Regulatory Insight Banking Newsletter April 2016...2016/12/05 · Regulatory Insight Banking...

BANKS NEWSLETTER

APRIL 2016

ENTERPRISE RISK SOLUTIONS

Regulatory Insight

Key Developments at a Glance The Basel Committee on Banking Supervision (BCBS) issued finalized standards for Interest Rate Risk in the Banking Book (IRRBB). These IRRBB standards, which update interest rate principles first published in 2004, are expected to be implemented by 2018. Separately, the BCBS issued a consultative document on revisions to the design and calibration of the Basel III leverage ratio; a consultative document on the prudential treatment of problem assets; an assessment methodology for Global Systematically Important Banks (G-SIBs); and a progress report on the adoption of the Basel regulatory framework.

The Financial Stability Board (FSB) of the G20 released a statement on its 2016 Roadmap. The Islamic Financial Services Board (IFSB) issued a 2016 to 2018 Strategic Performance Plan, provided an update on the terminologies and definitions used in its documents, and issued an exposure draft on stress testing institutions offering Islamic Financial Services.

KEY DEVELOPMENTS PER REGION

> EUROPE: The European Banking Authority (EBA) issued a single rulebook Q&A and disclosed its first list of EU Other Systemically Important Institutions (O-SIIs). Additionally, the EBA issued a consultative paper on the disclosure of asset encumbrance, final guidelines on the disclosure of confidential information during bank recoveries and resolutions, and a report on securitization best practices.

The European Central Bank (ECB) published its annual report along with amendments to guidelines on monetary and financial statistics. The Central Bank of the Netherlands issued a Basel III Monitoring Report and an update on securitization under the Single Supervisory Mechanism (SSM). The Bank of England’s Prudential Regulation Authority (PRA) released a consultative document on financial statement, capital forecast, and profit and loss reporting.

> MIDDLE EAST AND AFRICA: The IMF issued an Article IV Consultation on Turkey.

> AMERICAS: The US Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) jointly issued for comment a proposed rule that would implement a Net Stabilized Funding Requirement (NSFR) for large and internationally active banking organizations. The Fed and FDIC issued determinations and firm-specific feedback on 2015 resolution plans of eight systematically important banking institutions.

The Fed invited comment on a proposed rule for capital surcharges for US-based G-SIBs, finalized a rule on the inclusion of certain state and municipal securities as High Quality Liquid Assets (HQLA), and proposed several revisions to FR Y-6, FR Y-7, and FR Y-10 reporting forms.

The US Federal Financial Institutions Examination Council (FFIEC) proposed revisions to FFIEC 101 SLR, FFIEC 009, and FFIEC 009a reporting forms.

> ASIA PACIFIC: The Hong Kong Monetary Authority (HKMA) released its 2015 annual report and issued revisions, including updated text around Basel III capital buffers, to its Supervisory Policy Manual (SPM). Japan’s Financial Service Agency (FSA) released its approach to introducing Total Loss-Absorbing Capacity (TLAC) for G-SIBs.

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 APRIL 2016

Table of Contents

International 3

Europe 11 European Union 11 Belgium 18 Netherlands 19 United Kingdom 20

Middle East & Africa 21 Bahrain 21 Turkey 21

Americas 22 United States of America 22 Colombia 32 Latin America and the Caribbean 33

Asia Pacific 33 Hong Kong 33 Japan 35 Korea 35

Glossary 36


3 APRIL 2016

International

Key Developments

Basel III Monitoring Updates for the Month

- BCBS

April 26, 2016

Type of Information: Statement

The Basel Committee on Banking Supervision released the following Basel III monitoring updates this month:

» Version 3.2.4 of the Basel III monitoring workbook, along with instructions and frequently asked questions on Basel III monitoring

» Version 3.3.0 of Basel III monitoring workbook for ad hoc exercise, along with instructions

» Updated workbook and instructions for Credit Valuation Adjustment (CVA) Quantitative Impact Study (QIS) (version 1.0.1) were also released

The Basel Committee is monitoring the impact of Basel III global regulatory framework for more resilient banks and banking systems, Basel III leverage ratio framework and disclosure requirements, Basel III Liquidity Coverage Ratio (LCR) and liquidity risk monitoring tools, and Basel III Net Stable Funding Ratio (NSFR) on a sample of banks. The exercise is repeated semi-annually, with end-December and end-June reporting dates.

Links: Workbook 3.2.4, Basel III Monitoring Instructions, Basel III Monitoring FAQ, Workbook for Ad Hoc Exercise 3.3.0, Basel III Monitoring Instructions for Ad Hoc Exercise, Workbook for CVA QIS, Instructions for CVA QIS Keywords: Basel III Monitoring, QIS

http://www.bis.org/bcbs/qis/biiiimplmoniwb_mar16.xlsx

http://www.bis.org/bcbs/qis/biiiimplmoninstr_mar16.pdf

http://www.bis.org/bcbs/qis/biiiimplmonifaq_mar16.pdf

http://www.bis.org/bcbs/qis/biiiimplmoniwb__adhocex_apr16.xlsx

http://www.bis.org/bcbs/qis/biiiimplmoninstr__adhocex_apr16.pdf

http://www.bis.org/bcbs/qis/biiiimplmoninstr__adhocex_apr16.pdf

http://www.bis.org/bcbs/qis/workbook_CVA_QIS.xlsx

http://www.bis.org/bcbs/qis/instructions_CVA_QIS.pdf


4 APRIL 2016

Revisions to the Basel III Leverage Ratio Framework and Updated FAQ

- BCBS

April 25, 2016

Type of Information: Regulation

Regulatory Status: Proposed Rule

The Basel Committee published a revised version of the Basel III leverage ratio framework to address the errors in select paragraphs of the earlier proposed revision to the framework text, which was published on April 06, 2016. These earlier proposed revisions were related to the design and calibration of the Basel III leverage ratio framework. The Basel III framework introduced a simple, transparent, non-risk based leverage ratio to act as a credible supplementary measure to the risk-based capital requirements. BCBS believes that a simple leverage ratio framework is critical and complementary to the risk-based capital framework and that a credible leverage ratio is one that ensures broad and adequate capture of both the on- and off-balance sheet sources of banks' leverage. Other areas for which revisions have been proposed include:

» Measurement of derivative exposures

» Treatment of regular-way purchases and sales of financial assets

» Treatment of provisions

» Credit conversion factors for off-balance sheet items

» Additional requirements for global systemically important banks (G-SIBs)

The BCBS proposes to implement a modified version of the standardized approach for measuring counterparty credit risk exposures (SA-CCR) to ensure consistency with the fundamental principles of the Basel III leverage ratio framework, especially with respect to not recognizing collateral to reduce the leverage ratio exposure measure. In the proposed modified version of the SA-CCR, the following holds true for Basel III leverage ratio exposure measure:

» The replacement cost component will continue to be modified to restrict the recognition of collateral. As was the case with the application of the Current Exposure Method in the Basel III leverage ratio framework, only eligible cash variation margin (exchanged under the specified conditions set out in the Basel III leverage ratio framework as revised to act as an offset to the replacement cost) will be recognized as collateral.

» The potential future exposure add-on component will be adjusted by setting the potential future exposure multiplier to 1, thereby not recognizing any collateral posted by the counterparty (or any negative net market value of the derivative position). However, in line with the SA-CCR framework, the effect of margining would continue to be reflected in the potential shorter time horizon or margin period of risk, ranging between 5 and 20 days. This will depend on whether the transaction is margined and centrally cleared, as well as on the size of the netting set as provided in the SA-CCR framework.

