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 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 Prudential Regulatory Authority issued changes to rules and supervisory statements to finalize its policy on “The PRA’s methodologies for setting Pillar 2 capital.”10
  • The Office of Financial Research has come up with a method to bound the effect of wrong-way risk in measuring counterparty risk through a credit valuation adjustment.3
  • The European Securities and Markets Authority has published a consultation paper on the remaining draft implementing technical standards under Markets in Financial Instruments Directive (MiFID) II on which ESMA has not yet consulted.2

Current coverage period: Through August 31st, 2015

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

CURRENT REGULATIONS:

Commodity Futures Trading Commission (CFTC) (***):
Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps; Proposed Rule
Publication Date: August 31, 2015
Risks Covered: Systemic Risk, Compliance Risk

Business Processes Impacted: Clearing and Settlement – Exchange Traded and Over-the-Counter (OTC), Risk Management and Stress Testing, Reporting
The Commission has proposed amendments to existing regulations to provide additional clarity to swap counterparties and registered entities regarding their reporting obligations for cleared swap transactions; and to improve the efficiency of data collection and maintenance associated with the reporting of the swaps involved in a cleared swap transaction.1 It is expected to reduce the likelihood of double counting notional exposures and an improved ability to trace the history of a cleared swap transaction.

European Securities and Markets Authority (ESMA) (**):
Consultation Paper – Draft implementing technical standards under MiFID II
Publication Date: August 31, 2015

Risks Covered: Conduct Risk, Credit Risk
Business Processes Impacted: Consumer/Investor Protection, Finance and Performance Management
The ESMA has published a consultation paper on the remaining draft implementing technical standards under MiFID II on which ESMA has not yet consulted.2 This paper covers the following: a) the suspension and removal of financial instruments from trading on a trading venue; b) the notification and provision of information for data reporting services providers; and c) the weekly aggregated position reports for commodity derivatives, emission allowances and derivatives thereof.

Office of Financial Research (OFR) (*):
Bounding Wrong-Way Risk in Measuring Counterparty Risk
Publication Date: August 19, 2015
Risks Covered: Credit Risk, Market Risk, Counterparty Credit Risk
Business Processes Impacted: Risk Management and Stress Testing, Capital Adequacy and Capital Planning
The OFR has investigated the potential impact of wrong-way risk in calculating a credit valuation adjustment (CVA) to a derivatives portfolio, and have come up with a method to bound the effect of wrong-way risk in measuring counterparty risk through CVA.3 The approach provides a way to find the largest possible CVA value consistent with separate models for market exposure and credit risk, and addresses the model risk that arises from the uncertain dependence between market factors and credit risk.

Bank for International Settlements (BIS), International Organization Of Securities Commissions (IOSCO) (**):
Consultative report – Harmonisation of the Unique Transaction Identifier
Publication Date: August 19, 2015

Risks Covered: Market Risk, Systemic Risk, Conduct Risk
Business Processes Impacted: Clearing and Settlement – Exchange Traded and OTC
The Committee on Payments and Market Infrastructures (CPMI) and the IOSCO have issued a consultation paper focused on the harmonizing of the global Unique Transaction Identifier (UTI) whose purpose is to uniquely identify each OTC derivative transaction (as required by authorities) to be reported to trade repositories.4 The final objective is to enable the consistent global aggregation of OTC derivatives transaction data. This follows from the agreement and commitment in 2009 of the G20 Leaders to reform the OTC derivatives markets.

Prudential Regulation Authority (PRA) (***):
Strengthening individual accountability in banking: UK branches of non-EEA banks
Publication Date: August 13, 2015
Risks Covered: Compliance Risk, Conduct Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The PRA has issued a policy statement that contains a combination of final and near‐final PRA rules to implement the Senior Managers and Certification regimes in UK branches of non‐EEA (European Economic Area countries) banks and PRA-designated investment firms.5 The statement also contains minor drafting amendments and corrections to earlier PRA rules to implement the Senior Managers and Certification regimes in UK banks and PRA‐designated investment firms.

European Securities and Markets Authority (ESMA) (**):
EMIR Review Report no.1: Review on the use of OTC derivatives by non-financial counterparties
Publication Date: August 13, 2015

Risks Covered: Credit Risk, Counterparty Credit Risk
Business Processes Impacted:
Clearing and Settlement – Exchange Traded and OTC, Risk Management and Stress Testing
The ESMA has published reports focused on how the European Markets Infrastructure Regulation (EMIR) framework has been functioning and providing input and recommendations to the European Commission’s EMIR review.6 Three of the reports cover non-financial counterparties, pro-cyclicality and the segregation and portability for Central Clearing Counterparties (CCPs). The fourth report responds to the European Commission’s review including recommendations on amending EMIR in relation to the clearing obligation and other factors.

