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

  • The Prudential Regulation Authority’s proposed rules6 on corporate governance sets out expectations it has of from boards of directors in terms of setting strategy, culture, risk appetite, and risk management.
  • The Securities and Exchange Commission’s proposals7 would modernize the reporting and disclosure of information by registered investment companies.
  • The Financial Stability Board’s assessment3 of the supervisory framework for global systemically important banks reveals that supervision has become more risk-focused.

Current coverage period: Through May 31st, 2015

Note: Anticipated business impact for covered regulations is shown using the following rating legend:

(*Low) (**Medium) (***High)

CURRENT REGULATIONS:

The International Accounting Standards Board (IASB)(**):
Conceptual Framework for Financial Reporting
Publication Date: May 28th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Finance and Performance Management, Reporting
The IASB’s proposals1 on conceptual framework strengthen International Financial Reporting Standards (IFRS) and help the IASB develop standards that bring transparency, accountability, and efficiency to financial markets around the world. Enhancements proposed include: a) a new chapter on measurement that describes appropriate measurement bases, and the factors to consider when selecting a measurement basis; and b) refined definitions of the basic building blocks of financial statements – assets, liabilities, equity, income, and expenses.

Financial Conduct Authority (FCA)(*):
Capital resources requirements for Personal Investment Firms
Publication Date: May 28th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Risk Management and Stress Testing
The consultation2 from FCA outlines its proposed rules for establishing the amount of capital resources a personal investment firm (PIF) must hold. The proposals are based on setting the capital requirements as a function of regulated income. In addition to increasing the capital resources requirement, the proposal sets out a new income-based requirement. Under this, PIFs must hold capital resources that are at least equal to a percentage of the relevant annual income amount earned in the previous year.

Financial Stability Board (FSB)(*):
Thematic Review on Supervisory Frameworks and Approaches for SIBs – Peer review report
Publication Date: May 26th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing, Capital Adequacy and Capital Planning
The FSB’s review3 assesses progress towards implementing changes in tools and methods used by supervisors in order to intensify supervision aimed at global systemically important banks (G-SIBs). Key conclusions of the review include: a) supervision has become more risk-based; b) supervisory tools such as business model analysis, stress testing and horizontal reviews have been enhanced, capturing both current and emerging risks; and c) the scope of supervision has also expanded to incorporate macro prudential and resolvability considerations. Many recommendations have been set out in the report to further improve and assess supervisor effectiveness.

European Central Bank (ECB)(*):
Structural reforms, inflation and monetary policy – Introductory speech by Mario Draghi, President of the ECB,
Publication Date: May 22nd 2015
Risks Covered: Systemic Risk, Business Cycle Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
Leadership speech4 by the President of the ECB reiterates the interdependence of structural reforms and cyclical policies, including monetary policy. Structural reforms are important from the perspective of potential growth of output and the economy’s resilience to shocks. A comprehensive package of structural reforms, would, over time, increase both resilience and growth. This is especially true for monetary union, given its current position.

Board of Governors of the Federal Reserve System (the Fed)(**):
Liquidity Coverage Ratio: Treatment of U.S. Municipal Securities as High-Quality Liquid Assets
Publication Date: May 28th 2015
Risks Covered: Liquidity Risk
Business Processes Impacted: Funding and Liquidity Management,  Risk Management and Stress Testing
The proposed rule5 from the Fed would help maintain strong liquidity under the liquidity coverage ratio (LCR) while providing banks with the flexibility to hold a wider range of high-quality liquid assets (HQLA). The proposal would amend the Fed’s LCR requirement to allow investment grade, general obligation US state and municipal bonds to be counted as HQLA (up to certain levels) if they meet the same liquidity criteria that currently apply to corporate securities. The limits on the amount of a state or municipality’s bonds that could qualify are based on specific liquidity characteristics of the bonds.

Bank of England, Prudential Regulation Authority (PRA)(***):
Corporate governance: Board responsibilities
Publication Date: May 21st 2015
Risks Covered: Strategic Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
With its general objective to encourage good corporate governance, the PRA has issued a consultation6 paper to identify some key aspects of good board governance which it considers important in the conduct of its supervision. The draft statement issued complements the individual accountabilities that the PRA is introducing through the Senior Managers and Senior Insurance Managers Regimes. The consultation paper is relevant to all PRA-regulated firms.

