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

Current coverage period: Through June 30, 2019

CURRENT REGULATIONS:

Federal Reserve (The Fed):
Bank Exams Tailored to Risk (BETR)
Publication Date: June 3rd 2019

Risks Covered: Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
BETR builds on the Federal Reserve’s overall risk-focused approach to supervision, whereby examiners and other supervisory staff identify risks to an institution and assess management’s ability to identify, measure, monitor, and control such risks.1

Bank of England (BoE):
Firms’ preparations for transition from London InterBank Offered Rate (LIBOR) to Risk-Free Rates (RFRs): Key themes, Good Practice, and Next Steps
Publication Date: June 5th 2019

Risks Covered: Compliance Risk
Business Processes Impacted: Netting & Collateral Management
A number of firms’ responses placed considerable reliance on the development of ‘market’ solutions to overcome potential barriers to transition, like relying on the development of a forward-looking term rate or waiting for market liquidity to build up in new risk-free rate (RFR) products.2

Financial Conduct Authority (FCA):
FCA confirms new rules for P2P platforms
Publication Date: June 4th 2019
Risks Covered: Conduct Risk
Business Processes Impacted: Brokerage Services
Regulator is introducing rules designed to prevent harm to investors, without stifling innovation in the peer-to-peer sector. These new rules are designed to help better protect investors and allow firms and fundraisers to operate in a long-term, sustainable manner.3

Financial Conduct Authority (FCA):
FCA confirms biggest shake-up to the overdraft market for a generation
Publication Date: June 7th 2019
Risks Covered: Regulatory Risk
Business Processes Impacted: Consumer/Investor Protection
The agency is introducing reforms to fix a dysfunctional overdraft market. These changes are expected to make overdrafts simpler, fairer, and easier to manage and thus protect the millions of consumers that use them, particularly more vulnerable consumers. The changes represent the one of the biggest overhaul to the overdraft market for a generation.4

Office of the Comptroller of the Currency (OCC); Federal Reserve (The Fed); Federal Deposit Insurance Corporation (FDIC); Department of the Treasury (US):
Liquidity Coverage Ratio Rule: Treatment of Certain Municipal Obligations as High-Quality Liquid Assets
Publication Date: June 5th 2019
Risks Covered: Liquidity Risk
Business Processes Impacted: Funding & Liquidity Management
The agencies are adopting as a final rule, without change, the August 31, 2018, interim final rule, which amended the agencies’ Liquidity Coverage Ratio (LCR) rule to treat liquid and readily-marketable, investment grade municipal obligations as high-quality liquid assets. This treatment was mandated by section 403 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.5

Australian Prudential Regulation Authority (APRA):
Financial Sustainability Challenges in Private Health Insurance June 2019
Publication Date: June 3rd 2019
Risks Covered: Credit Risk
Business Processes Impacted: Audit, Legal & Compliance
The agency has issued a letter to all private health insurers setting out its expectations in improving resilience to sustainability challenges. The APRA has urged the industry to swiftly develop robust, actionable strategies to address sustainability risks, as well as a recovery plan that outlines how they are to respond if their strategy is not effective or other material risks threaten their solvency.6

European Commission (EC):
Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012
Publication Date: June 7th 2019
Risks Covered: Counterparty Credit Risk
Business Processes Impacted: Funding & Liquidity Management
The agency has adopted regulation with regards to the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counter-party credit risk, market risk, exposures to central counter-parties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012. The Regulation took effect on June 8, 2019.7

European Financial Reporting Advisory Group (EFRAG):
EFRAG issues Hedging Accounting Questionnaire For Insurers
Publication Date: June 14th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Corporate Finance, M&A and Advisory
European insurers that apply International Financial Reporting Standards (IFRSs) are invited to complete a questionnaire on Hedge Accounting under IFRS 9/IAS 39. Responses are requested by September 16, 2019.8

