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:

  • Basel Committee’s proposed rules4 on risk reporting would set out key requirements for assurance of data quality for reporting and validity of disclosures.
  • Financial Reporting Council’s guidance9 on strategic reporting would promote clear, concise and innovative reporting
  • The OCC’s semiannual risk report3 highlights key risks faced by U.S. banks including challenges arising out of limited ability for growth.
Current coverage period: Through June 30, 2014
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(Low) (Medium) (High)

CURRENT REGULATIONS:

European Systemic Risk Board (ESRB) (): Guidance for setting countercyclical buffer rates
Publication Date:
June 30th 2014
Risks Covered: Business Cycle Risk, Compliance Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Audit, Legal and Compliance
As a common approach to setting the countercyclical buffer across the European Union, the ESRB’s guidance1, based on credit-to-GDP gap (CG gap), is in line with global standards proposed by the Basel Committee. Major coverage includes guidance on a) calculation of the CG gap, benchmark buffer rate and buffer guide, b) leading indicators of build-up of system-wide risk associated with periods of excessive credit growth, and c) variables that specify the quantum of buffer to be maintained or reduction or release of buffers.

International Organization Of Securities Commissions (IOSCO) (): Risk Identification and Assessment Methodologies for Securities Regulators
Publication Date:
June 26th 2014
Risks Covered: Systemic Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
The IOSCO’s report2 provides a detailed account of approaches and tools that IOSCO and security regulators across the globe have developed to identify and assess emerging and potential systemic risks. Key themes in the report include a) definition of systemic risk, b) risk identification methods used by IOSCO and securities regulators, c) analytical framework for assessing systemic risks, with macro and micro-level indicators, d) factors to be used to assess if a risk is systemic, and e) improvements in risk data management.

Office of the Comptroller of the Currency (OCC) (): Semiannual Risk Perspective
Publication Date:
June 25th 2014
Risks Covered: Operational Risk, IT Risk, Market Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
This semi-annual report3 published by the OCC presents key issues faced by the banks that pose a threat to their safety and soundness. Data and insights are presented across five key areas: a) the operating environment, b) the condition and performance of the banking system, c) key risk issues, d) elevated risk metrics, and e) regulatory actions. Some of the key challenges highlighted include limited ability for revenue and operating profit growth, slow total loan growth, low interest rates, and inconsistent fee income patterns.

Bank for International Settlements (BIS) (): Review of the Pillar 3 disclosure requirements
Publication Date:
June 24th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Reporting, Risk Management and Stress Testing
The Basel Committee’s consultation4 is focused on Pillar 3 disclosures with a view to improving market discipline. Given the lack of consistent approaches to disclosure of risk-weighted assets (RWA) and lack of transparency of internal model-based approaches to determining the RWA, the proposed standards would require a) easily identifiable reporting formats, b) linkages with accounting information, c) maintenance of validity of Pillar 3 disclosures, d) assurance of Pillar 3 data, and e) prescription by national supervisors of timing and frequency of disclosures.

Prudential Regulation Authority (PRA) (): The use of PRA powers to address serious failings in the culture of firms
Publication Date:
June 19th 2014
Risks Covered: Compliance Risk, Conduct Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
The PRA’s statement of policy5 explains its approach to dealing with failings in the culture of firms and that negatively impact their supervisory objectives of promoting safety and soundness of firms. As one of the three tools for intervention, the use of supervisory powers may involve a) PRA’s direct intervention in a firm’s business, such as altering a firm’s permission, and b) commissioning of reports by skilled persons on a wide range of areas in risk assessment, including a firm’s culture.

Financial Conduct Authority (FCA) (): Tackling serious failings in firms
Publication Date:
June 19th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing
This policy statement6 from FCA explains how the regulatory authority would use its powers to identify and address failings in banks, by increasing the emphasis in 3 key areas: a) standards, b) governance, and c) culture. Further, it also explains how firms would come under the new “Enhanced Supervision” approach if they fail in these 3 highlighted areas. The decision to place a firm under enhanced supervision and the subsequent actions to be taken by the firm would be judgment-based rather than using a formal process.

