· BANKS NEWSLETTER NOVEMBER 2015 . several reports rel ENTERPRISE RISK SOLUTIONS Regulatory Insight . Key Developments at a Glance . The Basel Committee on Banking Supervision (BCBS

BANKS NEWSLETTER

NOVEMBER 2015

ENTERPRISE RISK SOLUTIONS

Regulatory Insight

Key Developments at a Glance The Basel Committee on Banking Supervision (BCBS) published the results of its interim impact analysis of its fundamental review of the trading book (FRTB). The Basel Committee published several reports related to Total Loss Absorbing Capacity (TLAC). The G20 received reports from the BCBS on finalizing post-crisis reforms and the Implementation of Basel standards. The BCBS issued a consultative document on the capital treatment of Simple, Transparent, and Comparable Securitizations.

In conjunction with the Financial Stability Board (FSB), the BCBS updated its list of Globally Systemically Important Banks (G-SIBs). The FSB proposed a Regulatory framework for haircuts on non-centrally cleared securities financing transactions. The FSB issued reports describing the progress made in implementing OTC derivatives market reforms and highlighting where further work is needed. “Standards and Processes for Global Securities Financing Data Collection and Aggregation” was published by the FSB. The FSB published several reports on transforming shadow banking into resilient market-based finance and commented on the extension of the industry initiative to promote orderly cross-border resolution of G-SIBs.

The Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) issued a progress report.

KEY DEVELOPMENTS PER REGION

> EUROPE: The European Banking Authority (EBA) announced details of 2016 EU-wide stress tests and proposed guidelines on stress tests for deposit guarantee schemes (DGSs). The EBA provided an assessment of banks Pillar 3 reports for 2015 and published a Single Q&A rulebook. Several reports on remuneration practices in the EU were issued by the EBA. The EBA issued a public consultation on the treatment of credit value adjustment (CVA) risk.

The European Central Bank (ECB) published its twice yearly Financial Stability Review and developed a webpage on Analytic Credit Datasets (“AnaCredit”). The ECB released a survey on national practices regarding Monetary Financial Institution Balance Sheets Items statistics.

> MIDDLE EAST AND AFRICA: The FSB published peer reviews of Saudi Arabia and Turkey.

> AMERICAS: The US Federal Reserve (Fed) approved a final rule to modify its capital plan and stress testing rules that take effect in the 2016 capital plan and stress testing cycle. The Fed invited comments on its proposed rules for public disclosure of Liquidity Coverage Ratios (LCRs) of select institutions. The Fed approved final rules on several Liquidity Monitoring Reports. The Fed proposed several rules for G-SIB and large Bank Holding Company TLAC and Long Term Debt.

The US FDIC issued a final rule that revises certain provisions of its securitization safe harbor rule and the Federal Housing Finance Association adopted final rules on stress testing.

> ASIA PACIFIC: Australia’s APRA proposed revisions to its prudential framework for securitizations. The Hong Kong Monetary Authority (HKMA) updated its Supervisory Policy Manual, specifically updating its exposure to connected parties statutory guidelines.

Managing Editor Pierre-Etienne Chabanel Managing Director, Regulatory & Compliance Solutions

Contact Us Americas +1.212.553.1653 [email protected]

Europe +44.20.7772.5454 [email protected]

Asia-Pacific (Excluding Japan) +85.2.3551.3077 [email protected]

Japan +81.3.5408.4100 [email protected]

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2 NOVEMBER 2015

Table of Contents

International 3

Europe 20 European Union 20 Finland 29 Netherlands 30 Switzerland 30 United Kingdom 31

Middle East & Africa 32 Bahrain 32 Saudi Arabia 33 South Africa 33 Turkey 34

Americas 35 United States of America 35 Mexico 44

Asia Pacific 44 Australia 44 China 45 Hong Kong 45

Glossary 46


3 NOVEMBER 2015

International

Key Developments

Implementation Monitoring of PFMI: Assessment and Review of Application of Responsibilities for Authorities

- CPMI

November30 , 2015

Type of Information: Report

The CPMI and IOSCO published a report presenting the findings of the their assessment of the completeness and consistency of frameworks and outcomes arising from jurisdictions' implementation of the responsibilities for authorities in the principles for financial market infrastructures (PFMI).

The assessments covered implementation of the responsibilities across all financial market infrastructure (FMI) types in 28 participating jurisdictions. The work on the responsibilities was performed as a peer review during 2015 and the assessment ratings for each jurisdiction reflect the implementation measures in place as at January 09, 2015; other measures implemented after this date, or other material developments, are noted where relevant but were not considered when assigning ratings of observance.

Overall, the assessment revealed that a majority of the jurisdictions had achieved a high level of observance of the responsibilities. Of the 28 jurisdictions assessed, 16 fully observed the five responsibilities for all FMI types; an additional two jurisdictions either fully or broadly observed each of the five responsibilities for all FMI types. With respect to specific FMI types, jurisdictions most frequently fell short of a fully observed rating in the case of trade repositories.

With respect to specific responsibilities, considerable variability was observed in implementation measures for the responsibility on cooperation with other authorities. This was partly because many cooperative arrangements are new, but may in some cases also reflect different interpretations, among authorities, of the expectations in this area. CPMI and IOSCO will review the responsibilities in light of the findings of this assessment and consider the need for additional guidance. Further, as jurisdictions gain greater experience with cooperative arrangements, particularly cross-border arrangements for central counterparties (CCPs) and trade repositories, CPMI and IOSCO expect to consider new developments as part of a follow-up exercise to this report.

Links: Press Release Keywords: Monitoring, PFMI

Consultation for Guidance on Cyber Resilience for Financial Market Infrastructures

- CPMI/IOSCO

November24 , 2015

Type of Information: Guideline

The CPMI and IOSCO released the consultative paper offering guidance on cyber resilience for FMIs.

This consultative document provides principles-based guidance for FMIs to enhance their cyber resilience, cognizant of the dynamic nature of cyber threats and the importance of interconnected entities for the resilience of individual FMIs. This guidance also recognizes some of the unique challenges that cyber risk presents to FMIs' traditional operational risk management frameworks, such as the need for a fast and safe resumption of core services following a cyber-attack. In doing so, it does not aim to introduce new standards but rather to elaborate on the principles that are already established in the PFMI.

Comments on this report should be submitted by February 23, 2016.

Link: Press Release Keywords: Cyber Resilience, FMI

Making Supervisory Stress Tests More Macro-Prudential: Considering Liquidity and Solvency Interactions and Systemic Risk

- BCBS

November24 , 2015

Type of Information: Research

BCBS published a working paper on making supervisory stress tests more macro-prudential while considering liquidity and solvency interactions and systemic risk.

The paper offers several approaches to incorporating liquidity effects and their interactions with solvency that differ in their level of comprehensiveness and sophistication. In particular, the paper offers contributions to the following major areas:

» Micro stress tests provide a basis for developing and enriching stress tests by considering channels in addition to the standard credit channel, through which shocks can be transmitted.

» An analysis of estimated interactions between liquidity and solvency risks, using both regulatory and market-based measures, at the micro level, helps improve stress testing models for individual banks.

» The third layer—network analysis and agent-based models—proves useful for broadening stress tests, as these models consider contagion through common exposure, interbank funding relationships, and the endogenous behavior of banks.

Links: Press Release, Working Paper Keywords: Macro-Prudential Policy, MPST, Systemic Risk, Stress Testing

http://www.bis.org/cpmi/publ/d139.htm

https://www.bis.org/press/p151124.htm

http://www.bis.org/bcbs/publ/wp29.htm

http://www.bis.org/bcbs/publ/wp29.pdf


4 NOVEMBER 2015

Learnings from Macro-Prudential Policies, A Speech by Claudio Borio, Head of the Monetary and Economic Department of the BIS

- BIS

November24 , 2015

Type of Information: Speech

Following the crisis, macro-prudential frameworks have become an essential pillar of financial stability policies. This presentation, by Claudio Borio, Head of the Monetary and Economic Department of the BIS, addresses the implications of the financial cycle for their design, including objectives, instruments, and governance as well as, more specifically, the strengths and limitations of macro-stress tests and network analysis.

Mr. Borio highlights the areas where the scope for further work is greatest, including international coordination, the role of non-banks, and sovereign risk. Addressing financial stability is a task that requires the active support of other policies, including monetary and fiscal policy. Macro-prudential frameworks must be part of the answer, but cannot be the whole answer.

Links: Speech Overview, Presentation Document Keywords: Macro-Prudential Policy, MPST, Systemic Risk, Stress Testing

Digital Currencies

- CPMI

November23 , 2015

Type of Information: Technology

Digital currencies, especially those that have an embedded decentralized transfer mechanism based on the use of a distributed ledger, are an innovation that could have a range of impacts on various aspects of financial markets and the wider economy. These could include potential disruption to business models and systems as well as facilitating new economic interactions and linkages.

Currently, such schemes are not widely used or accepted and they face a series of challenges that could limit their future growth. However, some digital currency schemes have demonstrated that their underlying technology could feasibly be used for peer-to-peer transactions in the absence of a trusted third party. Such technology may have the potential to improve some aspects of the efficiency of payment services and FMIs in general. In particular, these improvements might arise in circumstances where intermediation through a central party is not currently cost-effective.

This report considers the possible implications of interest to central banks arising from these innovations.

Link: Press Release Keywords: Digital Currencies, Distributed Ledger, FMI

Interim Impact Analysis of the Fundamental Review of the Trading Book

- BCBS

November18 , 2015


BCBS published the results of interim impact analysis of its fundamental review of the trading book (FRTB). The report assesses the impact of proposed revisions to the market risk framework set out in the two consultative documents that were published in October 2013 and December 2014. Further revisions to the market risk rules have since been made, and the Committee expects to finalize the standard by year-end.

The analysis was based on a sample of 44 banks that provided usable data for the study and assumed that the proposed market risk framework was fully in force as of December 31, 2014. It shows that the change in market risk capital charges would produce a 4.7% increase in the overall Basel III minimum capital requirement. When the bank with the largest value of market risk-weighted assets is excluded from the sample, the change in total market risk capital charges leads to a 2.3% increase in overall Basel III minimum regulatory capital.

Compared with the current market risk framework, the proposed standard would result in a weighted average increase of 74% in aggregate market risk capital. When measured as a simple average, the increase in the total market risk capital requirement is 41%. For the median bank in the same sample, the capital increase is 18%.

Compared with the current internally modeled approaches for market risk, the capital requirement under the proposed internally modeled approaches would result in an increase of 54%. For the median bank, it would be 13% higher.

Compared with the current standardized approach for market risk, the capital requirement under the proposed standardized approach is 128% higher. For the median bank, it is 51% higher.

Link: Press Release Keywords: Basel IV, FRTB

http://www.bis.org/speeches/sp151124.htm

http://www.bis.org/speeches/sp151124_slides.pdf


http://www.bis.org/bcbs/publ/d346.htm


5 NOVEMBER 2015

Standards and Processes for Global Securities Financing Data Collection and Aggregation

- FSB

November18 , 2015


The FSB published its report on standards and processes for global securities financing data collection and aggregation.

Securities financing transactions (SFTs) such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and secondary market liquidity for a wide variety of securities. However, such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures. Enhanced data collection on securities financing markets is needed for authorities to obtain a more timely and comprehensive perspective on developments in these markets and detect financial stability risks. This data will be useful for implementation of the FSB’s regulatory framework for haircuts on non-centrally cleared SFTs. The data will also serve the needs of a wide range of market participants and the economy, increasing the transparency of these markets.

The finalized standards and processes define the data elements for repos, securities lending, and margin lending that national/regional authorities will be asked to report as aggregates to the FSB for financial stability purposes. The standards and processes describe data architecture issues related to the data collection and transmission from the reporting entity to the national/regional authority and then from the national/regional to the global level. To ensure consistency and to derive meaningful global aggregates, six recommendations to national/regional authorities are set out in the report. Furthermore, the potential uses of the aggregated data are discussed and the next steps for the completion of the initiative, including a timeline for the implementation of the standards and processes, are outlined.

The FSB will start working on the detailed operational arrangements with a view to initiating the official global data collection and aggregation at the end of 2018. The Bank for International Settlements (BIS), leveraging on its expertise in managing international banking and financial statistics, has agreed to provide operational support for the collection and potential dissemination of aggregated securities financing data.

A consultative version of the standards and processes was published in November 2014. In finalizing the standards and processes, the FSB worked closely with market participants and would like to thank those who have taken the time and effort to share their views. The FSB plans to continue such collaboration in implementing the global securities financing data collection.

Link: Press Release Keywords: Data Collection, SFT, Shadow Banking

G20 Leaders’ Communiqué: Antalya Summit

- G20

November16 , 2015

Type of Information: Statement

The leaders of the G20, met in Antalya, on November 15-16, 2015, to determine further collective actions toward achieving strong, sustainable, and balanced growth.

The leaders at the Summit discussed strengthening the resilience of financial institutions and enhancing stability of the financial system, which are crucial to sustaining growth and development. To enhance the resilience of the global financial system, further core elements of the financial reform agenda have been completed. In particular, as a key step toward ending too-big-to-fail, the common international standard on total-loss-absorbing-capacity (TLAC) for global systemically important banks (G-SIBs) has been finalized. The leaders also agreed to the first version of higher loss absorbency (HLA) requirements for global systemically important insurers (G-SIIs).

However, critical work is still remaining toward building a stronger and more resilient financial system. In particular, G20 looks forward to further work on central counterparty (CCP) resilience, recovery planning, and resolvability; the FSB has been asked to report back on this by the next meeting. G20 will continue to monitor and, if necessary, address emerging risks and vulnerabilities in the financial system, many of which may arise outside the banking sector. It will further strengthen oversight and regulation of shadow banking to ensure resilience of market-based finance, in a manner appropriate to the systemic risks posed.

G20 looks forward to further progress in assessing and addressing, as appropriate, the decline in correspondent banking services. It will expedite the efforts to make further progress in implementing the over-the-counter (OTC) derivatives’ reforms, including by encouraging jurisdictions to defer to each other, when it is justified, in line with the St. Petersburg Declaration. Going forward, G20 leaders are committed to full and consistent implementation of the global financial regulatory framework in line with the agreed timelines and will continue to monitor and address uneven implementation across jurisdictions.

The leaders also welcomed the FSB’s first annual report on the implementation of reforms and their effects. They will continue to review the robustness of the global regulatory framework and to monitor and assess the implementation and effects of reforms and their continued consistency with our overall objectives, including by addressing any material unintended consequences, particularly for emerging markets and developing economies.

Link: Statement Keywords: CCP, G20, G-SIB, G-SII, Shadow Banking

http://www.financialstabilityboard.org/2015/11/fsb-publishes-standards-and-processes-for-global-securities-financing-data-collection-and-aggregation-2/

http://www.consilium.europa.eu/en/meetings/international-summit/2015/11/G20-Antalya-Leaders-Summit-Communique-_pdf/


6 NOVEMBER 2015

Reports to G20 Leaders: Finalizing Post-Crisis Reforms; Implementation of Basel Standards

- BCBS

November 13, 2015


BCBS recently published two reports to the G20 leaders:

Finalizing post-crisis reforms—This report reviews the Basel Committee's work since the global financial crisis to strengthen the international regulatory framework for banks. The measures introduced by the Committee include:

» Increasing the quality and level of capital

» Enhancing risk capture

» Constraining leverage and excessive concentration

» Adding a macro-prudential dimension to the regulatory framework

» Addressing liquidity risk

» Enhancing supervision and promoting consistent global implementation of the Basel framework

The report also provides an update on the Committee's substantial progress toward finalizing its post-crisis reforms, which includes revising the standardized approaches for determining regulatory capital and measures to reduce excessive variability in risk-weighted assets (RWAs). The Committee is well on track to finalize the remaining elements of the regulatory reform agenda for global banks.

Implementation of Basel standards—This report updates G20 leaders on progress in the implementation of the Basel III regulatory reforms since November 2014, when the Basel Committee last reported to the G20. The report summarizes steps taken by Basel Committee member jurisdictions to adopt the Basel III standards, banks' progress in bolstering their capital and liquidity positions, the consistency of implementation in jurisdictions assessed since the Committee's last report and the Committee's implementation work plan.

Links: Finalizing Post-Crisis Reforms, Implementation of Basel Standards Keywords: Basel III, G20

http://www.bis.org/bcbs/publ/d344.pdf

http://www.bis.org/bcbs/publ/d345.pdf


7 NOVEMBER 2015

Reports on Transforming Shadow Banking into Resilient Market-Based Finance

- FSB

November12 , 2015


The FSB published the following reports:

» Progress report on Transforming Shadow Banking into Resilient Market-based Finance—The report sets out actions taken to implement the FSB’s two-pronged strategy to address financial stability concerns associated with shadow banking over the past year, along with the next steps.

» Global Shadow Banking Monitoring Report 2015—The report presents results of the FSB’s fifth annual monitoring exercise to assess global trends and risks of the shadow banking system, reflecting data as of end-2014. It covers 26 jurisdictions and the euro area, representing about 80% of global Gross Domestic Product (GDP) and 90% of global financial system assets.

» Regulatory Framework for Haircuts on Non-Centrally Cleared SFTs—The report finalizes policy recommendations in the framework for haircuts on certain non-centrally cleared SFTs. The policy recommendations were published in October 2014 to apply numerical haircut floors to non-bank-to-non-bank transactions and update the implementation dates of these recommendations.

