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 Federal Deposit Insurance Corporation proposes to impose a surcharge on the quarterly assessments of insured depository institutions with total consolidated assets of $10 billion or more
  • Proposed Federal Reserve Board rule promotes total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements
  • Product intervention, a new tool for securities supervision

Current coverage period: Through October 31, 2015

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

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

CURRENT REGULATIONS:

Federal Deposit Insurance Corporation (FDIC)(**):
The FDIC proposes to impose a surcharge on the quarterly assessments of insured depository institutions with total consolidated assets of $10 billion or more.
Publication Date: Oct 22nd 2015

Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance, Funding and Liquidity Management
The Federal Deposit Insurance Corporation (FDIC) proposes to impose a surcharge on the quarterly assessments of insured depository institutions with total consolidated assets of $10 billion or more. The surcharges would begin the calendar quarter after the reserve ratio of the Deposit Insurance Fund first reaches or exceeds 1.15 percent—the same time that lower regular deposit insurance assessment rates take effect—and would continue through the quarter that the reserve ratio first reaches or exceeds 1.35 percent. The surcharge would equal an annual rate of 4.5 basis points applied to the institution’s assessment base.1

Board of Governors of the Federal Reserve System (the FED)(***):
Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements
Publication Date: Oct 30th 2015

Risks Covered: Market Risk, Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Capital Adequacy and Capital Planning
The proposed rule promotes financial stability by improving the resolvability and resiliency of large, interconnected US bank holding companies and the US operations of large, interconnected foreign banking organizations pursuant to section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and related deduction requirements for all banking organizations subject to the Board’s capital rules.2

Federal Financial Supervisory Authority – Germany (Bafin) (**):
Product intervention: New tasks for securities supervision
Publication Date: Oct 2nd 2015
Risks Covered: Conduct Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing, Consumer Protection
The German regulator now has a new tool at its disposal: product intervention. It is now able to restrict or even prohibit the use of financial instruments, structured deposits or financial activities and practices if these present a significant investor protection concern or a threat to the stability or integrity of the financial system or financial markets. The provision specifies four grounds for intervention: 1) The product or conduct gives rise to significant investor protection concerns; 2) The product or conduct poses a threat to the orderly functioning and integrity of financial markets or commodity markets; 3) The product or conduct poses a threat to the stability of the whole or part of the financial system within at least one European Union member state; 4) A derivative has a detrimental effect on the price formation mechanism in the underlying markets.3

Bank for International Settlements (BIS)(***):
(RCAP) – Report on risk-weighted assets for counterparty credit risk (CCR)
Publication Date: Oct 1st 2015

Risks Covered: Credit Risk, Market Risk, Counterparty Credit Risk
Business Processes Impacted: Risk Management and Stress Testing, Audit, Legal and Compliance
The report presents the findings from a hypothetical portfolio test that examines variability in participating banks’ modeling of derivatives and exposure modeling. The focus of the report is the internal models method (IMM) and the advanced credit valuation adjustments (CVA) risk capital charge for over-the-counter (OTC) derivative trades. Part of the Basel Committee’s Regulatory Consistency Assessment Programme (RCAP), the test is intended to deliver consistent implementation of the Basel framework. It also completes the Committee’s review of trading-related internal models and follows two earlier exercises focused on market risk risk-weighted assets (RWAs). The report also touches on the variability of risk-weighted assets outcomes, good practices and identifies areas requiring additional attention from banks and supervisors to help mitigate unwarranted RWA variability. On this point, an important goal of the report is to support the implementation and supervision of counterparty credit risk (CCR) models.4

European Banking Authority (EBA)( ):
Guidelines on how confidential information collected under the BRRD should be disclosed
Publication Date: Oct 27th 2015
Risks Covered: Compliance Risk, Reputation Risk
Business Processes Impacted: Audit, Legal and Compliance, Consumer / Investor Protection
The consultation on draft Guidelines will focus on how to disclose (in summary or in collective form) confidential information collected under the Bank Recovery and Resolution Directive (BRRD) without identifying individual institutions or relevant entities. The purpose of the Guidelines is the promotion of symmetric information and convergence of supervisory and resolution practices pertaining to the disclosure of confidential information.5

European Banking Authority (EBA)(**):
EBA, EIOPA and ESMA consult on anti-money laundering and countering the financing of terrorism
Publication Date: Oct 21st 2015

Risks Covered: Fraud and Financial Crime, Audit, Legal and Compliance, Consumer / Investor Protection
Business Processes Impacted: Clearing and Settlement – Exchange Traded and OTC
Focus of this consultation is on anti-money laundering and countering the financing of terrorism (AML/CFT) Guidelines. These aim to promote a mutual understanding of the risk-based approach to AML/CFT. The consultation also touch on how the Guidelines should be applied by credit and financial institutions and competent authorities across the European Union (EU). The consultation is part of the work done by the Joint Committee to establish consistent and effective risk-based supervisory practices across the EU.6

