This newsletter summarizes recent regulatory changes impacting Banking, Capital Markets & Insurance firms.

Current coverage period: Through August 31, 2019

CURRENT REGULATIONS:

Bank of England (BoE):
Machine learning explainability in finance: An application to Default Risk Analysis
Publication Date: August 9th 2019

Risks Covered: IT Disruption Risk
Business Processes Impacted: Information Technology
In particular, the paper looks at the benefits of explainable artificial intelligence tools to tackle the “black box” issue in machine learning applications.2

European Banking Authority (EBA):
EBA advises the European Commission on the implementation of the final Basel III framework
Publication Date: August 5th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Pricing & Valuation
The EBA’s advice, which includes a quantitative analysis of the estimated impact based on data from 189 banks, and a set of policy recommendations, shows that the full implementation of Basel III should increase the minimum capital requirement (MRC) by an average of 24.4%.3

European Banking Authority (EBA); European Securities and Markets Authority (ESMA); European Insurance and Occupational Pensions Authority (EIOPA):
ESAs respond to the European Commission on the exclusion of performance scenarios options from PRIIPs consumer testing exercise
Publication Date: August 7th 2019
Risks Covered: Operational Risk
Business Processes Impacted: Consumer/Investor Protection
European Supervisory Authorities (ESAs) have written to the European Commission regarding the exclusion of several proposed options for presenting information on performance scenarios during the Commission’s consumer testing exercise under the Level 2 review of the Packaged Retail Investment and Insurance-based Products (PRIIPs) Key Information Documents Regulation.4

Australian Prudential Regulation Authority (APRA):
APRA provides six-monthly update on Royal Commission recommendations
Publication Date: August 7th 2019
Risks Covered: Operational Risk
Business Processes Impacted: Fraud and Financial Crime
The authority has provided an update on its plans to implement recommendations by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.1

Financial Conduct Authority (FCA); Competition and Markets Authority (CMA):
Memorandum of understanding between the Competition and Markets Authority and the Financial Conduct Authority – consumer protection
Publication Date: August 7th 2019
Risks Covered: Operational Risk
Business Processes Impacted: Consumer/Investor Protection
FCA and CMA have signed a revised Memorandum of Understanding (MoU) in relation to consumer protection matters in the financial services sector.5

Financial Industry Regulatory Authority (FINRA):
Regulation Best Interest: SEC Adopts Best Interest Standard of Conduct
Publication Date: August 7th 2019
Risks Covered: Market Risk
Business Processes Impacted: Brokerage Services
The authority has issued a notice reminding members of the Securities and Exchange Commission  (SEC) on the adoption of a Best Interest standard of conduct for broker-dealers and a relationship summary (Form CRS) delivery obligation, in addition to providing an SEC email address where members may submit questions about the new requirements.6

International Financial Reporting Standards (IFRS):
IASB adds phase two of its project on IBOR to the work plan
Publication Date: August 15th 2019
Risks Covered: Credit Risk
Business Processes Impacted: Reporting
The agency has added the second phase of its project focused on potential financial reporting implications that are linked to the interest rate benchmark reform—Interbank Offered Rate (IBOR) reform.7

International Monetary Fund (IMF):
Bank Lobbying: Regulatory Capture and Beyond
Publication Date: August 9th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Business Continuity Management
The fund has published a working paper which discusses how and whether bank lobbying can lead to regulatory capture and its consequences.8

Prudential Regulation Authority (PRA):
Regulatory reporting: EBA Taxonomy 2.9
Publication Date: August 7th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Reporting
The authority has set out the final rules to update the PRA reporting requirements for ring-fenced bank reporting, Capital+ reporting and the scope of Financial Reporting (FINREP). These are to be reported by certain firms, which are not currently required under the Capital Requirements Regulation (CRR).9

Securities and Exchange Commission (SEC):
Modernization of Regulation S-K Items 101, 103, and 105
Publication Date: August 8th 2019
Risks Covered: Operational Risk
Business Processes Impacted: Business Continuity Management
The commission is proposing for public comment amendments to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K. Specifically, the proposed amendments are intended to improve the readability of disclosure documents, as well as discourage repetition and disclosure of information that is not material.10

American Bankers Association (ABA):
ABA Comments to the Fed Re: FOIA and Confidential Supervisory Information
Publication Date: August 16th 2019
Risks Covered: Conduct Risk
Business Processes Impacted: Data Privacy
The association has issued a response to the Board of Governors of the Federal Reserve System’s Notice of Proposed Rulemaking (Proposal) to modify its procedures for responding to requests under the Freedom of Information Act (FOIA) and for managing the confidential supervisory information (CSI) of banks and companies under its jurisdiction.11

