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

Current coverage period: Through December 31, 2017

CURRENT REGULATIONS:

Securities and Futures Commission (SFC); Hong Kong’s Financial Dispute Resolution Centre (FDRC); Hong Kong Monetary Authority (HKMA):
Memorandum of Understanding 2018
Publication Date: December 14th 2017

Risks Covered: Operational Risk

Business Processes Impacted: Consumer/Investor Protection

The Hong Kong’s Financial Dispute Resolution Centre (FDRC), Monetary Authority (MA), and Securities and Futures Commission (SFC) have signed a Memorandum of Understanding (MoU) to delineate the roles and responsibilities among the three parties to ensure smooth operation of the financial dispute resolution scheme as well as to promote co-operation and exchange of information. This MoU is effective from January 1, 2018.1

The Board of Governors of the Federal Reserve System (The Fed):

Elimination of the Strength of Support Assessment (SOSA) for all Foreign Banking Organizations subject to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations
Publication Date: December 7th 2017

Risks Covered: Conduct Risk

Business Processes Impacted: Training & Development
The Federal Reserve has announced that it will be eliminating the Strength of Support Assessment (SOSA), including the assignment of a SOSA ranking from the Foreign Banking Organizations supervision program.2

Prudential Regulation Authority (PRA):
Policy Statement: Recovery Planning
Publication Date: December 11th 2017
Risks Covered: Business Cycle Risk

Business Processes Impacted: Recovery & Resolution Planning
The agency has provided feedback on responses to CP9/17 – Recovery Planning in this policy statement, setting out the PRA’s final expectations on the content of recovery plans and its approach to recovery planning for groups containing a Ring-Fenced Body (RFB).3

Basel Committee on Banking Supervision (BCBS):
Basel III: Finalising Post-Crisis Reforms
Publication Date: December 7th 2017
Risks Covered: Conduct Risk

Business Processes Impacted: Consumer/Investing Protection
Revisions have been made to the Basel III framework to reduce excessive variability of Risk-Weighted Assets (RWA) by helping restore credibility in the calculation of RWA by limiting the use of internally modeled approaches, complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor, and enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk.4

European Securities and Markets Authority (ESMA):
MiFID II/MiFIR Transitional Transparency Calculations (TTC) for Equity and Bond Instruments
Publication Date: December 6th 2017
Risks Covered: Conduct Risk
Business Processes Impacted: Clearing & Settlement – Exchange Traded & Over-the-Counter
The agency highlights that Markets in Financial Instruments Directive II/Markets in Financial Instruments Regulation have introduced transparency requirements for structured finance products, equities, bonds, derivatives, and emission allowances. This empowers Competent Authorities in respect to market operators and investments firms operating a trading venue, to waive obligations to make public pre-trade information for non-equity instruments.5

Prudential Regulation Authority (PRA):
PRA review of Model Change related processes, Policies and Reporting
Publication Date: December 12th 2017
Risks Covered: Operational Risk
Business Processes Impacted: Reporting
The agency has reviewed its Solvency II major model change and other applications processes, as proposed in their Business Plan 2017/18, in a bid to streamline processes. Along with reviewing quarterly (or more frequent) model change reporting, PRA has investigated the following: (i) how firms have completed the Common Application Package (CAP) when making model change applications; (ii) how firms have defined model changes in model change policies; and (iii) the time it has taken to assess model change applications approved since Solvency II was implemented on January 1, 2016.6

Financial Conduct Authority (FCA):
Using Artificial Intelligence to Keep Criminal Funds out of the Financial System
Publication Date: December 6th 2017
Risks Covered: IT Risk
Business Processes Impacted: Fraud and Financial Crime
Financial Crime Department Head, Rob Gruppetta, spoke on the use of Artificial Intelligence in the fight against Money Laundering, particularly with regards to the field of transaction monitoring, and some potential impacts of this in terms of regulation and regulator policies at the FinTech Innovation in AML and Digital ID regional event in London.7