These three reports mark further progress in the FSB’s two-pronged strategy in the following three ways, which are in accordance with the actions and deadlines set out in the updated roadmap toward strengthened oversight and regulation of shadow banking, as endorsed by the G20 leaders at the Brisbane Summit in November 2014:

» First, with regard to system-wide monitoring to track developments in the shadow banking system, the FSB introduced, in 2014, a new activity-based “economic function” approach in its annual monitoring. The approach helps narrow the focus to those parts of the non-bank financial sector where shadow banking risks may arise and may need appropriate policy responses to mitigate these risks. The first results of this approach, which will be further refined, suggest that:

o The new activity-based, narrow measure of shadow banking was USD 36 trillion in 2014, increasing by USD 1.1 trillion compared to 2013. This is equivalent to about 30% of the overall non-bank financial sector assets and 60% of the GDP of the 26 participating jurisdictions.

o The shadow banking activity based on this narrow measure largely occurred in advanced economies, although growth is rapid in a number of emerging market economies. Credit intermediation associated with collective investment vehicles comprised 60% of the narrow aggregate and has grown by nearly 10%, on average, annually over the past four years.

o In 2014, the wider aggregate comprising “Other Financial Intermediaries” in 20 jurisdictions and the euro area grew to reach USD 80 trillion, from USD 78 trillion in 2013. This wider measure outpaced growth in other categories of financial intermediation and the overall economy.

» Second, there has been further progress this year to strengthen oversight and regulation of shadow banking, particularly in the area of securities financing. With the publication of the final standard, the regulatory framework for haircuts on non-centrally cleared SFTs is complete, with the scope extended to cover securities financing between non-banks. The standards and processes for global securities financing data collection will increase the transparency of these important financing markets.

» Third, the implementation of previously agreed policies is progressing. It is essential for the agreed policies to be implemented in a timely manner, and the FSB, in coordination with the relevant standard-setting bodies, will continue to monitor the national implementation of agreed policies to ensure they achieve the intended objectives. Since shadow banking activities take a variety of forms and continue to evolve, FSB members are also mindful of the need to periodically review the agreed policies.

In the coming days, the FSB is expected to publish standards and processes for global securities financing data collection and aggregation.

Links: Press Release, Progress on Transforming Shadow Banking, Shadow Banking Monitoring Report, Regulatory Framework for Haircuts Keywords: G20, Shadow Banking, SFT

http://www.financialstabilityboard.org/2015/11/fsb-publishes-reports-on-transforming-shadow-banking-into-resilient-market-based-finance/

http://www.financialstabilityboard.org/2015/11/transforming-shadow-banking-into-resilient-market-based-finance-an-overview-of-progress/

http://www.financialstabilityboard.org/2015/11/global-shadow-banking-monitoring-report-2015/

http://www.financialstabilityboard.org/2015/11/regulatory-framework-for-haircuts-on-non-centrally-cleared-securities-financing-transactions-2/


8 NOVEMBER 2015

Extension of Industry Initiative to Promote Orderly Cross-Border Resolution of G-SIBs

- FSB

November12 , 2015


The FSB welcomed the announcement, by the International Swaps and Derivatives Association (ISDA), Securities Industry and Financial Markets Association, International Capital Market Association, and International Securities Lending Association, of the execution of a revised ISDA Resolution Stay Protocol by 21 G-SIBs. The Protocol builds on the version developed in 2014, which focused on amending ISDA Master Agreements for OTC bilateral derivatives to improve the effectiveness of cross-border resolution actions. The coverage of the Protocol has now been extended to securities finance transaction master agreements.

Under the Protocol, counterparties agree to the cross-border enforceability of existing statutory stays on resolution-related early termination and other default rights in OTC bilateral derivatives contracts and securities financing agreements. This facilitates an orderly resolution of a G-SIB in a manner that treats domestic and foreign counterparties similarly, while helping to ensure continuity of critical functions and minimizing the wider impact on the market.

This announcement marks a milestone, with the Protocol having been extended to cover securities financing agreements and an additional four G-SIBs having adhered to the revised Protocol. A number of FSB member jurisdictions are in the process of finalizing regulations and supervisory measures that will require non-bank counterparties of G-SIBs to trade on similar terms, thus limiting the potential for arbitrage within the market and ensuring greater stability at the point of resolution. In anticipation of such regulations, the industry is developing a mechanism for non-bank counterparties to adhere to similar terms, which is expected to be launched in 2016.

Links: Press Release, The 2014 ISDA Resolution Stay Protocol Keywords: G20, OTC Derivatives, SFT, Resolution Stay Protocol

Capital Treatment for "Simple, Transparent and Comparable" Securitizations

- BCBS

November 10, 2015

Type of Information: Regulation

Regulatory Status: Proposed Rule

The BCBS released a consultative document on capital treatment for "simple, transparent and comparable" (STC) securitizations. This proposal builds on the revised capital standards issued by the BCBS in December 2014.

The criteria for identifying simple, transparent and comparable securitizations were published by BCBS and IOSCO in July 2015. The July 2015 criteria are designed to mitigate securitization risks, including uncertainty related to asset risk, structural risk, governance risk, and operational risk. Transactions that comply with these criteria should therefore have lower structural and model risk. The criteria noted that additional or more detailed criteria, such as those related to the credit risks of the underlying securitized assets, may be necessary according to specific needs and applications. Given that greater prescriptiveness is required for using these criteria in regulatory capital requirements, the Committee proposes to supplement the July 2015 STC criteria with additional criteria for the specific purpose of differentiating the capital treatment of STC from that of other securitization transactions.

The additional criteria would, for example, exclude transactions in which the standardized risk weights for the underlying assets exceed certain levels. Compliance with the expanded set of STC criteria provides additional confidence in the performance of the transactions.

The Committee is proposing to reduce minimum capital requirements for such STC securitizations by reducing the risk-weight floor for senior exposures and by rescaling risk weights for other exposures. A range for the potential reduction in capital charges is suggested. The Committee will make a final decision on calibration in 2016 based on further analysis and assessment of the quantitative impact of the proposals.

Comments Due Date: February 05, 2016 Effective Date: N/A First Reporting Date: N/A Links: Press Release, Identification Criteria Keywords: Securitization, STC

http://www.financialstabilityboard.org/2015/11/fsb-welcomes-extension-of-industry-initiative-to-promote-orderly-cross-border-resolution-of-g-sibs/

http://assets.isda.org/media/de778136/58b5618f.pdf/




9 NOVEMBER 2015

Fourth Progress Report on Compensation Practices

- FSB

November 10 , 2015


The FSB published the fourth annual progress report on implementing the FSB principles for sound compensation practices and their implementation standards.

The progress report concludes that almost all FSB jurisdictions have now fully implemented the Principles and Standards for banks. The oversight of compensation practices has now been fully embedded in bank supervisory frameworks in most jurisdictions. More than half of the jurisdictions assess that the level of implementation, by significant banks, in governance and risk alignment of compensation, and in stakeholder engagement on compensation practices, is high. The risk alignment of compensation structures, at least for senior executives, shows improvements in various respects. There has also been an increase in the number of jurisdictions using deferrals, and in the length of deferral periods. Additionally, compensation and risk governance frameworks are increasingly linked. An increase in the proportion of fixed pay in total remuneration is observed by several jurisdictions, both EU and non-EU members, since 2011.

The report notes that existing compensation provisions, if appropriately calibrated and rigorously applied, should enable financial institutions to more effectively prevent misconduct by employees. However, the effectiveness of these mechanisms remains largely untested and more analysis is needed by firms and supervisors to assess whether tools such as malus and clawbacks are sufficiently developed (and effectively used) to lower misconduct risks.

The report finds that there are important differences in the implementation of the Principles and Standards in the insurance sector across different jurisdictions, with fewer jurisdictions having adopted dedicated regulation or supervisory guidance than for the banking sector. Notwithstanding these differences across regulatory regimes, compensation practices of internationally active insurers seem fairly aligned across regions, with a prominent role played by the risk function in identifying material risks and risk-takers.

The FSB’s Compensation Monitoring Contact Group (CMCG), which is responsible for monitoring and reporting to the FSB on national implementation of the Principles and Standards, has agreed to undertake further action in the following areas:

» Several recommendations of the third progress report for action by national authorities remain relevant. The CMCG will continue to follow up on these issues.

» More work on monitoring and assessing the effectiveness of reforms is needed. Supervisory authorities will coordinate via the CMCG to explore the use of indicators to monitor the effective risk alignment of compensation structures.

» Taking stock of compensation practices in other financial sectors. The FSB, in collaboration with the relevant standard setting bodies, will continue to take stock of compensation practices in other financial sectors.

» CMCG will continue to collect information and examine the case for strengthening disincentives to misconduct through compensation-related tools and, if appropriate, will make recommendations on better practices.

» The CMCG will re-examine the issue of material risk-takers in 2016–2017.

Progress reports on the implementation of the Principles and Standards must be prepared every two years from now on. The FSB, through the CMCG, will continue its ongoing monitoring, including via industry workshops, and will also prepare streamlined annual updates on implementation progress for G20 reporting, which will be included in the FSB’s overall annual reports on the implementation and effects of financial reforms.

Link: Press Release Keywords: Compensation Practices

Reports Related to Total Loss Absorbing Capacity

- BCBS

November 09 , 2015


The FSB published its principles on the loss absorbing and recapitalization capacity of G-SIBs in Resolution and TLAC term sheet. In support of this effort, the BCBS released two related documents:

» The Basel Committee's TLAC Quantitative Impact Study (QIS) Report analyzes the TLAC levels and shortfalls at G-SIBs. The QIS is a critical component of the impact analysis of the TLAC regime. In particular, it provides the main data set that is the basis for assessing the economic costs and benefits of TLAC implementation, which was led by staff of BIS. The TLAC QIS also examines the extent that G-SIBs and non-G-SIBs currently invest in TLAC instruments.

» The TLAC Holdings consultative document sets out the proposed regulatory capital treatment of TLAC instruments, which are held by banks (both G-SIBs and non-G-SIBs). This proposed prudential treatment seeks to limit contagion within the financial system if a G-SIB were to enter resolution. The Committee welcomes comments on this document by February 12, 2016, on the TLAC holdings consultative document.

Links: Press Release, Principles and Term Sheet, QIS Report, Assessing Economic Costs and Benefits of TLAC Implementation Keywords: G-SIB, QIS, TLAC

http://www.financialstabilityboard.org/2015/11/fsb-publishes-fourth-progress-report-on-compensation-practices/

http://www.bis.org/press/p151109.htm

http://www.financialstabilityboard.org/2015/11/total-loss-absorbing-capacity-tlac-principles-and-term-sheet/


http://www.bis.org/publ/othp24.htm


10 NOVEMBER 2015

Issuance of Final Total Loss-Absorbing Capacity Standard for Global Systemically Important Banks

- FSB

November 09 , 2015


The FSB issued the final standard, which reflects changes made following the public consultation and comprehensive impact assessment studies. The results of the impact assessment studies were published along with the final TLAC standard. Additionally, the BCBS has separately released a consultative document on TLAC holdings.

G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, they will be required to meet a minimum TLAC requirement of at least 16% of the resolution group’s risk-weighted assets (TLAC RWA Minimum) from January 01, 2019 and at least 18% from January 01, 2022. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) from January 01, 2019 and at least 6.75% as from January 01, 2022.

G-SIBs headquartered in emerging market economies will be required to meet the 16% RWA and 6% LRE Minimum TLAC requirement no later than January 01, 2025, and the 18% RWA and 6.75% LRE Minimum TLAC requirement no later than January 01, 2028. This conformance period will be accelerated if, in the next five years, corporate debt markets in these economies reach 55% of the emerging market economy’s GDP. The FSB will monitor implementation of the TLAC standard and will undertake a review of the technical implementation by the end of 2019

The findings of the impact assessment studies conducted by experts at the FSB, BCBS, and BIS were published alongside the final TLAC standard in the form of the following reports:

» Overview report summarizing the findings of the TLAC impact assessment studies

» Quantitative Impact Study report conducted by the BCBS

» Economic Impact Assessment report conducted by a group of experts chaired by the BIS

» Historical Losses and Recapitalization Needs findings report

The impact assessment studies found that the micro- and macroeconomic costs of TLAC are relatively contained.

The FSB also published a Resolution progress report that provides an update on the findings from the first Resolvability Assessment Process for G-SIBs and the further work undertaken to address the identified remaining obstacles to the resolvability of G-SIBs. The TLAC standard is an important element of this work. The report also covers progress in reforms of resolution regimes, consistent with the Key Attributes and the work underway in the non-bank sector covering the resolvability of systemic insurers and central counterparties.

Links: Press Release, Principles and Term Sheet, Post-Consultation Revisions to TLAC Principles and Term Sheet, http://wwwFindings of Impact-Assessment Studies, Assessing Economic Costs and Benefits of TLAC Implementation Keywords: G-SIB, QIS, TLAC

http://www.financialstabilityboard.org/2015/11/tlac-press-release/

http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Principles-and-Term-Sheet-for-publication-final.pdf

http://www.financialstabilityboard.org/wp-content/uploads/TLAC-public-report-on-post-consultation-changes-for-publication-final1.pdf

http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Summary-of-Findings-from-the-Impact-Assessment-Studies-for-publication-final.pdf

http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Summary-of-Findings-from-the-Impact-Assessment-Studies-for-publication-final.pdf

http://www.financialstabilityboard.org/wp-content/uploads/Assessing-the-economic-costs-and-benefits-of-TLAC-implementation.pdf


11 NOVEMBER 2015

Report on Implementation and Effects of the G20 Financial Regulatory Reforms

- FSB

November 09 , 2015


FSB published its first annual report to G20 on implementation and effects of the G20 financial regulatory reforms. The report notes that implementation progress across the breadth of reforms has been steady but uneven, with implementation of the Basel III reforms to bank capital and liquidity ahead of schedule; OTC derivatives reform well underway but behind schedule; shadow banking reforms at an early stage; and substantial work remaining to implement effective resolution regimes.

The report concludes that the most tangible effect of the reforms has been to make the global banking sector more resilient. No major unintended consequences of the reforms have been identified to date; the FSB will continue to monitor this going forward. The report identifies three areas that merit close ongoing attention:

» Spillovers on some emerging market and developing economies from the implementation of reforms in home jurisdictions of global financial institutions

» The maintenance of an open and integrated global financial system in the aftermath of the financial crisis

» The causes and financial stability consequences of recent shifts in liquidity in fixed income markets

The FSB is working with standard-setters in all three areas to analyze and, where necessary, address these issues. The FSB asked G20 leaders to help overcome legal and other challenges to the implementation of parts of the reform program, including:

» Putting in place legal powers to enable resolution authorities to share information across borders and to be able to give prompt effect to resolution actions by foreign authorities

» Promoting cooperation to address duplicative or overlapping requirements to cross-border OTC derivatives transactions

» Removing legal barriers to the reporting of OTC derivatives transactions to trade repositories and permitting authorities’ access to trade repository data

» Ensuring that national authorities are adequately resourced for full and timely implementation of reforms as well as for supporting their effective monitoring

Mark Carney, Chair of the FSB, said “This report fulfills a commitment made to G20 Leaders in Brisbane last year. Monitoring implementation of agreed reforms, analyzing the effects of the measures, and making adjustments to address any identified material unintended consequences, represent good regulatory practice and are essential to accountability of the FSB. This new series of annual reports will enable G20 to assess whether the financial reforms are achieving their intended results in an effective manner and thereby supporting financial stability and sustainable growth.”

Links: Press Release, Report, Implementation Dashboard Keywords: Annual Report, G20

Proposed Creation of Disclosure Task Force on Climate-Related Risks

- FSB

November 09 , 2015


The FSB published a proposal to G20 for the creation of an industry-led disclosure task force on climate-related risks.

The proposal is in response to a request by the G20 in April to review how the financial sector can take account of climate-related issues. This task force could be modeled on the successful example of FSB’s Enhanced Disclosure Task Force, to develop voluntary, consistent climate-related disclosures that would be useful to lenders, insurers, investors, and other stakeholders in understanding material risks. The published note sets out a proposed way forward for such a task force, including some options for the scope and objectives of the work that the task force should carry out.

Link: Press Release Keywords: Climate-Related Risks, Disclosure, G20

http://www.financialstabilityboard.org/2015/11/fsb-publishes-report-on-implementation-and-effects-of-the-g20-financial-regulatory-reforms/

http://www.financialstabilityboard.org/wp-content/uploads/Report-on-implementation-and-effects-of-reforms-final.pdf

http://www.financialstabilityboard.org/wp-content/uploads/Implementation-dashboard.pdf

http://www.financialstabilityboard.org/2015/11/fsb-proposes-creation-of-disclosure-task-force-on-climate-related-risks-2/


12 NOVEMBER 2015

Release of Progress Report on Reducing Misconduct Risk in the Finance Industry

- FSB

November 06 , 2015


The FSB published a progress report for the G20 on the FSB’s work on addressing misconduct in the financial sector.

The progress report on the measures to reduce misconduct risk sets out details about the FSB-coordinated work to address misconduct in the financial sector and the timeline for the actions. That work includes considering whether post-crisis reforms to incentives are sufficient to address misconduct risks and whether steps are needed to improve global standards of conduct in the fixed income, commodities, and currency (FICC) markets, including, improvements in the integrity and reliability of benchmarks. Highlights of the report are:

Role of incentives in reducing misconduct in markets and institutions

» The FSB will establish a working group to exchange good practices in the use of governance frameworks to address misconduct risks.

» By the 2016 G20 Summit, the FSB will examine the use of various compensation tools for addressing misconduct and, if appropriate, make recommendations on better practices.

» In the first quarter of 2016, the FSB will hold a workshop to share national experiences on the role of bank regulators’ enforcement powers in addressing misconduct by individuals and on effective approaches to the establishment of frameworks for individual accountability for misconduct risk.

International coordination on conduct in FICC markets

» By July 2016, the FSB will report on further progress in implementing the work plan on interest rate benchmarks.

» In the first quarter of 2016, IOSCO will conclude its follow-up review of key interest rate benchmark administrators and will start a follow-up review of major global foreign exchange benchmark providers.

» By May 2017, the BIS Markets Committee will finalize its global foreign exchange code of conduct standards and principles, as well as proposals, to ensure greater market adherence than to existing codes.

Coordination in the application of conduct regulation and the need for credible deterrence. The FSB is encouraging senior officials from prudential and conduct financial authorities to share information on their respective powers and approaches to the supervision and enforcement of conduct rules.