Bank of Mauritius (BoM):
Guideline on Credit Concentration Risk
Publication Date: August 22nd 2019
Risks Covered: Credit Concentration Risk
Business Processes Impacted: Corporate Finance, M&A and Advisory
The agency has issued an updated version of its Guideline on Credit Concentration Risk, applicable to all banks and non-bank deposit taking institutions licensed under the Banking Act 2004. The changes went into effect August 22, 2019.12

Federal Housing Finance Agency (FHFA):
Validation and Approval of Credit Score Models
Publication Date: August 16th 2019
Risks Covered: Credit Risk
Business Processes Impacted: Pricing & Valuation
The agency has issued a final rule on the process for the validation and approval of credit score models by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The rule defines a four-phase process an enterprise is to follow to validate and approve credit score models. The rule is effective October 15, 2019.13

Financial Reporting Council (UK) (FRC):
FRC staff draft response to IASB ED/2019/4 amendments to IFRS 17
Publication Date: August 16th 2019
Risks Covered: Operational Risk
Business Processes Impacted: Corporate Finance, M&A and Advisory
The council has published a staff draft of its response to the International Accounting Standards Board’s (IASB) Exposure Draft ED/2019/4 Amendments to IFRS 17. The agency appreciates the IASB’s efforts to address the most pressing issues arising from the implementation of the International Financial Reporting Standards’ IFRS 17 and agrees with the majority of the proposals in the exposure draft.14

ICE Clear Europe:
ICE Clear Europe amends the CDS Clearing Back-Testing Policy (Re-submission)
Publication Date: August 19th 2019
Risks Covered: Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
Intercontinental Exchange (ICE) Clear Europe has refiled with the Securities and Exchange Commission a proposed rule change to modify, update and re-organize certain provisions of its Back-Testing Policy to clarify certain test strategies, procedures and methodologies, correct certain typographical errors and update governance processes.15

International Financial Reporting Standards (IFRS):
August IASB Meeting on IBOR—Papers and Agenda Available
Publication Date: August 20th 2019
Risks Covered: Interest Rate Risk
Business Processes Impacted: Corporate Finance, M&A and Advisory
The Board met on August 28, 2019 to discuss issues identified while reviewing the feedback on the Exposure Draft Interest Rate Benchmark Reform (Exposure Draft) at the July 2019 Board meeting. The Board also discussed the due process, including permission for balloting amendments to the International Financial Reporting Standards’ (IFRS) 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement.16

Insurance Europe (IE):
Response to IAIS Consultation on Holistic Framework for Systemic Risk
Publication Date: August 21st 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Reporting
In the document, Insurance Europe responds to a select number of comments to their consultation draft. Among these are general comments such as the data collection amendments which it believes can significantly increase the burden both for insurers and supervisors.17

Monetary Authority of Macau (AMCM):
Industry Guidance on AML/CFT Controls – “Gaming-related” Customers
Publication Date: August 23rd 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Consumer/Investor Protection
The agency has issued the Industry Guidance on AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) Controls – ‘Gaming-related’ Customers, requiring banks to establish a customer acceptance policy and conduct proper customer due diligence when dealing with gaming-related customers. This publication went into effect on August 23, 2019.18

Securities and Exchange Commission (SEC):
Capital, Margin, and segregation requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation requirements for Broker-Dealers
Publication Date: August 22nd 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Netting & Collateral Management
The agency is adopting capital and margin requirements for Security-Based Swap Dealers (SBSDs) and Major Security-Based Swap Participants (MSBSPs), segregation requirements for SBSDs, and notification requirements with respect to segregation for SBSDs and MSBSPs, effective October 21, 2019.19

Swiss Financial Market Supervisory Authority (FINMA):
FINMA Guidance 02/2019
Publication Date: August 26th 2019
Risks Covered: IT Risk
Business Processes Impacted: Information Technology
The authority has published guidance on the application of the Swiss Anti-Money Laundering rules to financial services providers regulated by FINMA in the field of Blockchain Technology.20

 

FORTHCOMING REGULATIONS:

Central Bank of Ireland (CBI)
The Future of Global Financial Centres after Brexit: an EU Perspective
The agency presents a set of possible scenarios for the future of London and other financial centers in Europe after Brexit, and finds that London should remain one of the major global centers, irrespective of shock impacts.21

