Edition Highlights:

  • The Bank Recovery and Resolution Directive (BRRD) entrusts resolution authorities with a set of tools and powers to intervene in a non-viable institution.
  • The Commodity Futures Trading Commission is clarifying the existing system, safeguards rules for all designated contract markets, swap execution facilities, and swap data repositories by specifying and defining the types of cybersecurity testing essential to fulfilling system safeguards testing obligations, including vulnerability testing, penetration testing, controls testing, security incident response plan testing, and enterprise technology risk assessment.
  • The proposed policy statement from the Board of Governors of the Federal Reserve System describes the framework they would follow in setting the amount of countercyclical capital buffer for US-based credit exposures.

Current coverage period: Through December 31, 2015

Note: Anticipated business impact for covered regulations is shown using the following rating legend:       (*Low) (** Medium) (*** High)

CURRENT REGULATIONS:

Bank of England(***):
The Bank of England’s power to direct institutions to address impediments to resolvability
Publication Date: Dec 11th 2015

Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance
This document presents the regulator’s final policy on how institutions are to address impediments to their resolvability under section 3A of the Banking Act 2009. This Statement of Policy is issued by the Bank of England (Bank), under section 3B(9) of the Banking Act 2009 as amended (Banking Act). It sets out how the Bank expects to use its power to direct a “relevant person” to address impediments to resolvability under section 3A of the Banking Act.1

China Banking Regulatory Commission (CBRC)(*):
The CBRC Issued the Provisional Measures of the CBRC on On-site Examination
Publication Date: Dec 11th 2015

Risks Covered: Compliance Risk
Business Processes Impacted: Finance and Performance Management
Among the major tools of banking supervision we find on-site examination, market entry and off-site surveillance. As banking institutions have faced a more complicated business environment, stronger requirements for on-site examination have been placed on them. The major focus of the measures include: 1) Clearly positioning on-site examination; 2) Maintaining all-around support for on-site examination; 3) Categorizing on-site examinations; 4) Standardizing procedures for project set-up; 5) Diversifying inspection and; 6) Highlighting the disposal of identified problems.2

European Banking Authority (EBA)(**):
Draft Guidelines on stress testing and supervisory stress testing
Publication Date: Dec 18th 2015
Risks Covered: Credit Risk, Liquidity Risk, Operational Risk, Residual Risk
Business Processes Impacted: Funding and Liquidity Management, Risk Management and Stress Testing
The European Banking Authority (EBA) has launched a consultation on its draft Guidelines with the purpose of  converging the practices followed by institutions and competent authorities for stress testing across the European Union. The guidelines direct how institutions are to design and conduct their stress testing program. They also provide guidance with the goal of creating convergence for supervisory stress testing in the context of the supervisory review and evaluation process undertaken by competent authorities in accordance with Article 100 of Directive 2013/36/EU.3

European Banking Authority (EBA)(**):
Final Report: Draft Regulatory Technical Standards and Guidelines on business reorganisation plans under Directive 2014/59/EU (BRRD)
Publication Date: Dec 17th 2015

Risks Covered: Compliance Risk
Business Processes Impacted: Recovery and Resolution Planning
The draft regulatory technical standards (RTS) require a complete and judicious business reorganization plan that identifies and addresses the causes of an institution’s failure and spells out how the affected institution’s long-term viability will be restored. The reorganization strategy should be cautious in nature and take into account the strengths and weaknesses of the institution, as well as its relevant market and the macro-economic situation. The proposed guidelines target both resolution authorities and competent authorities. The authorities should assess the credibility of the business reorganization plan, the appropriateness of the strategy and its alignment with other public policy objectives and rules. The guidelines also include provisions concerning the coordination between the resolution and competent authorities.4

