This is a monthly initiative aimed at updating the Risk Management community with the most recent regulatory changes impacting banks and capital markets firms. We update our comprehensive regulatory database every month by tracking more than 45 regulatory and industry bodies covering North America, Europe, Africa, Latin America and Asia Pacific. Every month, we will highlight 10 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. This item in the blog is planned to supplement an existing monthly feature namely, “Regulatory Insights” which provides a deeper analysis of the business implications of a single or much smaller set of regulatory changes.
Edition Highlights:
  • The CFTC’s final rules1 deal with registration and operation of swap execution facilities under Title VII of the Dodd-Frank Act (Pub.L. 111–203; 124 Stat. 1376–2223).
  • Key coverage includes mandatory trade execution requirements for swaps that are required to be cleared, and the criteria for arriving at the threshold at which large swap transactions can qualify as “block trades1”.
  • The 2013 edition of the COSO’s internal control framework7 is aimed at supporting operations, reporting, and compliance objectives of firms. Major components include creating a control environment through formulating policies, processes & structure, and ongoing evaluation to keep deviations within limits.
  • The APRA leadership speech3 cites risk governance & risk culture as key areas of future focus of regulation & supervision. In this regard, among others, APRA might ask the boards of directors of regulated firms to provide evidence of presence of appropriate risk culture, and self-assessment of effectiveness of decision making.

Current coverage period: Through May 31st, 2013
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
( Low) ( Medium) ( High)

CURRENT REGULATIONS:

Commodity Futures Trading Commission (CFTC)(): Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades
Publication Date:
May 31st 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Trading, Reporting
The CFTC’s final rule1 under Title VII of the Dodd-Frank Act deals with registration, trading and information dissemination aspects relating to swaps. Key requirements include a) rules for the type of trading platforms that are required to register as swap execution facilities (SEF), b) operating standards to be followed by the SEF, c) procedure and criteria for applying trade execution requirements on swaps that are required to be cleared, and d) criteria for delayed information to public on large trades and their exemption from some trading rules.

European Securities and Markets Authority (ESMA)(): Reporting obligations under the AIFMD
Publication Date:
May 24th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Reporting, Audit, Legal & Compliance
Proposed rule of the ESMA2 sets out reporting obligations under the Alternative Investment Fund Managers Directive (AIFMD) [need cite to this Directive]. Major areas of coverage of reporting would include a) breakdown of investment strategies, b) principal exposures & concentrations to instruments and geographies, c) market risk profile including sensitivities to changes in risk factors, and d) proportion of high frequency trading assets. Standardization of reporting formats across the European Union would be a key next step.

Australian Prudential Regulation Authority (APRA)(): Stay Ahead of the Risk: Risk Governance and Risk Culture
Publication Date:
May 20th 2013
Risks Covered: Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
Citing risk governance & risk culture as key areas of future focus in risk management, the APRA member’s speech3 addresses key challenges in implementation of the ideas. Examples of what APRA might ask the board of directors of institutions to consider include a) cohesiveness of overall business strategy, risk appetite, and risk strategy, b) clarity of view of risk culture & its assessment, c) consistency of remuneration policies with risk culture, and d) decision making process of the board & self-assessment of performance.

European Banking Authority (EBA)(): Assessment of recovery plans – establishing a framework for the recovery and resolution
Publication Date:
May 20th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Recovery & Resolution planning
The proposed rule4 would create an European Union-wide framework for the recovery & resolution directive (RRD) that requires regulatory authorities to review & assess the plans of regulated entities in consistency with standards established in the RRD. Key areas of focus would include a) criteria for assessment of credibility, b) ability to implement the recovery plan or specific options in the event of interdependency with other institution’s recovery, and c) specific criteria for assessment of group recovery plans.

European Banking Authority (EBA)(): On the determination of the overall exposure to a client or a group of connected clients
Publication Date:
May 17th 2013
Risks Covered: Credit Risk, Market Risk
Business Processes Impacted: Risk Management & Stress Testing, Lending & Investment
Purpose of the EBA’s proposed rule5 would be to define the criteria and methodologies to determine overall exposure to a client or to a group of connected clients. Under this, unless institutions are able to identify the client of each underlying exposure, they would be required to add all these exposures to the hypothetical ‘unknown client5’, leading to concentration of exposure & its negative consequence. Major coverage includes a) look-through approach for funds of funds, b) additional exposures that are determined by the nature of transaction, and c) transactions that do not constitute additional exposure.