Japan Financial Services Agency (JFSA)
Publication of Government Ordinance (Draft) to Revise a Part of the Banking Law Enforcement Regulations
The agency has announced the publication of the Government Ordinance (draft) to revise a part of the Banking Law enforcement regulations. The revision concerns the review of large-scale credit provision regulations. Comments and opinions on this proposal were to be submitted by September 13, 2019.22

Monetary Authority of Singapore (MAS)
Net Stable Funding Ratio Disclosure
The authority has amended the ‘MAS Notice 653’ to clarify the scope of application, implement other technical revisions, and introduce proportionality to the disclosure requirements, effective October 1, 2019.23

Monetary Authority of Singapore (MAS)
Sandbox Express Guidelines
The agency has published the ‘Sandbox Express Guidelines’ to provide enterprising firms carrying on certain activities regulated by MAS with a faster option to bring innovative financial services or products to the market for testing, and reduce the time and resources required of the applicants. For a start, the Sandbox Express is available specifically for insurance brokers, recognized market operators and remittance businesses.24

Australian Payments Network Limited (AusPayNet)
Developing standards for Artificial Intelligence
The agency acknowledges the importance of adopting artificial intelligence standards at both the international and domestic level, and supports the inclusion of a payments related case study in the discussion paper regarding fraud detection and prevention.25

Australian Prudential Regulation Authority (APRA)
Prudential Standard SPS 515 Strategic Planning and Member Outcomes
The agency has released ‘Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515)’, whereby Registrable Superannuation Entity (RSE) licensees are required to perform an annual Business Performance Review to assess whether they are delivering sound, value-for-money outcomes for members. SPS 515 goes into effect on January 1, 2020.26

Federal Deposit Insurance Corporation (FDIC)
Securitization Safe Harbor Rule
The regulator is proposing a rule that would revise certain provisions of its securitization safe harbor rule, which relates to the treatment of financial assets transferred in connection with a securitization or participation transaction, in order to eliminate a requirement that securitization documents be compliant with Regulation AB of the Securities and Exchange Commission in circumstances where Regulation AB, by its terms, would not apply to the issuance of obligations backed by such financial assets. Comments to be received by October 21, 2019.27

Personal Investment Management & Financial Advice Association (PIMFA)
PIMFA’s response to the BSI draft technical advice (PAS 7340) framework for embedding sustainable finance principles in financial services organisations
The agency notes that the financial services sector is critical to promoting sustainable development and re-directing the global economy to a sustainable investment model. It also made it clear that there are a variety of initiatives at the international, regional, national and corporate levels that contribute to sustainable finance, which form the basis for helping financial service providers improve their risk management and governance functions, and to integrate climate change and Environmental, Social, and Governance (ESG) objectives into risk decision-making.28

Visit www.accenture.com/RegulatoryCompliance for latest insights on regulatory remediation and compliance transformation.

References:

  1. Updates on Royal Commission recommendations, Australian Prudential Regulation Authority, August 7, 2019. Access at: APRA provides six-monthly update on Royal Commission recommendations.
  2. “Machine learning explainability in finance: an application to default risk analysis,” Staff Working Paper No. 816, Bank of England, August 9, 2019. Access at: Machine learning explainability in finance: An application to Default Risk Analysis.
  3. “EBA advises the European Commission on the implementation of the final Basel III framework,” European Banking Authority, August 5, 2019. Access at: EBA advises the European Commission on the implementation of the final Basel III framework.
  4. “ESAs respond to the European Commission on the exclusion of performance scenarios options from PRIIPs consumer testing exercise,” European Insurance and Occupational Pensions Authority, August 7, 2019. Access at: ESAs respond to the European Commission on the exclusion of performance scenarios options from PRIIPs consumer testing exercise.
  5. “CMA and FCA memorandums of understanding – consumer protection powers,” Competition and Markets Authority and Financial Conduct Authority, August 7, 2019. Access at: Memorandum of understanding between the Competition and Markets Authority and the Financial Conduct Authority – consumer protection.
  6. “Regulation Best Interest – SEC Adopts Best Interest Standard of Conduct,” Financial Industry Regulatory Authority, August 7, 2019. Access at: Regulation Best Interest: SEC Adopts Best Interest Standard of Conduct.
  7. “IASB adds phase two of its project on IBOR to the work plan,” International Financial Reporting Standards, August 15, 2019. Access at: IASB adds phase two of its project on IBOR to the work plan.
  8. “Bank Lobbying: Regulatory Capture and Beyond” IMF Working Paper, International Monetary Fund, August 9, 2019. Access at: Bank Lobbying: Regulatory Capture and Beyond.
  9. “Regulatory reporting: EBA Taxonomy 2.9,” Prudential Regulation Authority, August 7, 2019. Access at: Regulatory reporting: EBA Taxonomy 2.9.
  10. “Modernization of Regulation S-K Items 101, 103, and 105,” Securities and Exchange Commission, August 8, 2019. Access at: Modernization of Regulation S-K Items 101, 103, and 105.
  11. Response to the Freedom of Information Act modification, American Bankers Association, August 16, 2019. Access at: ABA Comments to the Fed Re: FOIA and Confidential Supervisory Information.
  12. “Guideline on Credit Concentration Risk,” Bank of Mauritius, August 22, 2019. Access at: Guideline on Credit Concentration Risk.
  13. “Validation and Approval of Credit Score Models,” Federal Housing Finance Agency, August 16, 2019. Access at: Validation and Approval of Credit Score Models.
  14. “FRC Staff Draft Response to IASB ED/2019/4 Amendments to IFRS 17,” Financial Reporting Council, August 16, 2019. Access at: FRC staff draft response to IASB ED/2019/4 amendments to IFRS 17.
  15. Proposed rule on back-testing policy, ICE Clear Europe, August 19, 2019. Access at: ICE Clear Europe amends the CDS Clearing Back-Testing Policy (Re-submission).
  16. August IASB meeting on IBOR, International Financial Reporting Standards, August 20, 2019. Access at: August IASB Meeting on IBOR—Papers and Agenda Available.
  17. “Response to IAIS consultation on holistic framework for systemic risk,” Insurance Europe, August 21, 2019. Access at: Response to IAIS Consultation on Holistic Framework for Systemic Risk.
  18. “Industry Guidance on AML/CFT Controls – “Gaming-related” Customers,” Monetary Authority of Macau, August 23, 2019. Access at: Industry Guidance on AML/CFT Controls – “Gaming-related” Customers.
  19. “Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation Requirements for Broker-Dealers,” Federal Register, August 22, 2019. Access at: Capital, Margin, and segregation requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation requirements for Broker-Dealers.
  20. “Payments on the blockchain,” FINMA Guidance 02/2019, Swiss Financial Market Supervisory Authority, August 26, 2019. Access at: FINMA Guidance 02/2019.
  21. “The Future of Global Financial Centres after Brexit: an EU Perspective,” Central Bank of Ireland, August 6, 2019. Access at: The Future of Global Financial Centres after Brexit: an EU Perspective.
  22. Draft on banking law enforcement regulations, Japan Financial Services Agency, August 9, 2019. Access at: Publication of Government Ordinance (Draft) to Revise a Part of the Banking Law Enforcement Regulations.
  23. “MAS Amends Notices 649, 651, 652, and 653 for Banks in Singapore,” Moody’s Analytics, August 7, 2019. Access at: Net Stable Funding Ratio Disclosure.
  24. “MAS Launches Sandbox Express for Faster Market Testing,” Moody’s Analytics, August 7, 2019. Access at: Sandbox Express Guidelines.
  25. “Developing Standards for Artificial Intelligence: Hearing Australia’s Voice,” Australian Payments Network Limited, August 15, 2019. Access at: Developing standards for Artificial Intelligence.
  26. Prudential Standard SPS 515 – Strategic Planning and Member Outcomes,” Australian Prudential Regulation Authority, August 15, 2019. Access at: Prudential Standard SPS 515 Strategic Planning and Member Outcomes.
  27. “Securitization Safe Harbor Rule,” Federal Deposit Insurance Corporation, August 22, 2019. Access at: Securitization Safe Harbor Rule.
  28. “PIMFA’s Response to the BSI Draft Technical Advice (PAS 7340) Framework for Embedding Sustainable Finance Principles in Financial Services Organisations,” Personal Investment Management & Financial Advice Association, August 15, 2019. Access at: PIMFA’s response to the BSI draft technical advice (PAS 7340) framework for embedding sustainable finance principles in financial services organisations.

About the Monthly Regulatory Tracker

The “Regulatory Reform” newsletter is the monthly initiative aimed at updating the Finance & Risk community with the most recent regulatory changes impacting Banking, Capital Markets & Insurance firms. We track more than 70 regulatory and industry bodies covering North America, Europe and Asia-Pacific. Every month, we will highlight approximately 20 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.

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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