The proposed changes have been informed by the monitoring process in the parallel run period since 2013, by feedback from market participants and stakeholders, and by the frequently asked questions (FAQ) process since the January 2014 release of the standard Basel III leverage ratio framework and disclosure requirements. The final design and calibration of the proposals will be informed by a comprehensive quantitative impact study (QIS).

Additionally, on April 06, 2016, BCBS published a document with updated FAQ on the Basel III leverage ratio framework. To promote consistent global implementation of the requirements, BCBS has agreed to periodically review the FAQ and publish answers, along with any technical elaboration of the standards text and interpretative guidance that may be necessary.

Comments Due Date: July 06, 2016 Effective Date: N/A First Reporting Date: N/A Links: Press Release on Revisions to the Basel III Framework, Revised Consultative Document, Press Release on FAQs, FAQs Keywords: Basel III, Leverage Ratio, SA-CCR

http://www.bis.org/bcbs/publ/d365.htm

http://www.bis.org/bcbs/publ/d365.pdf




5 APRIL 2016

Andreas Dombret of Deutsche Bundesbank on Banking Regulation and its Implications for Banking Business

- BIS

April 25, 2016

Type of Information: Speech

Dr. Andreas Dombret of the Deutsche Bundesbank spoke to Bankenverband Hamburg about the banking regulation and its implications for the banking business, at the Bundesbank Regional Office in Hamburg.

Dr. Dombret said, “Regulators repeatedly hear calls for the reform of banking and financial market regulation now to be brought to completion. More than that, I often hear calls—couched in politically correct language, of course—for parts of the reforms to be scaled back again. On the other hand, there is a desire for reforms to go much further. This is expressed by well-regarded experts such as Paul Volcker, Martin Hellwig, as well as by Nobel Prize winners Joseph Stiglitz and Eugene Fama. Between these two positions there is also a third one.” The proponents of this third position firmly believe that the current reform projects will eliminate the existing shortcomings of the regulatory framework, and therefore the reforms must be completed. Post that, the way the new rules work in practice should be monitored before thinking about new regulatory projects.

“Behind that third position is where I align myself. As I see it, it is totally right that we cannot leave it forever and a day to finalize the reforms. By the same token, I firmly believe that we have to bring the current reforms to a reasonable conclusion,” said Dr. Dombret. He also highlighted that some major elements of the reform agenda are still missing and the Basel Committee is taking more time to consider how they will be completed. For instance, the plan is to revise existing methods of measuring risk-weighted minimum capital ratios to reduce the disparities in calculations for similar portfolios and the misuse of internal calculation methods. The regulations on market risk have already been established, and the final version of the credit risk standardized approach will be published in the next few months.

He mentioned that proposals related to other areas such as the internal ratings-based (IRB) approach for calculating credit risk, are also being discussed. Discussions on these proposals with the banking industry will continue until June, and the plan is to thoroughly overhaul this approach. Portfolios that do not meet strict modeling requirements will be excluded from the IRB, the regulatory parameters will be fully revised and tightened in many cases, and capital floors will be introduced to ensure that minimum capital requirements do not fall below a certain level. These floors will be set according to the standardized approach.

Link: Speech Keywords: Basel III, Credit Risk, IRB

Working Paper Assessing the Effectiveness of Macro-Prudential Policy Worldwide

- IMF

April 21, 2016

Type of Information: Research

The IMF published a working paper assessing the effectiveness of macro-prudential policy in influencing bank credit and its substitution effects beyond banking.

Macro-prudential policy is increasingly being implemented worldwide. Its effectiveness in influencing bank credit and its substitution effects beyond banking have been a key subject of discussion. The authors claim that the empirical analysis confirms the expected effects of macro-prudential policies on bank credit, both for advanced economies and emerging market economies. Yet there is evidence of substitution effects towards nonbank credit, especially in advanced economies, reducing the policies’ effect on total credit. Quantity restrictions are particularly potent in constraining bank credit, but also cause the strongest substitution effects. Policy implications indicate a need to extend the macro-prudential policy beyond banking, especially in advanced economies.

While macro-prudential policy mitigates banking sector risks, there is a need to extend its scope beyond banking. Hence, the focus should be on systemic risks, not on substitution alone. In some cases, activity-based instruments, which target the risk of an activity regardless of where it is conducted, can address risks more effectively. In other cases, instruments similar to those applied to banks can be applied to nonbank institutions. For example, margin requirements for securities financing transactions (SFTs) may perform a similar function as leverage requirements for banks and loan-to-value ratio (LTV) limits for mortgages. Similarly, limits on leverage and liquidity transformation can ensure that investment funds engaging in bank-like activities and taking on bank-like risks face comparable requirements.

Link: Working Paper Keywords: Macro-Prudential Policy, SFT, Shadow Banking

http://www.bis.org/review/r160425c.pdf

http://www.imf.org/external/pubs/ft/wp/2016/wp1694.pdf


6 APRIL 2016

Final Standards for Interest Rate Risk in the Banking Book

- BCBS

April 21, 2016


Regulatory Status: Final Rule

The Basel Committee issued the final standards for interest rate risk in the banking book (IRRBB). The standards revise the Committee's 2004 Principles for the management and supervision of interest rate risk, which set out supervisory expectations for banks' identification, measurement, monitoring, and control of IRRBB as well as its supervision.

The standards document begins with an introduction to IRRBB. Then, it presents the revised principles, which replace the 2004 Interest Rate Risk Principles for defining supervisory expectations on the management of IRRBB. Next, the document states the scope of application and sets out the standardized framework, which supervisors could mandate their banks to follow or a bank could choose to adopt. Finally, the Annexes provide a set of terminology and definitions that will provide a better understanding of IRRBB to both banks and supervisors (Annex 1), along with further details on the standardized interest rate shocks (Annex 2). The revised standards, which were published for consultation in June 2015, are expected to be implemented by 2018.

The standards reflect changes in market and supervisory practices since the principles were first published in 2004, which is particularly pertinent in light of the current exceptionally low interest rates in many jurisdictions. The key enhancements to the 2004 Principles include:

» More extensive guidance on the expectations for a bank's IRRBB management process in areas such as the development of interest rate shock scenarios as well as key behavioral and modeling assumptions to be considered by banks in their measurement of IRRBB.

» Enhanced disclosure requirements to promote greater consistency, transparency, and comparability in the measurement and management of IRRBB. This includes quantitative disclosure requirements based on common interest rate shock scenarios.

» An updated standardized framework, which supervisors could mandate their banks to follow or banks could choose to adopt.

» A stricter threshold for identifying outlier banks, which has been reduced from 20% of a bank's total capital to 15% of a bank's Tier 1 capital.

Comments Due Date: N/A Effective Date: January 01, 2018 First Reporting Date: N/A Links: Press Release, IRRBB Standards Keyword: IRRBB




7 APRIL 2016

Highlights of the Meeting of G20 Finance Ministers and Central Bank Governors

- IMF

April 15, 2016


The IMF published the key highlights of the meeting of the group of finance ministers of twenty countries (G20) and central bank governors.

The attendees reiterated their commitments to finalizing the remaining core elements and support the timely, full, and consistent implementation of the agreed financial sector reform agenda, including the Basel III and total loss absorbing capacity (TLAC) standard. They also reiterated their support for the work by the Basel Committee to refine elements of the Basel III framework to ensure its coherence, and maximize its effectiveness, without further significantly increasing overall capital requirements across the banking sector. They pledged to continue to enhance the monitoring of implementation and effects of reforms to ensure their consistency with the overall objectives, including by addressing any material unintended consequences. They look forward to the coordinated work by the IMF, FSB, and BIS to take stock of international experiences with macro-prudential frameworks and tools, to help promote effective macro-prudential policies and report back by the next meeting. Attendees also welcomed the FSB’s work in cooperation with other standard setting bodies to assess holistically, the extent, drivers and possible persistence of shifts in market liquidity across jurisdictions and asset classes, and consider policy measures, if necessary. They look forward to its planned public consultation in mid-2016 on policy recommendations to address structural vulnerabilities associated with asset management activities.