Link: Press Release Keywords: FICC, G20, Misconduct Risk

http://www.financialstabilityboard.org/2015/11/fsb-releases-progress-report-on-reducing-misconduct-risk-in-the-finance-industry/


13 NOVEMBER 2015

Release of Report to G20 on the Decline in Correspondent Banking

- FSB

November 06 , 2015


The FSB published a report for the G20 on actions taken to assess and address the decline in correspondent banking. This report provides an update on work by the FSB, in partnership with other organizations, to examine the extent and causes of banks’ withdrawal from correspondent banking and the implications for affected jurisdictions, including risks of financial exclusion, particularly where it affects flows such as remittances which are a key source of funds for people in many developing countries.

A World Bank survey of jurisdictions and banks, which the FSB commissioned and is expected to publish later this year, found that roughly half of the surveyed emerging market and developing economies have experienced a decline in correspondent banking services, especially small jurisdictions with significant offshore banking activities and high-risk jurisdictions. The main drivers given by the large banks for the reduction in correspondent banking were concerns about money laundering and terrorism financing risks in the jurisdictions of their counterpart banks. Authorities and local banks predominantly mentioned overall risk appetite and lower profitability as causes, which may in part be affected by money laundering risk concerns and higher costs from extra due diligence. The FSB will continue to work in partnership with the BCBS, CPMI, FATF, IMF, LEI ROC, and World Bank to address this issue through a four-point action plan:

» Further examining the dimensions and implications of the issue. The FSB will continue to encourage the collection of information by the World Bank and other international organizations on the scale of withdrawal, its causes and effects, including on financial inclusion and financial stability, as in some countries greater concentration in correspondent banking may lead to banks relying on a narrow range of providers. National authorities should also improve their own data collection.

» Clarifying regulatory expectations, including more guidance by the FATF on the application of standards for anti-money laundering and combating the financing of terrorism (AML/CFT) to correspondent banking, especially on the customer due diligence expectations for correspondent banks when faced with respondent banks in “high-risk scenarios”, as well as additional work on remittances, financial inclusion, and non-profit organizations. The FATF aims to complete its work on these four projects at its Plenary meetings of June and October 2016, in cooperation with the BCBS, which has issued guidance on correspondent banking, and other bodies. The FSB will also continue to support coordination in this area.

» Domestic capacity-building in jurisdictions that are home to affected respondent banks, building upon assessments and technical assistance from the international financial institutions, the FATF and FATF-style regional bodies and the sharing of best practices in the financial industry, including by global correspondent banks with local banks. Assessments and technical assistance will help identify and address deficiencies before these result in a reduced access to the global financial system. The FSB will continue to facilitate dialog among banks and authorities.

» Strengthening tools for due diligence by correspondent banks. This includes correspondent bank information sharing, through Know Your Customer facilities and broader use of the global LEI. The CPMI and the LEI ROC have made proposals in these areas. In cooperation with other relevant stakeholders, the FSB will develop a plan, by February 2016, for promoting the use of the LEI by all banks involved in correspondent banking.

Links: Press Release, BCBS Guidance on Correspondent Banking Keywords: AML/CFT, Correspondent Banking, LEI, Financial Inclusion

Haircut Floors for Non-Centrally Cleared Securities Financing Transactions

- BCBS

November 05, 2015



BCBS issued a consultative document on haircut floors for non-centrally cleared SFTs. The objective of this BCBS proposal is to create incentives for banks to set their collateral haircuts above the floors, rather than hold more capital.

In October 2014, the FSB published a report on strengthening oversight and regulation of shadow banking and introduced regulatory framework for haircuts on non-centrally cleared SFTs. As part of this framework, the FSB recommended that the BCBS incorporate the haircut floors into the capital requirements for non-centrally cleared SFTs by setting higher capital requirements for transactions with haircuts traded below the haircut floors.

The proposed haircut floors have been calibrated, taking into account the two-stage QIS performed by the FSB and data on the historical price volatility of in-scope assets, as well as the existing market and central bank haircut conventions. The haircut floors are intended to serve as “backstops” and limit the build-up of excessive leverage while maintaining incentives for market participants to conduct their own analysis of the appropriate level of haircuts, following the standards set out above.

Comments Due Date: January 05, 2015 Effective Date: N/A First Reporting Date: N/A Links: Press Release, Regulatory Framework for Haircuts on Non-Centrally Cleared SFTs Keywords: Haircuts, Shadow Banking, SFT

http://www.financialstabilityboard.org/2015/11/fsb-releases-report-to-g20-on-the-decline-in-correspondent-banking/



http://www.financialstabilityboard.org/wp-content/uploads/r_141013a.pdf


14 NOVEMBER 2015

Progress Report to FSB and G20

- LEIROC

November 05 , 2015


The Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) was established in January 2013 by public authorities from more than 40 countries, following recommendations by the FSB in its 2012 report “A Global Legal Entity Identifier for Financial Markets." Through this report, ROC intends to:

» Inform the FSB on how the GLEIS is now in place as intended by the FSB and G20.

» Describe the results of ROC survey on LEI uses by the regulatory community.

» Explore how these uses could be further encouraged.

Since its establishment in 2013, the ROC has assumed certain tasks of operational oversight and coordination of the GLEIS, while there was no central operating unit able to assume its functions, including endorsing local operating units (LOUs) as issuers of globally compatible codes after meeting the conditions set out by the ROC.

As of October 03, 2015, the ROC had endorsed 27 LOUs that have issued over 390,000 LEIs to entities in 195 jurisdictions. This demonstrates that the LEI system is available almost anywhere in the world. An important step in the finalization of the governance of GLEIS was taken on October 07, with confirmation by the ROC that the GLEIF was ready to fully assume the tasks of the central operating unit of the system.

Link: LEIROC Homepage Keywords: G20, GLEIS

Reports on the Implementation Status of Over-The-Counter Derivatives Market Reforms

- FSB

November 04 , 2015


FSB released two reports on implementation of the reforms OTC derivatives market agreed by the G20:

Thematic Peer Review of OTC Derivatives Trade Reporting

The report highlights that comprehensive reporting is in place in the majority of FSB member jurisdictions. Jurisdictions that have not fully implemented reporting requirements should do so promptly. There are widespread and regulatory barriers to reporting complete transaction information. In many cases, mechanisms exist to overcome these barriers (such as through obtaining counterparty consent). In some other cases, barriers cannot be addressed in these ways. FSB members have agreed to address the remaining legal and regulatory barriers to reporting complete information by June 2018. Masking of counterparty-identifying data will be discontinued by the end of 2018 after such barriers are removed.

Barriers that impede authorities from accessing trade repository data are also widespread. FSB members have therefore agreed that all jurisdictions should implement legal frameworks to facilitate data access for both domestic and foreign authorities by no later than June 2018. There remain a number of challenges in the quality and usability of trade repository data and several international workstreams are underway that will help address these issues. Several authorities are starting to make good use of the trade repository data. By June 2016, FSB member jurisdictions will be asked to report on the actions they plan to address the remaining barriers to full reporting.

OTC Derivatives Market Reforms: Tenth Progress Report on Implementation

The report gives a brief update on the key developments in OTC derivatives reforms since the previous report, published in July 2015. It mainly highlights that:

» Nineteen of the 24 FSB jurisdictions enforce trade reporting requirements, covering over 90% of transactions in their markets. However, the persisting challenges to the effectiveness of trade reporting, as mentioned above, are being addressed through international workstreams. These challenges include the authorities’ ability to access, use, and aggregate trade repository data.

» Twelve out of 24 FSB jurisdictions enforce central clearing frameworks that apply to over 90% of transactions in their markets, while in eight jurisdictions implemented platform trading frameworks apply to over 90% of transactions. It is important that all jurisdictions have frameworks in force for assessing when it is appropriate for transactions to be centrally cleared or executed on organized trading platforms.

Most jurisdictions are in the early phases of implementing the BCBS–IOSCO framework for margin requirements for non-centrally cleared derivatives; authorities should continue to push forward with implementation of these requirements to ensure the agreed phase-in period commences smoothly in September 2016. The FSB will continue to monitor and report on OTC derivatives reform implementation progress, including the effects of OTC derivatives reforms over time.

Links: Press Release, Peer Review on Trade Reporting, Progress Report Keywords: OTC Derivatives, Trade Reporting, Trade Repository

http://www.leiroc.org/

http://www.financialstabilityboard.org/2015/11/fsb-reports-describe-progress-in-implementing-otc-derivatives-market-reforms-and-highlight-where-further-work-is-needed/

http://www.financialstabilityboard.org/wp-content/uploads/Peer-review-on-trade-reporting.pdf

http://www.financialstabilityboard.org/wp-content/uploads/OTC-Derivatives-10th-Progress-Report.pdf


15 NOVEMBER 2015

Remarks of Russell G. Golden, the FASB Chairman, at the United Nations Conference on Trade and Development

- FASB

November 04 , 2015

Type Of Information: Speech

Russell G. Golden, the FASB Chairman, addressed the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), at the United Nations Conference on Trade and Development in Geneva, Switzerland.

He highlighted that while understanding the mandate of ISAR, he realized that ISAR and the FASB share many goals:

» Acting to ensure comparability in disclosures

» Promoting increased transparency

» Pursuing the long-term objective of international harmonization of accounting and reporting

The FASB Chairman discussed the need for cooperation and collaboration among all the organizations worldwide that play a role in financial reporting—accounting standard setters, audit standard setters, securities regulators, and others. He also shared brief descriptions of two projects that are about to be completed; these projects are intended to promote much greater transparency in financial reporting—one involves leases while the other involves credit losses:

» The FASB, along with the IASB, has been working on a project to improve guidance for accounting for financial instruments—including loans— since 2009. A key goal of that project was to develop a more forward-looking “expected loss” approach for recognizing credit losses. The new standard, which FASB expects to issue in its final form in early 2016, features a current expected credit loss (CECL) model. The CECL model uses a single “expected credit loss” measurement objective for the allowance for credit loss. It requires the balance sheet to reflect the net carrying amount of a financial asset (net of allowance for credit losses) at the amount an organization expects to collect.

» The leases project was added to the FASB’s joint agenda in response to concerns from investors and other financial statement users—as well as the SEC—about the lack of transparency related to material lease obligations that are currently reported off-balance sheet. The objective of the new leases standard—which FASB expects to issue by the end of this year—is to increase transparency and comparability among organizations that lease assets, by recognizing the assets and liabilities that arise from lease transactions.

The work that the FASB and the IASB have accomplished since they began collaborating under the Norwalk Agreement in 2002 represents a major success. To date, the FASB and the IASB have aligned their views on major standards covering revenue recognition, business combinations, non-controlling interests, stock compensation, and fair-value measurements. Additionally, the Boards have produced aligned standards on borrowing costs, segment reporting, nonmonetary exchanges, inventory accounting, joint ventures, and accounting changes.

Even in areas where the Boards continue to have some differences—leasing and credit impairment, for example—they have agreed on key principles: most lease obligations should be reflected on the balance sheet, and impairments should be on expected losses rather than incurred losses.

Links: Speech, ISAR Overview Keywords: CECL, ISAR

http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176167266977

http://unctad.org/en/pages/DIAE/ISAR/About-International-Standards-of-Accounting-and-Reporting-(ISAR).aspx


16 NOVEMBER 2015

Information on Global Systemically Important Banks

- BCBS

November 03 , 2015


In conjunction with the recent publication by the FSB of the updated list of G-SIBs, the BCBS released further information, including:

» A list of all the banks in the assessment sample

» Denominators used to calculate the scores for banks in the exercise

» The cutoff score that was used to identify the updated list of G-SIBs

» The thresholds used to allocate G-SIBs to buckets for the purpose of calculating the HLA requirements for each institution

» Links to disclosures of all banks in the assessment sample in 2015 (sample EU and U.S. banks— that is, FR Y-15 snapshots)

As detailed in the Committee's July 2013 publication, the methodology for assessing the systemic importance of banks consists of an indicator-based measurement approach. The indicators are calculated based on data for the previous fiscal year-end supplied by banks and validated by national authorities. After the automated calculation is produced, bank scores may, in exceptional cases, be adjusted by supervisory judgment. The final score, including the use of judgment, is then mapped to the corresponding bucket using the cut-off score and bucket thresholds. The assignment to a bucket determines the HLA requirement for each G-SIB.

The agreed methodology also requires banks in the assessment sample to disclose, at a minimum, the 12 indicators used. However, given the potential for use of supervisory judgment to adjust scores, the data disclosed by banks may not always be perfectly consistent with the recently published final bucketing.

The HLA requirements will be phased in from January 01, 2016, based on the end-2013 results published last year, with the full amount of the requirement in effect by January 01, 2019, consistent with the implementation schedule for the capital conservation buffer. This requirement represents the amount of capital that the designated G-SIBs must hold beginning January 01, 2017, subject to the phase-in arrangements.

Links: Press Release, Updated List of G-SIBs, G-SIB Assessment Methodology, G-SIBs Assessment Sample: End-2014 Exercise, G-SII Indicators for BNP Paribas Group, FR Y-15 Snapshots Keywords: Disclosure, FR Y-15, G-SIB

http://www.financialstabilityboard.org/2015/11/2015-update-of-list-of-global-systemically-important-banks-(g-sibs)/

http://www.bis.org/bcbs/gsib/

http://www.bis.org/bcbs/gsib/gsibs_dislosures_end2014.htm

https://invest.bnpparibas.com/sites/default/files/documents/disclosure_for_g-sibs_indicators-31-12-2014.pdf

https://invest.bnpparibas.com/sites/default/files/documents/disclosure_for_g-sibs_indicators-31-12-2014.pdf

http://www.ffiec.gov/nicpubweb/nicweb/Y15SnapShot.aspx


17 NOVEMBER 2015

New Measures to Promote Resolvability, Including Effective Cross-Border Resolution

- FSB

November 03 , 2015


FSB released two finalized guidance papers and three consultative documents as part of its policy agenda to end too-big-to-fail (TBTF) and promote the resolvability of all financial institutions that could fail systemically through full implementation of the Key Attributes of effective resolution regimes for financial institutions. The two finalized guidance papers are:

» Principles for Cross-Border Effectiveness of Resolution Actions—These principles set out statutory and contractual mechanisms that jurisdictions should consider including in their legal frameworks to give cross-border effect to resolution actions in accordance with the Key Attributes. The guidance was issued for public consultation in September 2014 and has been revised in light of the comments received during that consultation.

» Guidance on Cooperation and Information Sharing with Host Authorities of Jurisdictions, where a Global Systemically Important Financial Institution (G-SIFI) has a systemic presence, that are Not Represented on its Crisis Management Group (CMG)—This guidance promotes cooperation and information sharing between CMGs for G-SIFIs and authorities from jurisdictions not represented on the CMG where the firm is systemic for their market. CMGs only include a limited number of home and key host authorities. Cooperation beyond the CMG membership is crucial for achieving effective resolution of a G-SIFI. The guidance was issued for public consultation in October 2014 and has been revised in light of the comments received during that consultation.

The FSB issued the following documents for consultation (comments until January 04, 2016) on:

» Temporary Funding Needed to Support the Orderly Resolution of a G-SIB—The proposed principles address the risk of banks having insufficient liquidity to maintain critical operations during a resolution. The document proposes Guiding Principles that are intended to ensure that temporary funding is available, with a preference for private sector provision of liquidity.

» Arrangements to Support Operational Continuity in Resolution—The proposed guidance sets out arrangements to ensure continuity of critical shared services, such as IT infrastructure and software-related services, that are necessary to maintain the continued provision, or facilitate the orderly wind down, of a firm’s critical functions in resolution.

» Developing Effective Resolution Strategies and Plans for Systemically Important Insurers—The proposed guidance should assist authorities in developing effective resolution strategies and plans for systemic insurers and should also assist CMGs of G-SIIs in their resolution planning work. It has been developed in consultation with IAIS and builds on the implementation guidance published by the FSB in October 2014 on how provisions of the Key Attributes, including resolution powers and the details of recovery and resolution planning, should be interpreted for different types of financial institution, including insurers.

Link: Press Release Keywords: G-SIB, G-SII, TBTF

http://www.financialstabilityboard.org/2015/11/new-measures-to-promote-resolvability-including-effective-cross-border-resolution/


18 NOVEMBER 2015

Regulatory Stability and the Role of Supervision and Governance, A Speech by Jaime Caruana, General Manager of the BIS

- BIS

November 03 , 2015


During his keynote address at the tenth high-level meeting on Global Banking Standards and Supervisory Priorities in the Americas, Jaime Caruana, General Manager of the BIS, discussed some aspects of supervision, which, in his opinion, are critical not only to achieving financial and economic stability but also to restoring public trust in the financial system. He also highlighted three main reasons or functions for the importance of supervision:

» First, the success of any regulatory standard depends on the supervision of that standard. As the regulatory reform program approaches finalization, it is natural for the Basel Committee’s focus to shifting toward supervision and the assessment of impacts, whether intended or unintended. Consistent implementation of the rules is possibly the most important role of supervision and is a way to ensure sound balance sheets and a resilient financial system.

» A second important role is dealing with complexity, innovation, and continuous change. In a highly dynamic, changing, and complex world, regulations are permanently playing catch-up with the continuously adapting financial sector. Supervision can complement regulation in dealing with this challenge. For example, some of the problems associated with the excessive variance of RWAs across banks can be addressed not only by putting some constraints on banks’ internal models (that is, regulation), but also by being stricter in model approval (that is, supervision).

» Third, for the banking system to fulfil the role that society wants it to play, trust in the system must be restored. This requires not only the strengthening of balance sheets or compliance with regulations, but also changes in behavior and in the culture of financial institutions. Quoting a recent Group of Thirty (G30) document: “most banks should aim for a fundamental shift in the overall mindset on culture.” Mr. Caruana said, “culture is a difficult concept to grasp: it deals with values and behavior. That being said, if culture is what people do when no one is watching, then can supervisors—by watching, monitoring, and asking questions—influence culture for the better? The answer is yes. It is important for supervision to contribute to enhancing culture because culture influences decisions and behavior. Making sure that behavior aligns with good policies is essential.”

