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:

  • ESMA’s consultation3 on MiFID II / MiFIR would set out key requirements in relation to investor protection, algorithmic and high-frequency- trading, and transparency.
  • Fed’s proposed rules6 on concentration limits for large financial companies would impose restrictions on merger of financial companies.
  • The ECB report7 outlines a number of recommendations towards improving the security of payment account access services.
Current coverage period: Through May 31, 2014
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(Low) (Medium) (High)

CURRENT REGULATIONS:

Bank for International Settlements (BIS), International Organization Of Securities Commissions (IOSCO) (): Implementation monitoring of Principles for Financial Market Infrastructures
Publication Date:
May 28th 2014
Risks Covered: Operational Risk
Business Processes Impacted: Trading, Clearing and Settlement – Exchange Traded and OTC
The Committee on Payment and Settlement Systems (CPSS) and IOSCO have started to monitor the implementation of the Principles for Financial Market Infrastructures (PFMIs) including both the Principles and the Responsibilities. The report1 covers the first update to the results of the Level 1 assessments covering the status of the 27 jurisdictions’ legal, regulatory or policy frameworks. The latest update shows that participating jurisdictions have made significant progress in completing the process of adopting legislation, regulations and/or policies that will enable them to implement the PFMIs.

Australian Prudential Regulation Authority (APRA) (): Prudential Practice Guide
Publication Date: May 26th 2014
Risks Covered: Credit Risk, Compliance Risk
Business Processes Impacted: Lending and Investment, Risk Management and Stress Testing
The APRA’s consultation2 would serve as guidance to board of directors of banks on risk management practices, in particular, on the application of risk appetite framework and risk management strategy for residential mortgage lending. Other key coverage includes a) applying sound loan origination criteria, b) improved management of hardship loans through efficient security valuation methods, c) establishing a robust stress testing framework, d) management information systems, and e) alignment of remuneration to risk-taking.

European Securities and Markets Authority (ESMA) (): Consultation on Markets in Financial Instruments Directive (MiFID) II/ Markets in Financial Instruments Regulation (MiFIR)
Publication Date:
May 22nd 2014
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Trading, Risk Management and Stress Testing
In response to the European Commission’s request for technical advice on implementing MiFID II / MiFIR, the coverage of ESMA consultation3 would include organizational requirements and operating conditions for investment firms. Major components in the consultation includes a) best execution, compliance function, complaints management, product governance, and record keeping with a view to ensuring investor protection, b) transparency in trading, c) access to data on quotes, d) algorithmic trading and direct electronic access, and e) requirements in relation to trading venues.

Office of the Comptroller of the Currency (OCC) (): Integration of National Bank and Savings Association Regulations: Interagency Rules
Publication Date:
May 16th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The OCC is combining4 a number of rules in specific areas that were originally issued together with other Fed banking agencies and by the former Office of Thrift Supervision. These rules pertain to consumer protection in insurance sales, Bank Secrecy Act compliance, management interlocks, appraisals, disclosure and reporting of the Community Reinvestment Act. Technical amendments are also being made to the OCC’s Fair Credit Reporting Act rule to conform to provisions of the Dodd-Frank Act. The objective is to streamline OCC rules, reduce duplication, and create efficiencies by establishing a single set of rules for all OCC-supervised entities.

BaFin (): Recovery planning – circular on minimum requirements
Publication Date:
May 15th 2014
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Recovery and Resolution planning, Audit, Legal and Compliance
As laid out in the Ringfencing Act, the BaFin’s final regulations5 would specify minimum requirements to be fulfilled by credit institutions in relation to the content of recovery plans. Important requirements include a) establishing key indicators with reasonable thresholds that would trigger early actions, b) assessment of impact of recovery options on business model as a part of feasibility assessment, and c) roles and responsibilities of management towards preparing, implementing and updating recovery plans.

Board of Governors of the Federal Reserve System (the Fed) (): Concentration Limits on Large Financial Companies
Publication Date:
May 15th 2014
Risks Covered: Counterparty Risk (CCR), Credit Risk
Business Processes Impacted: Risk Management and Stress Testing, Reporting
The Board is inviting comments on a proposed rule6 that would implement section 622 of the Dodd-Frank Act. Section 622, which adds a new section 14 to the Bank Holding Company Act of 1956, establishes a financial sector concentration limit that generally forbids a financial company from merging or consolidating with, or acquiring, another company if the resulting company’s liabilities upon consummation would exceed 10 percent of the aggregate liabilities of all financial companies as calculated under that section. The proposal would also set up reporting requirements for certain financial companies that are necessary to implement section 622.