European Insurance and Occupational Pensions Authority (EIOPA):
Opinion on service continuity in insurance in light of the withdrawal of the United Kingdom from the European Union
Publication Date: December 21st 2017
Risks Covered: Compliance Risk
Business Processes Impacted: Consumer/Investor Protection
In light of Brexit, EIOPA provides an opinion on service continuity in the Insurance industry.8

European Insurance and Occupational Pensions Authority (EIOPA):
EIOPA’s Supervisory Statement Solvency II: Solvency and Financial Condition Report
Publication Date: December 18th 2017
Risks Covered: Strategic Risk
Business Processes Impacted: Reporting
The report presents the agency’s analysis of the first supervisory experiences regarding the application of the Solvency II rules on the Solvency and Financial Condition Report (SFCR) by insurance and reinsurance undertakings and insurance groups.9

International Financial Reporting Standards (IFRS):
IFRS 17 Insurance Contracts—Help is at hand
Publication Date: December 7th 2017
Risks Covered: Conduct Risk
Business Processes Impacted: Corporate Finance, M&A and Advisory
In 2021, insurers will apply the new accounting requirements pertaining to IFRS 17 Insurance Contracts. Since the International Accounting Standards Board issued IFRS 17 in May 2017, the agency has been providing support to insurers and others in understanding these new requirements.10

Monetary Authority of Singapore (MAS):
MAS Notice 653 Net Stable Funding Ratio Disclosure
Publication Date: December 28th 2017
Risks Covered: Operational Risk
Business Processes Impacted: Funding & Liquidity Management
The agency has published the notice on Net Stable Funding Ratio (NSFR) Disclosure, setting out the requirements for domestic systemically important banks to disclose quantitative and qualitative information about their NSFR. The notice is effective January 1, 2018.11

European Commission (EC):
Commission Implementing Regulation (EU) 2017/2446 of 19 December 2017 amending Implementing Regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to Regulation (EU) 2016/1011 of the European Parliament and of the Council
Publication Date: December 28th 2017
Risks Covered: Conduct Risk
Business Processes Impacted: Funding & Liquidity Management
The agency will be amended by adding the London Interbank Offered Rate (LIBOR).12

The Board of Governors of the Federal Reserve System (The Fed):
Community Reinvestment Act Regulations
Publication Date: December 27th 2017
Risks Covered: Business Cycle Risk
Business Processes Impacted: Funding & Liquidity Management
The agency together with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), are amending the Community Reinvestment Act (CRA) regulations to adjust the asset-size thresholds used to define a “small bank” or “small savings association” and an “intermediate small bank” or “intermediate small savings association.”13

Financial Conduct Authority (FCA):
Handbook changes to reflect the application of the EU Benchmarks Regulation
Publication Date: December 20th 2017
Risks Covered: Compliance Risk
Business Processes Impacted: Consumer/Investing Protection
The agency has published a Policy Statement on handbook changes to reflect the application of the European Union Benchmarks Regulation (BMR). The document provides feedback on the responses received following a consultation to make the handbook consistent with the BMR. Applicable as of January 1, 2018, the document also includes near-final draft rules, as the legislative framework for the Handbook changes is not yet in place.14

Prudential Regulation Authority (PRA):
Responses to CP18/17 Occasional Consultation Paper – Chapters 7 and 8
Publication Date: December 15th 2017
Risks Covered: Conduct Risk
Business Processes Impacted: Risk Management & Stress Testing
The agency has published amendments relate to the second Markets in Financial Instruments Directive (MiFID II); Insurance Distribution Directive (IDD) forms; European Union Benchmarks Regulation (BMR); and a consequential amendment to Short Form A. BMR amendments apply as of January 1, 2018; MIFID II changes will apply as of January 3, 2018; and IDD and Short Form A changes apply as of February 23, 2018.15

Financial Conduct Authority (FCA):
EBA Guidelines on Operational and Security Risks under PSD2
Publication Date: December 19th 2017
Risks Covered: Operational Risk
Business Processes Impacted: Payments
The agency has published its Final report on EBA Guidelines on the security measures for operational and security risks under PSD2 (EBA-GL-2017-17). The FCA confirms it will comply with the Guidelines, and it will consult on the application of the Guidelines as well as setting out the FCA’s expectations on payment service providers’ (PSPs) future reporting requirements in 2018.16

