Edition Highlights:

  • This Financial Conduct Authority guidance is for firms outsourcing to the “cloud” and other third-party IT services and is intended to help firms effectively oversee aspects of their outsourcing arrangement life cycle.
  • The European Banking Authority Guidelines on the treatment of Credit Valuation Adjustment (CVA) risk under the supervisory review and evaluation process (SREP), establish a proportionate approach to determining whether institutions are exposed to a material CVA risk and to assess how an institution manages such risk and reflects it in their own funds requirements.
  • The Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau are publishing final rules and commentary on their regulations pertaining to the implementation of the Consumer Leasing Act (CLA).
  • The Basel Committee on Banking Supervision proposes that internationally active banks be required to deduct their net total loss-absorbing capacity holdings that do not otherwise qualify as Basel III capital from their own Tier 2 capital.

Current coverage period: Through November 31, 2015

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

CURRENT REGULATIONS:

Financial Conduct Authority (FCA)(**):
Proposed guidance for firms outsourcing to the ‘cloud’ and other third-party IT services
Publication Date: Nov 12th 2015

Risks Covered: Compliance Risk, IT Risk, Operational Risk, Third Party / Vendor Risk, Cybersecurity Risk

Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
In October 2014, the Financial Conduct Authority (FCA) introduced Project Innovate with a focus on fostering innovation in financial services. The FCA has as an objective the promotion of effective competition. A driver of effective competition is innovation, and the FCA supports innovation and using regulation to unlock its benefits, rather than block them. The proposed FCA guidance identifies areas where the regulatory framework should be adapted to enable further innovation in the interests of consumers.1

European Banking Authority (EBA) (*):
EBA report on banks’ transparency in their 2014 Pillar 3 reports
Publication Date: Nov 27th 2015

Risks Covered: Compliance Risk, Credit Risk, Market Risk, Operational Risk

Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
This European Banking Authority report assesses the compliance of institutions’ disclosures in their 2014 annual Pillar 3 disclosure reports with the disclosure requirements in Part Eight of Regulation (EU) 575/2013 (the Capital Requirements Regulation – CRR). The CRR forms the European Union’s implementation of the Basel Pillar 3 disclosure framework and the assessment sample is based upon 17 European institutions.2

European Banking Authority (EBA)(***):
Guidelines on the treatment of CVA risk under the supervisory review and evaluation process (SREP)
Publication Date: Nov 12th 2015

Risks Covered: Compliance Risk, Credit Risk, Market Risk, Operational Risk

Business Processes Impacted: Audit, Legal and Compliance, Funding and Liquidity Management, Risk Management & Stress Testing
These European Banking Authority Guidelines provide a common European approach to: assessing the materiality of Credit Valuation Adjustment (CVA) risk; its assessment under the supervisory review and evaluation process (SREP); and determining additional own funds requirements (where the risk is not adequately covered by the minimum own funds requirements).3

Board of Governors of the Federal Reserve System (the Fed), Consumer Financial Protection Bureau (CFPB) (*):
Truth in Lending (Regulation Z)
Publication Date: Nov 25th 2015

Risks Covered: Compliance Risk, Credit Risk

Business Processes Impacted: Audit, Legal and Compliance, Consumer / Investor Protection
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Consumer Leasing Act (CLA) by requiring that the dollar threshold for exempt consumer leases be adjusted annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W). In cases where there is no annual percentage increase in the CPI–W, the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau will not adjust this exemption threshold from the prior year. Based on the annual percentage decrease in the CPI–W as of June 1, 2015, the exemption threshold remains at $54,600 through December 31, 2016.4

Board of Governors of the Federal Reserve System (the Fed)(***):
Liquidity Coverage Ratio: Public Disclosure Requirements; Extension of Compliance Period for Certain Companies to Meet the Liquidity Coverage Ratio Requirements
Publication Date: Nov 24th 2015
Risks Covered: Liquidity Risk, Operational Risk, Compliance Risk

Business Processes Impacted: Consumer / Investor Protection, Funding and Liquidity Management, Risk Management and Stress Testing
The Board of Governors of the Federal Reserve System is inviting public comment on a proposed rule for implementing public disclosure requirements on the liquidity coverage ratio (LCR) of large, internationally active banking organizations as well as certain smaller, less complex banking organizations. This would apply to all depository institution holding companies and covered non-bank companies that are required to calculate their LCR (covered companies) under 12 CFR part 249.5

Commodity Futures Trading Commission (CFTC)(***):
Regulation Automated Trading
Publication Date: Nov 24th 2015

Risks Covered: Compliance Risk

Business Processes Impacted: Audit, Legal and Compliance, Trading
The Commodity Futures Trading Commission (CFTC) is proposing a series of risk controls, transparency measures, and other safeguards to strengthen the regulatory regime for automated trading on US-designated contract markets (collectively, Regulation AT). The CFTC’s proposals build upon the efforts of numerous other entities to promote best practices and regulatory standards for automated trading. This includes standards and best practices for algorithmic trading systems, electronic trade matching engines, and new connectivity methods.6