European Banking Authority (EBA)(**):
EBA Report on Net Stable Funding Requirements under Article 510 of the CRR
Publication Date: Dec 17th 2015
Risks Covered: Credit Risk, Liquidity Risk
Business Processes Impacted: Lending and Investment, Funding and Liquidity Management
This report from the European Banking Authority (EBA) assesses the external factors that lead banks to choose enormous levels of short-term wholesale funding and why not all of the costs associated with the  funding of their potential instability were not internalized. To limit the impact of these external factors, a properly designed stable funding requirement (SFR) should aim to reduce the risk of funding instability and asset illiquidity in the balance sheets of the entities. This can be done by reducing the volume of unstable liabilities allowed to fund illiquid or immutable assets and commitments. The Basel net stable funding ratio (NSFR) was developed according to this design principle. It is considered the starting point and benchmark for the final specification and calibration of a stable funding requirement for the European Union.5

European Banking Authority (EBA)(**):
Draft Regulatory Technical Standards on the framework for cooperation and exchange of information between competent authorities for passport notifications, under PSD2
Publication Date: Dec 11th 2015

Risks Covered: Compliance Risk
Business Processes Impacted: Payments
The revised Payment Services Directive (PSD2) requires the coordination, cooperation and exchange of information between the competent authorities of different Member States. Article 28, in particular, envisages that an authorized payment institution wishing to provide services for the first time (in one or more Member States other than its home Member State) shall inform the competent authorities of its home Member State accordingly. The draft requirements specify the information national supervisors will have to exchange with one another. This will help the regulatory technical standards identify the notifications related to branch establishments, the agent’s engagement and the free provision of services. It also provides some specific features pertaining to the notifications, in terms of format, transmission channel and language.6

Commodity Futures Trading Commission (CFTC)(***):
System Safeguards Testing Requirements; Proposed Rules
Publication Date: Dec 18th 2015
Risks Covered: IT Risk, Cybersecurity Risk
Business Processes Impacted: Risk Management and Stress Testing, Information Technology
The Commodity Futures Trading Commission (CFTC) is amending its system safeguards rules pertaining to designated contract markets, swap execution facilities, and swap data repositories. This can be done by enhancing and clarifying current provisions pertaining to: system safeguards risk analysis; oversight and cybersecurity testing; and adding new provisions concerning certain aspects of cybersecurity testing.7

Board of Governors of the Federal Reserve System (the Fed)(**):
Regulatory Capital Rules: The Federal Reserve Board’s Framework for Implementing the U.S. Basel III Countercyclical Capital Buffer
Publication Date: Dec 21st 2015
Risks Covered: Credit Risk
Business Processes Impacted: Risk Management and Stress Testing, Capital Adequacy and Capital Planning
The Board of Governors of the Federal Reserve System (Board) is inviting public comment on its policy statement on the framework it will follow in setting the amount of the US countercyclical capital buffer for advanced approaches bank holding companies, savings and loan holding companies, and state member banks under their Regulation Q. In June 2013 the Board issued a final regulatory capital rule (Regulation Q) in coordination with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to strengthen risk-based and leverage capital requirements applicable to insured depository institutions and certain depository institution holding companies (banking organizations). Among the changes Regulation Q introduced was the institution of a countercyclical capital buffer (CCyB) for large, internationally active banking organizations.8

Board of Governors of the Federal Reserve System (the Fed)(***):
Federal Reserve Guidance on Supervisory Assessment of Capital Planning and Positions for LISCC Firms and Large and Complex Firms
Publication Date: Dec 21st 2015
Risks Covered: Credit Risk, Market Risk, Operational Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Risk Management and Stress Testing
This guidance provides the Federal Reserve’s core capital planning expectations for firms subject to the Large Institution Supervision Coordinating Committee (LISCC). Designed to materially increase the financial and operational resiliency of systemically important financial institutions, the LISCC framework aims to reduce the probability of, and cost associated with, the institutions’ material financial distress or failure. This guidance also outlines capital planning expectations. It should be noted that these expectations build upon the capital planning requirements set forth in the regulator’s capital plan rule and stress test rules (12 CFR 225.8; 12 CFR 252, subparts E and F).9