European Insurance and Occupational Pensions Authority (EIOPA):
EIOPA publishes Information on the use of Exemptions and Limitations from Regular Supervisory Reporting and on the use of Capital Add-Ons
Publication Date: December 21st 2017
Risks Covered: Residual Risk
Business Processes Impacted: Capital Adequacy & Capital Planning
The agency has published its annual reports in regards to the National Competent Authorities’ (NCAs) use of Capital Add-Ons (CAOs) and the use of exemptions and limitations from the regular supervisory reporting.17

European Insurance and Occupational Pensions Authority (EIOPA):
EIOPA calls for consistent Supervisory practises on Internal Models
Publication Date: December 20th 2017
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal & Compliance
The agency has issued an opinion on Common Supervisory Practices throughout the European Union, and which includes supervisory assessment of Internal Models and a Dynamic Volatility Adjustment (DVA).18

European Insurance and Occupational Pensions Authority (EIOPA):
EIOPA analyses the first Solvency and Financial Condition Reports and Identifies areas for Improvement
Publication Date: December 18th 2017
Risks Covered: Credit Concentration Risk
Business Processes Impacted: Reporting
The agency has published a supervisory statement following the analysis of a sample of 2016 Solvency and Financial Condition Reports (SFCRs) published by insurance groups and (re)insurance undertakings in the European Economic Area.19

European Insurance and Occupational Pensions Authority (EIOPA):
EIOPA’s Stress Test identifies spill-over risks into the real economy from shocks to the European Occupational Pensions Sector
Publication Date: December 13th 2017
Risks Covered: Business Cycle Risk
Business Processes Impacted: Risk Management & Stress Testing
The agency has published a report of its findings from its 2017 Occupational Pensions Stress Test. The report includes EIOPAs assessment of the potential transfer of shocks from Institutions for Occupational Retirement Provision (IORPs) to the real economy and financial stability through sponsor support and benefit reductions, and the resilience of IORPs to a “double-hit” scenario that combines a fall in price of assets with a drop in risk-free interest rates.20

 

FORTHCOMING REGULATIONS:

The Board of Governors of the Federal Reserve System (The Fed)
Enhanced Disclosure of the Models Used in the Federal Reserve’s Supervisory Stress Test
The agency is inviting comment on an enhanced disclosure of the models used in the Federal Reserve’s supervisory stress test conducted under the Board’s Regulation YY pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Board’s capital plan rule. Comments to be received by January 22, 2018.21

Financial Conduct Authority (FCA)
FCA consults on how firms and individuals will transition to the Senior Managers and Certification Regime
The agency has published a package of proposals on how firms and individuals will move to the Senior Managers and Certification Regime. The aim of the new regime is to make individuals more accountable for their conduct.22

International Association of Insurance Supervisors (IAIS)
Consultation: Draft Issues Paper on Index-based Insurances
The agency is seeking feedback on a Consultation developed through the Financial Inclusion Working Group’s (FIWG) drafting team about Index-based Insurances. Comments should be submitted on or before January 29, 2018.23

European Commission (EC)
Consultation Document Fitness Check on Supervisory Reporting
The agency has published a public consultation to act as a fitness check of the existing EU supervisory reporting requirements in the financial sector. The agency is requesting feedback from respondents on ways in which supervisory reporting could potentially be simplified and streamlined going forward. Responses to be submitted via the online questionnaire by February 28, 2018.24

HM Treasury (HMT)
UK establishes New Money Laundering watchdog
The agency has announced that a new watchdog, the Office for Professional Body AML Supervision (OPBAS), has been created in an effort to improve the UK’s defenses against money laundering and terrorist financing. Operating within the FCA, the OPBAS will oversee 22 accountancy and legal professional body AML supervisors in the UK and with a focus on ensuring that the bodies meet the Money Laundering Regulations 2017’s standards. The OPBAS regulations will take effect on January 18, 2018.25