European Commission (EC) (**):
Commission Delegated Regulation (EU) of 6.8.2015 – supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on the clearing obligation
Publication Date: August 6, 2015
Risks Covered: Interest Rate Risk (non-trading book)
Business Processes Impacted: Clearing and Settlement – Exchange Traded and OTC
The Commission has adopted new rules that make it mandatory for certain OTC interest rate derivative contracts to be cleared through central counterparties.7 The clearing obligations will enter into force subject to scrutiny by the European Parliament and Council of the EU and will be phased in over three years to allow additional time for smaller market participants to begin complying.

Office of the Comptroller of the Currency (OCC) (**):
Tax Refund-Related Products – Risk Management Guidance
Publication Date: August 4, 2015
Risks Covered: Compliance Risk, Operational Risk, Conduct Risk, Third Party / Vendor Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The OCC has issued guidelines for safety and soundness measures that banks should follow if they offer tax refund-related products.8 Some of the key measures cover the following: board’s responsibility to maintain sound risk management policies and procedures; effective internal controls for advertising and solicitations; adequate capital and liquidity levels; compliance with consumer protection and other applicable laws and regulations.

Office of the Comptroller of the Currency (OCC) (**):
Risk Management of Financial Derivatives – Quantitative Limits on Physical Commodity Transactions
Publication Date: August 4, 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The OCC has issued its expectations from national banks and federal branches or agencies of foreign banks regarding when the banks can make or take delivery of a physical commodity to hedge commodity derivatives transactions.9 The bureau expects that before carrying out such activities, the banks will submit a detailed plan to the OCC and obtain a written supervisory non-objection.

Prudential Regulation Authority (PRA) (*):
Assessing capital adequacy under Pillar 2
Publication Date: August 3, 2015
Risks Covered: Compliance Risk, Operational Risk

Business Processes Impacted: Risk Management and Stress Testing, Capital Adequacy and Capital Planning
The PRA has issued changes to rules and supervisory statements to finalize its policy on “The PRA’s methodologies for setting Pillar 2 capital.”10 The policy statement is relevant to banks, building societies and PRA-designated investment firms, and the Pillar 2 framework will come into force on January 1, 2016. The Pillar 2 capital framework is intended to ensure that firms have adequate capital to support the relevant risks in their business, and that they have appropriate processes to ensure compliance with Capital Requirements Directive (CRD) IV.

FORTHCOMING REGULATIONS:

International Accounting Standards Board (IASB)
2015 Agenda Consultation
The IASB has published for public comment a document seeking views on its work plan and priorities until 2020.11 The Agenda Consultation provides an opportunity for interested parties to have their say on how the IASB prioritizes and balances its work to deliver International Financial Reporting Standards (IFRS) for the world economy. The IASB’s work plan is split into three main categories, which reflect the different stages of the standard-setting process: a) research projects; b) standard-setting projects; and c) maintenance and implementation projects.

Footnotes:

  1. Commodity Futures Trading Commission (CFTC)(***):
    Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps
  1. European Securities and Markets Authority (ESMA)(**):
    Consultation Paper – Draft implementing technical standards under MiFID II
  1. Office of Financial Research (OFR)(*):
    Bounding Wrong-Way Risk in Measuring Counterparty Risk
  1. Bank for International Settlements (BIS), International Organization Of Securities Commissions (IOSCO)(**):
    Consultative report – Harmonisation of the Unique Transaction Identifier
  1. Prudential Regulation Authority (PRA)(***):
    Strengthening individual accountability in banking: UK branches of non – EEA banks
  1. European Securities and Markets Authority (ESMA)(**):
    EMIR Review Report no.1: Review on the use of OTC derivatives by non-financial counterparties
  1. European Commission (EC)(**):
    Commission Delegated Regulation (EU) of 6.8.2015 – supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on the clearing obligation
  1. Office of the Comptroller of the Currency (OCC)(**):
    Tax Refund-Related Products – Risk Management Guidance
  1. Office of the Comptroller of the Currency (OCC)(**):
    Risk Management of Financial Derivatives – Quantitative Limits on Physical Commodity Transactions
  1. Prudential Regulation Authority (PRA)(*):
    Assessing capital adequacy under Pillar 2
  1. International Accounting Standards Board (IASB):
    2015 Agenda Consultation

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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