The FSB peer review report on country-specific implementation of the FSB policy framework for shadow banking entities is being anticipated, along with the call upon the membership to address identified gaps and on the FSB to evaluate the case for further policy recommendations, if appropriate. The G20 finance ministers and central bank governors reiterated their commitment to expediting implementation of the Principles for Financial Market Infrastructures. Additionally, they reiterated their commitment to progressing on the work to enhance central counterparty resilience, recovery planning and resolvability (including on cross-border cooperation arrangements such as Crisis Management Groups) and look forward to the report by the FSB in September. They support the work by the FSB, FATF, World Bank Group, OECD, and IMF to assess and address, as appropriate, the decline in correspondent banking services including under the FSB-coordinated action plan, and ask for a report on progress to be sent to the Summit. They also reaffirmed their support for the work of the Global Partnership for Financial Inclusion on enhancing small and medium enterprise (SME) financing, promoting digital financial inclusion, and improving data collection and indicators.

Link: Meeting Highlights Keywords: G20, Roadmap

Consultation on Prudential Treatment of Problem Assets - Definitions of Non-Performing Exposures and Forbearance

- BCBS

April 14, 2016



The Basel Committee launched a consultation on the prudential treatment of problem assets, particularly definitions of non-performing exposures and forbearance. At present, banks categorize problem loans in a variety of ways and no consistent international standards exist for categorizing problem loans. The definitions proposed by the BCBS aim to foster harmonization in the measurement and application of two important measures of asset quality and thereby promote consistency in supervisory reporting and disclosures by banks.

The definition of non-performing exposures introduces criteria for categorizing loans and debt securities that are centered around delinquency status (90 days past due) or the unlikeliness of repayment. It also clarifies the consideration of collateral in categorizing assets as non-performing. The definition also introduces clear rules regarding the upgrading of an exposure from "non-performing" to "performing" as well as for the interaction between non-performing status and forbearance. Forbearance refers to concessions, such as a modification or refinancing of loans and debt securities, which are granted as a result of counterparty’s financial difficulty. The proposed definition sets out criteria for when a forborne exposure can cease being identified as such and emphasizes the need to ensure a borrower's soundness before the discontinuation.

The proposed definitions complement the existing accounting and regulatory framework in relation to asset categorization. They are intended to be used, for example, in the supervisory monitoring of a bank's asset quality as well as by banks in their credit risk management and as part of their internal credit categorization systems.

Comments Due Date: July 15, 2016 Effective Date: N/A First Reporting Date: N/A Links: Press Release, Consultative Document Keywords: Forbearance, Non-Performing, Problem Assets

http://www.imf.org/external/np/cm/2016/041616.htm




8 APRIL 2016

Tenth Progress Report on Adoption of the Basel Regulatory Framework

- BCBS

April 11, 2016

Type of Information: Report

The Basel Committee published the updated progress report on adoption of the Basel regulatory framework. The report provides a high-level view of the Basel Committee’s members' progress in adopting Basel III standards as of the end of March 2016. In addition to periodically reporting on the status of adoption, all Committee members undergo an assessment of the consistency of their domestic rules with the Basel standards.

The report focuses on the status of adoption of all the Basel III standards (which will become effective by 2019) to ensure that the Basel standards are transformed into national law or regulation according to the internationally agreed timeframes. It is based on information provided by individual members as part of the Committee’s Regulatory Consistency Assessment Program (RCAP). The report includes the status of adoption of the Basel III risk-based capital standards, the leverage ratio, the LCR, the NSFR, the standards for global and domestic systemically important banks (D-SIBs), Pillar 3 disclosure requirements, and the large exposure framework.

Links: Press Release, Progress Report, Assessment of Implementation Consistency Keywords: Basel III, Monitoring, RCAP

Updates: Assessment of Global Systemically Important Banks

- BCBS

April 08, 2016


The Basel Committee updated, in 2016, the templates, instructions, and year-end and annual average exchange rates for G-SIB assessment.

The assessment methodology for G-SIBs requires a sample of banks to report a set of indicators to national supervisory authorities. These indicators are then aggregated and used to calculate the scores of banks in the sample. Banks above a cut-off score are identified as G-SIBs and are allocated to buckets that will be used to determine their higher loss absorbency requirement.

Link: Press Release Keyword: G-SIB

Updated Glossary of Terms and Definitions

- IFSB

April 06, 2016


The Islamic Financial Services Board (IFSB) released an updated glossary of terms and definitions used in its standards and other publications (in both English and Arabic languages). This glossary will be periodically updated as more terms and definitions are added to the IFSB standards and publications.

Links: Press Release, Updated Terminologies and Definitions Keywords: Glossary, Islamic Banking, Islamic Insurance



http://www.bis.org/bcbs/implementation/l2.htm

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

http://www.ifsb.org/preess_full.php?id=336&submit=more

http://ifsb.org/terminologies.php


9 APRIL 2016

Keynote Speech of the Secretary General of the Basel Committee on the Global Policy Reform Agenda

- BCBS

April 05, 2016

Type of Information: Speech

During the keynote speech at the Australian Financial Review's Banking and Wealth Summit, William Coen, Secretary General of the Basel Committee, spoke about the approach toward finalizing the global regulatory framework and the outstanding reforms.

Mr. Coen highlighted that the major outstanding topics to be finalized this year relate to credit risk and operational risk. The Basel Committee recently published proposals on revising these two areas of the regulatory framework. Earlier this year, it finalized the regulatory capital framework for market risk. This year, one of the main goals is to address excessive variability in risk-weighted assets (RWA) modeled by banks. As the current set of proposed reforms are meant to revise elements of the existing framework rather than introduce new ones, “I would not refer to these revisions as constituting Basel IV.”

At the end of 2015, The Basel Committee consulted on proposals to revise the standardized approach for credit risk and this is the approach used by the vast majority of banks worldwide. The aim was to promote the standardized approach as a suitable alternative to the modeled approaches. The standardized approach is, of course, also relevant for banks using internal models, as it may form the basis for an "output floor," should the Committee decide to adopt such a floor. An output floor would cap the amount of capital benefit a bank using an internally modeled approach would receive, compared to the standardized approach. BCBS is still considering the specific design and calibration of an output floor.

Furthermore, BCBS recently consulted on revisions to operational risk and the IRB approaches for credit risk. For operational risk, the proposal did not include a modeled approach. While internal models are an essential part of risk management for many banks, the question is what role they should play in prudential rules. This is particularly relevant for operational risk. The Committee's recent proposals to calculate capital for credit risk do not eliminate the use of models, but place “additional” constraints around their use for regulatory purposes (although the kinds of constraints that have been proposed already exist in some form in the capital framework).

Before finalizing the standards by the end of 2016, The Basel Committee will analyze comments and conduct comprehensive QIS. The resources required to conduct these QIS exercises at banks and supervisory authorities are extensive. The appropriate level of minimum regulatory capital is a central question and a dedicated task force is looking specifically at the calibration of the capital framework. This issue is being tackled from the perspective of each individual policy on the table this year, but an aggregate, overall view is also being taken. Additionally, BCBS is proposing greater restrictions on the use of internal models, including removing the option of using internal models to determine risk parameters for certain exposure categories. These categories are typically characterized by a scarcity of default data and/or model complexity. BCBS has specifically proposed to:

» Remove the advanced measurement approaches for operational risk

» Remove the internal modeling approaches for exposures to banks, other financial institutions, and large corporates, where it is judged that the model inputs cannot be estimated sufficiently reliably for regulatory capital purposes;

» Adopt floors for exposures to ensure a minimum level of conservatism where internal models remain available. These floors would be applied at the exposure—rather than portfolio—level

» Limit the range of practices regarding the estimation of model parameters under the IRB approaches

He noted three additional areas of critical importance:

» Improved corporate governance and culture: The Basel Committee published principles for enhancing corporate governance in 2006, which were revised in 2010 and then again in 2015. The Principles also reinforce the imperative of rigorous risk management, appropriate resources, and unfettered board access for the chief risk officer, as well as call for better discussions between a board's audit and risk committees.