Financial Conduct Authority (FCA):
Payment Services and Electronic Money – Our Approach – June 2019 (version 4)
Publication Date: June 7th 2019
Risks Covered: Systemic Risk
Business Processes Impacted: Payments
The agency has published guidance on Payment Services and Electronic Money in which it describes its approach to implementing the Electronic Money Regulations 2011 (EMRs) and the Payment Services Regulations 2017 (PSRs 2017) alongside the payment services and e-money-related rules in the FCA Handbook.9

Finland Financial Supervisory Authority (FIN-FSA):
EBA, EIOPA and ESMA launch consultations on technical standards on the reporting of intra-group transactions and risk concentration for Financial Conglomerates
Publication Date: June 3rd 2019
Risks Covered: Conduct Risk
Business Processes Impacted: Pricing & Valuation
The European Banking Authority, European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority announced a consultation on implementing technical standards pertaining to the reporting of intra-group transactions and risk concentration for financial conglomerates. The consultation ends on August 15, 2019.10

Basel Committee on Banking Supervision (BCBS):
Exposure Draft: Interest Rate Benchmark Reform
Publication Date: June 17th 2019
Risks Covered: Interest Rate Risk (non-trading book)
Business Processes Impacted: Corporate Finance, M&A and Advisory
The agency has published comment regarding the International Accounting Standards Board’s (IASB) Exposure Draft (ED) Interest Rate Benchmark Reform. The BCBS supports the development of high-quality accounting standards, and proposals by the IASB relating to ‘pre-replacement’ issues. The document also highlights that an acceleration of Phase II efforts is required.11

Consumer Financial Protection Bureau (CFPB):
Payday, Vehicle Title, and Certain High-Cost Installment Loans; Delay of Compliance Date; Correcting Amendments
Publication Date: June 17th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Payments
The bureau has issued a final rule to delay the August 19, 2019 compliance date for the mandatory underwriting provisions of the regulation promulgated by the CFPB in November 2017 governing Payday, Vehicle Title, and Certain High-Cost Installment Loans. Compliance with these provisions of the rule is delayed by 15 months, to November 19, 2020. The amendments are effective as of August 16, 2019.12

European Commission (EC):
Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 Amending Regulation (EU) No 806/2014 as regards the Loss-Absorbing and Re-capitalisation Capacity of Credit Institutions and Investment Firms
Publication Date: June 7th 2019
Risks Covered: Credit Risk
Business Processes Impacted: Capital Adequacy & Capital Planning
Regulator is amending regulation on the loss-absorbing and recapitalization capacity of credit institutions and investment firms. The Regulation entered into force on June 27, 2019, and goes into application on December 28, 2020.13

European Securities and Markets Authority (ESMA):
Letter to EFRAG on IASB’s Exposure Draft Interest Rate Benchmark Reform
Publication Date: June 18th 2019
Risks Covered: Interest Rate Risk (non-trading book)
Business Processes Impacted: Corporate Finance, M&A and Advisory
The agency has issued its contribution to a draft letter by the European Financial Reporting Advisory Group regarding the International Accounting Standards Board’s Exposure Draft Interest Rate Benchmark Reform and proposed amendments to International Financial Reporting Standards (IFRS) 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement.14

Financial Conduct Authority (FCA):
FCA launches review of the Credit Information Market
Publication Date: June 27th 2019
Risks Covered: Credit Risk
Business Processes Impacted: Consumer/Investor Protection
The agency has launched a market study to examine how the credit information market operates and impacts consumers. Credit information can impact consumer access to a range of financial services and, in some cases, how much they pay for these.15

Monetary Authority of Singapore (MAS):
Notice 637 Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore
Publication Date: June 27th 2019
Risks Covered: Liquidity Risk
Business Processes Impacted: Netting & Collateral Management
The agency has updated “Mas Notice 637 – Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore,” effective June 30, 2019. The amendments allow the recognition of on-balance sheet netting agreements for loans and deposits for credit risk mitigation purposes, introduce proportionality for disclosure requirements, revise certain disclosure templates, as well as implement other technical revisions.16

