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 regulatory database every month by tracking more than 40 regulatory and industry bodies covering North America, EALA and APAC. Every month, we will seek to highlight approximately 10 regulations shortlisted on the basis of geography of coverage and anticipated business impacts. Our summaries will seek to 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:

  • Final version of the International Accounting Standards Board’s IFRS 9 standards3 would deal with classification, measurement and hedge accounting of financial instruments.
  • The U.S. Treasury’s proposed regulation2 would strengthen customer due diligence obligations to prevent money laundering.
  • U.K. banking regulators’ proposals1 are aimed at strengthening accountability in banking through a new regime for top & senior management of banks.
Current coverage period: Through July 31, 2014
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
( Low) ( Medium) ( High)

CURRENT REGULATIONS:

Financial Conduct Authority (FCA), Prudential Regulation Authority (): Strengthening accountability in banking: a new regulatory framework for individuals
Publication Date:
July 30th 2014
Risks Covered: Compliance Risk, Conduct Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
Aimed at strengthening accountability in banking, as a follow-up to recommendations of the Parliamentary Commission on Banking Standards, the joint consultation1 would propose new ways to hold individuals accountable. Key proposals include a) a new Senior Managers Regime which would enhance the clarity around the lines of responsibility at the top of banks, b) a Certification Regime that would mandate assessment of fitness and propriety of staff in key positions, and c) a new set of Conduct Rules to set out the standards of behavior of bank employees.

Department of the Treasury – Secretary (U.S. DOT) (): Financial Crime Enforcement Network: Customer Due Diligence Requirements for Financial Institutions
Publication Date:
July 30th 2014
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: AML and Counter-terrorist Financing, Audit, Legal and Compliance
The U.S. Treasury’s proposals2 would represent enhancements to the Bank Secrecy Act intended to protect the U.S. financial system through preventing the use of anonymous companies to engage in money laundering. The new requirements, in addition to strengthening customer due diligence obligations of banks and other financial institutions, would require these firms to know and verify the identities of the real people who own, control, and profit from the companies. In this process, valuable information needed to unsettle illicit finance networks would be available to law enforcement authorities.

The International Accounting Standards Board (IASB) (): IFRS 9 Financial Instruments
Publication Date:
July 24th 2014
Risks Covered: Compliance Risk, Credit Risk
Business Processes Impacted: Audit, Legal and Compliance, Finance and Performance Management
Set to replace the International Accounting Standard 39, final rules3 of the IASB would bring together the classification and measurement, impairment, and hedge accounting aspects into a single and integrated standard. Key changes are in the form of a) forward-looking expected loss credit model for timely recognition of loan losses, b) handling of ‘own credit’ issue that allows banks to book gains through profit and loss account as a result of a fall in their own credit worthiness, and c) new hedge accounting requirements to improve the linkage between accounting and risk management.

International Organization Of Securities Commissions (IOSCO) (): Report on the IOSCO Social Media and Automation of Advice Tools Surveys
Publication Date:
July 24th 2014
Risks Covered: IT Risk, Operational Risk
Business Processes Impacted: Information Technology
In a first comprehensive effort, IOSCO surveyed4 the use of social media and automated advice tools to better understand how these technologies are used by capital market intermediaries and how regulators are supervising the usage. While regulators are using social media in conducting their activities, regulators have neither defined the term social media, nor prohibited its use by capital market intermediaries. Very few regulators have specific rules in relation to use of automated advice tools. But, no regulator has prohibited the use of such tools.

Securities and Exchange Commission (SEC) (): Money Market Fund Reform; Amendments to Form PF
Publication Date:
July 23rd 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing, Pricing and Valuation
The SEC’s final rules5 are designed to address key business and risk management issues faced by Money Market Mutual Funds (MMMF). Major changes include a) removal of valuation exemption that permitted certain MMMF to maintain a stable net asset value per share, b) options to boards of directors of these funds to arrest heavy redemptions, c) enhanced risk management through improvements in portfolio diversification, robust stress testing, and improved reporting to the SEC and to investors, and d) additional reporting by investment advisers to certain large unregistered liquidity funds which are economically equivalent to MMMF.

European Securities and Markets Authority (ESMA) (): Draft technical standards on the Market Abuse Regulation
Publication Date:
July 15th 2014
Risks Covered: Conduct Risk, Operational Risk, Compliance Risk
Business Processes Impacted: Consumer Protection, Risk Management and Stress Testing
This consultation paper6 is a follow-up of an earlier published discussion paper on ESMA’s initial proposals on Market Abuse Regulation implementing measures, and seeks comments on the draft technical standards developed by the regulator. The paper covers a number of topics for which the technical standards need to be defined, and include the following: buy-back programmes and stabilisation measures, market soundings, accepted market practices, prevention and detection of market abuse, disclosure of inside information and delay of disclosure of inside information, insider lists, managers’ transactions, investment recommendation or other information recommending or suggesting an investment strategy.