Links: Speech, G30 Report Keywords: G30, Governance, Supervision

http://www.bis.org/speeches/sp151103.pdf

http://www.group30.org/images/PDF/BankingConductandCulture.pdf


19 NOVEMBER 2015

From the Vasa to the Basel Framework: The Dangers of Instability—A Speech by Stefan Ingves, the BCBS Chairman and the Sveriges Riksbank Governor

- BCBS

November 02 , 2015


Stefan Ingves, the BCBS Chairman and the Sveriges Riksbank Governor, spoke at the 2015 Annual Convention of the Asociación de Mercados Financieros in Madrid, Spain, with focus on the shape of the Basel regulatory framework and the Basel Committee's future work. According to him, the Basel Committee's policy reforms can be grouped into three broad categories:

Enhancing the risk sensitivity and robustness of standardized approaches. The Committee is working on revising the standardized approaches across the regulatory framework to enhance their robustness and risk sensitivity. This includes revisions to the following standardized approaches:

» Credit risk: The Committee consulted on proposals to revise the standardized approach for credit risk in December 2014 and will consult on revised proposals by the end of the year.

» Market risk: The Committee's fundamental review of the trading book, which will be finalized by the end of 2015, will include a revised standardized approach that is sufficiently risk-sensitive to act as a credible fallback to the modeled approach.

» Operational risk: The Committee consulted last year on revising the standardized approach for operational risk. The Committee is considering changes to its proposal and will consult on a revised standardized approach by the end of the year.

Reviewing the role of internal models in the capital framework. The Committee will publish proposals around the end of the year related to the use of models. In some cases, the proposals will remove internally modeled approaches for some risk categories. One example is operational risk, where most would agree that the benefits of the Advanced Measurement Approaches are not proportionate to the related costs and complexity. In other cases, the proposals will consist of introducing additional constraints to internally modeled approaches. More detail on the Committee's thinking in these areas will come in due course.

Finalizing the design and calibration of the leverage ratio and capital floors. The Committee is also working on finalizing the design and calibration of a Pillar 1 leverage ratio and the use of capital floors based on standardized approaches.

Revisions to the risk-weighted framework included the following:

» STC securitizations. The Basel Committee and the IOSCO finalized the criteria for STC securitizations earlier this year. Incorporation of these criteria in the revised securitization framework is planned to be finalized in 2016.

» Interest rate risk in the banking book (IRRBB). The Committee is reviewing the regulatory treatment of IRRBB. This is particularly important in the light of the current exceptionally low interest rate environment in many jurisdictions. The aim of this review is two-fold. First, to ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates. Second, to limit capital arbitrage between the trading book and banking book as well as between banking book portfolios subject to different accounting treatments. The Committee consulted on a set of measures earlier this year and intends to finalize its approach in 2016.

» Sovereign risk. The Committee has initiated a review of the existing regulatory treatment of sovereign risk and will consider potential policy options. The review will be conducted in a careful, holistic, and gradual manner.

Links: Speech, Consultation on Credit Risk, Consultation on Market Risk, Consultation on Operational Risk, Leverage Ratio Framework, Leverage Ratio Framework: FAQ, Capital Floors Based on Standardized Approaches, Criteria for Identifying STC Securitizations, Consultation on IRRBB, Presentation on Bank-Sovereign Nexus Across Borders, Meeting on Global Financial Interconnectedness Keywords: Basel III, Basel 3.5, Basel IV

http://www.bis.org/speeches/sp151102.htm



http://www.bis.org/publ/bcbs291.htm






https://www.bis.org/events/confresearchnetwork1510/breckenfelder_presentation.pdf

https://www.bis.org/events/confresearchnetwork1510/programme.htm


20 NOVEMBER 2015

Europe

European Union

Key Developments

Survey of National Practices Regarding Monetary Financial Institution Balance Sheet Statistics

- ECB

November 30, 2015


The ECB published the results of the survey of national practices regarding euro area monetary financial institutions’ (MFIs) balance sheet items (BSI) statistics. The dataset is compiled in accordance with the requirements of Regulation ECB/2013/33, which recast regulation ECB/2008/32 to reflect the changes in statistical standards introduced by ESA 2010 (as well as new user requirements). The survey is the result of a comprehensive exercise of gathering information on the different statistical reporting practices of MFIs within the euro area.

Balance sheet statistics for MFIs are one of the core statistics compiled by the ECB and a crucial input for the conduct of euro area monetary policy and research. With the publication, in April 2012, of the Manual on MFI balance sheet statistics (BSI Manual), the ECB provides a reference source for compiling monetary statistics, with a view to improving the comparability of such statistics and facilitating the work of compilers at national central banks, reporting institutions, and users of BSI statistics.

This survey aimed at gathering relevant information on statistical reporting practices for BSI statistics within ESCB). Against the background of existing ECB regulations and the methodology recommended in the BSI Manual, the survey covered, among other things, issues of institutional arrangements, accounting practices, methodological aspects, and linkages to other macroeconomic datasets.

The results of the survey are expected to help improve collection and compilation practices for monetary data in EU countries. The results should also further enhance the transparency of, and thereby confidence in, BSI statistics. This will improve the way users of monetary statistics of one of the largest economic areas in the world interpret the data published by the ECB and the national central banks.

Links: Report, Regulation ECB/2013/33, Guideline on Monetary and Financial Statistics, BSI Manual Keywords: MFI, Statistics

Assessment of Banks’ Pillar 3 Reports for 2015

- EBA

November 27, 2015


EBA released its assessment of the annual Pillar 3 reports of a sample of European banks, which relate to the 2014 financial year.

This is the first report since the entry into force of the Capital Requirements Regulation (CRR) that assesses banks' compliance against the disclosure requirements laid down in CRR. The assessment focuses both on those areas where the CRR introduced new disclosure requirements as well as on aspects where the EBA's previous assessments had identified needs for improvement. Overall, the EBA has observed an increase in the quality of disclosures, but compliance with new disclosure requirements is still a work in progress. Among the areas that improved are the provision of clear disclosure indices and the presentation of information on risk model parameters in a tabular format.

However, disclosures on own funds and capital requirements could be further improved, especially with regard to deductions due to prudential filters and the breakdown of capital requirements by exposure classes. Similarly, disclosures on internal ratings-based (IRB) models could be enhanced for the breakdown of IRB risk parameters by exposures and by geography. Finally, disclosures on the assessment of the global systemically important institutions status, remuneration, and asset encumbrance are more satisfactory but could be improved.

This report also compares the revised Basel Pillar 3 requirements issued by the Basel Committee in January 2015 with the current CRR disclosure requirements.

Link: Press Release Keywords: CRR, Disclosure, Pillar 3

http://www.ecb.europa.eu/pub/pdf/other/surveyofnationalpracticesremfibalancesheetstatsnov2015.en.pdf?17760790072615162a70b1e8695e7401

https://www.ecb.europa.eu/ecb/legal/pdf/02013r1071-20131127-en.pdf

http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1448960723588&uri=CELEX:02014O0015-20150409

https://www.ecb.europa.eu/pub/pdf/other/manualmfibalancesheetstatistics201204en.pdf?6b322ec658f10d85282d92d64baa2d62

http://www.eba.europa.eu/-/eba-provides-assessment-of-banks-pillar-3-reports-for-2015


21 NOVEMBER 2015

Updates to Single Rulebook Q&A: Published as Final Q&A in November 2015

- EBA

November 27 , 2015

Type of Information: Q&A

The updates for this month include 4 answers dated November 27, 2015; 7 answers dated November 20, 2015; 2 answers dated November 13, 2015; and 6 answers dated November 06, 2015.

The overall objective of the Questions and Answers (Q&A) tool is to ensure consistent and effective application of the new regulatory framework across the Single Market. Institutions, supervisors, and other stakeholders can use the Single Rulebook Q&A tool for submitting questions on Capital Requirements Directive (CRD) IV, CRR, and the related technical standards developed by the EBA and adopted by the EC.

Link: Q&A Keywords: CRD IV, CRR, Single Rulebook

Correction Statement on 2015 EU-Wide Transparency Data

- EBA

November 25, 2015


The transparency exercise data published by the EBA on November 24, 2015 contained information regarding the “fully loaded” common equity tier 1 (CET1) ratio for all EU banks in the sample. This ratio, which was published for information only, is calculated using the existing supervisory reporting data. The EBA has been alerted that there was an error in the published “fully loaded CET1 ratio” for some banks due to double counting of excess deductions from additional tier 1 capital.

The “fully loaded CET1 ratio” for all individual banks published by the EBA has, therefore, been removed from the interactive tool on the website. The aggregate figures in the EBA’s report will be updated accordingly.

Link: News Release Keywords: Transparency, CET1

Report on the Financial Stability Review

- ECB

November 25, 2015


The Financial Stability Review (FSR) assesses developments relevant for financial stability, in addition to identifying and prioritizing main risks and vulnerabilities for the euro area financial sector. It does so to promote awareness of these risks among policymakers, the financial industry, and the public at large, with the ultimate goal of promoting financial stability. The ECB defines financial stability as a condition in which the financial system—intermediaries, markets, and market infrastructures—can withstand shocks without major disruption in financial intermediation and in the general supply of financial services.

The FSR also plays an important role in the ECB’s new macro-prudential and micro-prudential tasks. With the establishment of the Single Supervisory Mechanism (SSM), the ECB was entrusted with the macro-prudential tasks and tools provided under the EU law. The FSR, by providing a financial system-wide assessment of risks and vulnerabilities, provides key input to the ECB’s macro-prudential policy analysis. Such a euro area system-wide dimension is an important complement to micro-prudential banking supervision, which is more focused on the soundness of individual institutions. Although the ECB’s new roles in the macro-prudential and micro-prudential realms rely primarily on banking sector instruments, the FSR continues to focus on risks and vulnerabilities of the financial system at large, including—in addition to banks—shadow banking activities involving non-bank financial intermediaries, financial markets, and market infrastructures.

In addition to its usual overview of current developments relevant for euro area financial stability, this review includes four special features aimed at deepening the ECB’s financial stability analysis and basis for macro-prudential policymaking. A first special feature discusses the impact of the Basel III leverage ratio on risk-taking and bank stability. A second examines how a prolonged low-yield period might affect the profitability and solvency of euro area insurers. A third proposes an alternative measure of systemic risk: the percentage of banks going bust simultaneously over a given time horizon at a given confidence level. The fourth special feature provides some model-based illustrations of the strategic interactions between a single monetary policy and jurisdiction-specific macro-prudential policies.

The review has been prepared with the involvement of the ESCB Financial Stability Committee. This committee assists the decision-making bodies of the ECB, including the Supervisory Board, in the fulfilment of their tasks.

Link: Report Keywords: FSR, SSM

Results of the EU-Wide Transparency Exercise

- EBA

November 24, 2015


EBA published the outcome of its 2015 EU-wide transparency exercise and provided detailed bank-by-bank data on capital positions, risk exposure amounts, and asset quality on 105 banks from 21 countries of the European Economic Area.

The data, which show improvements in the resilience of the EU banking sector, are published at the highest level of consolidation, covering about 70% of the total EU banking assets for the reference dates of December 31, 2014 and June 30, 2015. By disclosing these fully comparable figures in user-friendly formats, the EBA aims to promote greater understanding of capital positions and exposures of the EU banking sector and foster market discipline in the single market.

Link: Report Keywords: NPL, Transparency

http://www.eba.europa.eu/single-rule-book-qa

http://www.eba.europa.eu/-/correction-statement-on-2015-eu-wide-transparency-data

http://www.ecb.europa.eu/pub/pdf/other/financialstabilityreview201511.en.pdf?5c1f4fa2c0b5b86fff9bade1613be48c

http://www.eba.europa.eu/-/eu-banks-better-capitalised-in-2015-but-npls-remain-of-concern


22 NOVEMBER 2015

A Stronger Banking Union: New Measures to Reinforce Deposit Protection and Further Reduce Banking Risks

- EC

November 24, 2015


The EC proposed a euro-area wide insurance scheme for bank deposits and has set out further measures to reduce remaining risks in the banking sector. The European Deposit Insurance Scheme (EDIS) will strengthen the Banking Union, buttress bank depositor protection, reinforce financial stability, and further reduce the link between banks and their sovereigns.

These measures are a part of the steps set out in the Five Presidents' Report to strengthen the EU's economic and monetary union. The EC’s legislative proposal would guarantee citizens' deposits at the euro area level. The proposal is accompanied by a communication, which sets out other measures to further reduce remaining risks in the banking system in parallel to the work on the EDIS-proposal.

The scheme would develop over time and in three stages. It would consist of a re-insurance of national Deposit Guarantee Schemes (DGS), moving after three years to a co-insurance scheme, in which the contribution of EDIS will progressively increase over time. As a final stage, a full EDIS is envisaged in 2024. The scheme includes a series of strong safeguards against “moral hazard” and inappropriate use, to give incentives to national schemes to manage their potential risks in a prudent way. In particular, a national scheme will only be able to access EDIS if it fully complies with relevant Union law.

Links: Press Release, Five Presidents Report, EDIS Updates Keywords: EDIS, DGS

Qualitative and Quantitative Banking Supervision, A Speech by Sabine Lautenschläger, Member of the Executive Board of ECB

- ECB

November 24, 2015


Sabine Lautenschläger of the ECB spoke, at the conference “Banking Supervision, Resolution and Risk Management” during the 18th Euro Finance Week 2015 in Frankfurt, about qualitative and quantitative banking supervision.

She highlighted that both quantitative and qualitative supervision are an obligation under the CRD IV, which requires us to determine whether an institution has sufficient capital and liquidity to cover its risks. Likewise, supervisors have to judge whether institutions’ internal strategies, processes, and arrangements ensure a sound management of their risks. “We are even obliged to come up with our own numerical verdict, namely a decision on pillar 2 capital add-ons. No choice here.” The SSM complied with this obligation with its primary supervisory tool, the Supervisory Review and Evaluation Process (SREP).

It must be ensured that the SREP methodology adequately combines quantitative and qualitative supervision. This SREP methodology consists of four main elements:

» Business model assessment

» Internal governance and risk management

» Risks to capital

» Risks to liquidity and funding

All four elements are assessed and rated. They feed into the overall SREP assessment that forms the basis for SREP decisions. Of these four SREP elements, only the internal governance assessment is purely qualitative. One example of the combination of quantitative and qualitative supervision is the pillar 2 add-on quantification methodology.

Under the so-called “block 1” of element 3, risk levels and risk controls for credit, market, operational risk and interest rate risk in the banking book are assessed. The respective risk controls are assessed in a purely qualitative manner and then combined with risk-level assessments that consist of a combination of quantitative anchor points and a holistic, judgment-based assessment. In addition, under blocks 2 and 3, the banks’ Internal Capital Adequacy Assessment Process (ICAAP) figures, including internal stress testing figures plus the results of our own risk proxies and stress testing tools, are factored in.

Link: Speech Keywords: ICAAP, SREP, SSM, Stress Testing

http://europa.eu/rapid/press-release_IP-15-6152_en.htm?locale=en

http://ec.europa.eu/priorities/economic-monetary-union/docs/5-presidents-report_en.pdf

http://ec.europa.eu/finance/general-policy/banking-union/european-deposit-insurance-scheme/index_en.htm%23151124

http://www.bis.org/review/r151124c.pdf


23 NOVEMBER 2015

Financial Stability Review Pre-Release: The Impact of Basel III Leverage Ratio on Risk-Taking and Bank Stability

- ECB

November 23, 2015


The recent FSR, among other issues, examines the impact of Basel III leverage ratio on risk-taking and bank stability. The Basel III leverage ratio aims to constrain the build-up of excessive leverage in the banking system and to enhance bank stability. However, that the non-risk-based nature of the leverage ratio could incentivize banks to increase their risk-taking raised concerns. This special feature presents theoretical considerations and empirical evidence for EU banks that a leverage ratio requirement should only lead to limited additional risk-taking relative to the induced benefits of increasing loss-absorbing capacity, thus resulting in more stable banks.

Using a simple theoretical model, it is shown that the increased incentive to take risk is more than outweighed by the increase in loss-absorbing capacity from higher capital, thus leading to more stable banks. These results are confirmed within an empirical analysis on a large sample of EU banks. The empirical estimates suggest that banks bound by the leverage ratio increase their risk-weighted assets to total assets ratio by about 1.5-2.0 percentage points more than they otherwise would without a leverage ratio requirement.

The Financial Stability Review, which is published twice a year (usually May and November), provides an overview of the possible sources of risk and vulnerability to financial stability in the euro area. Its aim is to promote awareness of issues that are relevant for safeguarding the stability of the euro area financial system, both within the financial industry and among the public.

Links: Review, FSR Overview Keywords: Basel III, FSR, Leverage Ratio

Consultation on Criteria for a Preferential Treatment in Cross-Border Intragroup Financial Support under Liquidity Coverage Requirement

- EBA

November 18, 2015



EBA launched a public consultation on draft regulatory technical standards (RTS) related to liquidity requirements for cross-border intragroup financial support under stress conditions. The purpose of these RTS is to specify the additional objective criteria listed in the Delegated Act (Commission Delegated Regulation EU No 2015/61 of 10 October 2014), for the application of a preferential treatment in the calculation of the liquidity coverage requirement for cross-border intragroup liquidity flows.

The proposed draft RTS set out in more detail the additional criteria to those envisaged at domestic level that institutions within a group or within an institutional protection scheme need to meet in order to be able to apply higher inflows and/or lower outflows on liquidity and credit facilities on cross-border transactions. These criteria, as already specified in the LCR Delegated Act, aim at ensuring the effectiveness of the liquidity support.

In particular, these draft RTS specify how the liquidity provider and receiver shall present a low liquidity risk profile. The liquidity provider shall monitor and oversee the liquidity position of the receiver at least on a daily basis and its contingency funding plan shall ensure through this monitoring that the support to the receiver is guaranteed even in times of stress. In addition, the draft standards detail the necessary legally binding agreements and commitments between group entities regarding the credit or liquidity line.