» Better IT systems: Banks' risk data aggregation capabilities have been a source of concern for the Basel Committee for some time now. In 2013, the Basel Committee set out its Principles for effective risk data aggregation and risk reporting and is monitoring their implementation.

» Effective stress testing: Stress testing plays an increasingly important role in a number of jurisdictions. In some countries, stress testing is an integral part of the assessment process. In others, it is used for contingency planning and communication. For some banks, supervisory stress testing has proven to be the binding regulatory constraint. Stress testing is also used by banks as a risk management tool and by macro-prudential authorities for policy analysis.

Links: Speech, BCBS 239: Principles for Effective Risk Data Aggregation and Risk Reporting Keywords: Basel III, Basel IV, BCBS 239, Stress Testing

http://www.bis.org/speeches/sp160405.htm

http://www.bis.org/publ/bcbs239.htm


10 APRIL 2016

First Webinar on Insurance Contracts Standard

- IASB

April 04, 2016


The International Accounting Standards Board (IASB) completed, in January 2016, its planned technical decisions for the forthcoming insurance contracts standard. The IASB is expected to publish a series of webinars providing an overview of the forthcoming standard. The first webinar, which has been already published, talks about the need for change and the history of the project. Future webinars will cover the following:

» What is an insurance contract?

» Initial measurement of insurance contracts

» Subsequent measurement of insurance contracts

» Modifications to the general model: variable fee contracts

» Other modifications to the general model

» Presentation and disclosure

» Applying the Standard for the first time

Link: IFRS Homepage Keywords: Insurance Contracts, Technical Decisions, Webinars

Updates to Information Repository for Central Clearing Requirements for OTC Derivatives

- IOSCO

April 01, 2016


The International Organization of Securities Commissions (IOSCO) released an update of its information repository for central clearing requirements for over-the-counter (OTC) derivatives, which provides regulators and market participants with consolidated information on the clearing requirements of different jurisdictions. By providing this information, IOSCO seeks to assist authorities in their rule making and help participants comply with the relevant regulations in the OTC derivatives market.

The repository sets out central clearing requirements on a product-by-product level, along with any exemptions from them. The information in the repository is updated periodically and the repository was first made the public in August 2014.

Links: Media Release, Information Repository Keywords: Clearing Information Repository, OTC Derivatives

Regulatory Consistency Assessment Program: Analysis of Risk-Weighted Assets for Credit Risk in the Banking Book

- BCBS

April 01, 2016


The Basel Committee published its second report analyzing variation in risk-weighted assets (RWAs) in banks, using the IRB models to calculate credit risk capital requirements. The study evaluates two types of risk estimates─the risk estimates used for exposures to retail customers and small and medium-size enterprises, along with the way banks evaluate the likely exposure at default across all asset classes.

During this study, the Committee observed different practices in the way banks ensure independent evaluation of credit risk models used to calculate capital requirements. The report describes sound practices observed in the independent model validation functions of banks, including:

» Governance of the validation process

» Methodology and scope of the validation functions

» Role of the validation function across different phases of model development and implementation

This report is part of the Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework. Its analysis of regulatory outcomes complements other reports by the Committee on variation in RWA for market risk and counterparty credit risk, as well as an earlier report on RWA variation for credit risk published in July 2013.

Links: Press Release, Analysis of RWA for Credit Risk (April 2016), Analysis of RWA for Market Risk, RWA for CCR, RWA for Credit Risk (July 2013) Keywords: Banking Book, RCAP, RWA

http://www.ifrs.org/Pages/default.aspx

http://www.iosco.org/news/pdf/IOSCONEWS422.pdf

http://www.iosco.org/library/information-repositories/zip/20150331-Information-repository-for-central-clearing-requirements.zip



http://www.bis.org/publ/bcbs240.pdf





11 APRIL 2016

Europe

European Union

Key Developments

Markets in Financial Instruments: Negotiations to Start on One-Year Delay

- EC

April 28, 2016


The Permanent Representatives Committee (Coreper) agreed, on behalf of the Council, its negotiating stance aimed at extending by one year the dates of transposition and application of new securities market rules. The one-year extension will affect the provision of services for investments in financial instruments and on the operation of regulated financial markets. Coreper asked the Netherlands presidency to start negotiations with the European Parliament as soon as possible, to enable adoption at first reading of a regulation enacting the extension.

A recent revision of rules on financial instruments set out to promote the integration, competitiveness, and efficiency of EU financial markets. The Council adopted these in May 2014, amending and replacing an existing "MIFID" text that regulates markets in financial instruments. The rules consist of two legislative instruments:

» Regulation 600/2014 (Markets in Financial Instruments Regulation, or MIFIR), aimed at improving transparency and competition of trading activities by limiting the use of waivers[1] on disclosure requirements and by providing for non-discriminatory access to trading venues and central counterparties (CCPs) for all financial instruments, and requiring derivatives to be traded on organized venues.

» Directive 2014/65/EU (Markets in Financial Instruments Directive, or MIFID II), amending rules on the authorization and organizational requirements for providers of investment services and on investor protection. The directive also introduces a new type of trading venue, the organized trading facility (OTF). Standardized derivatives contracts are increasingly traded on these platforms, which are currently not regulated.

Additionally, the Council included amendments to the European Commission (EC)’s proposal in its negotiating mandate. These concern trading on own accounts, package transactions, alignment with the EU directive on Securities Financing Transactions and the date of application of certain provisions of a regulation on market abuse. The new framework requires trading venues and systematic internalizers to provide competent authorities with financial instrument reference data that describes, in a uniform manner, the characteristics of every financial instrument subject to the scope of MiFID II. To collect data in an efficient and harmonized manner, a new data collection infrastructure must be developed. This obliges the European Securities and Markets Authority (ESMA), in conjunction with competent national authorities, to establish a data system covering a wider range of financial instruments, given the extended scope of MiFID II.

Earlier, both the directive and the regulation were to become applicable 30 months after entry into force, that is, as of January 03, 2017, with member states having to transpose the new directive by July 03, 2016. However, due to technical implementing challenges faced by ESMA and by national competent authorities, essential data infrastructures will not be in place by January 03, 2017. On October 02, 2015, ESMA informed EC that a delay in the technical implementation of MiFID II was unavoidable. Neither competent authorities nor market participants will be in a position to apply the new rules on January 03, 2017. This would lead to legal uncertainty and potential market disruption.

Under the Council's approach, the new deadline for member states to transpose MIFID II into national legislation would be set for July 03, 2017 and the date of application of both MIFID II and MIFIR would be set for January 03, 2018.

Link: Press Release Keywords: Financial Instruments Reference Data, MiFID II, MiFIR

Updates to Single Rulebook Q&A: Published as Final Q&A in April 2016

- EBA

April 28, 2016

Type of Information: Q&A

The updates for this month include three answers dated April 28, 2016; one answer dated April 22, 2016; 12 answers dated April 15, 2016; two answers dated April 08, 2016; and seven answers dated April 01, 2016.