Prudential Regulation Authority (PRA):
Pillar 2 Liquidity: Updates to the Framework
Publication Date: June 17th 2019
Risks Covered: Liquidity Risk
Business Processes Impacted: Reporting
The agency has updated its policy statement regarding Pillar 2 liquidity. The policy statement also provides the PRA’s final policy in relation to updates to the Regulatory Reporting Part of the PRA Rulebook, Supervisory Statement SS24/15 “The PRA’s approach to supervising liquidity and funding risks,” Statement of Policy (SoP) “Pillar 2 liquidity,” and SS34/15 “Guidelines for completing regulatory reports.” All came into effect on July 1, 2019.17

Belgian Financial Services and Markets Authority (FSMA):
Insurance Distribution Directive (IDD): New Professional Knowledge Requirements in the Insurance Sector
Publication Date: June 26th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Training & Development
The authority has published the latest edition in a series of newsletters outlining the main changes to the practice conditions of the insurance intermediary profession following the recent transposition of the European Insurance Distribution Directive (IDD) in Belgium.18

Financial Accounting Standards Board (FASB):
FASB Moves towards approving Accounting Relief for Contract Modifications arising from Reference Rate Reform
Publication Date: June 19th 2019
Risks Covered: Compliance Risk
Business Processes Impacted: Corporate Finance, M&A and Advisory
The Board tentatively decided that for a contract that meets certain criteria, a change in that contract’s reference interest rate would be accounted for as a continuation of that contract rather than the creation of a new contract. This decision applies to loans, debt, leases, and other arrangements.19

International Financial Reporting Standards (IFRS):
IASB consults on Amendments to aid implementation of IFRS 17
Publication Date: June 26th 2019
Risks Covered: Conduct Risk
Business Processes Impacted: Finance & Performance Management
The agency has proposed amendments to the insurance contracts Standard, International Financial Reporting Standards (IFRS) 17, for public consultation. The aim of the amendments is to continue supporting implementation by reducing the costs of implementing the Standard and making it easier for companies to explain their results when they apply the Standard.20

FORTHCOMING REGULATIONS:

European Banking Authority (EBA); European Securities and Markets Authority (ESMA); European Insurance and Occupational Pensions Authority (EIOPA)
Consultation Paper – Draft implementing technical standards amending Implementing Regulation (EU) 2016/1800 on the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC
The Joint Committee of the European Supervisory Authorities (ESAs) has published a re-consultation to amend the Implementing Regulations on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk.21

European Insurance and Occupational Pensions Authority (EIOPA)
Draft opinion on sustainability within Solvency II
The agency has published a consultation paper regarding sustainability within Solvency II. The draft opinion is part of the sustainable finance strategy. The aim of the opinion is to integrate sustainability risks, such as climate change, in the investment and underwriting practices of insurers.22

Bank of England (BoE)
Monetary Authority of Singapore (MAS) and UK financial authorities announce collaboration on cyber security
The regulators would be working together to strengthen cyber security in their financial sectors. MAS and the UK authorities will commence work towards a Memorandum of Understanding to signify this enhanced collaboration by identifying effective ways to share information and exploring potential for staff exchanges.23

Monetary Authority of Singapore (MAS)
Proposed Guidelines on Individual Accountability and Conduct
The agency has published the responses to feedback received pursuant to a consultation paper issued on April 26, 2018 on the proposed “Guidelines on Individual Accountability and Conduct” to strengthen accountability and standards of conduct across the financial industry.24

Financial Reporting Council (UK) (FRC)
Request for insight into Hedging Practices by Insurers
The agency has announced that the European Financial Reporting Advisory Group (EFREG) has published a questionnaire aimed at providing further clarification on the impact of the adoption of the International Financial Reporting Standards (IFRS) 9 Financial Instruments and IFRS 17 Insurance Contracts on hedging strategies and practices. The council has invited UK insurers to submit their comments to EFRAG by September 16, 2019.25