Financial Stability Board (FSB)(*):
Guiding principles on the temporary funding needed to support the orderly resolution of a global systemically important bank (“G-SIB”)
Publication Date: Nov 3rd 2015
Risks Covered: Liquidity Risk, Operational Risk

Business Processes Impacted: Funding and Liquidity Management, Recovery and Resolution Planning, Risk Management and Stress Testing
The Financial Stability Board (FSB) is inviting comments on its Consultative Document on Funding in Resolution: Guiding principles on the temporary funding needed to support the orderly resolution of a global systemically important bank (G-SIB).7

Bank for International Settlements (BIS) (***):
Basel Committee on Banking Supervision – Consultative Document – TLAC Holdings
Publication Date: Nov 1st 2015
Risks Covered: Liquidity Risk, Market Risk, Operational Risk

Business Processes Impacted: Funding and Liquidity Management, Risk Management and Stress Testing
The Basel Committee on Banking Supervision (BCBS) considered extending the Basel III corresponding deduction approach to holdings of total loss-absorbing capacity (TLAC). This would require global systemically important banks (G-SIBs) to deduct their investments in TLAC from their own TLAC resources. It should be noted that such an approach does not work well for non-G-SIBs, as they are not subject to the TLAC regime and so may not have sufficient TLAC resources from which to apply the deductions. Consequently, the BCBS proposes that all banks be required to treat their TLAC holdings as investments in Tier 2 capital for the purposes of the deduction rules.8

Bank for International Settlements (BIS)(**):
Committee on Payments and Market Infrastructures – Digital currencies
Publication Date: Nov 1st 2015
Risks Covered: Interest Rate Risk (non-trading book), Third Party / Vendor Risk

Business Processes Impacted: Consumer / Investor Protection, Information Technology, Research and Marketing
Central banks usually take an interest in retail payments as part of their role in maintaining the stability and efficiency of the financial system and preserving confidence in their currencies. As innovations in retail payments can significantly impact safety and efficiency, many central banks monitor these developments. The emergence of “digital currencies” was noted in recent reports by the Committee on Payments and Market Infrastructures (CPMI) on innovations and non-banks in retail payments. Consequently, a subgroup was formed within the CPMI Working Group on Retail Payments to conduct an analysis of such “currencies” and prepare a report for the Committee.9

FORTHCOMING REGULATIONS:

European Central Bank (ECB)
Financial Stability Review – November
The Financial Stability Review has as a focus assessing developments relevant to financial stability and identifying, prioritizing main risks and vulnerabilities for the European financial sector. This is to promote awareness of these risks among policy-makers, the financial services industry and the public at large. The ultimate goal being the promotion of financial stability.10

European Banking Authority (EBA)
Risk Dashboard – Q3 2015 (Data as of Q2 2015)
According to the report, European Union banks’ capital ratios have increased. The quality of their loan portfolios slightly improved, but remains weak on average. The coverage ratio stopped its declining trend and has reached a new height with a ratio of 47.4% vs. 46.9% in June 2014. The weighted average ratio of impaired financial assets to total assets remained at a long time low of 1.8%. And while profitability remains subdued, it did increase compared to last year while the loan-to-deposit ratio has been stable.11

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

References:

  1. “Proposed guidance for firms outsourcing to the ‘cloud’ and other third-party IT services,” Guidance consultation 15/6, Financial Conduct Authority, November 2015. Access at:
    Proposed guidance for firms outsourcing to the ‘cloud’ and other third-party IT services
  2. “EBA Report on Banks’ Transparency in their 2014 Pillar 3 Reports,” European Banking Authority. Access at: EBA report on banks’ transparency in their 2014 Pillar 3 reports
  3. “Guidelines on the treatment of CVA risk under the supervisory review and evaluation process (SREP),” Consultation Paper, European Banking Authority, November 12, 2015. Access at European Banking Authority :
    Guidelines on the treatment of CVA risk under the supervisory review and evaluation process (SREP)
  4. “Truth in Lending – Regulation Z,” Board of Governors of the Federal Reserve System and Consumer Financial Protection Bureau, November 27, 2015. Access at: Truth in Lending (Regulation Z)
  5. “Liquidity Coverage Ratio: Public Disclosure Requirements; Extension of Compliance Period for Certain Companies to Meet the Liquidity Coverage Ratio Requirements,” Board of Governors of the Federal Reserve System. Access at:
    Liquidity Coverage Ratio: Public Disclosure Requirements; Extension of Compliance Period for Certain Companies to Meet the Liquidity Coverage Ratio Requirements

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

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