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 to submit questions on Capital Requirements Directive (CRD) IV, Capital Requirements Regulation (CRR), and the related technical standards developed by the European Banking Authority (EBA) and adopted by the EC.

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

http://www.consilium.europa.eu/en/press/press-releases/2016/04/28-markets-financial-instruments/

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


12 APRIL 2016

Consultation on Disclosure of Encumbered and Unencumbered Assets

- EBA

April 25, 2016



The EBA launched a consultation on draft Regulatory Technical Standards (RTS) on the disclosure of encumbered and unencumbered assets for the provision of transparent and harmonized information, as laid down in the Capital Requirements Regulation (CRR).

These draft RTS, which build on the EBA guidelines on the same topic, detail the disclosure requirements and provide additional information. They set out the data that is required to be disclosed on encumbered and unencumbered assets, along with the format and the timing of the publication. The proposed requirements will disclose part of the data already reported through EU Basel regulatory reports and Common Reporting (COREP) on a continuous basis.

These draft standards are addressed to institutions and provide three disclosure templates to be completed and published, along with line-by-line instructions for completing them. Institutions will have to disclose information in accordance with these disclosure templates and provide some additional information on the importance of encumbrance in their individual funding model.

Comments Due Date: July 25, 2016 Effective Date: N/A First Reporting Date: N/A Link: Press Release Keywords: CRR, Encumbered Assets, RTS

Report on Financial Integration in Europe, 2016

- ECB

April 25, 2016


The ECB published its annual report on financial integration in Europe. The report comprises three chapters, four special features, and a statistical annex. A summary of results and conclusions, which elaborate on the key messages, precede each chapter or special feature:

» Chapter I contains the ECB’s assessment of the degree of financial integration on the basis of price-based and quantity-based indicators, including the composite indicator for financial integration (FINTEC). It further summarizes recent developments in the financial integration of four key financial market segments—money, bond, equity, and banking markets.

» Chapter II on “European institutional reform: Establishing a European Deposit Guarantee Scheme” explores the setting up of a European Deposit Insurance Scheme.

» Chapter III summarizes the main activities that the Eurosystem has pursued in 2015 and early 2016, with a view to advancing financial integration in the euro area. In this context, new information is provided in two boxes on “Building a capital markets union” and on “Financial market data standards” (jointly produced with DG-FISMA of the EC), given the topical relevance of these two issues for financial integration.

» Special Feature A, entitled “Financial integration and risk sharing in a monetary union,” summarizes insights from the literature on capital flows and on risk sharing. Discussing both U.S. and European evidence, it explores whether based on indicators of resilience and risk sharing the “quality” of financial integration in Europe can be assessed.

» Special Feature B, entitled “National options and discretions in the prudential regulatory framework for banks,” reviews options and discretions (O&Ds) in the EU prudential legal framework given their relevance for establishing a level playing field across the Single Supervisory Mechanism and their contribution to financial integration.

» Special Feature C, entitled “The Future of the European Retail Payments Market,” investigates innovation in retail payments in relation to the Eurosystem integration work by looking at several innovative payment solutions that have been launched in Europe and the role of the Euro Retail Payments Board.

» Special Feature D, entitled “The Use of Securities Holdings Statistics for Financial Integration,” presents new financial integration indicators based on Securities Holdings Statistics and outlines the potential use of Securities Holdings Statistics data for the purpose of financial integration monitoring.

» The Statistical Annex contains details on the calculation of the FINTEC and its sub-indices. It includes a set of 33 standard indicators. For each financial integration indicator, an explanation describes how it is technically derived and the main messages it conveys in terms of developments in financial integration. Some of the indicators are also used to describe recent financial integration developments in Chapter 1.

Link: Financial Integration in Europe, 2016 Keywords: CMU, FINTEC, O&D

http://www.eba.europa.eu/-/eba-consults-on-disclosure-of-encumbered-and-unencumbered-asse-1

http://www.ecb.europa.eu/pub/pdf/other/financialintegrationineurope201604.en.pdf


13 APRIL 2016

Status Report on Progress Achieved in Building Capital Markets Union

- EC

April 25, 2016


The EC published the first status report that shows the progress achieved in building a Capital Markets Union (CMU) since the launch of the Action Plan in September 2015.

As per the report, the first measures are already having an impact on the ground: new rules have just entered into force to support investment by insurers and reinsurers in infrastructure projects. Additionally, the legislative proposal to restart securitization markets in Europe was agreed in record time by member states in December 2015.

A proposal was also presented to simplify prospectus requirements and reduce the burden for companies issuing shares and bonds. The Commission hopes that these proposals will be agreed upon swiftly by the co-legislators. A cumulative assessment of the financial services legislation (the Call for Evidence) has been conducted to check that the legislative framework is working to support growth across the EU. A public consultation has also been launched on business restructuring and insolvency to tackle some of the longer-term issues that are holding back jobs and growth in the EU. There are plans to take further actions to promote personal pensions.

The Commission will shortly publish a report on the development of crowdfunding markets in the EU. Measures will also be proposed to stimulate European venture capital markets, including a revision of the venture capital legislation and work on a venture capital ”‘fund of funds.” Additionally, there are plans to launch a public consultation to gather views on how the passporting rules for the cross-border distribution of investment funds can be improved.

Links: Press Release, CMU: First Status Report Keywords: Action Plan, CMU

Paper on Distributed Ledger Technologies in Securities Post-Trading

- ECB

April 25, 2016

Type of Information: Research

The ECB published a paper that analyzes the main features of Distributed Ledger Technologies (DLTs) that could influence their adoption by financial institutions and discusses how use of these technologies could affect the European post-trade market for securities.

The paper discusses three potential models of how market players could adopt DLTs for performing core post-trade functions. The DLTs could be adopted either in clusters, collectively, or peer to peer. The evaluation of the three adoption models assumes that they are all equally compatible with the regulatory framework. It shows that, assuming this to be the case, they would each have different advantages and costs.

Over the last decade, information technology has contributed significantly to the evolution of financial markets, without, however, revolutionizing the way in which financial institutions interact with one another. This may be about to change, as some market players are now predicting that new database technologies, such as block-chain and other DLTs, could be the source of an imminent revolution. This paper concludes that, irrespective of the technology used and the market players involved, certain processes that feature in the post-trade market for securities will still need to be performed by institutions. DLTs could, however, stimulate a reorganization of financial markets, which could in turn:

» Reduce reconciliation costs

» Streamline the post-trade value chain

» Allow more efficient use to be made of collateral and regulatory capital

Link: DLTs in Securities Post-Trading Keywords: DLT, Post-Trading

http://europa.eu/rapid/press-release_IP-16-1562_en.htm?locale=en

http://ec.europa.eu/finance/capital-markets-union/docs/cmu-first-status-report_en.pdf

http://www.ecb.europa.eu/pub/pdf/scpops/ecbop172.en.pdf


14 APRIL 2016

Disclosure of the First List of Other Systemically Important Institutions in the European Union

- EBA

April 25, 2016


The EBA published the first list of Other Systemically Important Institutions (O-SIIs) in the EU.

O-SIIs are institutions that are deemed systemically relevant in addition to global systemically important institutions, already identified. The institutions have been identified by relevant authorities across the Union according to harmonized criteria provided by the EBA. The list reflects the additional capital buffers that the relevant authorities have set for the O-SIIs they have identified.

The identification of institutions as O-SIIs in the EU is based on the 2015 data. Going forward, updated lists of O-SIIs will be disclosed on an annual basis, along with the definition of any common equity tier 1 capital buffer requirements, which may need to be set. Any higher capital requirements will become applicable at least one year after the publication of the list of O-SIIs so as to give institutions enough time to adjust to the new buffer requirements.