Australian Prudential Regulation Authority (APRA)
Revisions to the Prudential Framework for Large Exposures
The agency has published its regulation impact analysis of revisions to the large exposures framework, covering areas pertaining to assessment of problems and objectives of government actions; options to achieve the objectives and impact analysis; and the appropriate options to be taken. On release of Prudential Standard APS 221 and Reporting Form (ARF) 221, authorized deposit-taking institutions will have until January 1, 2019 to comply with the revised large exposure requirements and until January 1, 2020 for requirements in relation to groups of connected counterparties and look-through of structured vehicles.26

Financial Conduct Authority (FCA)
PS17/27: Insurance Distribution Directive implementation – Feedback to CP17/23 and Near-Final Rules
The agency has published the feedback to CO17/23 and Near-Final Rules on the implementation of the Insurance Distribution Directive (IDD).27

The International Association of Insurance Supervisors (IAIS)
Activities-based approach to Systemic Risk
The agency has issued a call for feedback on its interim public consultation paper regarding an activities-based approach to systemic risk. The paper allows stakeholders an opportunity to provide input into the development of an activities-based approach and to comment on IAIS’ proposed work on activities-based policy measures.28

 

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

 References:

  1. Memorandum of Understanding signed between the FDRC, MA, SFC on the smooth operation of the financial dispute resolution scheme. Securities and Futures Commission (SFC); Hong Kong’s Financial Dispute Resolution Centre (FDRC); Hong Kong Monetary Authority (HKMA), December 14, 2017. Access at: Memorandum of Understanding 2018.
  2. “Elimination of the Strength of Support Assessment (SOSA) for all Foreign Banking Organizations subject to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations,” The Board of Governors of the Federal Reserve System, December 7, 2017. Access at: Elimination of the Strength of Support Assessment (SOSA) for all Foreign Banking Organizations subject to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations.
  3. “Recovery planning – Policy Statement PS29/17,” Prudential Regulation Authority, December 11, 2017. Access at: Policy Statement: Recovery Planning.
  4. “Basel III: Finalising post-crisis reforms,” Basel Committee on Banking Supervision, December 7, 2017. Access at: Basel III: Finalising Post-Crisis Reforms.
  1. “Transparency Calculations,” European Securities and Markets Authority, December 6, 2017. Access at: MiFID II/MiFIR Transitional Transparency Calculations (TTC) for Equity and Bond Instruments.
  2. “Solvency II: PRA review of model change related processes, policies and reporting,” Prudential Regulation Authority, December 12, 2017. Access at: PRA review of model change related processes, policies and reporting
  1. “Using artificial intelligence to keep criminal funds out of the financial system,” Speech by Rob Gruppetta, Financial Conduct Authority, December 6, 2017. Access at: Using Artificial Intelligence to Keep Criminal Funds out of the Financial System
  1. “Opinion on service continuity in insurance in light of the withdrawal of the United Kingdom from the European Union,” European Insurance and Occupational Pensions Authority, December 21, 2017. Access at: Opinion on service continuity in insurance in light of the withdrawal of the United Kingdom from the European Union
  1. “EIOPA’s Supervisory Statement – Solvency II: Solvency and Financial Condition Report,” European Insurance and Occupational Pensions Authority, December 18, 2017. Access at: EIOPA’s Supervisory Statement Solvency II: Solvency and Financial Condition Report.
  2. “IFRS 17 Insurance Contracts—Help is at hand,” International Financial Reporting Standards, December 7, 2017. Access at: IFRS 17 Insurance Contracts—Help is at hand.
  3. “MAS Notice 653 Net Stable Funding Ratio Disclosure,” Monetary Authority of Singapore, December 28, 2017. Access at: MAS Notice 653 Net Stable Funding Ratio Disclosure.