Office of the Comptroller of the Currency (OCC) (): Volcker Rule Interim Examination Procedures
Publication Date:
June 12th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
The interim examination procedures7 issued by the OCC are meant to help examiners assess whether banks are subject to the Volcker Rule requirements, based on their business activities or investments, and if so, assess their plans and progress in complying with the regulations. These procedures summarize the regulations’ requirements in a simplified manner, and apply to examinations of national banks (other than certain limited-purpose trust banks), federal savings associations, and federal branches and agencies of foreign banks.

The International Accounting Standards Board (IASB) (): Investment Entities: Applying the Consolidation Exception – Proposed amendments to IFRS 10 and IAS 28
Publication Date:
June 11th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Finance and Performance Management, Audit, Legal and Compliance
The IASB through this “Exposure Draft”8 is inviting comments to its proposed amendments to International Financial Reporting Standard (IFRS) 10 Consolidated Financial Statements and International Accounting Standard (IAS) 28 Investments in Associates and Joint Ventures. Specifically, comments are invited for three issues that were submitted to the IFRS Interpretations Committee, These are: a) exemption from preparing consolidated financial statements, b) dealing with a subsidiary that provides services that relate to the parent’s investment activities, and c) application of the equity method by a non-investment entity investor to an investment entity investee.

The Financial Reporting Council (FRC) (): Guidance on the Strategic Report
Publication Date:
June 9th 2014
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance, Reporting
This guidance9 issued by the FRC is meant to support the new legal requirements for the strategic report. The objective is to encourage inclusion of information in the annual report that is more relevant to the shareholders and helps them assess the directors’ performance, promote cohesiveness and improve accessibility of information. The guidance is meant to be principles based and serve as a best practice statement. It replaces the Accounting Standards Board’s Reporting Statement: Operating and Financial Review.

European Banking Authority (EBA) (): Methodology for the identification of global systemically important institutions
Publication Date:
June 5th 2014
Risks Covered: Compliance Risk, Systemic Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The EBA’s regulatory standards10 provide a methodology for identifying Global Systemically Important Institutions (G-SII) under the Capital Requirements Directive (CRD) IV that would be used by national regulators to identify G-SIIs in their respective jurisdictions. Categories of indicators that would form part of a scorecard to measure systemic significance include a) total exposure at the consolidated levels, b) interconnectedness, c) substitutability of services or of the infrastructure provided by the group, d) complexity of the group, and e) cross border activity of the group.

The Single Supervisory Mechanism (SSM)11, aimed at eliminating bias in the supervision of banks at the national level, is scheduled to assume responsibility for bank supervision within the Euro zone as of November 2014. With its current core projects of asset quality reviews and stress tests progressing at multiple levels, the focus of future work would be on building harmonized reporting templates based on Common Reporting (COREP) and Financial Reporting (FINREP) requirements that are expected to reduce the reporting burden on pan-European banks.

Footnotes:

  1. European Systemic Risk Board (ESRB): Guidance for setting countercyclical buffer rates
  2. International Organization Of Securities Commissions (IOSCO): Risk Identification and Assessment Methodologies for Securities Regulators
  3. Office of the Comptroller of the Currency (OCC): Semiannual Risk Perspective
  4. Bank for International Settlements (BIS): Review of the Pillar 3 disclosure requirements
  5. Prudential Regulation Authority (PRA): The use of PRA powers to address serious failings in the culture of firms
  6. Financial Conduct Authority (FCA): Tackling serious failings in firms
  7. Office of the Comptroller of the Currency (OCC): Volcker Rule Interim Examination Procedures
  8. The International Accounting Standards Board (IASB): Investment Entities: Applying the Consolidation Exception- Proposed amendments to IFRS 10 and IAS 28
  9. The Financial Reporting Council (FRC): Guidance on the Strategic Report
  10. European Banking Authority (EBA): Methodology for the identification of global systemically important institutions
  11. European Central Bank (ECB): Launch of SSM – What Will Change in Banking Supervision and What are the Imminent Impacts on the Banking Sector?
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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