European Banking Authority (EBA)(**):
EBA publishes work programme for 2016
Publication Date: Oct 16th 2015
Risks Covered: Business Cycle Risk
Business Processes Impacted: Risk Management and Stress Testing
This detailed annual work program for 2016 describes the specific activities and tasks of the European Banking Authority (EBA) for 2016, and a multiannual work program, highlighting key strategic areas of work (from 2016 to 2018). The EBA’s work for 2016 is defined under eight strategic areas and 34 activities. The program also includes the EBA’s objectives for 2016, expected results and main outputs.7

The International Accounting Standards Board (IASB)(***):
Foreign Currency Transactions and Advance Consideration
Publication Date: Oct 21st 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Reporting
The proposed Interpretation of Standards is designed to address diversity in the application of the Standard. The Interpretation addresses elements such as the exchange rate to use for reporting foreign currency transactions when payment is made or received in advance. IAS 21 sets out requirements about which exchange rate to use when recording a foreign currency transaction on initial recognition in an entity’s functional currency. However, the Interpretations Committee observed some diversity in its use during circumstances in which consideration was received or paid in advance of the recognition of the related asset, expense or income.8

Board of Governors of the Federal Reserve System (the Fed)(*):
Revised Interagency Examination Procedures for Regulation P
Publication Date: Oct 5th 2015
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The Task Force on Consumer Compliance of the Federal Financial Institutions Examination Council developed a series of interagency examination procedures for Regulation P—Privacy of Consumer Financial Information. According to Regulation P, financial institution cannot disclose non-public personal information about consumers to non-affiliated third parties, unless the institution satisfies certain notice and opt-out requirements. The regulation also requires a financial institution to provide notice of its privacy policies and practices to its customers. These revised examination procedures replace the Regulation P interagency examination procedures transmitted with CA 11-4.9

FORTHCOMING REGULATION:

European Securities and Markets Authority (ESMA)
2016 ESMA Work Programme
The regulator published its Work Programme for the upcoming year. Throughout 2016, the Joint Committee will continue to give high priority to Consumer Protection and Cross-Sectoral Risk Analysis. The European Supervisory Authorities (ESAs) will continue to carry on with their joint regulatory work in key areas such as packaged retail and insurance-based investment products (PRIIPs) and anti-money laundering (AML). Furthermore, the ESAs will continue to closely monitor legislative and regulatory developments both at European Union and international level, so as to provide appropriate follow-up as required.10

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

Footnotes:

  1. “FDIC Board Adopts Proposed Rule to Increase Deposit Insurance Fund to Statutorily Required Level,” Federal Deposit Insurance Corporation, Press Release, October 22, 2015. Access at: https://www.fdic.gov/news/news/press/2015/pr15082.html
  2. Board of Governors of the Federal Reserve System, Press Release, October 30, 2015. Access at: http://www.federalreserve.gov/newsevents/press/bcreg/20151030a.htm
  3. “Product intervention: New tasks for securities supervision,” BaFin (Federal Financial Supervisory Authority), October 2, 2015. Access at: https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2015/fa_bj_1509_produktintervention_en.html
  4. “Regulatory Consistency Assessment Programme (RCAP) – Report on risk-weighted assets for counterparty credit risk (CCR),” Basel Committee on Banking Supervision, October 2015. Access at: https://www.bis.org/bcbs/publ/d337.htm
  5. “EBA consults on Guidelines on how confidential information collected under the BRRD should be disclosed,” European Banking Authority, October 27, 2015. Access at: http://www.eba.europa.eu/-/eba-consults-on-guidelines-on-how-confidential-information-collected-under-the-brrd-should-be-disclosed
  6. “EBA, EIOPA and ESMA consult on anti-money laundering and countering the financing of terrorism,” European Banking Authority, October 21, 2015. Access at: http://www.eba.europa.eu/-/eba-eiopa-and-esma-consult-on-anti-money-laundering-and-countering-the-financing-of-terrorism
  7. “EBA publishes work programme for 2016, European Banking Authority, October 16, 2015. Access at: http://www.eba.europa.eu/-/eba-publishes-work-programme-for-2016
  8. “Foreign Currency Transactions and Advance Consideration: Draft Interpretation and Comment Letters (DI/2015/2),” International Financial Reporting Standards, October 21, 2015. Access at: http://www.ifrs.org/Current-Projects/IASB-Projects/date-of-transaction-identifying-applicable-exchange-rate-revenue-recognition/Draft-Interpretation-October-2015/Pages/default.aspx
  9. “Revised Interagency Examination Procedures for Regulation P,” Board of Governors of the Federal Reserve System, Consumer Affairs Letter CA 15-7, October 5, 2015. Access at: http://www.federalreserve.gov/bankinforeg/caletters/caltr1507.htm
  10. “2016 Work Programme,” European Securities and Markets Authority, September 29, 2015. Access at: https://www.esma.europa.eu/sites/default/files/library/2015/10/2015-1475_esma_2016_work_programme.pdf

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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