This is a monthly initiative aimed at updating the Risk Management community with some of the most recent regulatory changes impacting Banks & Capital Markets firms. We update our comprehensive regulatory database every month by tracking more than 40 regulatory and industry bodies covering North America, EALA and APAC. Every month, we will highlight approximately 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 some of the regulatory reforms. This newsletter is planned to supplement the existing monthly newsletter “Regulatory Insights” which provides a deeper analysis of business implications & Accenture’s point of view on a single or much smaller set of regulatory changes.

Edition Highlights:

  • The Financial Stability Board’s final guidance4 on risk appetite framework would deal with building of effective risk appetite statements and implementing them.
  • The Fed’s annual exercise10 of stress testing, applicable to large financial institutions in the U.S, is aimed at assessing the impact of key economic & financial stresses on capital adequacy.
  • ESMA’s proposed regulations7 would standardize complaints handling arrangements across all sectors of financial services in the European Union.
Current coverage period: Through November 30th, 2013
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(Low) ( Medium) ( High)

CURRENT REGULATIONS:

Board of Governors of the Federal Reserve System (the Fed), Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC) (): The Volcker Rule
Publication Date:
December 10th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing, Audit, Legal & Compliance
The joint final rule1, issued by the U.S. federal agencies, would prohibit insured depository institutions and their affiliated companies (collectively called banking entities) from engaging in short-term proprietary trading in certain securities for their own account. In addition, restrictions would be imposed on banking entities’ investments in, and other relationships with, hedge funds or private equity funds. Compliance requirements will vary depending on the size of the banking entity and scope of activities conducted.

China Banking Regulatory Commission (CBRC) (): Capital Rules for Commercial Banks
Publication Date:
November 29th 2013
Risks Covered: Credit Risk, Market Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
With a view to protecting the interests of depositors through strengthening the capital regulation of commercial banks, the CBRC’s final regulations2 would implement Basel II / III standards in China. Key coverage includes a) calculation of risk weights for credit, market & operational risks under standardized and advanced approaches, b) corporate governance & capital planning under Internal Capital Adequacy Assessment Process, and c) reporting of qualitative & quantitative information under Pillar III of the Basel Accord.

Office of the Superintendent of Financial Institutions (OSFI) (): Liquidity Adequacy Requirements Guideline
Publication Date:
November 28th 2013
Risks Covered: Compliance Risk, Liquidity Risk
Business Processes Impacted: Funding & Liquidity Management, Risk Management & Stress Testing
The OSFI’s consultation3 is aimed at transposing liquidity-related requirements issued by the Basel Committee into OSFI guidance. Major coverage includes a) Liquidity Coverage Ratio (LCR), b) Net Stable Funding Ratio, c) Net Cumulative Cash Flow, d) Liquidity Monitoring Tools, and e) Intraday Liquidity Monitoring Tools. With no phase-in period for implementation of LCR (in contrast to the Basel Committee’s phase-in), the Canadian institutions would be subject to 100% LCR requirement from January 1, 2015.

Financial Stability Board (FSB)(): Principles for An Effective Risk Appetite Framework
Publication Date:
November 18th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
The FSB’s final guidance4 on creating & managing a risk appetite framework would be applicable to financial institutions in general and to Systemically Important Financial Institutions, with an added emphasis. Major coverage includes a) definitions for key terms to enable common understanding, b) components of an effective risk appetite statement, c) principles for deriving risk limits from risk appetite, and d) roles and responsibilities of the board of directors, CEO, CRO, CFO, heads of business lines & legal entities, and internal audit.

BaFin (): IT Security: Expectations of banking supervision
Publication Date:
November 15th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management & Stress Testing
The BaFIN’s report5 traces the ever growing significance of information technology (IT) for credit institutions and their impacts in terms of proliferation of risks associated with use of IT. Key supervisory expectations are in the areas of a) value proposition & costs, b) IT governance & IT security management, c) software development & procurement, d) outsourcing of IT & challenges arising therefrom, and e) requirements to be met by IT service providers.

International Monetary Fund (IMF) (): Rules of Thumb for Bank Solvency Stress Testing
Publication Date:
November 11th 2013
Risks Covered: Credit Risk, Market Risk
Business Processes Impacted: Risk Management & Stress Testing
Using data from various previous crises during the last 15 years, the IMF research paper6 deals with building of rules of thumb that can facilitate improved stress tests of capital ratios of banks. Factors that explain large changes in capital ratios of banks are a) primary credit losses, b) income, c) credit growth, and d) risk weights. They would also be useful to quantify the cyclical behavior of capital ratios under various regulatory approaches both in advanced and emerging economies.