  4. “Commission Implementing Regulation (EU) 2017/2446 of 19 December 2017 amending Implementing Regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to Regulation (EU) 2016/1011 of the European Parliament and of the Council,” Regulations, Official Journal of the European Union, December 28, 2017. Access at: Commission Implementing Regulation (EU) 2017/2446 of 19 December 2017 amending Implementing Regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to Regulation (EU) 2016/1011 of the European Parliament and of the Council.
  5. “Community Reinvestment Act Regulations,” Joint Final Ruling, Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation, December 27, 2017. Access at: Community Reinvestment Act Regulations.
  6. “Handbook changes to reflect the application of the EU Benchmarks Regulation – Feedback to CP17/17 and near-final rules,” Policy Statement, Financial Conduct Authority, December 20, 2017. Access at: Handbook changes to reflect the application of the EU Benchmarks Regulation.
  7. “Responses to CP18/17 Occasional Consultation Paper – Chapters 7 and 8,” Policy Statement 31/17, Consultation Paper 18/17, Prudential Regulation Authority, December 15, 2017. Access at: Responses to CP18/17 Occasional Consultation Paper – Chapters 7 and 8.
  8. “EBA Guidelines on Operational and Security Risks under PSD2,” Financial Conduct Authority, December 19, 2017. Access at: EBA Guidelines on Operational and Security Risks under PSD2.
  9. “EIOPA publishes information on the use of exemptions and limitations from regular supervisory reporting and on the use of capital add-ons,” European Insurance and Occupational Pensions Authority, December 21, 2017. Access at: EIOPA publishes Information on the use of Exemptions and Limitations from Regular Supervisory Reporting and on the use of Capital Add-Ons.
  10. “EIOPA Calls for Consistent Supervisory Practices on Internal Models,” Press Release, European Insurance and Occupational Pensions Authority, December 20, 2017. Access at: EIOPA calls for consistent Supervisory practises on Internal Models.
  11. “EIOPA analyses the first Solvency and Financial Condition Reports and identifies areas for improvement,” European Insurance and Occupational Pensions Authority, December 18, 2017. Access at: EIOPA analyses the first Solvency and Financial Condition Reports and Identifies areas for Improvement.
  12. “EIOPA’s Stress Test Identifies Spill-Over Risks into the Real Economy from Shocks to the European Occupational Pensions Sector,” European Insurance and Occupational Pensions Authority, December 13, 2017. Access at: EIOPA’s Stress Test identifies spill-over risks into the real economy from shocks to the European Occupational Pensions Sector.
  13. “Enhanced Disclosure of the Models Used in the Federal Reserve’s Supervisory Stress Test,” Board of Governors of the Federal Reserve System, December 15, 2017. Access at: Enhanced Disclosure of the Models Used in the Federal Reserve’s Supervisory Stress Test.
  14. “FCA consults on how firms and individuals will transition to the Senior Managers and Certification Regime,” Financial Conduct Authority, Press Release, December 13, 2017. Access at: FCA consults on how firms and individuals will transition to the Senior Managers and Certification Regime.
  15. “Consultation: Draft Issues Paper on Index-based Insurances,” International Association of Insurance Supervisors, December 1, 2017. Access at: Consultation: Draft Issues Paper on Index-based Insurances.
  16. “Consultation Document – Fitness Check on Supervisory Reporting,” European Commission, December 1, 2017. Access at: Consultation Document Fitness Check on Supervisory Reporting.
  17. “UK establishes new money laundering watchdog,” HM Treasury, December 21, 2017. Access at: UK establishes New Money Laundering watchdog.
  18. “Regulation impact analysis of revisions to the large exposures framework,” Australian Prudential Regulation Authority, December 7, 2017. Access at: Revisions to the Prudential Framework for Large Exposures.
  19. “Insurance Distribution Directive implementation – Feedback to CP17/23 and near-final rules,” Financial Conduct Authority, December 29, 2017. Access at: PS17/27: Insurance Distribution Directive implementation – Feedback to CP17/23 and Near-Final Rules.
  20. “Activities-based approach to Systemic Risk,” The International Association of Insurance Supervisors, December 8, 2017. Access at: Activities-based approach to Systemic Risk.

 

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.

 

About Accenture

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