financial Benchmarks by Administrators of EURIBOR, LIBOR and TIBOR,” International Organization of Securities Commissions, February 2016. Access at:
    Final rule from the second review of the implementation of IOSCO’s principles for financial benchmarks by administrators of EURIBOR, LIBOR and TIBOR
  9. “PRISM Explained – How the Central Bank of Ireland is Implementing Risk-Based Regulation,” Central Bank of Ireland, February 2016. Access at:
    PRISM explained – how the Central Bank of Ireland is implementing risk-based regulation
  10. “Thematic Review of Credit Underwriting Standards and Practices of Corporate Lending Business,” Monetary Authority of Singapore, Information Paper, February 2016. Access at:
    Thematic review of credit underwriting standards and practices of corporate lending business
  11. “Annual Performance Plan 2016,” Board of Governors of the Federal Reserve System, February 2016. Access at: Annual Performance Plan 2016
  1. “FY 2017 Congressional Budget Justification, FY 2017 Annual Performance Plan, FY 2015 Annual Performance Report,” Securities and Exchange Commission. Access at: FY 2017 Congressional budget justification; FY 2017 Annual performance plan; FY 2015 Annual performance report

About the Monthly Regulatory Tracker

The tracker 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 comprehensive regulatory database every month by tracking more than 40 regulatory and industry bodies covering North America, Europe and Asia Pacific. Every month, we will highlight approximately 10 regulations shortlisted on the basis of geography of coverage and anticipated business impacts. Our summaries highlight the risks covered and business processes affected by the regulatory reforms.

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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