Comments Due Date: January 13, 2016 Effective Date: N/A First Reporting Date: N/A Link: News Release Keywords: CRR, Intragroup Support, LCR

https://www.ecb.europa.eu/pub/fsr/html/index.en.html

https://www.ecb.europa.eu/pub/fsr/html/index.en.html

http://www.eba.europa.eu/-/eba-consults-on-criteria-for-a-preferential-treatment-in-cross-border-intragroup-financial-support-under-lcr


24 NOVEMBER 2015

Consultation on the Validation and Review of Credit Rating Agencies’ Methodologies

- ESMA

November 17, 2015



ESMA published its discussion paper on the validation and review of Credit Rating Agencies’ (CRAs) methodologies. The discussion paper:

» Provides background on validation practices in the credit rating industry.

» Shares good practices observed by ESMA in its recent supervisory investigation in validation.

» Seeks stakeholders’ views on the validation and review of CRAs’ methodologies.

» Asks how CRAs should meet the requirement in Articles 7 and 8 of Commission Delegated Regulation (EU) No 447/2012 on rating methodologies that the CRAs shall have “processes in place to ensure that systemic credit rating anomalies highlighted by back-testing are identified and are appropriately addressed”.

» Aims to help ESMA develop further its views on the quantitative and qualitative techniques used as part of the validation of methodologies required under the CRA Regulation.

» Requests views on how CRAs should demonstrate rating methodologies’ “discriminatory power,” “historical robustness,” “predictive power” or, where there is limited quantitative evidence, that the methodologies are “sensible predictors of credit worthiness”.

ESMA will hold an open hearing on January 25, 2016.

Comments Due Date: February 19, 2016 Effective Date: N/A First Reporting Date: N/A Link: News Release Keyword: CRA

Adoption of Equivalence Decisions for Central Counterparties in Canada, Switzerland, South Africa, Mexico, and the Republic of Korea

- EC

November 13, 2015


The EC adopted five “equivalence” decisions for the regulatory regimes for CCPs in Canada, Switzerland, South Africa, Mexico, and South Korea.

These decisions follow previous determinations of equivalence made in October 2014 for four other countries (Australia, Singapore, Japan, and Hong Kong). CCPs are bodies that sit in the middle of derivatives contracts, becoming the buyer to every seller and the seller to every buyer. The G20 has encouraged the use of CCPs since the financial crisis to reduce risk in derivatives trading.

An assessment for equivalence is undertaken by the EC if a CCP from third country seeks recognition from the ESMA. This means that the authority in the third country concerned must be able to show that its rules achieve the same objectives as in the EU—in this case, robust CCP framework promoting financial stability through a reduction in systemic risk. This does not mean that identical rules need to be in place in that country.

Links: Press Release, EMIR Updates Keywords: CCP, Equivalence Decision

http://www.esma.europa.eu/news/ESMA-consults-validation-and-review-CRAs%E2%80%99-methodologies?t=326&o=home

http://europa.eu/rapid/press-release_IP-15-6075_en.htm?locale=en

http://ec.europa.eu/finance/financial-markets/derivatives/index_en.htm


25 NOVEMBER 2015

Consultation on Draft Guidelines on the Treatment of Credit Value Adjustment Risk Under Supervisory Review and Evaluation Process

- EBA

November 13, 2015



The EBA launched a public consultation on guidelines on the treatment of credit value adjustment (CVA) risk under the SREP, which runs until February 12, 2016. The EBA also launched a data collection exercise for the quantitative impact study (QIS) to calibrate the threshold values. Relevant institutions will be contacted by their competent authorities and asked to provide data required in the accompanying template by January 28, 2016.

These draft guidelines implement a policy recommendation of the CVA report and provide a common European approach that would allow competent authorities to:

» Determine the relevance and materiality of CVA risk for an institution.

» Assess any material CVA risk under SREP.

» Assess the adequacy of own funds to cover material CVA risk.

» Determine additional own funds requirements, where the risk is not adequately covered by the minimum own funds requirements, particularly due to the exemptions in the EU legislative framework.

The common approach to the assessment of CVA risk under SREP is built around the re-inclusion of certain exempted transactions in the calculation of own funds requirements, as well as on the comparison of such hypothetical own funds requirements for CVA risk with actual minimum own funds requirements for CVA risk. By introducing a common approach to the assessment of material CVA risk, the draft guidelines complement the EBA guidelines on common procedures and methodologies for SREP.

As clearly stated in the CVA report, the additional own funds requirements imposed following the SREP assessment of material CVA risk should not replicate in full or in substantive part the international standards that have not been implemented into EU legislation.

The draft guidelines will be finalized following the completion of the public consultation and the accompanying QIS. The final guidelines will be supplemented by the EBA recommendation issued pursuant to Article 16 of Regulation (EU) 1093/2010, which will provide the threshold values for the formulas provided in the draft guidelines, which will apply together with the guidelines.

Comments Due Date: February 12, 2016 Effective Date: N/A First Reporting Date: N/A Links: Press Release, Consultation Paper, QIS Template Keywords: CVA, QIS, SREP

Update to EMIR Standards on Data Reporting

- ESMA

November 13, 2015


ESMA published an update of existing technical standards regarding data reporting requirements under the European Markets Infrastructure Regulation (EMIR). EMIR requires counterparties to report their derivative trades to trade repositories following a defined data format.

Since the implementation of EMIR reporting, ESMA has issued several Q&As, clarifying some interpretations of data fields of the technical standards and the most appropriate way of populating them. To ensure a consistent and harmonized population of data fields and reporting of complex derivatives, ESMA decided to transpose its existing Q&A, along with some other improvements into the technical standards by reviewing the existing EMIR technical standards, which entered into force in 2013. The updated technical standards:

» Clarify data fields, including their description, format, or both.

» Adapt existing fields to the reporting logic prescribed in existing Q&A or to reflect specific ways of populating them.

» Introduce new fields and values to reflect market practice or other necessary regulatory requirements.

EMIR requires ESMA to develop draft regulatory (RTS) and implementing technical standards (ITS) in relation to the application of the reporting obligation for counterparties and CCPs. Overall, EMIR aims at reducing systemic risk by, among others, introducing greater transparency to the OTC derivatives markets. Reporting of OTC derivatives contracts to trade repositories is a part of the G20 commitments aimed at reducing risk in the financial system.

ESMA’s final draft technical standards have been sent for endorsement to the EC. The Commission now has three months to approve these . After it is endorsed, both the European Parliament and the Council have an objection period.

Links: News Release, ITS and RTS Under Article 9 of EMIR, Update Notification Keywords: EMIR, ITS, Regulatory Reporting, RTS

http://www.eba.europa.eu/-/eba-consults-on-draft-guidelines-on-the-treatment-of-cva-risk-under-srep

http://www.eba.europa.eu/documents/10180/1270333/EBA-CP-2015-21+%28CP+on+GL+on+Treatment+of+CVA+Risk+under+SREP%29.pdf

http://www.eba.europa.eu/documents/10180/1270372/Annex+2-+QIS+Template.xlsx

http://www.esma.europa.eu/news/ESMA-updates-EMIR-standards-data-reporting?t=326&o=home

http://www.esma.europa.eu/system/files/2015-esma-1645_-_final_report_emir_article_9_rts_its.pdf

http://www.esma.europa.eu/system/files/2015-esma-1674_-_cover_letter_to_com_-_emir_technical_standards.pdf


26 NOVEMBER 2015

Updates to Remuneration Practices and Use of Allowances Across the EU

- EBA

November 12, 2015


EBA published a follow-up report on the actions taken following the publication of its Opinion on the use of allowances, in October 2014. In this Opinion, competent authorities were asked to use all necessary supervisory measures to ensure that, by December 31, 2014, the institutions using the “role-based allowances” adjust their remuneration policies in line with the criteria set out in the Opinion. The follow-up report concluded that the competent authorities have taken measures in this respect and, where necessary, have asked institutions to implement the necessary changes.

However, such measures will, in most cases, only be effective for the remuneration awarded for the performance year 2015, while only in few cases were changes to institutions' remuneration policies and practices already made for the performance year 2014.

Link: Press Release Keywords: Remuneration Practices

Benchmarking Report on the Use of Higher Ratios for Variable Remuneration

- EBA

November 12, 2015


EBA published a report benchmarking the institutions' remuneration practices concerning the use of the possibility to increase the maximum ratio between variable and fixed remuneration up to 200%. The CRD IV limits the aforementioned ratio to 100%, unless it is increased following the shareholders' approval.

The report also shows that nearly all member states have allowed for the possibility to increase the ratio between the two remuneration components to 200% but only institutions in 15 member states have actually made use of this possibility.

Link: Press Release Keywords: CRD IV, Variable Remuneration

AnaCredit Webpages

- ECB

November 11, 2015


AnaCredit, which stands for analytical credit datasets, is a project to set up a dataset containing detailed information on individual bank loans in the euro area, harmonized across all member states. This project was initiated in 2011, with the data collection scheduled to start in 2018.

Links: AnaCredit Webpage, Project Overview Keyword: AnaCredit

Consultation on Packaged Retail And Insurance-Based Investment Products Key Information for EU Retail Investors

- ESAs

November 11, 2015



The Joint Committee of the European Supervisory Authorities (ESAs) launched its joint consultation paper on packaged retail and insurance-based investment products (PRIIPs) key information documents (KID) to gather stakeholder views on proposed rules on the content and presentation of the KID.

The KID, once finalized and implemented, aims to provide EU retail investors with consumer-friendly information to enable retail investors to understand and compare packaged retail and insurance-based investment products (PRIIPs) across the EU, whether offered by banking, insurance, or securities firms. The paper sets out details on the proposed requirements to be included in the preparation of the KID, including:

» A common mandatory template for each KID, including the texts and layouts to be used

» A summary risk indicator of seven simple classes for the risk and reward section of the KID

» A methodology to assign each PRIIP to one of the seven classes contained in the summary risk indicator, and for the inclusion of additional warnings and narrative explanations for certain PRIIPs

» Details on performance scenarios and a format for their presentation, including possible performance for different time periods and at least three scenarios

» Costs presentation, including the figures that must be calculated and the format to be used for these, that is, in both cash and percentage terms

» Specific layouts and contents for the KID for products offering multiple options that cannot be effectively covered in three pages

The revision and republication of the KID is to be done at least annually. The KID must be provided sufficiently early for a retail investor to be able to take its contents into account when making an investment decision.

Comments Due Date: January 29, 2016 Effective Date: N/A First Reporting Date: N/A Link: News Release Keywords: KID, PRIIP

http://www.eba.europa.eu/-/eba-updates-on-remuneration-practices-and-the-use-of-allowances-across-the-eu

http://www.eba.europa.eu/-/eba-publishes-benchmarking-report-on-the-use-of-higher-ratios-for-variable-remuneration

https://www.ecb.europa.eu/explainers/tell-me-more/html/anacredit.en.html

https://www.ecb.europa.eu/stats/money/aggregates/anacredit/html/index.en.html

http://www.eba.europa.eu/-/esas-consult-on-priips-key-information-for-eu-retail-investors


27 NOVEMBER 2015

Draft Regulation on the Exercise of Options and Discretions

- ECB

November 11, 2015



ECB proposed draft regulation on the exercise of options and discretions, along with a guide on options and discretions.

The draft regulation determines the exercise of options and discretions in Union law and mandated to competent authorities, concerning prudential requirements for credit institutions. The exercise of those options and discretions provided for in this regulation is directly applicable to credit institutions classified as significant.

The draft guide defines the ECB’s approach concerning the exercise of options and discretions provided for in the EU legislative framework and regarding the prudential supervision of credit institutions (CRR/CRD IV). It aims to provide coherence, effectiveness, and transparency on the supervisory policies that will be applied in supervisory processes within the SSM as far as the significant credit institutions are concerned. In particular, it aims to assist the Joint Supervisory Teams in the performance of their tasks with regard to the principles the ECB intends to follow in supervising significant credit institutions.

Comments Due Date: December 16, 2015 Effective Date: N/A First Reporting Date: N/A Link: Consultation Keywords: CRR, CRD IV, Options and Discretions

Definition of Risk-Weights for Credit Ratings in the EU

- ESA

November 11, 2015


Regulatory Status: Final Rule

The Joint Committee of the three ESAs published two draft ITS on credit assessments by External Credit Assessment Institutions (ECAIs).

By determining an objective approach for attributing risk-weights to the assessments of ECAIs, as well as a prudential approach for those cases lacking factual evidence, these standards will ensure sound credit assessments contributing to financial stability in the EU.

The three ESAs have specified an approach that establishes the correspondence—or “mapping”—between credit ratings and the credit quality steps (QQS) defined in the EU prudential regulation for banking (CRR) and insurance (Solvency II ). The factors and benchmarks that need to be taken into consideration to this end are specified in these ITS. The ESAs also addressed situations where the degree of risk underlying a credit assessment cannot be ascertained due to the lack of factual evidence.

Comments Due Date: N/A Effective Date: [OJ Date] + 20 Days First Reporting Date: N/A Link: News Release Keywords: CRR, ECAI, QQS

Consultation on Information Exchanges Between Authorities Regarding Qualifying Holdings

- EBA

November 10, 2015



The EBA proposed a streamlined process for requesting information and related responses when competent authorities across the EU consult each other on acquisitions and increases of qualifying holdings in credit institutions. More flexibility is proposed in respect of the information that an authority can require, while a list of minimum information that should be requested is also defined.

The draft ITS lay down in detail the process and timeframes for notifying an information request and for responding to it, and provide a set of relevant templates for this purpose. Requirements for the designation of contact points within competent authorities and requirements for language and means of communication are also developed. When defining this process for information exchanges between authorities, the EBA has remained mindful of potential implications, at international and cross-sectorial level, involved in the acquisition of qualifying holdings across the EU.

Comments Due Date: February 10, 2016 Effective Date: N/A First Reporting Date: N/A Link: Press Release Keywords: CRD IV, ITS, Qualifying Holdings

https://www.bankingsupervision.europa.eu/legalframework/publiccons/html/reporting_options.en.html

http://www.eba.europa.eu/-/esas-define-risk-weights-for-credit-ratings-in-the-eu

http://www.eba.europa.eu/-/eba-consults-on-information-exchanges-between-authorities-regarding-qualifying-holdings


28 NOVEMBER 2015

Consultation on Stress Tests for Deposit Guarantee Schemes

- EBA

November 06, 2015



The proposed guidelines will provide the methodological principles to assess whether the operational and funding capabilities of DGSs are sufficient to ensure deposit protection in the event of a bank failure. In line with the Deposit Guarantee Schemes Directive (DGSD), these guidelines will promote the quality and the consistency of these stress tests. The resulting data will also facilitate future peer reviews by the EBA, contributing to a safe and sound EU framework for the benefit of depositors and financial stability.

The guidelines launched for public consultation will require DGSs across the EU to establish a program of tests over a period of two to five years, covering specific scenarios and indicators. The guidelines provide the broad types of intervention scenarios (simulations of failure) to be tested, along with the key areas to be assessed.

DGSs will test the various possible uses of funds provided for under the DGSD. The EBA also specified the main testing areas, which range from data access to operational resources, to communication and payments; and for each area, a series of indicators that will have to be measured. The EBA based this work on existing practices, organizational and cross-sector principles, to ensure that the stress tests performed by DGSs address relevant points. The proposal puts in place a framework for stress tests that will produce objective, comprehensive, and comparable results across the EU.

While the guidelines apply without any time limit, DGSs will be requested to run a number of priority tests and to report the results to their own authorities and the EBA by July 03, 2019. This will in turn enable the EBA to deliver its first peer review in 2020. The templates annexed to these guidelines will facilitate the collection of data in a consistent and comparable way.

Comments Due Date: February 08, 2016 Effective Date: N/A First Reporting Date: N/A Link: Press Release Keywords: DGS, Peer Review, Stress Testing

Announcement of Details of the 2016 EU-Wide Stress Test

- EBA

November 05, 2015


The EBA informed that the 2016 EU-wide banking stress test exercise will be carried out at the highest level of consolidation, on a sample of banks covering broadly 70% of the banking sector in the EU, as expressed in terms of total consolidated assets as of end 2014.

Fifty-three EU banks will participate in the exercise, 39 of which fall under the jurisdiction of the SSM. No single capital threshold is defined for this exercise as banks will be assessed against relevant supervisory capital ratios under a static balance sheet and the results will inform the 2016 round of SREP, under which decisions are made on appropriate capital resources and forward-looking capital plans are challenged.

The resilience of EU banks will be assessed against a common macroeconomic baseline and adverse scenario based on year-end 2015 figures, and applied over a period of three years, up to the end of 2018. The approach of the exercise is that of a constrained bottom-up stress test, where banks will be required to project the impact, but subject to strict constraints defined in the common methodology. The objective of the EU-wide stress test is to provide supervisors, banks, and other market participants with a common analytical framework to consistently compare and assess the resilience of the EU banking system to shocks.

The 2016 EU-wide stress test will be launched at the end of February 2016, with a publication of the final methodology and templates as well as the scenarios. The outcomes of the exercise, including banks' individual results, are expected to be published at the beginning of the third quarter of 2016.

Similar to the 2014 exercise, the 2016 EU-wide stress test is primarily focused on the assessment of the impact of risk drivers on the solvency of banks. Banks are required to stress test a common set of risks (credit risk including securitizations, market risk and counterparty credit risk, operational risk including conduct risk). In addition, banks are requested to project the effect of the scenarios on net interest income and to stress P&L and capital items not covered by other risk types. The 2016 exercise adds an explicit treatment of conduct risk and foreign-exchange lending to its scope.

This publication of the draft methodology and templates is the starting point for an informal discussion with banks, with a goal to receive their input, which will be taken into account when finalizing both documents. Regular discussions with banks will also help prepare for the exercise.

Link: Press Release Keywords: Foreign Exchange, SREP, Stress Testing

http://www.eba.europa.eu/-/eba-consults-on-stress-tests-for-deposit-guarantee-schemes

http://www.eba.europa.eu/-/eba-announces-details-of-2016-eu-wide-stress-test


29 NOVEMBER 2015

Consultation on Indirect Clearing Arrangements

- ESMA

November 05, 2015



ESMA launched a public consultation on draft requirements regarding indirect clearing. Indirect clearing happens when clients of a clearing member sign up clients of their own.