Office of the Superintendent of Financial Institutions (OSFI)
Foreign Bank Branch Deposit Requirement
The office has issued proposed revisions to Guideline A-10 to be implemented in Q1 2020 for Foreign Bank Branches (FBBs). Revisions include changing the guideline’s title to Foreign Bank Branch Deposit Requirement from Capital Equivalency Deposit, updates and simplifications, and changes to the deposit ratio calculation: off-balance sheet liabilities will no longer be included while accrued expenses will now be included in the calculation. Comments were to be provided by July 30, 2019.26

Financial Accounting Standards Board (FASB)
FASB proposes narrow-scope improvements to Credit Losses Standard
The board has issued a proposed Accounting Standards Update (ASU) that would address issues raised by stakeholders during the implementation of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Stakeholders were encouraged to review and provide input by July 29, 2019.27

Prudential Regulation Authority (PRA)
Insurance Stress Test 2019
The agency has issued a letter asking CEOs to supply, on a voluntary basis, information on the impact of various stress tests on their business. The letter also asks participating firms to complete an exploratory exercise relating to climate change, while general insurers are invited to complete exercises on cyber underwriting and commercial liability exposures.28

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

 

References:

  1. “SR 19-9: Bank Exams Tailored to Risk (BETR),” Federal Reserve, June 3, 2019. Access at: Bank Exams Tailored to Risk (BETR).
  2. “Firms’ preparations for transition from London InterBank Offered Rate (LIBOR) to risk-free rates (RFRs): Key themes, good practice and next steps,” Bank of England, June 5, 2019. Access at: Firms’ preparations for transition from London InterBank Offered Rate (LIBOR) to Risk-Free Rates (RFRs): Key themes, Good Practice, and Next Steps.
  3. “FCA confirms new rules for the P2P platforms,” Financial Conduct Authority, June 4, 2019. Access at: FCA confirms new rules for P2P platforms.
  4. “FCA confirms biggest shake-up to the overdraft market for a generation,” Financial Conduct Authority, June 7, 2019. Access at: FCA confirms biggest shake-up to the overdraft market for a generation.
  5. “Liquidity Coverage Ratio Rule: Treatment of Certain Municipal Obligations as High-Quality Liquid Assets,” Federal Register, June 5, 2019. Access at: Liquidity Coverage Ratio Rule: Treatment of Certain Municipal Obligations as High-Quality Liquid Assets.
  6. “Financial Sustainability Challenges in Private Health Insurance,” Australian Prudential Regulation Authority, June 3, 2019. Access at: Financial Sustainability Challenges in Private Health Insurance June 2019.
  7. Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013, Official Journal of the European Union, June 7, 2019. Access at: Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012.
  8. “EFRAG Issues Hedging Accounting Questionnaire for Insurers,” European Financial Reporting Advisory Group, June 14, 2019. Access at: EFRAG issues Hedging Accounting Questionnaire For Insurers.
  9. “Payment Services and Electronic Money – Our Approach: The FCA’s role under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011,” Financial Conduct Authority, June 7, 2019. Access at: Payment Services and Electronic Money – Our Approach – June 2019 (version 4).
  10. “EBA, EIOPA and ESMA launch consultations on technical standards on the reporting of intra-group transactions and risk concentration for Financial Conglomerates – the consultation runs until 15 August 2019,” Finland Financial Supervisory Authority, June 3, 2019. Access at: EBA, EIOPA and ESMA launch consultations on technical standards on the reporting of intra-group transactions and risk concentration for Financial Conglomerates.
  11. “Exposure Draft: Interest Rate Benchmark Reform, Basel Committee on Banking Supervision, June 17, 2019. Access at: Exposure Draft: Interest Rate Benchmark Reform.