European Central Bank (ECB) (): Security of Payment Account Access Services
Publication Date:
May 12th 2014
Risks Covered: IT Risk, Compliance Risk
Business Processes Impacted: Payments, Audit, Legal and Compliance
This report7 presents a set of recommendations developed by the European Forum to improve the security of payment account access services. The report outlines 14 recommendations along with key considerations, best practices which third-party providers, governance authorities, account-servicing payment service providers and other relevant market participants are encouraged to adopt. These recommendations are formulated as generically as possible to accommodate continual business and technological innovation, and do not attempt to set specific security or technical solutions.

European Banking Authority (EBA) (): The treatment of equity exposures under the Internal Ratings-Based Approach
Publication Date:
May 7th 2014
Risks Covered: Credit Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
The EBA’s consultation8 would specify the treatment of equity exposures of banks for credit risk under the internal ratings-based approach (IRB). Subject to certain conditions laid out in the consultation, national regulators of European Union countries would be empowered to grant temporary exemptions from IRB treatment for certain equity exposures. The proposed approach differs from the earlier regime that granted the discretion to the national regulators to decide on the type and nature of the exemption.

Financial Stability Board (FSB) (): Data Gaps Initiative – A Common Data Template for Global Systemically Important Banks
Publication Date:
May 6th 2014
Risks Covered: Counterparty Risk
Business Processes Impacted: Risk Management and Stress Testing
Initiated as a part of the wider Group of Twenty initiatives to improve the collection and sharing of information on linkages between global systemically important financial institutions and their exposures, the FSB’s phase 2 initiatives9 are aimed at reducing data gaps further. Key areas of focus, as reflected in the phase 2 data template, include addition of information on a) institution-to-institution liabilities, b) largest funding providers (banks and non-banks) and funding structures, and c) holdings of tradable debt securities issued by other global systemically important banks.

Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (the Fed), Federal Deposit Insurance Corporation (FDIC) (): Regulatory Capital Rules: Regulatory Capital, Proposed Revisions to the Supplementary Leverage Ratio
Publication Date:
May 1st 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The regulators are inviting comments on proposed rulemaking10 that would revise the denominator of the supplementary leverage ratio (total leverage exposure) that the agencies adopted in July 2013 as part of comprehensive revisions to the agencies’ regulatory capital rules. Specifically, the proposed rule would revise the treatment of on- and off-balance sheet exposures for purposes of determining total leverage exposure, and more closely align the agencies’ rules on the calculation of total leverage exposure with international leverage ratio standards.

FORTHCOMING REGULATIONS:

Banking Standards Review: UK Banking Standards Review
Setting the stage for a new, independent body, the expert committee11 constituted by a few UK banks and building societies recommended the setting up of the Banking Standards Review Council. Welcoming the expert committee’s report, the Financial Conduct Authority opined that this move would enable improvement in the behavior and competence of the banking sector in the light of challenges arising out of a lack of public trust in the banking system.

Footnotes:

  1. Bank for International Settlements (BIS), International Organization Of Securities Commissions (IOSCO): Implementation monitoring of PFMIs: First update to Level 1 assessment report
  2. Australian Prudential Regulation Authority (APRA): Draft Prudential Practice Guide – APG 223 – Residential Mortgage Lending
  3. European Securities and Markets Authority (ESMA): Consultation Paper – MiFiD II / MiFIR
  4. Office of the Comptroller of the Currency (OCC): Integration of National Bank and Savings Association Regulations: Interagency Rules
  5. BaFin: Recovery planning: BaFin publishes circular on minimum requirements
  6. Board of Governors of the Federal Reserve System (the Fed): Concentration Limits on Large Financial Companies
  7. European Central Bank (ECB): Final Recommendations for the Security of Payment Account Access Services Following the Public Consultation
  8. European Banking Authority (EBA): Consultation paper – On the treatment of equity exposures under the IRB Approach under Article 495(3) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR)
  9. Financial Stability Board (FSB): FSB Data Gaps Initiative – A Common Data Template for Global Systemically Important Banks
  10. Banking Standards Review: UK Banking Standards Review
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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