The EBA guidelines provide additional flexibility for relevant authorities to apply their supervisory judgment, when deciding to include other institutions, which might have not been automatically identified as O-SIIs. This approach allows for the assessment of all financial systems across the EU in a comparable way, whilst still not excluding those institutions which may be relevant on the basis of specific peculiarities of one EU jurisdiction. The EBA acts as the single point of disclosure for the list of O-SIIs across the EU, while each relevant authority discloses this information for its respective jurisdiction, along with further details on their rationale and identification process.

Links: Press Release, List of O-SIIs Keywords: Capital Buffers, O-SII

Statements on Endorsement Regulatory Technical Standards for Markets in Financial Instruments Directive and Regulation Rules

- EC

April 20, 2016


The ESMA submitted to the EC the final report on the draft regulatory and implementing technical standards (ITS)on Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR), last year. The EC has now informed ESMA about its decision to endorse draft RTS on the non-equity transparency, the ancillary test, and position limits, provided that certain amendments are made.

Links: Draft Standards, Annex I of Draft Standards, RTS on Non-Equity Transparency, RTS for Determination of Ancillary Activities, RTS on Application of Position Limits Keywords: MiFID, MiFIR, RTS

Final Guidelines for Disclosing Confidential Information Under the Bank Recovery and Resolution Directive

- EBA

April 19, 2016

Type of Information: Guideline

The EBA published its final guidelines defining how confidential information collected under the Bank Recovery and Resolution Directive (BRRD) should be disclosed in summary or collective form without identifying individual institutions or relevant entities. These guidelines have been developed according to Article 84(7) of the BRRD, which mandates the EBA to draft guidelines for disclosing information in summary or collective form.

In developing these guidelines, the EBA sought to foster convergent practices by giving guidance on how confidential information should be provided in summary or collective form and defining the principle-based factors (number of institutions, specific patterns and context of disclosure) for ensuring that when information is disclosed such in summary or collective form, individual institutions or entities cannot be identified (in an anonymized form). The approach taken in these guidelines is intended to strike a balance between:

» The need to achieve an appropriate level of convergence of practices regarding how confidential information should be provided in summary or collective form, and

» The need to ensure flexibility, considering that there may be many different types of confidential information as well as many different circumstances and situations under which confidential information may need to be disclosed

Links: Press Release, Guidelines Keywords: BRRD, Confidential Information, Disclosure

http://www.eba.europa.eu/-/eba-discloses-first-list-of-o-siis-in-the--1

http://www.eba.europa.eu/documents/10180/1443055/2015+O-SIIs+notified+to+the+EBA

https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-esma-1464_-_final_report_-_draft_rts_and_its_on_mifid_ii_and_mifir.pdf

https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-esma-1464_annex_i_-_draft_rts_and_its_on_mifid_ii_and_mifir.pdf

http://ec.europa.eu/finance/securities/docs/isd/mifid/160420-letter-to-esma-rts-02_en.pdf



http://www.eba.europa.eu/-/eba-publishes-final-guidelines-for-disclosing-confidential-information-under-the-brrd

http://www.eba.europa.eu/documents/10180/1441885/EBA-GL-2016-03+%28Final+report+on+GL+on+the+provision+of+information+in+summary+or+collective+form+for+the+purposes+of+Article+84%283%29%20of+BRRD.pdf


15 APRIL 2016

Regulatory Technical Standards on the Clearing Obligation

- EC

April 19, 2016



EC published, in the Official Journal of the European Union, the Commission Delegated Regulation (CDR) 2016/592 supplementing Regulation No 648/2012 (European Market Infrastructure Regulation, or EMIR) regarding the RTS on the clearing obligation.

The classes of OTC derivatives set out in the Annex shall be subject to the clearing obligation (as stated in Article 1). Additionally, the counterparties subject to the clearing obligation shall be divided in the following categories (as per Article 2):

» Category 1, comprising counterparties which are clearing members, within the meaning of Article 2(14) of EMIR

» Category 2, comprising counterparties not belonging to Category 1, which belong to a group whose aggregate month-end average of outstanding gross notional amount of non-centrally cleared derivatives for January, February, and March 2016 is above EUR 8 billion and which are any of these—financial counterparties or alternative investment funds that are non-financial counterparties

» Category 3, comprising counterparties not belonging to Category 1 or Category 2, which are any of these—financial counterparties or alternative investment funds that are non-financial counterparties

» Category 4, comprising non-financial counterparties that do not belong to Category 1, Category 2, or Category 3

Regarding contracts pertaining to a class of OTC derivatives set out in the Annex, the clearing obligation shall take effect on the following dates (Article 3):

» February 09, 2017 for counterparties in Category 1

» August 09, 2017 for counterparties in Category 2

» February 09, 2018 for counterparties in Category 3

» May 09, 2019 for counterparties in Category 4

Comments Due Date: N/A Effective Date: May 09, 2016 First Reporting Date: N/A Links: CDR 2016/592, EMIR: Consolidated Version Keywords: CDR 2016/592, Clearing, EMIR

Opinion on European Union Framework for Loan Origination by Investment Funds

- ESMA

April 12, 2016


ESMA published an opinion on the components necessary for a common European framework, which applies to loan origination by investment funds. The opinion, which forms a part of ESMA’s ongoing work on the Capital Markets Union, sets out ESMA’s views on elements such as the authorization of loan-originating funds and their managers, eligible investors, organizational requirements, and leverage.

Several EU member states have set up bespoke frameworks for loan origination by funds domiciled in their country, which means that funds operating cross-border need to comply with different requirements. The EC therefore asked ESMA for input on the key issues in view of the establishment of a common EU approach. Loan origination means that an investment fund provides credit (originates a loan), acting as a sole or a primary lender, to borrowers such as SMEs). As such, this activity represents an alternative form of market-based financing.

Links: Press Release, Opinion Keywords: Loan Origination

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2016_103_R_0003&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02012R0648-20160112&qid=1461048969644&from=EN

https://www.esma.europa.eu/press-news/esma-news/esma-publishes-opinion-eu-framework-loan-origination-investment-funds

https://www.esma.europa.eu/sites/default/files/library/2016-596_opinion_on_loan_origination.pdf


16 APRIL 2016

Report on Compliance with Securitisation Risk Retention, Due Diligence, and Disclosure Requirements

- EBA

April 12, 2016


EBA published a report providing an overview of the supervisory measures taken by competent authorities in the EU 2014 to ensure compliance by institutions with securitization risk retention, due diligence, and disclosure requirements, in line with the mandate in Article 410(1) of the CRR.

Based on the findings of the analysis, the EBA has identified a number of general supervisory best practices to guide competent authorities in their supervisory assessments of compliance with the risk retention, due diligence and disclosure requirements in their jurisdictions. According to the EBA analysis, it appears that ensuring compliance with risk retention, due diligence, and disclosure requirements has a lower priority in the supervisory processes of competent authorities, although this may be partially justified in light of the expectations on the development of a the new securitization framework at the EU level.

The report highlights that institutions are generally undertaking appropriate actions to comply with such requirements. A very limited number of non-compliant institutions have been reported since the EU rules were introduced in 2011. In total, 10 cases of non-compliance with risk retention and due diligence have been reported. Sanctions in the form of additional risk weights as per Article 407 of the CRR were applied in one of these 10 cases.

The report also assesses how the EBA recommendations on enhancing regulation of risk retention, due diligence, and disclosure rules, as specified in the EBA Opinion of December 2014, have been taken on board in the proposals of the new securitization framework issued by the Basel Committee in September 2015. The EBA notes with satisfaction that all the EBA recommendations specified in the EBA opinion have been taken on board (two of them partially).