European Securities and Markets Authority (ESMA), European Banking Authority (EBA) (): Complaints-handling for the securities and banking sectors
Publication Date:
November 6th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance, Consumer Protection
Aim of the ESMA’s joint consultation paper7 would be to provide a standardized complaints handling arrangement for the benefit of consumers of the European Union (EU) across all sectors of financial services. This would help bridge regulatory gaps arising out of differences in approaches followed by individual countries. Major coverage includes a) purpose, definitions & scope b) compliance & reporting obligations, and c) guidelines on complaints handling.

Office of the Comptroller of the Currency (OCC) (): Insider Activities
Publication Date:
November 6th 2013
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal & Compliance, Risk Management & Stress Testing
The OCC’s guidance8 explains how to implement risk management processes that provide for an appropriate control and monitoring of insider activities of banks. Key coverage includes a) risks associated with insider activities, b) duties of the board & management, c) compliance with insider laws & regulations, d) internal controls & audit, e) compensation& benefits paid to insiders, and f) management information system and financial reporting.

Commodity Futures Trading Commission (CFTC) (): Protection of Collateral of Counterparties to Uncleared Swaps; Treatment of Securities in a Portfolio Margining Account in a Commodity Broker Bankruptcy
Publication Date:
November 6th 2013
Risks Covered: Compliance Risk, Counterparty Risk (CCR)
Business Processes Impacted: Consumer Protection, Clearing &Settlement – Exchange Traded & OTC
The CFTC’s final rules9 under the Dodd-Frank Act would impose requirements on swap dealers and major swap participants with respect to segregation of margins of counterparties in relation to uncleared swaps. Major coverage includes a) notification of right to segregation, b) requirements for segregated margin, c) investment of segregated margin, and d) requirements for non-segregated margin. Additionally, the final rules would include revisions to the effect that securities held in a portfolio margining account in relation to futures contracts or cleared swaps constitute customer property.

Board of Governors of the Federal Reserve System (the Fed) (): Comprehensive Capital Analysis and Review 2014
Publication Date:
November 1st 2013
Risks Covered: Credit Risk, Compliance Risk, Liquidity Risk
Business Processes Impacted: Risk Management & Stress Testing
Applicable to bank holding companies (BHC) with $ 50 billion or more in total consolidated assets, aim of the Fed’s annual exercise10 would be to ensure that large financial institutions have sufficient capital to absorb losses arising out of economic and financial stress. The baseline, adverse, and severely adverse scenarios include economic activity, unemployment, exchange rates, prices, incomes, and interest rates. For the first time in 2014, BHC with substantial trading or custodial operations will be required to incorporate a counterparty default scenario.

FORTHCOMING REGULATIONS:

Financial Conduct Authority (FCA): The FCA and the Future of Retail Banking
In the light of FCA’s new supervisory model for conduct risk, the FCA leadership speech11 focuses on challenges for retail banking in the U.K. Major ones include a) rebuilding of trust of consumers in the environment of sales-driven approach adopted by firms, b) rapidly emerging technologies and the potential threat from non-traditional financial service firms, and c) exploiting new technology for distribution of products in the light of vastly changing tastes of consumers.
Footnotes:
  1. Board of Governors of the Federal Reserve System (the Fed), Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC): The Volcker Rule
  2. China Banking Regulatory Commission (CBRC): Capital Rules for Commercial Banks
  3. Office of the Superintendent of Financial Institutions (OSFI): Liquidity Adequacy Requirements Guideline
  4. Financial Stability Board (FSB): Principles for An Effective Risk Appetite Framework
  5. International Monetary Fund (IMF): Rules of Thumb for Bank Solvency Stress Testing
  6. European Securities and Markets Authority (ESMA), European Banking Authority (EBA): Complaints-handling for the securities and banking sectors
  7. Office of the Comptroller of the Currency (OCC): Insider Activities
  8. Board of Governors of the Federal Reserve System (the Fed): Comprehensive Capital Analysis and Review 2014
  9. Financial Conduct Authority (FCA): The FCA and the Future of Retail Banking
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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