ESMA’s draft rules on indirect clearing refer to EMIR and the Markets in Financial Instruments Regulation (MiFIR), as they cover arrangements for OTC derivatives and exchange-traded derivatives (ETD), respectively. The aim of this consultation is to address issues raised by stakeholders in prior consultations and ensure consistency in the application of MiFIR and EMIR.

The draft RTS on indirect clearing cover:

» Rules for ETDs that are developed under MiFIR.

» Rules for OTC derivatives to amend existing RTS under EMIR.

Comments Due Date: December 17, 2015 Effective Date: N/A First Reporting Date: N/A Links: News Release, Consultation Paper Keywords: Clearing, EMIR, MiFIR

Finland

Key Developments

Staff Report and Selected Issues Report for the 2015 Article IV Consultation

- IMF

November 17, 2015


The IMF published staff report and selected issues report in the context of the 2015 Article IV consultation with Finland.

The report highlights that a new macro-prudential policy framework was introduced in the country, but there is scope for further measures. The implementation of the Bank Recovery and Resolution Directive (BRRD) in national legislation, including establishing a resolution authority and a new deposit guarantee and resolution fund, is a positive step. In addition, the Act on Credit Institutions, which was passed last year, introduced the macro-prudential policy tools required by CRR/CRD IV as well as a loan-to-value ratio cap for new mortgages to apply from mid-2016. The independent Board of the Finnish Financial Supervisory Authority (FIN-FSA) was also established as the macro-prudential authority.

The macro-prudential toolkit can be further strengthened, including adding a systemic risk buffer, as recommended by an internal study group. Adding this optional CRD instrument would better align Finland with the regulatory standards that its large foreign banks face in their home jurisdictions. In view of banks’ increasing reliance on wholesale funding, which creates potential funding and liquidity risks, the authorities should implement the Basel III net stable funding ratio and liquidity coverage ratio requirements as soon as is feasible.

Further enhancing regional cooperation on financial stability issues is also important. The SSM became the competent micro-prudential regulator for the three largest Finnish banks last year. However, as two of these—Nordea and Danske Bank—are subsidiaries of parent institutions outside of the banking union, the need for close cooperation on financial stability issues and cross-border resolution frameworks remains. The issue is accentuated by Nordea’s plans to convert its Finnish subsidiary into a branch. If this materializes, it will be important that the Finnish authorities retain the capacity to closely monitor this systemically important bank (which accounts for about 30% of loans and deposits in the Finnish banking system) for the purpose of financial stability risk analysis and macro-prudential policy formulation.

Moreover, it would be critical that robust cross-border supervisory cooperation, such as on information sharing, depositor protection, and resolution arrangements, is agreed between the relevant Finnish, Swedish, and European authorities.

Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Macro-Prudential Policy

http://www.esma.europa.eu/news/ESMA-consults-indirect-clearing-arrangements?t=326&o=home

http://www.esma.europa.eu/consultation/Consultation-paper-indirect-clearing-under-EMIR-and-MiFIR

http://www.imf.org/external/pubs/ft/scr/2015/cr15311.pdf



30 NOVEMBER 2015

Netherlands

Key Developments

Sector Letter Updating Banks on Supervisory Reporting

- DNB

November 12, 2015


DNB informed that at the end of 2015 and in the first few months of 2016, banks will again have to deal with new reports and validation rules, along with amendments to the specifications of existing reports.

Some more technical changes are also expected at the end of 2015 and in 2016. This sector letter lists the main changes and advises banks to stay informed of these changes and of relevant DNB, EBA, and ECB publications.

Links: News Release, Letter, Annex Listing Changes Keywords: CRR, Regulatory Reporting

Switzerland

Key Developments

Circular on Disclosure for Banks

- FINMA

November 20, 2015



FINMA published the revised circular on disclosure for banks. The circular has been adjusted to reflect enhanced international standards.

In addition to capital and liquidity standards, the international Basel III regime includes standards according to which banks must provide information about risks and risk management, equity capital, and liquidity standards in order to promote market discipline. As the previous disclosure standards did not allow for a proper comparison of risk situations between banks, FINMA Circular 2016/01 “Disclosure – banks” has been updated to reflect enhanced international standards. The revised disclosure standards have improved the information and decision-making tools for market participants and increased the comparability of institutions. One particular innovation is the use of standardized templates for disclosure.

The revised circular comes into force on January 01, 2016, implementing the revised standards with which all Swiss banks must comply as of December 31, 2016. Their application will be determined by the size of the bank. The 35 biggest banks in Switzerland must implement the international disclosure standards in full, or justify and explain in detail why they are foregoing disclosure and not providing information. The remaining 90% of Swiss banks will also disclose information in accordance with those standards, but in a smaller scope and less frequently; they also have longer transition periods for introducing the new standards.

Comments Due Date N/A: Effective Date: January 01, 2016 First Reporting Date: N/A Link: Press Release Keywords: Basel III, Disclosures

Updated Capital Adequacy Reporting Form for Basel III

- SNB

November 11, 2015



The SNB updated Basel III reporting forms (solo and consolidated reporting) version 2.5 and these are valid from the end of 2015.

SNB gathers this data on behalf of the FINMA.

Comments Due Date N/A: Effective Date: December 31, 2015 First Reporting Date: N/A Link: Updated Forms Keywords: Basel III, Regulatory Reporting

http://www.toezicht.dnb.nl/en/7/51-234538.jsp

http://www.toezicht.dnb.nl/en/binaries/51-234540.DOCX

http://www.toezicht.dnb.nl/en/binaries/51-234546.DOCX

https://www.finma.ch/en/news/2015/11/20151120-mm-rs-offenlegung-banken/

http://www.snb.ch/en/emi/BASEL3


31 NOVEMBER 2015

United Kingdom

Key Developments

Call for Input: Supporting the Development and Adoption of RegTech

- FCA

November 23, 2015

Type of Information: Technology

Following the financial crisis, firms have to deal with greater reporting requirements and meet higher regulatory standards. To enable effective competition and promote innovation, it is important that technologies that help firms better manage regulatory requirements and reduce compliance costs are supported.

This paper is expected to be of particular interest to businesses looking to use FinTech and RegTech for providing financial services. This can include innovator firms (both authorized firms and new entrants), accelerators, businesses in the finance industry, software firms, and technology companies.

Links: News Release, Paper Keyword: RegTech

Supervisory Statement on Internal Ratings Based Approaches: Update

- PRA

November 11, 2015


PRA updated this supervisory statement (SS11/13) to remove expectations that have been superseded by decisions or technical standards adopted by the EC. Specifically, the expectations relating to third country equivalence have been deleted and expectations for the notification of changes to IRB rating systems have been amended.

Readers should refer to the equivalence decisions taken by the EC and Delegated Regulation (EU) No 529/2014 as amended by Delegated Regulation (EU) No 2015/942 instead. A reference to form FSA004 has been deleted. The model change notification pro-forma, which has also been updated to align with relevant regulation, has been removed from the statement and can now be accessed via the PRA’s webpages using the link provided. Finally, various typographical errors have been corrected throughout the statement. No other expectations have been reviewed or amended and they remain as they were in the original statement published on December 19, 2013.

The supervisory statement covers the following principal topics:

» Corporate governance

» Permanent partial use and sequential implementation

» Overall requirements for estimation

» Definition of default

» Probability of default (PD)

» Loss given default (LGD)

» Exposure at default (EAD)

» Validation

» Income-producing real estate portfolios

» Temporary adjustments to approved models

Links: SS11/13, Equivalence Decisions, Regulation (EU) No 529/2014 of 12 March 2014, Pro Forma Notification Keywords: CRR, IRB, Third Country Equivalence

http://www.fca.org.uk/news/call-for-input-regtech

http://www.fca.org.uk/static/documents/regtech-call-for-input.pdf

http://www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss1113update.pdf

http://ec.europa.eu/finance/general-policy/docs/global/equivalence-table_en.pdf

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02014R0529-20150709

http://www.bankofengland.co.uk/pra/Documents/authorisations/waiverscrr/modelchange.docx


32 NOVEMBER 2015

Occasional Consultation Paper, CP41/15

- PRA

November 11, 2015



This Occasional Consultation Paper (CP41/15) proposes miscellaneous and minor amendments to PRA rules and supervisory statements. This OCP is relevant to PRA-regulated firms.

The particular relevance of each chapter is detailed in the introduction to each chapter. Where relevant, related draft instruments and supervisory statements are attached in the appendices. The paper’s chapters are:

» Amendments to Rulebook Parts relevant to the Society of Lloyd’s

» Amendments to SS13/13 on market risk

» Amendments to SS12/13 on counterparty credit risk

» Consequential amendments to the Senior Managers Regime (SMR) and the Senior Insurance Managers Regime (SIMR)

» Amendments to definitions related to credit unions

The amendments proposed in this consultation to SS13/13 and SS12/13 should be read alongside CP29/15 from August 2015. Responses are requested by Wednesday, November 25, 2015 for Chapter 1; Monday, January 11, 2016 for Chapters 4 and 5; and Thursday, February 11, 2016 for Chapters 2 to 3.

Comments Due Date: November 25, 2015; January 11, 2016; February 11, 2016 Effective Date: N/A First Reporting Date: N/A Links: CP41/15, CP29/15 Keywords: CCR, Market Risk, SIMR, Society of Lloyd’s

Interim LCR and Interim Intraday Reporting: Updated Notes for Submissions November 2015 Onward

- PRA

October 30, 2015



PRA published updated notes to help firms complete intraday and interim liquidity coverage ratio (LCR) returns. The updates address common errors found in the first submission of intraday reporting, which may also be relevant for interim LCR returns.

Comments Due Date: N/A Effective Date: November 30, 2015 First Reporting Date: N/A Links: CRD IV Updates, Interim LCR Reporting: Notes, Intraday Liquidity Reporting: Notes Keywords: Intraday Reporting, LCR, Regulatory Reporting

Middle East & Africa

Bahrain

Key Developments

Module Public Disclosure and Composition of Capital Disclosure Requirements

- CBB

November 16, 2015



Following the release of Module CA in respect of IFSB-15 and Basel III Pillar 1 in January 2015, the CBB is issuing a draft Module Public Disclosure and the related appendices dealing with the disclosure of the composition of capital.

Comments should be confined to the new Appendices and to new highlighted text in the Module. This consultation does not concern the existing Rulebook text.

Comments Due Date: January 14, 2016 Effective Date: N/A First Reporting Date: N/A Links: Notification, Consultation: Module PD, Appendices to Module PD Keywords: Basel III, Disclosures, IFSB-15

http://www.bankofengland.co.uk/pra/Pages/publications/cp/2015/cp4115.aspx

http://www.bankofengland.co.uk/pra/Pages/publications/cp/2015/cp2915.aspx

http://www.bankofengland.co.uk/pra/Pages/crdiv/updates.aspx

http://www.bankofengland.co.uk/pra/Documents/crdiv/interimlcrnotes1015.pdf

http://www.bankofengland.co.uk/pra/Documents/crdiv/intraliquiditynotes1015.pdf

http://www.cbb.gov.bh/assets/Consultations/Consultation%20letter_B3%20Draft%20Rulebook%20Module%20PD_Volume2_Nov2015.pdf

http://www.cbb.gov.bh/assets/Consultations/Vol%202_PD_Consultation_Nov%202015.pdf

http://www.cbb.gov.bh/assets/Consultations/Vol%202_Consultation_Appendices1-4_Nov%202015.pdf


33 NOVEMBER 2015

Saudi Arabia

Key Developments

Peer Review of Saudi Arabia

- FSB

November 05, 2015


The FSB published its peer review of Saudi Arabia, which examines three topics relevant for financial stability and important for Saudi Arabia: the macro-prudential policy framework, bank resolution, and deposit insurance.

The review focused on the steps taken by the authorities to implement reforms in these areas, including with respect to relevant recommendations in the 2011 Financial Sector Assessment Program (FSAP) report by the IMF and the World Bank.

The peer review concludes that the Saudi Arabia Monetary Agency (SAMA) made a fair amount of progress on all three topics. In particular, SAMA has developed and started operationalizing a macro-prudential policy framework, including by establishing a high-level internal Financial Stability Committee and recently issuing its first Financial Stability Report. A draft resolution law that contains the elements described in the FSB’s Key Attributes of Effective Resolution Regimes has been proposed; and an explicit deposit insurance system will be introduced starting January 01, 2016.

The peer review also found that there is additional work to be done:

» On the macro-prudential side, SAMA needs to further strengthen institutional arrangements, enhance its analytical capacity for financial stability and publicly communicate macro-prudential policy measures.

» On the bank resolution side, the authorities should proceed with the prompt adoption of the draft law and make it operational.

» On the deposit insurance system, further work is needed to address depositors’ perception of an implicit deposit guarantee and to clarify the implementing rules to ensure that it can function credibly and effectively.

The peer review report offers recommendations to the Saudi authorities for addressing these issues.

Link: Press Release Keywords: FSAP, Peer Review

South Africa

Key Developments

Update in Implementation of Basel II and Basel III

- SARB

November 26, 2015


Subsequent to the implementation of Basel III in South Africa, the Basel Committee issued various further, or revised, requirements in respect of a wide range of matters that required amendments to the local regulations. In addition, amendments to the regulations were required as a result of the 2015 RCAP process and Bank Supervision Department’s (BSD) supervisory review processes and participation in various international forums.

The amended regulations are expected to be published during December 2015, for implementation on January 01, 2016. Meanwhile, during November 2015, the BSD presented industry training sessions on the amendments.

Links: Implementation of Basel II and III: Update, Training: Amended Bank Regulations Keywords: Basel III

Proposed Amended Regulations Relating to Banks

- SARB

November 05, 2015



On September 01, 2015, the Office of the Registrar of Banks issued draft 1 of the proposed amended regulations relating to banks, for comment. This Office has worked through all the comments and further proposed amendments received, effecting the necessary amendments to the proposed amended Regulations. Following this, on November 05, 2015, the Office issued draft 2 of the proposed amended regulations for final review.

Comments Due Date: November 17, 2015 Effective Date: N/A First Reporting Date: N/A Links: Circular, Draft 2 of Proposed Amended Regulations Keywords: Basel III

http://www.financialstabilityboard.org/2015/11/fsb-completes-peer-review-of-saudi-arabia/

https://www.resbank.co.za/RegulationAndSupervision/BankSupervision/TheBaselCapitalAccord%28Basel%20II%29/Pages/AccordImplementationForum%28AIF%29.aspx

https://www.resbank.co.za/RegulationAndSupervision/BankSupervision/TheBaselCapitalAccord%28Basel%20II%29/Documents/Industry%20training%20Nov%202015.pdf

https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/6954/C7%20of%202015.pdf

http://www.resbank.co.za/publications/detail-item-view/pages/publications.aspx?sarbweb=3b6aa07d-92ab-441f-b7bf-bb7dfb1bedb4&sarblist=21b5222e-7125-4e55-bb65-56fd3333371e&sarbitem=6864


34 NOVEMBER 2015

Turkey

Key Developments

Peer Review of Turkey

- FSB

November 19, 2015


The FSB published its peer review of Turkey, which examined two topics relevant for financial stability in Turkey: the macro-prudential policy framework and tools and bank resolution. The review focused on the steps taken by the authorities to implement reforms in these areas, including with respect to relevant recommendations in the 2011 FSAP report by the IMF and the World Bank.

The peer review concludes that progress has been made in developing the macro-prudential policy framework and that the current bank resolution framework has served Turkey well, to date:

» A Financial Stability Committee has been established to promote information-sharing and to coordinate some policy measures among its member institutions.

» The Central Bank of Turkey has enhanced its focus on financial stability analysis.

» The authorities have a broad range of tools at their disposal and have used them in a proactive and flexible manner in recent years for macro-prudential purposes.

The authorities already have a fairly comprehensive bank resolution framework in place that reflects the significant experience gained from resolving banks during the 2000–01 banking crisis, while legislative amendments have been submitted to Parliament to provide for additional resolution powers. The peer review also found that additional work needs to be done:

» On the macro-prudential side, this involves developing an integrated systemic risk assessment and policy framework by enhancing joint (inter-agency) work, and linking the analysis of risks with the selection of policy tools as well as enhancing public communication of macro-prudential policies.

» On the bank resolution side, the current framework can be further strengthened by incorporating other resolution powers (in addition to those proposed in the legislative amendments) and also provisions for cross-border cooperation and information sharing of the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions. The authorities should also review arrangements for funding of banks in resolution and develop recovery and resolution plans and conduct resolvability assessments for all banks that could be systemic in the event of failure.

The peer review report includes recommendations to the Turkish authorities for addressing these issues.

Link: Press Release Keywords: Bank Resolution, Macro-Prudential Policy, Peer Review

http://www.financialstabilityboard.org/2015/11/fsb-completes-peer-review-of-turkey/


35 NOVEMBER 2015

Americas

United States of America

Key Developments

Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations

- FED

November 30, 2015



The Fed proposed a new rule (12 CFR Parts 217 and 252, Regulations Q and YY), under which a U.S. top-tier bank holding company identified by the Board as a global systemically important banking organization (covered BHC) would be required to maintain outstanding a minimum amount of loss-absorbing instruments, including a minimum amount of unsecured long-term debt, and related buffer. The proposed rule would also require the top-tier U.S. intermediate holding company of a global systemically important FBO with USD 50 billion or more in U.S. non-branch assets (covered IHC) to maintain outstanding a minimum amount of intra-group loss-absorbing instruments, including a minimum amount of unsecured long-term debt, and related buffer.

The proposed rule would impose restrictions on the other liabilities that a covered BHC or covered IHC may have outstanding. Finally, the proposed rule would require state member banks, BHCs, and savings and loan holding companies that are subject to the Board’s capital rules to apply a regulatory capital deduction treatment to their investments in unsecured debt issued by covered BHCs.