Links: Press Release, Report Keywords: CRR, Risk Retention, Securitization

Updated Data Published on Performance of Credit Rating Agencies

- ESMA

April 12, 2016


The ESMA published its latest set of semi-annual statistical data on the performance of credit ratings, including transition matrices and default rates. The latest dataset covers the period from July 01, 2015 to December 31, 2015 and is available in the Central Rating Repository (CEREP).

CEREP provides information on credit ratings issued by Credit Rating Agencies (CRAs) that are either registered or certified in the EU. It allows investors to assess, on a single platform, the performance and reliability of credit ratings for different CRAs, asset classes, geographic regions, and time horizons over a given time period. CEREP is updated on a semi-annual basis, with statistics covering the preceding six-month period: the reporting periods are January—June and July—December.

Links: Press Release, CEREP Webpage Keywords: CEREP, CRA

Corrigendum to Commission Implementing Regulation 2016/322

- EC

April 09 , 2016


EC published, in the Official Journal of the European Union, the corrigendum to Commission Implementing Regulation (CIR) 2016/322 amending Implementing Regulation No 680/2014, which lays down ITS on supervisory reporting of the liquidity coverage requirement for institutions. The Corrigendum updates Article 15 and Annexes.

Link: Corrigendum Keywords: CIR 2016/322, CRR, Liquidity Coverage Requirement

Annual Report, 2015

- ECB

April 07 , 2016


The ECB published its annual report covering the euro area economy, ECB’s monetary policy, and European financial sector in 2015. The report also presents ECB’s activities in its various areas of competence—for example, ECB’s activities in the European financial sector as well as the institutional and regulatory changes that contributed to making banking union a reality in Europe.

Link: Annual Report Keywords: Annual Report

http://www.eba.europa.eu/-/eba-publishes-report-and-recommends-supervisory-best-practices-on-securitisation-risk-retention-due-diligence-and-disclosure

http://www.eba.europa.eu/documents/10180/1359456/EBA-OP-2016-06+Report+on+Securitisation+Risk+Retention+Due+Diligence+and+Disclosure.pdf

https://www.esma.europa.eu/press-news/esma-news/esma-publishes-updated-data-performance-credit-rating-agencies-0

https://cerep.esma.europa.eu/cerep-web/


http://www.ecb.europa.eu/pub/pdf/annrep/ar2015en.pdf?51b9735eed394d1acf8eecf58bb0452e


17 APRIL 2016

Consultation on Draft Amending Regulatory Technical Standards on Credit Valuation Adjustment Proxy Spread

- EBA

April 06, 2016



The EBA released a consultation paper on draft amending RTS on Credit Valuation Adjustment (CVA) proxy spread.

These RTS propose limited amendments to Commission Delegated Regulation (CDR) No 526/2014 based on two policy recommendations contained in the EBA's CVA report published on February 25, 2015. In its CVA report, the EBA re-assessed the relevance of the RTS provisions, particularly based on a CVA data collection exercise involving 32 banks from 11 jurisdictions. The CVA report showed persistent difficulties in determining appropriate proxy spreads and LGDMKT (where LGD is Loss Given Default) for a large number of counterparties. Against this backdrop, policy recommendations 7 and 8 of the CVA report concluded that the RTS should be amended to address the difficulties associated with the determination of proxy spreads for large numbers of counterparties, for which spreads may never be observed on markets as well as issues linked with LGDMKT.

Therefore, the present amending RTS propose limited amendments to Delegated Regulation (EU) No 526/2014 that aim at further specifying cases where alternative approaches can be used to identify an appropriate proxy spread and LGDMKT. The proposed amendments are expected to lead to a more adequate calculation of own funds requirements for CVA risk, including, in some cases, a reduction of own funds requirements for CVA risk. This will partially remedy the over-estimation of current own funds requirements for counterparties in the scope of the CVA risk charge in the EU.

Comments Due Date: July 06, 2016 Effective Date: N/A First Reporting Date: N/A Link: Consultation Paper Keywords: CDR 526/2014, CVA, CRR

Commission Delegated Regulation 2016/522 and Commission Implementing Regulation 2016/523 Complementing the Market Abuse Regulation

- EC

April 05, 2016



The EC published in the Official Journal of the European Union, the Commission Delegated Regulation 2016/522 (CDR) and CIR 2016/523. CDR 2016/522 supplements Regulation (EU) No 596/2014 on market abuse regulation (MAR) and specifies detailed rules on:

» The extension of the exemption to certain public bodies and central banks of third countries from the obligations and prohibitions set out in Regulation (EU) No 596/2014 in carrying out monetary, exchange-rate or public debt management policy

» The indicators of market manipulation laid down in Annex I to Regulation (EU) No 596/2014

» The thresholds for the disclosure by emission allowance market participants of inside information

» The competent authority for the notifications of delays of public disclosure of inside information

» The circumstances under which trading during a closed period may be permitted by the issuer

» Types of transactions triggering the duty to notify managers' transactions

CIR 2016/523 lays down IITS on the format and template for notification and public disclosure of managers' transactions in accordance with MAR.

Comments Due Date: N/A Effective Date: July 03, 2016 First Reporting Date: N/A Links: CDR 2016/522, CIR 2016/523 Keywords: CDR 2016/522, CIR 2016/523, MAR

http://www.eba.europa.eu/-/eba-consults-on-draft-amending-standards-on-cva-proxy-spread

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2016.088.01.0001.01.ENG&toc=OJ:L:2016:088:TOC

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2016.088.01.0019.01.ENG&toc=OJ:L:2016:088:TOC


18 APRIL 2016

Amended Rules for Access, Aggregation, and Comparison of Data Across Trade Repositories Test

- ESMA

April 05, 2016



ESMA published amended regulatory technical standards (RTS) implementing the European Markets Infrastructure Regulation (EMIR). To ensure higher quality of data, and to enhance the access to data by authorities. and allow for comparison and aggregation of data across trade repositories, ESMA proposed the following amendments to the RTS:

» Standardized output format of the trade repository’s data, based on International Organization for Standardization (ISO) standards, allowing comparison and aggregation across trade repositories

» Minimum types of queries that need to be available for the authorities

» Standardized and secure data exchange, based on ISO standards, between trade repositories and authorities

» Standardized frequencies for the provision of direct and immediate access to trade repository data

» Use of secure machine-to-machine connection and data encryption protocols

Comments Due Date: N/A Effective Date: OJ Date + 20 Days First Reporting Date: N/A Link: Press Release, Final Rule Keywords: EMIR, RTS, Trade Repository

Amendment to the Guideline on Monetary and Financial Statistics

- ECB

April 01 , 2016

Type of Information: Guideline

The guideline (EU) 2016/450, amending guideline (ECB/2014/15) on monetary and financial statistics (ECB/2015/44), was published in the Official Journal of the European Union.

The guideline stipulates that it is necessary to update the compilation of monetary and financial statistics in view of the fact that insurance corporations will be subject to statistical reporting requirements, starting with reference period of the first quarter of 2016. Hence, it is necessary to start compiling statistics on insurance corporations within the framework set out in ECB/2014/15 and amend the guideline accordingly.

This guideline will take effect on the day of its notification to the national central banks of the member states whose currency is the euro. These national central banks shall comply with the guideline from January 01, 2016.

Link: Guideline Keywords: MFS, Statistics

Belgium

Key Developments

Implementation of Regulation 2015/534 Regarding Prudential Reporting Financial Institutions

- NBB

April 12, 2016



The National Bank of Belgium (NBB) issued a circular specifying procedures to apply Regulation 2015/534 of the ECB, regarding reporting of financial information in Belgium. A mapping has been established to link the Belgian banking accounting law (BGAAP) to the European scheme for prudential financial reporting ( FINREP).

