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

Current coverage period: Through January 31, 2020

CURRENT REGULATIONS:

Bank of England (BoE); Financial Conduct Authority (FCA):
Digital Regulatory Reporting: Phase 2 Viability Assessment
Publication Date: January 7th 2020

Risks Covered: Operational Risk

Business Processes Impacted: Reporting
Both regulators, in collaboration with a number of large financial services institutions, have published their viability assessment on Digital Regulatory Reporting (DRR), Pilot Phase 2.1

European Insurance and Occupational Pensions Authority (EIOPA):
EIOPA publishes the technical specifications for the Market and Credit Risk Comparative Study YE2019
Publication Date: January 13th 2020

Risks Covered: Interest Rate Risk

Business Processes Impacted: Fraud and Financial Crime
The study compares risk charges for a variety of asset portfolios to facilitate a supervisory review of internal models as well as highlighting possible causes of potential differences between internal models. This edition of the study aims to place a specific focus on Interest Rate Risk Modeling.2

Insurance Europe (IE):
Insurance Europe position on the ESAs Joint Consultation Paper concerning amendments to the PRIIPs KID
Publication Date: January 13th 2020
Risks Covered: Compliance Risk

Business Processes Impacted: Data Quality Management
The agency raises concerns with regard to the European Supervisory Authorities’ proposals, stating that the changes would increase the complexity of the methods used and presentation of information, and lead to misleading data being given to consumers, while overloading consumers with information.3

Federal Reserve (The Fed):
FR Y-9C – Reporting Instructions
Publication Date: January 8th 2020
Risks Covered: Compliance Risk

Business Processes Impacted: Reporting
The agency has released a draft of the updated instructions on how to prepare Consolidated Financial Statements for Holding Companies using the reporting form FR Y-9C, effective December 2019.4

International Swaps and Derivatives Association (ISDA):
ISDA, Clifford Chance, R3 and the Singapore Academy of Law Publish Smart Contracts Paper
Publication Date: January 13th 2020
Risks Covered: IT Risk
Business Processes Impacted: Capital Adequacy & Capital Planning
In association with Clifford Chance, R3, and the Singapore Academy of Law, the ISDA have released a white paper setting out legal issues in relation to the use of Smart Derivatives Contracts on Distributed Ledger Technology (DLT).5

Monetary Authority of Singapore (MAS):
Securities and Futures (Offers of Investments) (Collective Investment Schemes) (Amendment) Regulations 2020
Publication Date: January 13th 2020
Risks Covered: Operational Risk
Business Processes Impacted: Data Quality Management
The agency has issued the “Securities and Futures (Offers of Investments) (Collective Investment Schemes) (Amendment) Regulations 2020” to amend regulation 2 and the 6 schedule, effective January 14, 2020.6

European Banking Authority (EBA):
Policy Paper on Sustainable Finance
Publication Date: January 14th 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Finance & Performance Management
The paper argues for a holistic and flexible approach to the European Union Taxonomy framework that also permits legal certainty for financial markets participants and investments made. The Platform on Sustainable Finance should play a central role maintaining sustainability and the Banking Stakeholder Group would appreciate more detail and clarification on its likely mandate and composition.7

Financial Conduct Authority (FCA):
Brexit – What an implementation period would mean
Publication Date: January 31st 2020
Risks Covered: Conduct Risk
Business Processes Impacted: Business Continuity Management
The agency has released information pertaining to the implementation period should the Withdrawal Agreement, which covers the terms of the UK’s departure from the European Union be ratified by the UK Parliament.8

Japan Financial Services Agency (JFSA):
Announcement of Cabinet Office Ordinances on the Revision of the Funds Settlement Law of 1980
Publication Date: January 14th 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Funding & Liquidity Management
The revision concerns system development related to the crypto asset exchange business; regulations on derivative transactions and financing transactions using crypto assets; and rules on the handling of cryptographic assets. Comments and opinions on this proposal were to be submitted by February 13, 2020.9

Monetary Authority of Singapore (MAS); Accounting and Corporate Regulatory Authority (ACRA):
MAS and ACRA launch Variable Capital Companies framework
Publication Date: January 15th 2020
Risks Covered: Conduct Risk
Business Processes Impacted: Funding & Liquidity Management
A number of regulators have launched the Variable Capital Companies (VCC) framework, providing fund managers with greater operational flexibility and cost savings. Fund managers may consist of investment funds as VCCs across traditional and alternative strategies, and as open-ended or closed-end funds, as well as incorporate new VCCs or re-domicile their existing investment funds with comparable structures.10

