Edition Highlights:

  • Important progress in artificial intelligence software has sparked great interest from the investment industry for its advisory potential.
  • The Prudential Regulation Authority consultation paper presents its proposal for rules to transpose the Markets in Financial Instruments Directive (MiFID II) legislative package.
  • An interagency guidance states that general purpose prepaid cards should be treated as an account if it provides bank customers with the ability to reload funds or access to credit or overdraft features.

Current coverage period: Through March 31, 2016

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

 

CURRENT REGULATIONS:

Australian Prudential Regulation Authority (APRA)(*):
Consultation paper on Basel III liquidity — the net stable funding ratio and the liquid assets requirement for foreign ADIs
Publication Date: Mar 31st 2016

Risks Covered: Liquidity Risk, Compliance Risk

Business Processes Impacted: Risk Management and Stress Testing, Reporting
This discussion paper from the Australian Prudential Regulation Authority (APRA) presents the regulator’s proposed approach to implementing the Net Stable Funding Ratio (NSFR) for authorized deposit-taking institutions (ADIs). The document also sets out two alternative proposals for the liquid assets requirement for foreign ADIs.1

 

European Central Bank (ECB)(**):
Final rule (EU) 2016/457 of the European Central Bank of 16 March 2016 on the eligibility of marketable debt instruments issued or fully guaranteed by the Republic of Cyprus (ECB/2016/5)
Publication Date: Mar 16th 2016

Risks Covered: Compliance Risk, Credit Risk

Business Processes Impacted: Audit, Legal and Compliance, Lending and Investment
The European Central Bank (ECB) along with the national central banks of member states whose currency is the euro, may conduct credit operations, with lending being based on adequate collateral, with credit institutions and other market participants. The standard criteria and minimum credit quality requirements to be used for determining the eligibility of marketable assets as collateral (for the purposes of Eurosystem monetary policy operations) appear in Guideline (EU) 2015/510 (ECB/2014/60) and more specifically in Article 59 and in Part Four, Title II.2

 

European Banking Authority (EBA)(*):

Proposed rule seeks input at national level on FINREP and GAAP
Publication Date: Mar 23rd 2016

Risks Covered: Compliance Risk, Operational Risk

Business Processes Impacted: Reporting, Audit, Legal and Compliance
The update process of the FINREP GAAP (financial reporting, Generally Accepted Accounting Principles) templates currently in use by institutions across the European Union (EU) has identified specific issues linked to national accounting frameworks across the EU. The EBA is now seeking the input from all those EU institutions that report financial information to their competent authorities through the FINREP framework and on the basis of national GAAP practices.3

 

Bank for International Settlements (BIS)(*):
Proposed rule: Standardised measurement approach for operational risk
Publication Date: Mar 4th 2016

Risks Covered: Compliance Risk, Operational Risk

Business Processes Impacted: Reporting, Audit, Legal and Compliance
A recent review of measures related to banks’ operational risk modeling practices and capital outcomes indicates that the Basel Committee on Banking Supervision’s (BCBS’s) expectations failed to occur. Supervisory experience with Advanced Measurement Approaches (AMA) has been mixed. The complexity of the AMA and the lack of comparability have heightened the variability in risk-weighted asset calculations and reduced confidence in risk-weighted capital ratios. Consequently, the BCBS has determined that the withdrawal of internal modeling approaches for operational risk regulatory capital from the Basel Framework is warranted.4

 

Institute of International Finance (IIF)(*):
Digitizing intelligence: AI, robots and the future of finance
Publication Date: Mar 3rd 2016
Risks Covered: IT Risk, Strategic Risk

Business Processes Impacted: Information Technology, Portfolio Advisory and Management
A common perspective shared by many industry analysts is that a sophisticated trading machine capable of learning and thinking will make today’s most sophisticated and complex investment algorithms look archaic. Some are even of the opinion that many current fund manager positions will become redundant in the near future.5

 