Financial Conduct Authority (FCA)(): Mortgage Market Review – Data reporting
Publication Date:
May 15th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Reporting, Consumer Protection
Through the proposed rules6, the FCA would require additional data on mortgages to monitor and supervise conduct in the mortgage market with the focus on responsible lending by financial institutions. Besides data to monitor compliance with the new mortgage market review rules6, additional data on affordability (through income and expenditure), and performance of all existing regulated mortgage contracts would be required under the category of product sales data.

The Committee of Sponsoring Organizations of the Tread way Commission (COSO)(): Internal Control – Integrated Framework
Publication Date:
May 14th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance, Risk Management & Stress Testing
The 2013 framework7 of COSO would help firms sharply focus on three categories of objectives in relation to achieving the highest efficiencies and effectiveness in operations, reporting, and compliance. Major components of the framework are a) control environment that comprises set of standards, processes and structures for internal control, b) assessment of risks & their sources, c) risk mitigation & control, d) information and communication, and e) ongoing evaluation to keep deviations within limits.

Office of the Comptroller of the Currency (OCC)(): Basel’s New Emphasis on Supervision and Implementation, Charles Taylor Deputy Comptroller of the Currency
Publication Date:
May 14th 2013
Risks Covered: Liquidity Risk, Strategic Risk, Systemic Risk
Business Processes Impacted: Risk Management & Stress Testing, Recovery & Resolution planning
Highlighting two aspects of Basel Committee’s work of implementing Basel capital adequacy & liquidity regulations internationally, and of enhancing supervisory standards, the speech8 identifies key areas of future work of the committee. Major among them are a) approach to examining business models of banks as a way of identifying emerging risks, b) prudential treatment of assets – dealing with issues relating to valuation, provisioning, comparability, and risk weighting, c) review of guidance on supervising weak banks, d) review of corporate governance guidance, and e) coordinating regulatory actions across national boundaries.

International Organization Of Securities Commissions (IOSCO)(): Principles for CIS Valuation
Publication Date:
May 3rd 2013
Risks Covered: Operational Risk, Market Risk
Business Processes Impacted: Pricing & Valuation, Reporting
Collective investment schemes (or CIS) refer to open-ended schemes that provide regular redemption at net asset values. Purpose of the IOSCO’s proposed rule9 would be to update & modernize principles for valuation of CIS given the proliferation of many complex and hard-to-value instruments including OTC derivatives. Key aspects covered include a) consistent valuation principles that address conflict of interest, b) policies & procedures to detect, prevent, and correct pricing errors, c) ongoing reviews including third party review at least annually, and d) comprehensive disclosure to investors.

Securities and Exchange Commission (SEC)(): Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants
Publication Date:
May 1st 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance, Trading
The SEC’s proposed rules10 would apply in cases of security-based swap transactions that occur partially within and partially outside the U.S. The proposal outlines a “substituted compliance10” that allows a non-U.S person compliance with some or all the requirements of a foreign regulatory regime, provided that those requirements have been determined by the SEC to achieve comparable regulatory outcomes. In addition, the proposed rules put forth conditions under which a non-U.S. person will be required to register with the SEC as a security-based swap dealer.

FORTHCOMING REGULATIONS:

Office of the Superintendent of Financial Institutions
(OSFI) Plan and Priorities for 2013-2016

Besides addressing external risks emanating from the economy and financial system, and internal risks (namely people & technology risks), major area of focus of OSFI’s plan11 would be on anticipating and responding to risks arising out of regulatory reform across the globe. This involves monitoring implementation of banking reforms in other jurisdictions and the impact of such reforms on banks in Canada with a view to adjusting domestic guidance as required.

Footnotes

  1. Commodity Futures Trading Commission: Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades
  2. European Securities and Markets Authority: Reporting obligations under the AIFMD
  3. Australian Prudential Regulation Authority: Stay Ahead of the Risk: Risk Governance and Risk Culture
  4. European Banking Authority: Assessment of recovery plans – establishing a framework
    for the recovery and resolution
  5. European Banking Authority: On the determination of the overall exposure to a client or a group of connected clients
  6. Financial Conduct Authority: Mortgage Market Review – Data reporting
  7. The Committee of Sponsoring Organizations of the Tread way Commission: Internal Control – Integrated Framework
  8. Office of the Comptroller of the Currency: Basel’s New Emphasis on Supervision and Implementation, Charles Taylor Deputy Comptroller of the Currency
  9. International Organization Of Securities Commissions: Principles for CIS Valuation
  10. Securities and Exchange Commission: Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants
  11. Office of the Superintendent of Financial Institutions: Plan and Priorities for 2013-2016

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. If you require advice or further details on any matters referred to, please contact Accenture.

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