  12. “Payday, Vehicle Title, and Certain High-Cost Installment Loans; Delay of Compliance Date; Correcting Amendments,” Consumer Financial Protection Bureau, June 17, 2019. Access at: Payday, Vehicle Title, and Certain High-Cost Installment Loans; Delay of Compliance Date; Correcting Amendments.
  13. Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 806/2014, Official Journal of the European Union, June 7, 2019. Access at: Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 Amending Regulation (EU) No 806/2014 as regards the Loss-Absorbing and Re-capitalisation Capacity of Credit Institutions and Investment Firms.
  14. “EFRAG’s Draft Comment Letter on IASB’s Exposure Draft Interest Benchmark Reform – Proposed amendments to IFRS 9 and IAS 39,” European Securities and Markets Authority, June 18, 2019. Access at: Letter to EFRAG on IASB’s Exposure Draft Interest Rate Benchmark Reform.
  15. “FCA launches review of the Credit Information Market,” Financial Conduct Authority, June 27, 2019. Access at: FCA launches review of the Credit Information Market.
  16. “MAS issues revised MAS Notice 637 on “Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore” effective 30 June 2019,” Allen & Gledhill, June 27, 2019. Access at: Notice 637 Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore.
  17. “Pillar 2 liquidity: Updates to the framework,” Prudential Regulation Authority, June 17, 2019. Access at: Pillar 2 Liquidity: Updates to the Framework.
  18. Recent updates in IDD, Belgian Financial Services and Markets Authority (FSMA), June 26, 2019. Access at: Insurance Distribution Directive (IDD): New Professional Knowledge Requirements in the Insurance Sector.
  19. “FASB Moves Towards Approving Accounting Relief for Contract Modifications Arising from Reference Rate Reform,” Financial Accounting Standards Board, June 19, 2019. Access at: FASB Moves towards approving Accounting Relief for Contract Modifications arising from Reference Rate Reform.
  20. “IASB consults on amendments to aid implementation of IFRS 17,” International Financial Reporting Standards, June 26, 2019. Access at: IASB consults on Amendments to aid implementation of IFRS 17.
  21. “Draft implementing technical standards amending Implementing Regulation (EU) 2016/1800 on the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC,” European Banking Authority; European Securities and Markets Authority; European Insurance and Occupational Pensions Authority, June 7, 2019. Access at: Consultation Paper – Draft implementing technical standards amending Implementing Regulation (EU) 2016/1800 on the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC.
  22. “Consultation Paper on an opinion on sustainability within Solvency II,” European Insurance and Occupational Pensions Authority, June 3, 2019. Access at: Draft opinion on sustainability within Solvency II.
  23. “Monetary Authority of Singapore and UK financial authorities announce collaboration on cyber security,” Bank of England, June 13, 2019. Access at: Monetary Authority of Singapore and UK financial authorities announce collaboration on cyber security.
  24. “MAS Expands the Scope of Its Proposed Guidelines on Individual Accountability and Conduct,” Allen & Overy, June 25, 2019. Access at: Proposed Guidelines on Individual Accountability and Conduct.
  25. “Request for insight into hedging practices by insurers,” Financial Reporting Council, June 24, 2019. Access at: Request for insight into Hedging Practices by Insurers.
  26. “Proposed changes to Foreign Bank Branch Deposit Requirement (Guideline A-10),” Office of the Superintendent of Financial Institutions, June 18, 2019. Access at: Foreign Bank Branch Deposit Requirement.
  27. “FASB Proposes Narrow-scope Improvements to Credit Losses Standard,” Financial Accounting Standards Board, June 27, 2019. Access at: FASB proposes narrow-scope improvements to Credit Losses Standard.
  28. “Insurance Stress Test 2019 (IST 2019),” Prudential Regulation Authority, June 18, 2019. Access at: Insurance Stress Test 2019.

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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