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 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 will 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 Federal Reserve System (Fed) sets out6 the governance structure of the Large Institution Supervision Coordinating Committee (LISCC) Supervisory Program that includes dedicated teams for risk management and capital management.
  • The Basel Committee’s removal5 of certain national discretions from the Basel II capital framework would improve comparability of risk-weighted assets across jurisdictions.
  • The Financial Conduct Authority (FCA)’s guidance2 on managing financial crime risks deals with establishing effective systems and controls, and principles of business conduct.

Current coverage period: Through April 30th, 2015

Note: Anticipated business impact for covered regulations is shown using the following rating legend:

(*Low) (** Medium) (*** High)

CURRENT REGULATIONS:

Securities and Exchange Commission (SEC)(**):
Application of Certain Title VII Requirements to Security-Based Swap Transactions Connected with a Non-U.S. Person’s Dealing Activity That Are Arranged, Negotiated, or Executed By Personnel Located in a U.S. Branch or Office or in a U.S. Branch or Office of an Agent
Publication Date: April 29th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Reporting
The SEC’s re-proposed rule1 would address the application of the de minimis exception to security-based swap transactions connected with a non-US person’s security-based swap dealing activity that are arranged, negotiated, or executed by personnel of such person located in a US branch or office, or by personnel of such person’s agent, located in a US branch or office. In addition, the SEC is also proposing some amendments to address the applicability of external business conduct requirements to the US business and foreign businesses of registered security-based swap dealers.

Financial Conduct Authority (FCA)(**):
Financial crime: a guide for firms Part 2: Financial crime thematic reviews
Publication Date: April 27th 2015
Risks Covered: Fraud Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Fraud and Financial Crime
The FCA’s guidance2 contains thematic reviews of various financial crime risks and includes consolidated examples of good and poor practices. This part contains guidance on Handbook rules and principles, specifically on: a) establishing and maintaining effective systems and controls to prevent risks that might be used to further financial crime; b) principles relating to integrity, skill, care and diligence, management and control, and relations with regulators; and c) principles for businesses in relation to approved persons and money laundering.

Bank for International Settlements (BIS)(*):
Eighth progress report on adoption of the Basel regulatory framework
Publication Date: April 27th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The report3 from the Basel Committee provides a summary view of progress made in adopting Basel II, Basel 2.5, and Basel III standards by members of the Basel Committee. The focus is on: a) status of domestic rule-making processes to facilitate that Basel standards are transformed into national law or regulation according to the internationally agreed timeframes; and b) status of adoption of risk-based capital standards, the standards for domestic systemically important banks, the Basel III leverage ratio, and the liquidity coverage ratio.

European Securities and Markets Authority (ESMA)( ** ):
Draft guidelines for the assessment of knowledge and competence
Publication Date: April 23rd 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Training and
Development, Finance and Performance Management

The ESMA’s consultation4 specifies criteria for the assessment of knowledge and competence of natural persons in investment firms that provide investment advice or information about financial instruments, investment services or ancillary services. Key areas of knowledge include: a) functioning of markets, market structure, and the impact of economic data: b) use of relevant data sources and valuation principles: and c) the relevant regulatory requirements, and the firm’s policies and procedures designed with a view to monitoring compliance with MiFID II.

Bank for International Settlements (BIS)(**):
International Convergence of Capital Measurement and Capital Standards: A Revised Framework (Comprehensive Version)
Publication Date: April 21st 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Risk
Management and Stress Testing

The Basel Committee, through an amendment5 to the Basel II capital framework, has agreed to remove certain national discretions from the Basel capital framework. Key removals include: a) treatment of past-due loans; b) definition of retail exposures; c) transitional arrangements for corporate, sovereign, bank and retail exposures in relation to relaxation of certain standards; d) rating standards for wholesale exposures; and e) treatment of equity exposures under the internal ratings-based approach, starting in 2016.

Board of Governors of the Federal Reserve System (the Fed)(**):
Governance Structure of the Large Institution Supervision Coordinating Committee (LISCC) Supervisory Program
Publication Date: April 17th 2015
Risks Covered: Systemic Risk, Compliance Risk

Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
The Fed has issued information6 pertaining to the governance structure of the Large Institution Supervision Coordinating Committee (LISCC) Supervisory Program, and is applicable only to bank holding companies and nonbank financial companies subject to the program. The information covers the roles and responsibilities of the committees, subgroups and dedicated supervisory teams that collectively comprise the LISCC’s governance structure.