In November 2014, the FSB published for consultation a set of principles and a term sheet to implement those principles in the form of an internationally negotiated minimum standard for the TLAC of G-SIBs. Under the FSB’s proposed standard, GSIBs would be subject to a TLAC requirement equal to the greater of:

» A figure between 16% and 20% of the banking organization’s risk-weighted assets (with the specific figure within that range to be agreed upon later)

» Twice the Basel III tier 1 leverage ratio requirement

The FSB’s proposed standard also contains an expectation that a G-SIB would meet at least one third of its TLAC requirement with eligible long-term debt rather than equity. This proposal is generally consistent with the FSB’s proposed standard, although it includes a required long-term debt component that is more stringent than the expectation in the FSB’s proposed standard.

Comments Due Date: February 01, 2016 Effective Date: N/A First Reporting Date: N/A Links: Proposed Rule: Federal Register, Press Release, Proposed Rule of FSB Keywords: G-SIB, Regulations Q and YY, TLAC

Margin and Capital Requirements for Covered Swap Entities

- US Agencies

November 30, 2015



The OCC, Fed, FDIC, FCA and FHFA (OCC 12 CFR Part 45; FED 12 CFR Part 237; FDIC 12 CFR Part 349; Farm Credit Administration 12 CFR Part 624; FHFA 12 CFR Part 1221) are adopting a joint rule to establish minimum margin and capital requirements for registered swap dealers (SDs), major swap participants (MSPs), security-based swap dealers (SSDs), and major security-based swap participants, for which one of the agencies is the prudential regulator.

This final rule implements sections 731 and 764 of the Dodd-Frank Act, as amended by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA). Sections 731 and 764 require the agencies to adopt rules jointly to establish capital requirements and initial and variation margin requirements for such entities on all non-cleared swaps and non-cleared security-based swaps in order to offset the greater risk to such entities and the financial system arising from the use of swaps and security-based swaps that are not cleared.

For the purpose of initial margin, the compliance dates range from September 01, 2016 to September 01, 2020, depending on the average daily aggregate notional amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards, and foreign exchange swaps (covered swaps) of the covered swap entity and its counterparty (accounting for their respective affiliates) for each business day in March, April, and May of that year. For the purpose of variation margin, the compliance dates are September 01, 2016 and March 01, 2017, depending on same criteria as for initial margin.

Comments Due Date: N/A Effective Date: April 01, 2016 First Reporting Date: N/A Links: Final Rule, Interim Final Rule (TRIPRA Exemptions) Keywords: Dodd-Frank Act, Swap Margin Rule, SD MSP

http://www.gpo.gov/fdsys/pkg/FR-2015-11-30/pdf/2015-29740.pdf

http://www.federalreserve.gov/newsevents/press/bcreg/20151030a.htm

http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Condoc-6-Nov-2014-FINAL.pdf




36 NOVEMBER 2015

Amendments to the Capital Plan and Stress Test Rule

- FED

November 26, 2015



The Fed approved a final rule (12 CFR Parts 225 and 252; Regulations Y and YY) to modify its capital plan and stress testing rules. The changes would take effect for the 2016 capital plan and stress testing cycle.

The final rule is largely similar to the proposed rule and would modify the timing for several regulatory requirements that have yet to be integrated into the capital plan and stress-testing framework. Firms subject to the supplementary leverage ratio would begin to incorporate it into their capital plan and stress testing for the 2017 cycle. For stress-testing exercises, all firms would continue to use the generally applicable risk-based capital framework, but use of the advanced approaches risk-based capital framework—which is generally applicable to firms with at least USD 250 billion in total consolidated assets or USD 10 billion in on-balance sheet foreign exposures—would be delayed indefinitely. However, those firms would continue to be subject to the advanced approaches framework for their regulatory capital ratios.

The CET1 capital requirement in the Board's revised regulatory capital rules—which significantly strengthened the quality and quantity of capital held by banking organizations—will be fully phased in over the nine-quarter planning horizon of the 2016 capital plan and stress testing cycles. Generally, this ratio will require firms to hold more regulatory capital than the tier 1 common ratio, which was used before the introduction of the Board's revised regulatory capital rules. The final rule would remove the requirement for firms to calculate a tier 1 common ratio. Additionally, the Board continues to review a broad range of issues related to its capital planning and stress testing rules. Any modifications from that review will be undertaken through a separate rulemaking and would take effect no earlier than the 2017 cycle.

Comments Due Date: N/A Effective Date: January 01, 2016 First Reporting Date: N/A Links: Press Release, Final Rule Keywords: Capital Planning, Regulation Y, Regulation YY, Stress Testing

Implementation of Several Recommendations to Enhance Supervision of Large and Complex Banking Organizations

- FED

November 24, 2015


The Fed announced that it is implementing several recommendations to enhance the supervision of large and complex banking organizations. The recommendations were developed after an extensive review of Reserve Bank procedures for supporting consistent and sound supervisory decisions as well as methods used by Reserve Banks to resolve differing staff opinions related to the supervision of large and complex firms.

While the review found that 95% of staff interviewed felt empowered to raise differing opinions, it noted that a formal process for raising divergent views had not been established. To address this, the Federal Reserve System in 2016 will develop policies and practices to encourage the exchange of, and response to, divergent staff views on all supervisory matters. Additionally, the review found that some supervisory teams employed sound practices and produced detailed and thorough analysis. However, the review also identified inconsistencies in documentation produced by supervisory teams and noted instances of inconsistent practices by Reserve Banks.

To remedy these inconsistencies, the Operating Committee of the Large Institution Supervision Coordinating Committee (LISCC) will oversee the establishment of minimum operating and documentation standards for all supervisory activities. The Federal Reserve System is also developing a curriculum specifically tailored to the supervision of large financial institutions for its examiner commissioning and training program. The Operating Committee of the LISCC will also oversee the development of new training materials for members of the supervisory teams and establish additional expectations for both procedural and substantive elements of the LISCC supervisory program.

In November 2014, the Board announced a review to ensure that the examinations of those firms are consistent, sound, and supported by all relevant information. The review analyzed Reserve Bank supervisory team processes for generating the recommended annual ratings of the LISCC firms. The review examined 350 separate work products while 122 current and former staff members and eight senior officers were interviewed.

Links: Press Release, Statement Keyword: LISCC


http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151125a1.pdf

http://www.federalreserve.gov/newsevents/press/bcreg/20151124b.htm

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151124b1.pdf


37 NOVEMBER 2015

Liquidity Coverage Ratio: Public Disclosure Requirements; Extension of Compliance Period for Certain Companies to Meet the Liquidity Coverage Ratio Requirements

- FED

November 24, 2015



The Fed proposed a rule (12 CFR Part 249; Regulation WW) requiring large banking organizations to publicly disclose several measures of their liquidity profile. The Board invites public comment on a proposed rule that would implement public disclosure requirements regarding the LCR of large, internationally active banking organizations and certain smaller, less complex banking organizations.

The proposed rule would apply to all depository institution holding companies and covered nonbank companies that are required to calculate the LCR (covered companies) under 12 CFR part 249. A covered company would be required to publicly disclose, on a quarterly basis, quantitative information about its LCR calculation as well as a discussion of certain features of its LCR results. The proposed rule would also amend 12 CFR part 249 to provide a full year for certain companies to come into compliance with 12 CFR part 249.

BCBS published LCR disclosure standards in January 2014 and revised the standards in March 2014. This proposed rule would implement public disclosure requirements that are consistent with the BCBS disclosure standards and the BCBS common template, with some modifications to require more granularity and to reflect ways in which the LCR Rule differs from the BCBS standard.

The differences between the proposed rule and the BCBS disclosure standards relate primarily to the enhancements implemented in the LCR Rule. The disclosure requirements contained in the proposed rule generally will ensure comparability of components of the LCR calculations on an international basis.

Comments Due Date: February 02, 2016 Effective Date: N/A First Reporting Date: N/A Links: Press Release, BCBS LCR Disclosure Standards Keywords: Disclosure, LCR, Regulation WW

Stress Testing of Regulated Entities

- FHFA

November 24, 2015



The FHFA is adopting a final rule (12 CFR Part 1238) amending its stress testing rule adopted in 2013 to implement section 165(i) of the Dodd-Frank Act.

These amendments adopt the proposed amendments without change to modify the start date of the stress test cycles from October 01 of a calendar year to January 01 of the following calendar year; the dates for FHFA to issue scenarios for the upcoming cycle; the dates for the regulated entities to report the results of their stress tests to FHFA; and the dates for the regulated entities to publicly disclose a summary of their stress test results for the severely adverse scenario. These amendments align FHFA’s rule with rules adopted by other financial institution regulators that implement the Dodd-Frank stress testing requirements.

Comments Due Date: N/A Effective Date: January 01, 2016 First Reporting Date: N/A Link: Final Rule Keywords: Dodd-Frank Act, Stress Testing

Treatment of Financial Assets Transferred in Connection With a Securitization or Participation

- FDIC

November 24, 2015



FDIC is issuing a final rule (12 CFR Part 360) that revises certain provisions of its “securitization safe harbor” rule, which relates to the treatment of financial assets transferred in connection with a securitization or participation. The aim is to clarify the requirements of the securitization safe harbor regarding the retention of an economic interest in the credit risk of securitized financial assets in connection with the effectiveness of the credit risk retention regulations.

With regard to requirements applicable to all securitizations (§ 360.6 paragraph (b)(5)(i)), the documents creating the securitization will require that the sponsor retain an economic interest in a material portion, defined as not less than 5% of the credit risk of the financial assets.

This retained interest may be either in the form of an interest of not less than 5% in each of the credit tranches sold or transferred to the investors or in a representative sample of the securitized financial assets equal to not less than 5% of the principal amount of the financial assets at transfer. This retained interest may not be sold, pledged or hedged, except for the hedging of interest rate or currency risk, during the term of the securitization.

Comments Due Date: N/A Effective Date: January 25, 2016 First Reporting Date: N/A Link: Final Rule Keywords: Retention Rule, Securitization, Safe Harbor Rule






38 NOVEMBER 2015

Approval of the Extension for Three Years with Revision of the Complex Institution Liquidity Monitoring Report (FR 2052a) and the Liquidity Monitoring Report (FR 2052b)

- FED

November 17, 2015



The FR 2052 reports are used to monitor the overall liquidity profile of institutions supervised by the Fed. This data provide detailed information on the liquidity risks within different business lines (for example, financing of securities positions, prime brokerage activities).

In particular, this data serves as part of the Fed’s supervisory surveillance program in its liquidity risk management area and provide timely information on firm-specific liquidity risks during periods of stress. Analysis of systemic and idiosyncratic liquidity risk issues are then used to inform the Fed’s supervisory processes, including the preparation of analytical reports that detail funding vulnerabilities. Additionally, FR 2052a will allow the Fed to monitor compliance with the LCR.

The Fed notes that the FR 2052a was not designed solely for monitoring compliance with the LCR; rather, it is a supervisory liquidity report that also allows for monitoring compliance with the LCR. In the context of that supervisory purpose and based on an analysis of the reporting firms, the FR 2052a will be better tailored to the size and complexity of the firms. First, the timing of the data submission will be extended to T+10 days for the smaller firms subject to FR 2052a reporting requirements. In addition, the FR 2052a will be revised to have tailored data elements.

The reporting frequency will be daily or monthly for FR 2052a, and quarterly for FR 2052b. The estimated number of respondents are 48 for FR 2052a, and 52 for FR 2052b. Reporting entities for these forms are:

» FR 2052a—Bank holding companies and savings and loan holding companies subject to the LCR with total assets of USD 700 billion or more or with USD 10 trillion or more in assets under custody; U.S. firms with total assets of less than USD 700 billion and with assets under custody of less than USD 10 trillion, but total assets of USD 250 billion or more or foreign exposure of USD 10 billion or more; U.S. firms with total assets of USD 50 billion or more but total assets of less than USD 250 billion and foreign exposure of less than USD 10 billion; foreign banking organizations (FBOs) that are identified as LISCC firms; FBOs with U.S. assets of USD 250 billion or more that are not identified as LISCC firms; and FBOs with U.S. assets of USD 50 billion or more but U.S. assets less than USD 250 billion that are not identified as LISCC firms.

» FR 2052b—U.S. bank holding companies (BHCs) not controlled by FBOs with total consolidated assets of USD 10 billion or more but less than USD 50 billion

Comments Due Date: N/A Effective Date: November 30, 2015 First Reporting Date: N/A Links: Federal Register, Announcement: Final Rule, Supporting Statement for Reports, FR2052a Instructions Keywords: FR 2052a, FR 2052b, Liquidity Risk


http://www.federalreserve.gov/reportforms/formsreview/FR2052a_FR2052b_20151112_ffr_unpublished.pdf

http://www.federalreserve.gov/reportforms/formsreview/FR2052a_FR2052b_20151112_omb.pdf

http://www.federalreserve.gov/reportforms/formsreview/FR2052a_20151112_i.pdf


39 NOVEMBER 2015

Revision of Company-Run Annual Stress Test Reporting Template and Documentation for Covered Institutions With Consolidated Assets of USD 50 Billion or More

- OCC

November 17, 2015



The OCC is soliciting comment concerning a revision to a regulatory reporting requirement for national banks and federal savings associations titled, ‘‘Company-Run Annual Stress Test Reporting Template and Documentation for Covered Institutions with Total Consolidated Assets of USD 50 Billion or More under the Dodd-Frank Act.’’ The proposed revisions to the DFAST–14A reporting templates consist of the following:

» Bank-specific scenario: Covered institutions would be required to submit bank-specific baseline and stress scenarios and projections for 2017 and will have the option to do so for 2016.

» Largest counterparty default: For the largest trading covered institutions that also submit the Global Market Shock scenario, they would be required to assume the default of their largest counterparty in the supervisory severely adverse and adverse scenarios for 2017 and will have the option to do so for 2016.

» Advanced approaches banks: Delay incorporation of the supplemental leverage ratio for one year and indefinitely defer the use of the advanced approaches for stress testing projections.

Reporting template and supporting documentation changes include clarifying instructions, adding data items, deleting data items, and redefining existing data items. This includes an expansion of the information collected in the scenario schedule. The proposed revisions also include a shift of the as-of date in accordance with modifications to the OCC’s stress testing rule.

These revisions also reflect the implementation of the final Basel III regulatory capital rule. On July 09, 2013, the OCC approved a joint final rule that will revise and replace the OCC’s risk-based and leverage capital requirements to be consistent with agreements reached by BCBS in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems.” Accordingly, the proposed revisions would reflect the fact that institutions will no longer report items based on the pre-Basel III capital rules.

Comments Due Date: January 19, 2016 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: Basel III, Dodd-Frank Act, DFAST-14A, Stress Testing



40 NOVEMBER 2015

Office of Financial Research and University of Maryland Announce Financial Entity Identification and Information Integration Challenge

- OFR

November 16, 2015


The goal of the Financial Entity Identification and Information Integration (FEIII) Challenge is for information specialists to develop technologies that automatically align diverse financial entity identification schemes from four key regulatory datasets:

» Federal Financial Institutions Examination Council Reports of Condition and Income (FFIEC Call Reports)

» Company information from the Securities and Exchange Commission Electronic Data Gathering, Analysis and Retrieval system (SEC EDGAR)

» A member list from the Federal Home Loan Banks (FHLB)

» LEI information assembled by the OFR

The difficulty of precisely identifying different parts of a financial institution, due to complex organizational structures and similar names, can lead to problems in linking financial datasets to one another, identifying counterparties, and cross-referencing data. The financial crisis demonstrated the need for a global identifier system for risk management and regulatory oversight. The OFR has led the global efforts to create the LEI, a unique, 20-digit identifier, like a bar code, for identifying all the legal entities involved in the thousands of financial transactions that happen around the world every day.

Broader adoption of the LEI and alignment of the different identifiers used by regulators would facilitate cross-referencing for industry practitioners and researchers to track the complex hierarchies and networks of ownership, and control of corporations and holding companies. This ability to cross-reference would benefit financial institutions, data providers, and academic researchers, as well as the regulatory community.

The OFR and National Institute of Standards and Technology will be producing the reference data used in scoring results. Scores and data will be returned to participants, released to all participants at a workshop at the end of the challenge, and released to the public afterward. The timeline is the following:

» Task guidelines and data release: November 15, 2015

» Example ground truth release: January 15, 2016

» Deadline for submission of results: March 15, 2016

» Evaluation scores and ground truth released to participants: April 15, 2016

» One page report from invited participants: May 06, 2016

» Workshop report from organizers: May 06, 2016

» Workshop event: Friday July 01, 2016

The Dodd-Frank Act established the OFR within the U.S. Department of the Treasury to support the FSOC, its member organizations, and the public by improving the quality, transparency, and accessibility of financial data and information; conducting and sponsoring research related to financial stability; and promoting best practices in risk management.

Links: Announcement, FEIII Challenges Keywords: FEIII, LEI

http://financialresearch.gov/grants/feiii-challenge/

https://ir.nist.gov/dsfin/


41 NOVEMBER 2015

Supervisory Rating System for Financial Market Infrastructures

- FED

November 13, 2015



Title VIII of the Dodd-Frank Act granted the Fed enhanced authority to supervise ‘‘financial market utilities’’ (FMUs) that are designated as systemically important by the FSOC (financial market utilities are defined to comprise a subset of the entities that, outside the U.S., are generally called ‘‘financial market infrastructures’’ or ‘‘FMIs’’).

In addition, the Board may have direct supervisory authority over other FMIs subject to its jurisdiction. The Board proposes to use the ORSOM (Organization; Risk Management; Settlement; Operational Risk and Information Technology; and Market Support, Access, and Transparency) rating system in reviews of FMIs. The Board is seeking comment on this system for rating FMIs. The Federal Reserve anticipates implementing the ORSOM rating system in 2016.