The Financial Accounting Standards Board (FASB) (): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
Publication Date:
July 15th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Finance and Performance Management
As part of a simplification initiative, the FASB is proposing7 to eliminate the concept of extraordinary items from GAAP, as it believes this would help reduce costs and save time for preparers as they would no longer need to evaluate if a certain event or transaction is extraordinary. The FASB also believes that the proposed change would not result in loss of information, as the disclosure guidance for unusual or infrequent items would still be retained. This proposed update would align GAAP income statement presentation more closely with International Accounting Standard 1, “Presentation of Financial Statements”.

BaFin (Federal Financial Supervisory Authority) (): Fee-based investment advice: New rules to enter into force in August
Publication Date:
July 15th 2014
Risks Covered: Compliance Risk, Conduct Risk
Business Processes Impacted: Audit, Legal and Compliance, Consumer Protection
The new rules8 published by the regulator, to come into effect on August 1, 2014, set forth legal requirements for fee-based investment advice. The purpose of this is to increase transparency around fees or commissions paid by clients when receiving any investment advice. Specific requirements have also been defined from a conduct of business standpoint, as well as for preventing conflict of interest between clients and those of institutions or issuers/providers. Once the rule comes into effect, investors will have access to the register of fee-based investment advisors on the regulator’s website.

European Banking Authority (EBA) (): Draft Guidelines for common procedures and methodologies for the supervisory review and evaluation process under Article 107 (3) of Directive 2013/36/EU
Publication Date:
July 7th 2014
Risks Covered: Compliance Risk, Liquidity Risk, Strategic Risk
Business Processes Impacted: Risk Management and Stress Testing, Capital Adequacy and Capital Planning
The regulator has published comprehensive guidelines9 to promote common procedures and methodologies for the supervisory review and evaluation process (SREP), for organizational assessment and assessment of risks to capital and risks to liquidity, and for the assessment of capital and liquidity adequacy. The SREP framework presented is developed around: a) business model analysis, b) assessment of internal governance and institution-wide control arrangements, c) assessment of risks to capital and adequacy of capital to cover these risks, and, d) assessment of risks to liquidity and adequacy of liquidity resources to cover these risks. The guidelines are expected to come into effect on January 1 2016, after taking into account the results of the public consultation.

European Banking Authority (EBA) (): Draft implementing technical standards on joint decisions on prudential requirements in accordance with Article 20 of Regulation (EU) No 575/2013
Publication Date:
July 3rd 2014
Risks Covered: Credit Risk, Counterparty Credit Risk, Market Risk, Operational Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Audit, Legal and Compliance
The regulator is consulting the public10 on implementing technical standards with regard to authorities’ joint decisions on granting permissions to institutions for using various internal models, including internal-ratings based approach (IRB) for credit risk, the internal model method for counterparty risk (IMM), the advanced measurement approach for operational risk (AMA) and the internal models for market risk. These technical standards would facilitate the interaction and cooperation between competent authorities performing this task in an efficient and consistent way.

FORTHCOMING REGULATIONS:
Financial Conduct Authority (FCA): Sustainability

Lamenting that the financial crisis of 2008 had not really brought about a cultural change among financial services institutions the general public expected, the FCA senior leadership speech11 identifies some of the FCA’s future priorities to bring about the cultural change. Among the key priorities are a) the new regime to increase accountability of individuals in positions of responsibility, b) remuneration practices as they impact the sales culture of a firm, c) analysis of customer complaints of mis-selling by firms, d) anti-money laundering processes and controls in major banks, and e) operational launch in April 2015 of the U.K.’s new Payment Systems Regulator.

Footnotes:
  1. Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA): Strengthening accountability in banking: a new regulatory framework for individuals
  2. Department of the Treasury – Secretary (U.S. DOT): Financial Crime Enforcement Network: Customer Due Diligence Requirements for Financial Institutions
  3. The International Accounting Standards Board (IASB): IFRS 9 Financial Instruments
  4. International Organization Of Securities Commissions (IOSCO): Report on the IOSCO Social Media and Automation of Advice Tools Surveys
  5. Securities and Exchange Commission (SEC): Money Market Fund Reform; Amendments to Form PF
  6. European Securities and Markets Authority (ESMA): Draft technical standards on the Market Abuse Regulation
  7. The Financial Accounting Standards Board (FASB): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
  8. BaFin: Fee-based investment advice: New rules to enter into force in August
  9. European Banking Authority (EBA): Draft Guidelines for common procedures and methodologies for the supervisory review and evaluation process under Article 107 (3) of Directive 2013/36/EU
  10. European Banking Authority (EBA: Draft implementing technical standards on joint decisions on prudential requirements in accordance with Article 20 of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR)
  11. Financial Conduct Authority (FCA): Sustainability
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
Accenture is a global management consulting, technology services and outsourcing company, with approximately 293,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.

Copyright © 2014 Accenture All Rights Reserved.
Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Submit a Comment

Your email address will not be published. Required fields are marked *