European Commission (EC):
Commission Regulation (EU) 2020/34 of 15 January 2020 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Accounting Standard 39, International Financial Reporting Standards 7 and 9
Publication Date: January 16th 2020
Risks Covered: Operational Risk
Business Processes Impacted: Audit, Legal & Compliance
The agency has adopted certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Accounting Standard 39, International Financial Reporting Standards 7 and 9. This Regulation entered into force on February 5, 2020.11

Financial Conduct Authority (FCA):
FCA and Bank of England encourage switch from LIBOR to SONIA for Sterling Interest Rate Swaps from Spring 2020
Publication Date: January 16th 2020
Risks Covered: Interest Rate Risk
Business Processes Impacted: Custodial Services
The agency has issued a release encouraging market makers to change the market convention for sterling interest rate swaps from the London Interbank Offered Rate (LIBOR) to SONIA (the Sterling Overnight Index Average) during Q1 2020.12

Financial Conduct Authority (FCA):
Next steps for LIBOR transition in 2020: The time to act is now
Publication Date: January 16th 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Data Quality Management
The agency has announced that a set of documents have been published by the Bank of England, FCA and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) which outline the priorities and milestones for 2020 regarding the LIBOR transition. These emphasize the important events that are expected to occur and clarify the actions that market participants should take to prepare for the cessation of LIBOR at the end of 2021.13

Prudential Regulation Authority (PRA):
Pillar 2 Capital: Updates to The Framework
Publication Date: January 23rd 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Capital Adequacy & Capital Planning
The agency has published a policy statement which provides feedback to responses received about the ‘Pillar 2 capital: Updates to the framework’ consultation paper.14

Bank of England (BoE):
Central bank group to assess potential cases for central bank Digital Currencies
Publication Date: January 21st 2020
Risks Covered: Cyber Security Risk
Business Processes Impacted: Data Privacy
The agency has published a news release stating that the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, the Swiss National Bank, and the Bank for International Settlements (BIS) have formed a group where the members can share experience as they explore the opportunity to set up a central bank digital currency in their home jurisdictions.15

Financial Conduct Authority (FCA):
Letter to ISDA on an unrepresentative LIBOR
Publication Date: January 20th 2020
Risks Covered: Operational Risk
Business Processes Impacted: Data Quality Management
The agency has published a response to the ISDA providing clarity on the length of any “reasonable period” in which a non-representative LIBOR might be published prior to LIBOR’s final cessation.16

Bank of England (BoE); Financial Conduct Authority (FCA):
Financial Services AI Public Private Forum
Publication Date: January 23rd 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Data Quality Management
Multiple agencies have announced that they have committed to undertake work with the Bank of England to understand better how data availability developments are driving change in financial markets, including products, services, business models and consumer engagement.17

Securities and Exchange Commission (SEC):
Report on OCIE Cybersecurity and Resiliency Observations
Publication Date: January 27th 2020
Risks Covered: Cyber Security Risk
Business Processes Impacted: Business Continuity Management
The SEC’s Office of Compliance Inspections and Examinations (OCIE) has published a report on cyber-security and resiliency. The regulatory body has highlighted information security as a key risk for security market participants and included it as a key element in its examination program over the past 8 years. It has also published 8 risk alerts related to cybersecurity.18

Commodity Futures Trading Commission (CFTC):
CFTC becomes first Federal agency to adopt NIST Privacy Framework
Publication Date: January 28th 2020
Risks Covered: Compliance Risk
Business Processes Impacted: Data Privacy
The agency has announced, in recognition of Data Privacy Day, that it will become the first federal agency to adopt the National Institute of Standards and Technology (NIST) Privacy Framework.19

European Banking Authority (EBA):
Sustainable finance market practices
Publication Date: January 28th 2020
Risks Covered: Conduct Risk
Business Processes Impacted: Funding & Liquidity Management
The authority has published a paper concerning sustainable finance, which sets out the various definitions of environmental, social and governance (ESG) factors and how they are treated as ESG risks.20

FORTHCOMING REGULATIONS:

European Securities and Markets Authority (ESMA)
ESMA statement on implementation of the LEI requirements under the SFTR Reporting Regime
The agency has published a statement on implementing global Legal Entity Identifiers (LEIs) under the Securities Financing Transactions Regulation (SFTR) reporting regime. The SFTR reporting regime will go live on April 13, 2020.21

Commodity Futures Trading Commission (CFTC)
Cross-Border application of the registration thresholds and Certain requirements applicable to Swap Dealers and Major Swap Participants
The proposed rule addresses the cross-border application of the registration thresholds and certain requirements applicable to Swap Dealers and Major Swap Participants and establishes a formal process for requesting comparability determinations for such requirements from the commission.22

Hong Kong Monetary Authority (HKMA)
Self-Assessment of Compliance with the Code of Banking Practice 2019
The agency mentioned that Authorized Institutions (AIs) are required to complete their 2019 annual self-assessment of compliance with the Code of Banking Practice by March 31, 2020. AIs are required to commission their internal audit department, compliance department or other equivalent unit to conduct the self-assessment.23

Financial Conduct Authority (FCA)
FCA becomes AML and CTF supervisor of UK Cryptoasset Activities
New businesses carrying out cryptoasset activity in scope of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs) are required to register with the authority before conducting business, whereas all existing businesses to be registered by January 2021 and should submit a completed application for registration by June 2020.24

Australian Prudential Regulation Authority (APRA)
Senate select committee on Financial Technology and Regulatory Technology
As a direct and supporting role in relation to FinTech and RegTech, the agency seeks to understand the opportunities and risks they bring to institutions and their systems. It also looks to maintain sustainable, open and technology neutral policies and practices; allow for opportunities and innovations without undue policy or supervisory barriers while appropriately managing risks; maintain modern practices and be transparent in relation to information that can assist the market; transform data-based decision-making; as well as undertake significant domestic engagement with other regulators.25

European Financial Reporting Advisory Group (EFRAG)
IFRS 17 Limited update of 2018 Case Studies
The group has asked European insurance companies to express interest in participating in its limited update of the case studies relating to IFRS 17 Insurance Contracts, following a request from the European Commission. Expressions of interest should be submitted by close of business on February 28, 2020.26

Office of the Comptroller of the Currency (OCC); Federal Reserve; Federal Deposit Insurance Corporation (FDIC)
Standardized approach for calculating the exposure amount of Derivative Contracts
A group of agencies have issued a final rule to implement a new approach (the standardized approach for counter-party credit risk) for calculating the exposure amount of derivative contracts under the agencies’ regulatory capital rule.27

Financial Conduct Authority (FCA)
Portfolio strategy letter for financial advisers
The authority has published a letter to financial advisers outlining the regulatory body’s approach to tackling key areas of concern within financial advice firms and summarizing the action that the regulator expects firms to undertake.28

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

References:

  1. “Digital Regulatory Reporting – Phase 2 Viability Assessment,” Bank of England; Financial Conduct Authority, January 7, 2020. Access at: Digital Regulatory Reporting: Phase 2 Viability Assessment.
  2. “Technical specification for the market and credit risk comparative study YE2019,” European Insurance and Occupational Pensions Authority, January 13, 2020. Access at: EIOPA publishes the technical specifications for the Market and Credit Risk Comparative Study YE2019.
  3. “Insurance Europe position on the ESAs Joint Consultation Paper concerning amendments to the PRIIPs KID,” Insurance Europe, January 13, 2020. Access at: Insurance Europe position on the ESAs Joint Consultation Paper concerning amendments to the PRIIPs KID.
  4. “Instructions for Preparation of Consolidated Financial Statements for Holding Companies – Reporting Form FR Y-9C,” Federal Reserve System, January 8, 2020. Access at: FR Y-9C – Reporting Instructions.
  5. “ISDA, Clifford Chance, R3 and the Singapore Academy of Law Publish Smart Contracts Paper,” International Swaps and Derivatives Association, January 13, 2020. Access at: ISDA, Clifford Chance, R3 and the Singapore Academy of Law Publish Smart Contracts Paper.
  6. “Securities and Futures ACT(Chapter 289) – Securities and Futures (Offers of Investments) (Collective Investment Schemes) (Amendment) Regulations 2020,” Singapore Statutes Online, January 13, 2020. Access at: Securities and Futures (Offers of Investments) (Collective Investment Schemes) (Amendment) Regulations 2020.
  7. “Policy Paper on Sustainable Finance,” European Banking Authority, January 14, 2020. Access at: Policy Paper on Sustainable Finance.
  8. “The EU withdrawal transition period,” Financial Conduct Authority, January 31, 2020. Access at: Brexit – What an implementation period would mean.
  9. Announcement of Cabinet Ordinance and Ordinance on Amendments to the Fund Settlement Act, Japan Financial Services Agency, January 14, 2020. Access at: Announcement of Cabinet Office Ordinances on the Revision of the Funds Settlement Law of 1980.
  10. Launce of variable capital companies,” Monetary Authority of Singapore; Accounting and Corporate Regulatory Authority (ACRA), January 15, 2020. Access at: MAS and ACRA launch Variable Capital Companies framework.
  11. “Commission Regulation (EU) 2020/34 of 15 January 2020 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards,” Official Journal of the European Union, January 16, 2020. Access at: Commission Regulation (EU) 2020/34 of 15 January 2020 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Accounting Standard 39, International Financial Reporting Standards 7 and 9.
  12. “FCA and Bank of England encourage switch from LIBOR to SONIA for sterling interest rate swaps from Spring 2020,” Financial Conduct Authority, January 16, 2020. Access at: FCA and Bank of England encourage switch from LIBOR to SONIA for Sterling Interest Rate Swaps from Spring 2020.
  13. “Next steps for LIBOR transition in 2020: the time to act is now,” Financial Conduct Authority, January 16, 2020. Access at: Next steps for LIBOR transition in 2020: The time to act is now.
  14. “Pillar 2 capital: Updates to the framework,” Prudential Regulation Authority, January 23, 2020. Access at: Pillar 2 Capital: Updates to The Framework.
  15. “Central Bank group to assess potential cases for central bank digital currencies,” Bank of England, January 21, 2020. Access at: Central bank group to assess potential cases for central bank Digital Currencies.
  16. Letter to ISDA on an unrepresentative LIBOR, Financial Conduct Authority, January 20, 2020. Access at: Letter to ISDA on an unrepresentative LIBOR.
  17. “Financial Services AI Public Private Forum,” Financial Conduct Authority, January 23, 2020. Access at: Financial Services AI Public Private Forum.
  18. “Cybersecurity and Resiliency Observations,” Securities and Exchange Commission, January 27, 2020. Access at: Report on OCIE Cybersecurity and Resiliency Observations.
  19. “CFTC Becomes First Federal Agency to Adopt NIST Privacy Framework,” Commodity Futures Trading Commission, January 28, 2020. Access at: CFTC becomes first Federal agency to adopt NIST Privacy Framework.
  20. “Sustainable Finance – Market Practices,” European Banking Authority, January 28, 2020. Access at: Sustainable finance market practices.
  21. “ESMA statement on implementation of the LEI requirements under the SFTR reporting regime,” European Securities and Markets Authority, January 6, 2020. Access at: ESMA statement on implementation of the LEI requirements under the SFTR Reporting Regime.
  22. “Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants,” Federal Register, January 8, 2020. Access at: Cross-Border application of the registration thresholds and Certain requirements applicable to Swap Dealers and Major Swap Participants.
  23. “Self-Assessment of Compliance with the Code of Banking Practice 2019,” Hong Kong Monetary Authority, January 9, 2020. Access at: Self-Assessment of Compliance with the Code of Banking Practice 2019.
  24. “FCA becomes AML and CTF supervisor of UK cryptoasset activities,” Financial Conduct Authority, January 10, 2020. Access at: FCA becomes AML and CTF supervisor of UK Cryptoasset Activities.
  25. “Senate Select Committee on Financial Technology and Regulatory Technology,” Australian Prudential Regulation Authority, January 20, 2020. Access at: Senate select committee on Financial Technology and Regulatory Technology.
  26. “IFRS 17 Limited Update of 2018 Case Studies,” European Financial Reporting Advisory Group, January 28, 2020. Access at: IFRS 17 Limited update of 2018 Case Studies.
  27. “Standardized Approach for Calculating the Exposure Amount of Derivative Contracts,” Federal Register, January 24, 2020. Access at: Standardized approach for calculating the exposure amount of Derivative Contracts.
  28. “Portfolio strategy letter for financial advisers,” Financial Conduct Authority,January 21, 2020. Access at: Portfolio strategy letter for financial advisers.

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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