Prudential Regulation Authority (PRA)(*):
Consultation paper: CP9/16 – Implementation of MiFID II: Part 1
Publication Date: Mar 24th 2016

Risks Covered: Compliance Risk, Operational Risk

Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
This Prudential Regulation Authority (PRA) consultation paper presents its proposals for rules to transpose the Markets in Financial Instruments Directive (MiFID II) legislative package. This includes the Directive, MiFID II (2014/65/EU) and the Markets in Financial Instruments Regulation (2014/600/EU) (MiFIR).6

 

Board of Governors of the Federal Reserve System (the Fed)(**):
Interagency guidance to issuing banks on applying customer identification program requirements to holders of prepaid access cards
Publication Date: Mar 21st 2016
Risks Covered: Operational Risk, Conduct Risk

Business Processes Impacted: Fraud and Financial Crime, KYC
The Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the US Department of Treasury’s Financial Crimes Enforcement Network issued an interagency guidance confirming that a bank’s Customer Identification Program (CIP) should apply to cardholders of general purpose prepaid cards that have the features of an account and are issued by a bank.7

 

Board of Governors of the Federal Reserve System (the Fed)(*):

Proposed rule on single-counterparty credit limits for large banking organizations
Publication Date: Mar 4th 2016
Risks Covered: Liquidity Risk, Counterparty Credit Risk

Business Processes Impacted: Netting and Collateral Management
The proposed rules would implement section 165(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Board to impose limits on the amount of credit exposure that such a domestic or foreign bank holding company can have to an unaffiliated company in order to reduce the risks arising from the company’s failure. The proposed rules, which build on earlier proposed rules by the Board to establish single-counterparty credit limits for large domestic and foreign banking organizations, would increase in stringency based on the systemic importance of the firms to which they apply.8

 

Commodity Futures Trading Commission (CFTC)(**):
Final rule on comparability determination for the European Union: Dually-registered derivatives clearing organizations and central counterparties
Publication Date: Mar 22nd 2016
Risks Covered: Counterparty Credit Risk, Credit Risk, Liquidity Risk, Market Risk

Business Processes Impacted: Clearing and Settlement – Exchange Traded and OTC, Recovery & Resolution planning
The Commodity Futures Trading Commission (CFTC) has determined that certain laws and regulations that apply in the European Union (EU) provide a basis for comparability with respect to certain regulatory obligations concerning derivatives clearing organizations (DCOs) registered with the CFTC and authorized to operate as central counterparties (CCPs) in the EU. 9

 

Federal Deposit Insurance Corporation (FDIC)(*):
FDIC Board adopts final rule to increase deposit insurance fund to statutorily required level
Publication Date: Mar 15th 2016
Risks Covered: Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance, Funding and Liquidity Management
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Deposit Insurance Corporation’s (FDIC’s) authority under section 7 of the Federal Deposit Insurance Act, the FDIC is imposing a surcharge on the quarterly assessments of insured depository institutions with $10 billion or more in total consolidated assets. The surcharge would be (equal to an annual rate of 4.5 basis points) applied to the institution’s assessment base (with certain adjustments). If the Deposit Insurance Fund reserve ratio reaches 1.15 percent before July 1, 2016, surcharges will begin July 1, 2016. If the reserve ratio is less than 1.15 percent by that date, surcharges will begin the first day of the calendar quarter after the reserve ratio reaches 1.15 percent.10

 

FORTHCOMING REGULATIONS:

International Organization of Securities Commissions (IOSCO)
Securities Markets Risk Outlook 2016
The Outlook identifies and examines, in depth, four potential risk areas. Those risk areas are (1) corporate bond market liquidity; (2) risks associated with the use of collateral in financial transactions; (3) harmful conduct in relation to retail financial products and services; and (4) cyber threats. Additionally, given the current debates and global regulatory work underway, even though it is not seen as a risk area, this report also discusses issues around the asset management industry.11

 