Securities and Exchange Commission (SEC)(**):
Investment Company Reporting Modernization
Publication Date: May 20th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Reporting, Data Quality Management, Portfolio Advisory and Management
The SEC is proposing7 new rules and forms as well as amendments to modernize the reporting and disclosure of information by registered investment companies. These changes would benefit both the Commission in executing its regulator role and mission (to protect investors, maintain fair, efficient and orderly markets and facilitate capital formation), as well as investors who could use this information to make more informed investment decisions.

European Banking Authority (EBA)(**):
Consultation Paper on the Draft Regulatory Technical Standards, On the valuation of derivatives pursuant to Article 49(4) of the Bank Recovery and Resolution Directive (BRRD)
Publication Date: May 13th 2015
Risks Covered: Counterparty Credit Risk, Compliance Risk
Business Processes Impacted: Pricing and Valuation,  Recovery and Resolution planning
The EBA has issued a consultation8 paper to define draft regulatory technical standards on the valuation of derivatives pursuant to Article 49 (4) of the Bank Recovery and Resolution Directive (BRRD). The draft Regulatory Technical Standards aim to balance between the need to provide resolution authorities with tools to carry out a swift and objective valuation of derivative liabilities while avoiding discrepancies with the insolvency counterfactual that could lead to a breach of the non-creditor worse-off principle.

European Securities and Markets Authority (ESMA)(**):
Consultation Paper – Clearing Obligation under EMIR
Publication Date: May 11th 2015
Risks Covered: Counterparty Credit Risk, Compliance Risk
Business Processes Impacted: Clearing and Settlement – Exchange Traded and OTC, Audit, Legal and Compliance
The ESMA has issued a consultation paper9 explaining the draft regulatory technical standards establishing a clearing obligation on additional classes of over-the-counter (OTC) interest rate derivatives that were not included in the first Regulatory Technical Standards on the clearing obligation for interest rate swaps. These standards will then be submitted to the European Commission for endorsement in the form of Commission Regulations.

International Organization Of Securities Commissions (IOSCO)(***):
Sound Practices at large intermediaries: Alternatives to the use of credit ratings to assess creditworthiness
Publication Date: May 7th 2015
Risks Covered: Credit Risk, Market Risk
Business Processes Impacted: Risk Management and Stress Testing
The IOSCO has issued a consultation10 paper proposing a number of sound practices that regulators could consider as part of their oversight of market intermediaries, and which the latter may find useful in the development and implementation of effective alternative methods for the assessment of creditworthiness. The results of which are intended to promote the implementation of the Financial Stability Board’s Principles for Reducing Reliance on CRA (Credit Rating Agency) Ratings.

FORTHCOMING REGULATIONS:

Bank for International Settlements (BIS)
Remarks by Mr Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of the Sveriges Riksbank

In a leadership speech,11 the Chairman of the Basel Committee on Banking Supervision made a few remarks about the current and upcoming work of the Committee. The Focus of the post-crisis era has been on policy reforms, especially Basel III. The Committee’s planned work during 2015 and 2016 can be grouped into four broad themes: a) policy development; b) ensuring an adequate balance between simplicity, comparability and risk sensitivity across the regulatory framework; c) monitoring and assessing the implementation of the Basel framework; and d) improving the effectiveness of supervision.

Footnotes:

  1. The International Accounting Standards Board (IASB)(**):
    Conceptual Framework for Financial Reporting
  2. Financial Conduct Authority (FCA)(*):
    Capital resources requirements for Personal Investment Firms
  3. Financial Stability Board (FSB)(*):
    Thematic Review on Supervisory Frameworks and Approaches for SIBs – Peer review report
  4. European Central Bank (ECB)(*):
    Structural reforms, inflation and monetary policy – Introductory speech by Mario Draghi, President of the ECB,
  5. Board of Governors of the Federal Reserve System (the Fed)(**):
    Liquidity Coverage Ratio: Treatment of U.S. Municipal Securities as High-Quality Liquid Assets
  6. Bank of England, Prudential Regulation Authority (PRA)(***):
    Corporate governance: Board responsibilities
  7. Securities and Exchange Commission (SEC)(**):
    Investment Company Reporting Modernization
  8. European Banking Authority (EBA)(**):
    Consultation Paper on the Draft Regulatory Technical Standards, On the valuation of derivatives pursuant to Article 49(4) of the Bank Recovery and Resolution Directive (BRRD)
  9. European Securities and Markets Authority (ESMA)(**):
    Consultation Paper – Clearing Obligation under EMIR
  10. International Organization Of Securities Commissions (IOSCO)(***):
    Sound Practices at large intermediaries: Alternatives to the use of credit ratings to assess creditworthiness
  11. Bank for International Settlements (BIS)
    Remarks by Mr Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of the Sveriges Riksbank

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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