Office of the Comptroller of the Currency (OCC)(**):
Trade Finance and Services
Publication Date: April 15th 2015
Risks Covered: Credit Risk, Counterparty Credit Risk
Business Processes Impacted: Lending and Investment, Risk Management and Stress Testing
The OCC’s Comptroller’s handbook7 on Trade Finance and Services is intended for OCC examiners in the context of their examination and supervision of national banks and federal savings associations. The booklet addresses trade finance-related activities such as letters of credit, guarantees, acceptances, open account financing, other specialized trade financing, financial supply chain solutions, prepayment, advising, trade collections, bank-to-bank reimbursement services, insourcing/outsourcing trade processing, and hedging services.

International Organization Of Securities Commissions (IOSCO)(**):
Mechanisms for Trading Venues to Effectively Manage Electronic Trading Risks and Plans for Business Continuity
Publication Date: April 7th 2015
Risks Covered: Compliance Risk, IT Risk, Operational Risk

Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing, Business Continuity Management
The IOSCO has published a consultation paper8 for public comment with regard to the robustness of trading venues, their business continuity plans and recovery planning. The report proposes some recommendations to regulators to help them effectively manage identified risks. The report also proposes recommendations to trading venues in order for them to support the integrity, resiliency and reliability of their critical systems and their business continuity plans.

Office of the Comptroller of the Currency (OCC)(**):
Guidelines for Subordinated Debt
Publication Date: April 3rd 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Finance and Performance Management
The OCC has issued guidelines9 to provide policy guidance and requirements for banks issuing subordinated debt. These guidelines address concerns related to affirmative and negative covenants and the reasonableness of default provisions in a subordinated debt note and related documents. The guidelines also discuss specific requirements and issues related to subordinated debt that is intended to be included in tier 2 capital.

Prudential Regulation Authority (PRA)(**):
Internal governance
Publication Date: April 2nd 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Consumer and Investor Protection, Risk Management and Stress Testing, Business Continuity Management
The PRA has issued a supervisory statement10 in relation to how firms should comply with the rules in the General Organizational Requirements, Skills, Knowledge and Expertise, Compliance and Internal Audit, Risk Control, Outsourcing and Record Keeping Parts of its PRA Rulebook. This is applicable to banks, building societies and PRA designated investment firms.

FORTHCOMING REGULATIONS:

European Banking Authority (EBA)
Revised version of 2015 Work Programme
As a result of revisions to the EBA’s priorities,11 tasks relating to the following will be delivered late: technical standards and advice under the Capital Requirements Directive IV – Capital Requirements Regulation, mortgage lending, internal rating-based and global standards on mitigation techniques on over-the-counter derivatives, bank recovery and resolution directive on credit risk. In addition, EBA has also identified the deliverables to de delayed or deleted, and deliverables where EBA level of engagement will be reviewed.

Footnotes:

  1. Securities and Exchange Commission (SEC)(**):
    Application of Certain Title VII Requirements to Security-Based Swap Transactions Connected with a Non-U.S. Person’s Dealing Activity That Are Arranged, Negotiated, or Executed By Personnel Located in a U.S. Branch or Office or in a U.S. Branch or Office of an Agent
  2. Financial Conduct Authority (FCA)(**):
    Financial crime: a guide for firms Part 2: Financial crime thematic reviews
  3. Bank for International Settlements (BIS)(*):
    Eighth progress report on adoption of the Basel regulatory framework
  4. European Securities and Markets Authority (ESMA)(**):
    Draft guidelines for the assessment of knowledge and competence
  5. Bank for International Settlements (BIS)(**):
    International Convergence of Capital Measurement and Capital Standards: A Revised Framework (Comprehensive Version)
  6. Board of Governors of the Federal Reserve System (the Fed)(**):
    Governance Structure of the Large Institution Supervision Coordinating Committee (LISCC) Supervisory Program
  7. Office of the Comptroller of the Currency (OCC)(**):
    Trade Finance and Services
  8. International Organization Of Securities Commissions (IOSCO)(**):
    Mechanisms for Trading Venues to Effectively Manage Electronic Trading Risks and Plans for Business Continuity
  9. Office of the Comptroller of the Currency (OCC)(**):
    Guidelines for Subordinated Debt
  10. Prudential Regulation Authority (PRA)(**):
    Internal governance
  11. European Banking Authority (EBA)
    Revised version of 2015 Work Programme

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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