Financial Action Task Force (FATF)
Annual Report 2014-2015
The sudden rise of the terrorist organisation Islamic State in Iraq and the Levant (ISIL) to a powerful organisation, capable of terror and destruction at an almost unprecedented scale has escalated the fight against terrorism and terrorist financing to an urgent global priority. The Financial Action Task Force (FATF) first expressed its concern about these recent developments in October 2014. Given the heightened risks of terrorism, there is an urgent need for countries to fully and effectively implement the FATF standards to combat terrorist financing.12

 

Bank of England
The Bank of England’s supervision of financial market infrastructures — Annual Report
The Bank of England’s role as supervisor is to ensure that financial market infrastructures (FMIs) are managed in a manner that is consistent with the public interest including reducing systemic risk. The Bank’s supervision is risk-based and forward-looking, and takes place within the framework of applicable legal regimes and internationally agreed regulatory standards.13

 

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

 

References:

  1. “Basel III liquidity – the net stable funding ratio and the liquid assets requirement for foreign ADIs,” Australian Prudential Regulation Authority, Discussion Paper, March 31, 2016. Access at:
    Consultation paper on Basel III liquidity — the net stable funding ratio and the liquid assets requirement for foreign ADIs
  2. “Decision (EU) 2016/457 of the European Central Bank of 16 March 2016 on the eligibility of marketable debt instruments issued or fully guaranteed by the Republic of Cyprus (ECB/2016/5),” Official Journal of the European Union, March 30 2016. Access at:
    Final rule (EU) 2016/457 of the European Central Bank of 16 March 2016 on the eligibility of marketable debt instruments issued or fully guaranteed by the Republic of Cyprus (ECB/2016/5)
  3. “EBA seeks input at national level on FINREP and GAAP,” European Banking Authority, March 23, 2016. Access at: https://www.eba.europa.eu/-/eba-seeks-input-at-national-level-on-finrep-and-gaap
  1. “Standardised Measurement Approach for operational risk,” Basel Committee on Banking Supervision, Consultative Document, March 2016. Access at:
    Proposed rule: Standardised measurement approach for operational risk
  2. “Digitizing Intelligence: AI, Robots and the Future of Finance,” Institute of International Finance, March 3, 2016. Access at: Digitizing intelligence: AI, robots and the future of finance
  3. “Implementation of MiFID II: Part 1,” Prudential Regulation Authority, Consultation Paper, CP9/16, March 2016. Access at: Consultation paper: CP9/16 – Implementation of MiFID II: Part 1
  4. “Interagency Guidance to Issuing Banks on Applying Customer Identification Program Requirements to Holders of Prepaid Access Cards,” Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, US Department of Treasury’s Financial Crimes Enforcement Network, March 21, 2016. Access at:
    Interagency guidance to issuing banks on applying customer identification program requirements to holders of prepaid access cards
  5. “Single-Counterparty Credit Limits for Large Banking Organizations,” Federal Reserve System, March 16, 2016. Access at: https://www.gpo.gov/fdsys/pkg/FR-2016-03-16/pdf/2016-05386.pdf
  1. “Comparability Determination for the European Union: Dually-Registered Derivatives Clearing Organizations and Central Counterparties,” Commodity Futures Trading Commission, March 22, 2016. Access at:
    Final rule on comparability determination for the European Union: Dually-registered derivatives clearing organizations and central counterparties
  2. “Final Rule,” Federal Deposit Insurance Corporation. Access at:
    FDIC Board adopts final rule to increase deposit insurance fund to statutorily required level
  1. “Securities Markets Risk Outlook,” OICU-IOSCO, March 2016. Access at: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD527.pdf
  1. “Annual Report 2014-2015,” FATF. Access at: http://www.fatf-gafi.org/media/fatf/documents/reports/Annual-report-2014-2015.pdf
  1. “The Bank of England’s supervision of financial market infrastructures – Annual Report,” Bank of England, March 2016. Access at: http://www.bankofengland.co.uk/publications/Documents/fmi/annualreport2016.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.

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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