FMIs receive a rating for each ORSOM category based on an evaluation of the FMI, against that category’s key attributes. Regulation HH prescribes risk management standards for designated financial market utilities (DFMU). An FMI’s rating should be consistent with the expectations set forth in Regulation HH, the PSR policy, and supervisory guidance, such as supervisory review letters and FFIEC guidance. The rating scale ranges from 1 to 5, with a rating of 1 indicating the strongest performance and, therefore, the level of least supervisory concern. A rating of 5 indicates the most critically deficient level of performance and, therefore, the greatest level of supervisory concern.

Comments Due Date: January 22, 2016 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: FMU, ORSOM, Ratings

FASB Votes to Proceed with Final Standard on Leases and Final Standard on Recognition and Measurement of Financial Instruments

- FASB

November 11, 2015


The FASB voted to proceed with the following:

» New accounting standard that would require companies and other organizations to include lease obligations on their balance sheets. The final Accounting Standards Update (ASU) is expected to be published in early 2016, effective for public companies for annual periods beginning after December 15, 2018 and for private companies after December 15, 2019. Early adoption will be permitted upon issuance of the standard.

» Final ASU intended to improve and simplify the recognition and measurement of financial instruments, which is expected to be issued in the coming weeks to permit early adoption of the “own credit” provision in the standard: fair value changes resulting from own credit for financial liabilities measured under the fair value option in current GAAP will be recognized through other comprehensive income (OCI) instead of net income, effective for public companies for annual periods beginning after December 15, 2018 and for private companies after December 15, 2019.

» The new credit losses standard will require a forward-looking “expected loss” approach instead of the “incurred loss” approach in effect November 11, 2015. The Board expects to publish a final ASU on credit losses in early 2016 , effective for public companies for annual periods beginning after December 15, 2018 and for private companies after December 15, 2019 (no early adoption permission mentioned).

Links: Standard on Leases, Standard on Recognition and Measurement of Financial Instruments Keywords: Expected Loss, Financial Instruments, Leases


http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FNewsPage&cid=1176167530388

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FNewsPage&cid=1176167531729


42 NOVEMBER 2015

Advisory on Effective Risk Management Practices for Purchased Loans and Purchased Loan Participations

- FDIC

November 06, 2015


The FDIC issued an Advisory to update information contained in the FDIC Advisory on Effective Credit Risk Management Practices for Purchased Loan Participations. This updated Advisory addresses purchased loans and loan participations and reminds FDIC-supervised institutions of the importance of underwriting and administering these purchased credits as if the loans were originated by the purchasing institution.

Some institutions are relying on lead or originating institutions and nonbank third parties to perform risk management functions when purchasing: loans and loan participations, including out-of-territory loans; loans to industries or loan types unfamiliar to the bank; leveraged loans; unsecured loans; or loans underwritten using proprietary models. Institutions are advised to underwrite and administer loan and loan participation purchases as if the loans were originated by the purchasing institution. This includes understanding the loan type, the obligor's market and industry, and the credit models relied on to make credit decisions.

Before purchasing a loan or participation or entering into a third-party arrangement to purchase or participate in loans, financial institutions should:

» Ensure that loan policies address such purchases.

» Understand the terms and limitations of agreements.

» Perform appropriate due diligence.

» Obtain necessary board or committee approvals.

This Advisory (FIL-49-2015) supplements existing guidance and rescinds and replaces the FDIC Advisory on Effective Credit Risk Management Practices for Purchased Loan Participations, FIL-38-2012.

Link: Statement Keywords: Loans, Credit Risk

Shared Responsibility for the Regulation of International Banks, A Speech by Daniel K. Tarullo of the FED

- FED

November 05, 2015


Daniel K. Tarullo of the Fed spoke about the shared responsibility and the remaining challenges in the regulation of international banks, at the 18th Annual International Banking Conference in Chicago, Illinois.

He highlighted that in meeting its responsibility to promote domestic financial stability, the Fed last year followed the lead set by the EU earlier and adopted a regulation requiring that subsidiaries of G-SIBs engaged in traditional banking as well as those engaged in capital markets activities be covered by local capital requirements consistent with Basel III. However, neither in the U.S. nor the EU do the G-SIB capital surcharges imposed at the consolidated level apply to foreign banking operations in their jurisdictions.

Therefore, even if the global bank has local capital requirements for most or all of its foreign operations, the parent still has some flexibility as to where the additional capital buffer can be maintained. More generally, the requirements for other prudential regulations applicable to FBOs are calibrated to the relative importance of the FBOs in the U.S. financial system.

Even with good standards, regulators in host jurisdictions will want assurance that these standards are being rigorously implemented and enforced. The relative opaqueness of bank balance sheets makes capital, liquidity, and other common banking regulations difficult to monitor effectively. This argues for complementing fairly complex regulation that seeks to track the often-complex activities of large banks with simpler regulations, such as the leverage ratio and a standardized risk-weighted capital floor. But it also argues for existing international fora such as the Basel Committee and the FSB to provide effective monitoring mechanisms.

Even with higher standards in place, supervisors in home and host jurisdictions will still face challenges in assessing cross-jurisdiction vulnerabilities. More regular sharing of information and assessments among home and key host jurisdictions both formally and informally should be high on our shared agenda.

Link: Speech Keywords: FBO, G-SIB

https://www.fdic.gov/news/news/financial/2015/fil15049.html

http://www.federalreserve.gov/newsevents/speech/tarullo20151105a.pdf


43 NOVEMBER 2015

Post-Crisis Risks and Bank Equity Capital, A Speech by the FDIC Vice Chairman Thomas M. Hoenig

- FDIC

November 05, 2015


Thomas M. Hoenig, the FDIC Vice Chairman, spoke about the role of capital in the context of the future of large, internationally active banks, at the 18th Annual International Banking Conference in Chicago, Illinois.

He emphasized that the “global banks are not as well capitalized as some within the industry would have you believe. The fact is they remain highly leveraged and highly complicated, and should one fail, it would have systemic, destabilizing consequences.” Mr. Hoenig proposed two different ways to address these concerns:

» One would require detailed rules to control firms’ behaviors, structure their balance sheets, and direct their activities. The latest example is the Federal Reserve’s minimum debt proposal, recently put out for discussion, that would require firms to issue additional long-term debt that would turn to equity when needed to increase their “total loss-absorbing capacity.” However, servicing of this debt is costly, putting earnings pressure on firms and their units and this could accelerate failure in case an institution runs into financial trouble. “This goes to the core of our discussion about the fundamental need for equity, versus debt, to make a financial system strong. A question we must ask, then, is whether the effect of such a requirement that is designed to make a firm more resolvable once that firm has failed, could—prior to failure—increase the firm’s leverage and thereby its likelihood to default. Our goal to prevent failure should be every bit as important as resolving failed firms,” said the FDIC Vice Chairman. This option “would require regulators to predict what activities and investments might cause future crises. It also would require them to calibrate rules in a manner that wouldn’t give rise to subsequent crises. In other words, regulators would have to successfully anticipate the source of future crises, which as you know could arise from a number of activities, but mostly likely will come from something we fail to predict.”

» The other way to promote stability would be to simply demand more equity capital to enable banking firms to better withstand a crisis, while allowing them to run their businesses with less government direction. This approach “is based on equity capital and thus would not require such extraordinary insight from regulators.” It acknowledges that “regulators cannot predict events and it ensures a safer system because well-capitalized institutions are better able to withstand shocks and survive crises. Using simple leverage measures, instead of risk-based capital measures, eliminates relying on the best guesses of financial regulators to guide decisions.”

Policymakers involved in capital regulation, including the Basel Committee as it proceeds with its review of the calibration of the leverage ratio, should take seriously the benefits of a strong foundation of equity capital, best measured using a leverage ratio. Contrary to some claims, equity capital does support sustainable risk taking over the course of the cycle by removing the necessity of regulators to pick winners and losers, thus allowing the owners of the capital to take their own risks, run their own firms, and absorb their own losses without public support.

Links: Speech, Proposed Rule on TLAC Keywords: G-SIB, Leverage, TLAC

https://fdic.gov/news/news/speeches/spnov0515.pdf



44 NOVEMBER 2015

Mexico

Key Developments

Staff Report and Selected Issues Report for the 2015 Article IV Consultation

- IMF

November 17, 2015


The IMF published its staff report and selected issues report in the context of the 2015 Article IV consultation with Mexico.

The report reveals that the commercial banking system is still well-capitalized, liquid, and profitable. Commercial banks’ capital adequacy ratios are close to 16%, well in excess of regulatory requirements and among the highest in emerging economies. Mexico adopted the Basel III capital rules in 2013, and the Basel Committee has assessed Mexico as compliant earlier this year. Formal LCR minimum requirements have been in place since January this year (they are being phased in gradually over 5 years and have been set initially at 60%).

The average LCR of the banking system stood at 170% at the end of 2014, though some smaller banks have lower liquidity ratios and will have to increase reliance on longer-term financing to meet the required LCR ratio in the medium term. Non-performing loans remain low at 3.3% of total loans and are fully provisioned. Domestic deposits are the main source of funding. Commercial banks’ external debt liabilities amount only to 1.5% of GDP (3.3% of total liabilities), which reduces vulnerability to external liquidity shocks.

Banks are resilient to credit, liquidity, and market risks. A stress test conducted by the bank supervisory authority (CNBV) finds that even under a significant increase in long-term rates, valuation losses will be limited and banks will remain well capitalized. In addition, there are a number of prudential regulations in place to limit foreign-exchange risks, including caps on net foreign-currency open positions (at 15% of capital) and strict liquidity requirements to ensure adequate resources in case of temporary liquidity shocks. Credit risks also appear to be contained.

The most recent stress tests, conducted by CNBV and the Bank of Mexico, show that the banking system would remain in good financial health, even in the unlikely scenario of a sharp decline of economic growth and a significant increase in interest rates (Financial Stability Council, Annual Financial Stability Report, March 2015 and Bank of Mexico Financial Stability Report, October 2014).

Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Basel III, Stress Testing

Asia Pacific

Australia

Key Developments

Proposed Revisions to Prudential Framework for Securitization

- APRA

November 26, 2015



APRA released for consultation a discussion paper on its proposals to revise the prudential framework for securitization for authorized deposit-taking institutions. APRA is also released a draft Prudential Standard APS 120 Securitization (APS 120).

Subject to consultation on this discussion paper and draft prudential standard, APRA proposes to implement these changes in line with the Basel Committee’s effective date of January 01, 2018. APRA has sought to find an appropriate balance between the objectives of financial safety and efficiency, competition, contestability, and competitive neutrality. APRA considers its proposals will deliver improved prudential outcomes and provide efficiency benefits to authorized deposit-taking institutions, particularly through the explicit recognition of funding-only securitization within the prudential framework.

Comments Due Date: March 01, 2016 Effective Date: January 01, 2018 First Reporting Date: N/A Links: Media Release, APS 120 Keywords: Basel III, Securitization



http://www.apra.gov.au/MediaReleases/Pages/15_34.aspx

http://www.apra.gov.au/adi/PrudentialFramework/Pages/Revisions-to-the-Securitisation-Framework.aspx


45 NOVEMBER 2015

China

Key Developments

Consultation on Liquidity Coverage Ratio Disclosures

- CBRC

November 06, 2015



The CBRC issued consultation documents containing proposed reporting formats and instructions. These documents are in Chinese language only.

Comments Due Date: February 01, 2016 Effective Date: N/A First Reporting Date: N/A Links: Notification, Consultation Keywords: Basel III, Disclosure, LCR

Hong Kong

Key Developments

Supervisory Policy Manual: CR-G-9 Exposures to Connected Parties

- HKMA

November 20, 2015


The HKMA is issuing the Supervisory Policy Manual module “Exposures to Connected Parties” as a statutory guideline under section 7(3) of the Banking Ordinance. This module is a revised version of the Supervisory Policy Manual module “Connected Lending.”

The revisions mainly include an expansion of the definition of connected parties for authorized institutions’ internal risk management purposes and further elaboration on the risk governance arrangements in respect of exposures to connected parties. For instance, any write-off of an authorized institution’s exposures to connected parties exceeding a specified amount, or otherwise posing special risks to the authorized institution, should be approved by the Board (or the Credit Committee or any other relevant committee with authority delegated from the Board).

Despite the expansion in the scope of connected parties in this module for risk management purposes, the quantitative “external” limits under sections 83(1) and 83(2) of the Ordinance will remain applicable only to the connected parties specified under section 83(4) of the Ordinance, for the time being. Amendments to section 83(4) and other relevant sections are being considered, in conjunction with the HKMA’s plans to introduce the BCBS’s new large exposures framework (published in April 2014) into the local regulatory regime and HKMA intends to consult the industry on any proposed changes in due course.

For ease of implementation, the revised module provides for a grace period of nine months for authorized institutions to put in place the appropriate internal limits and risk management policies in respect of the additional connected parties. Exposures arising from facilities lawfully provided to individuals or entities falling within the additional connected parties, that are effective on the date of the issuance of the revised module, can be excluded by an authorized institution from its relevant internal limits with respect to connected exposures

Links: Notification (hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2015/20151120e1.pdf)., Policy Manual (hkma.gov.hk/media/eng/doc/key-functions/banking-stability/supervisory-policy-manual/CR-G-9.pdf) Keywords: Connected Parties, Supervisory Policy Manual

http://www.cbrc.gov.cn/chinese/home/docView/71EC91ECF7FC46298FDF1A29352C66A9.html

http://www.cbrc.gov.cn/chinese/files/2015/2F6B84820A794ECAB39D6AEC25E41E51.doc


46 NOVEMBER 2015

Glossary

AML/CFT Anti-Money Laundering and Countering the Financing of Terrorism

AnaCredit Analytical Credit Dataset APRA Australian Prudential Regulation Authority BCBS Basel Committee on Banking Supervision BCP Basel Core Principles for Effective Banking Supervision BCR Basic Capital Requirements BIS Bank for International Settlements BOE Bank of England BRRD Bank Recovery and Resolution Directive BSD Bank Supervision Department CBB Central Bank of Bahrain CBRC China Banking Regulatory Commission CCP Central Counterparty CECL Current Expected Credit Loss CET1 Common Equity Tier 1 CMCG Compensation Monitoring Contact Group CMG Crisis Management Group CNBV National Banking and Securities Commission, Mexico CPMI Committee on Payments and Market Infrastructures CRA Credit Rating Agency CRD IV EU Capital Requirements Directive IV CRR Capital Requirements Regulation EU CVA Credit Value Adjustment DFAST Dodd-Frank Act Stress Testing DFMU Designated Financial Market Utility DGS Deposit Guarantee Schemes DGSD Deposit Guarantee Schemes Directive DNB De Nederlandsche Bank EBA European Banking Authority EC European Commission ECAIs External Credit Assessment Institutions ECB European Central Bank EDIS European Deposit Insurance Scheme EIOPA European Insurance and Occupational Pensions

Authority EMIR European Market Infrastructure Regulation ESAs European Supervisory Authorities ESCB European System of Central Banks ESMA European Securities and Monetary Authority ETD Exchange-Traded Derivative EU European Union FAQ Frequently Asked Questions FASB Financial Accounting Standards Board FATF Financial Action Task Force FBO Foreign Banking Organization FCA Financial Conduct Authority FDIC Federal Deposit Insurance Corporation FED Board of Governors of the Federal Reserve System FEIII Financial Entity Identification and Information

Integration FHFA Federal Housing Finance Agency FHLB Federal Home Loan Banks FICC Fixed Income, Commodities, and Currency FINMA Swiss Financial Market Supervisory Authority

FIN-FSA Finnish Financial Supervisory Authority FMI Financial Markets Infrastructure FMU Financial Market Utility FRTB Fundamental Review of Trading Book FSAP Financial Sector Assessment Program FSB Financial Stability Board FSOC Financial Stability Oversight Council FSR Financial Stability Review GLIEF Global Legal Entity Identifier Foundation GLIES Global Legal Entity Identifier System G-SIB Global Systemically Important Banks G-SIFI Global Systemically Important Financial Institutions G-SII Global Systemically Important Insurers HKMA Hong Kong Monetary Authority HLA Higher Loss Absorbency IAIG Internationally Active Insurance Group IAIS International Association of Insurance Supervisors IASB International Accounting Standards Board ICAAP Internal Capital Adequacy Assessment Process ICP Insurance Core Principles ICS Insurance Capital Standard IFRS International Financial Reporting Standards IFSB Islamic Financial Services Board IMF International Monetary Fund IOSCO International Organization of Securities Commissions IRB Internal Ratings-Based ISAR International Standards of Accounting and Reporting ISDA International Swaps and Derivatives Association ITS Implementing Technical Standards KID Key Information Document KYC Know-Your-Customer LCR Liquidity Coverage Ratio LEI Legal Entity Identifier LEIROC Legal Entity Identifier Regulatory Oversight Committee LISCC Large Institution Supervision Coordinating Committee LOU Local Operating Unit MiFIR Markets in Financial Instruments Regulation MFI Monetary Financial Institution MPST Macro-Prudential Stress Testing MSP Major Swap Participant NPL Non-Performing Loan OCC Office of the Comptroller of the Currency OFR Office of Financial Research ORSOM Organization, Risk Management; Settlement;

Operational Risk and Information Technology; and Market Support, Access, and Transparency

PRA Prudential Regulation Authority PRIIPs Packaged Retail and Insurance-Based Investment

Products Q&A Questions and Answers QIS Quantitative Impact Study QQS Credit Quality Steps RCAP Regulatory Consistency Assessment Program ROC Regulatory Oversight Committee RTS Regulatory Technical Standards


47 NOVEMBER 2015 REGULATORY UPDATES: BANKING SECTOR

RWA Risk-Weighted Asset SAMA Saudi Arabian Monetary Agency SARB South African Reserve Bank SD Swap Dealer SEC U.S. Securities and Exchange Commission SFT Securities Financing Transaction SIMR Senior Insurance Managers Regime SMR Senior Managers Regime

SNB Swiss National Bank SREP Supervisory Review and Evaluation Process SSM Single Supervisory Mechanism STC Simple, Transparent, and Comparable TBTF Too-Big-To-Fail TLAC Total Loss-Absorbing Capacity

48 NOVEMBER 2015


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