Board of Governors of the Federal Reserve System (the Fed)(***):
Federal Reserve Guidance on Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms
Publication Date: Dec 21st 2015
Risks Covered: Credit Risk, Market Risk, Operational Risk
Business Processes Impacted: Capital Adequacy and Capital Planning, Risk Management and Stress Testing
This guidance provides the Federal Reserve’s (Fed’s) core capital planning expectations for Large and Noncomplex firms, building upon the capital planning requirements included in the Fed’s capital plan rule and stress test rules.10

Prudential Regulation Authority (PRA)(**):
The UK leverage ratio framework
Publication Date: Dec 7th 2015
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance, Capital Adequacy and Capital Planning
This supervisory statement (SS) targets Capital Requirements Regulation (CRR) firms in scope of the UK leverage ratio framework. Its purpose is to set out the expectations of the Prudential Regulatory Authority (PRA) on leverage ratio buffers, the reporting and disclosure of an averaged leverage ratio, and to provide clarification on the PRA rules. The statement should be read alongside the Leverage Ratio, Reporting Leverage Ratio and Public Disclosure Parts of the PRA Rulebook. It also complements the PRA’s rules concerning the implementation of the Financial Policy Committee’s Direction and Recommendation with regard to a UK leverage ratio framework.11

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

References:

  1. “The Bank of England’s power to direct institutions to address impediments to resolvability,” Bank of England, December 2015. Access at: http://www.bankofengland.co.uk/financialstability/Documents/resolution/barriersresolvabilitydec15.pdf
  1. “The CBRC Issued the Provisional Measures of the CBRC on On-site Examination,” The China Banking Regulatory Commission. Access at: http://www.cbrc.gov.cn/EngdocView.do?docID=3C86C93BB56A43CC8CE8621F69B36ABE
  1. “Draft Guidelines on stress testing and supervisory stress testing,” Consultation Paper, European Banking Authority, December 18, 2015. Access at: http://www.eba.europa.eu/documents/10180/1314203/EBA-CP-2015-28+%28%20CP+on+the+GL+on+stress+testing+and+supervisory+stress+testing%29.pdf
  1. “Draft Regulatory Technical Standards and Guidelines on business reorganization plans under Directive 2014/59/EU (BRRD),” Final Report, European Banking Authority, December 17, 2015. Access at: http://www.eba.europa.eu/documents/10180/1312804/EBA-RTS-2015-12+RTS+and+EBA-GL-2015-21+GLs+on+Business+Reorganisation+Plans.pdf
  1. “On Net Stable Funding Requirements under Article 510 of the CRR,” EBA Report, European Banking Authority, December 15, 2015. Access at: http://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-22+NSFR+Report.pdf
  1. “Draft Regulatory Technical Standards on the framework for cooperation and exchange of the information between competent authorities for passport notifications, under PSD2,” Consultation Paper, European Banking Authority, December 11, 2015. Access at: http://www.eba.europa.eu/documents/10180/1306972/EBA+CP+2015+25+%28CP+on+RTS+on+Passporting+Notifications%29.pdf\
  1. “System Safeguards Testing Requirements,” Commodity Futures Trading Commission, 17 CFR Parts 37, 38 and 49. Access at: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2015-32143a.pdf
  1. “Regulatory Capital Rules: The Federal Reserve Board’s Framework for Implementing the U.S. Basel III Countercyclical Capital Buffer,” Board of Governors of the Federal Reserve System, 12 CFR Part 217, Appendix A. Access at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151221b1.pdf
  1. “Federal Reserve Guidance on Supervisory Assessment of Capital Planning and Positions for LISCC Firms and Large and Complex Firms,” Board of Governors of the Federal Reserve System, Attachment SR 15-18, December 18, 2015. Access at: http://www.federalreserve.gov/bankinforeg/srletters/sr1518a1.pdf
  1. “Federal Reserve Guidance on Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms,” Board of Governors of the Federal Reserve System, Attachment SR 15-19, December 18, 2015. Access at: http://www.federalreserve.gov/bankinforeg/srletters/sr1519a1.pdf
  1. “The PRA’s intended implementation approach to FPC Directions on loan to value and debt to income ratio limits,” Prudential Regulation Authority. Access at: http://www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss4515.pdf

About the Monthly Regulatory Tracker

The tracker 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.

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