Comments Due Date: N/A Effective Date: December 31, 2016 First Reporting Date: N/A Links: Circular (to original language material), Regulation 2015/534 Keywords: BGAAP, FINREP, Reporting

https://www.esma.europa.eu/press-news/esma-news/esma-issues-amended-rules-access-aggregation-and-comparison-data-across-trade

https://www.esma.europa.eu/file/17417/download?token=fM-HpdGa

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015O0044&from=EN

https://www.nbb.be/en/articles/circulaire-nbb201606-circulaire-concernant-la-mise-en-oeuvre-du-reglement-ue-2015534-de-la



19 APRIL 2016

Netherlands

Key Developments

Basel III Monitoring for Credit Valuation Adjustment

- DNB

April 25, 2016


As part of the semi-annual Basel III monitoring exercise, in early 2016, DNB will incorporate additional data requests (known as Basel QIS 2016) to assess the effects of several (new) international policy proposals.

The core of the Basel III QIS project has started. A part of the Basel QIS project is the proposal for a revised CVA risk charge. As this proposal is significant for Dutch banks, additional data is essential in completion of the Basel requirements. DNB has invited a selected set of Dutch banks to participate in this exercise.

Link: Updated Basel III CVA Factsheet Keywords: Basel III, CVA, QIS 2016

Basel III Monitoring Exercise

- DNB

April 25, 2016


As part of the semi-annual Basel III monitoring exercise, in early 2016, DNB will incorporate additional data requests (known as Basel QIS 2016) to assess the effects of several (new) international policy proposals. DNB has invited a selected set of Dutch banks to participate in this exercise. Basel QIS 2016 is expected to gather data related to the following new international policy proposals:

» Revised internal models approach for trading book

» Large exposures

» Revised standardized approach for banking book

» Sovereign exposures

» Step-in risk

» Loss-absorbing capacity in resolution

» Revisions to internal rating based approach

» Banks’ client clearing of derivative transactions

» Data required for the overall calibration of the Basel III framework

Links: Monitoring Basel III, EU-Specific CRD IV Basel III Templates V3-2-5 Keywords: Basel III, QIS 2016

Securitization Rules: Significant Risk Transfer, Risk Retention, and Due Diligence

- DNB

April 12, 2016


DNB published the conditions DNB expects banks to meet if they invest in or issue securitizations. It contains three sections namely: Significant Risk Transfer (SRT), Retention and Due Diligence, and Information Request.

The DNB checks both regularly and on a random basis whether Dutch banks adhere to European legal securitization requirements such as significant transfer of risks, transparency, and the due diligence, and retention requirements.

Links: Factsheet (to original language material), Guidance on the Recognition of SRT Keywords: Risk Retention, Securitization, SRT

http://www.toezicht.dnb.nl/2/50-235231.jsp


http://www.toezicht.dnb.nl/binaries/50-223330.xlsx


https://www.bankingsupervision.europa.eu/ecb/pub/pdf/guidance_significant_risk_transfer.en.pdf


20 APRIL 2016

United Kingdom

Key Developments

Regulatory Reporting of Financial Statements, Forecast Capital Data, and IFRS 9 Requirements

- PRA

April 29, 2016



The Prudential Regulation Authority (PRA) published a consultation paper (CP17/16) setting out its proposals on the future reporting of balance sheet, statement of profit or loss (P&L), and forecast capital data (currently known as Capital+).

This consultation paper summarizes, in Chapter 3, the outcome of the balance sheet, P&L, and capital reviews, along with the resulting proposals for future reporting in these areas; specifically, from January 01 2018, to:

» Replace existing returns FSA001 (Balance Sheet) and FSA002 (Income Statement) with relevant Financial Reporting (FINREP) templates issued by EBA

» Continue the collection of the Memorandum items section of the current FSA001 return via a new return (PRA108), and

» Replace the existing return FSA014 (Forecast data from firms) with four new returns collecting forecast balance sheet (PRA104-PRA106) and P&L data (PRA107)

In addition, from July 01, 2017 to formalize the collection of the existing Capital+ (Forecast capital resources and requirements) return through the introduction of three new returns (PRA101-PRA103). This consultation also :

» Sets out, in Chapter 4, a preliminary discussion of the potential impact on reporting requirements of the introduction of IFRS 9, the new accounting rules for financial instruments. This chapter does not include specific proposals but seeks feedback on the PRA’s preliminary views which will feed into a consultation on any changes to regulatory reporting arising from IFRS 9, which is planned for later in 2016 (subject to endorsement of the standard by the European Union and finalization of the EBA’s proposed changes to FINREP to incorporate IFRS 9).

» Provides, in Chapter 5, the cost-benefit and impact analyses as required under the PRA’s statutory obligations.

» Summarizes, in Chapter 6, the questions to which the PRA would welcome specific feedback.

» Includes, in the appendices, selection of ongoing and recent one-off data sets reported to the PRA by CRR firms; draft Rulebook text; proposed revisions to Supervisory Statement 34/15 - Guidelines for completing regulatory reporting; capital+ returns (PRA101-103) and definitions; forecast balance sheet returns (PRA104-PRA106) and definitions; forecast P&L return (PRA107) and definitions; and memorandum items return (PRA108) and definitions

Comments Due Date: July 29, 2016 Effective Date: July 01, 2017 and January 01, 2018 First Reporting Date: N/A Link: Notification Keywords: FINREP, IFRS 9, Regulatory Reporting

Switch From Financial Services Authority Liquidity Returns to Additional Liquidity Monitoring Metrics Returns

- PRA

April 18, 2016


This newly released PRA policy statement (PS15/16) contains amendments to the PRA Rulebook to remove the requirement on firms to report certain legacy FSA liquidity returns. It follows PS11/15 “CRD IV: Liquidity” and finalizes the date of changes to liquidity reporting rules, to end the reporting of data items FSA050-053, ahead of the introduction of EU requirements to report additional liquidity monitoring metrics (ALMM).

The changes will take effect from April 22, 2016. This policy statement is relevant to banks, building societies, and PRA-designated investment firms.

Links: Notification, PS15/16, PRA Rulebook: Enacting Regulatory Reporting Amendment Instrument 2016 Keywords: ALMM, CRR, Liquidity Returns

http://www.bankofengland.co.uk/pra/Pages/publications/cp/2016/cp1716.aspx

http://www.bankofengland.co.uk/pra/Pages/publications/ps/2016/ps1516.aspx

http://www.bankofengland.co.uk/pra/Documents/publications/ps/2016/ps1516.pdf

http://www.bankofengland.co.uk/pra/Documents/publications/ps/2016/ps1516app1.pdf


21 APRIL 2016

Middle East & Africa

Bahrain

Key Developments

Exposure Draft Related to Technical Note on Stress Testing for Institutions Offering Islamic Financial Services

- CBB

April 21, 2016



The IFSB has issued an exposure draft related to Technical Note on Stress Testing for Institutions Offering Islamic Financial Services (ED TN-2) for public consultation. All the Islamic banks licensees are requested to provide their comments on this consultation no later than June 21, 2016.

Comments Due Date: June 21, 2016 Effective Date: N/A First Reporting Date: N/A Links: Notification Letter, Exposure Draft Keywords: Islamic Banking, IIFS, Stress Testing

Turkey

Key Developments

Staff Report and Selected Issues Report for the 2016 Article IV Consultation

- IMF

April 22, 2016


IMF published its staff report (cr16104) and selected issues report (cr16105) in the context of the 2016 Article IV consultation with Turkey.

The Staff Report reveals that the gradual introduction of Basel III may increase the need for banks to raise capital. New risk weights and countercyclical and systemic capital buffers will be phased in, starting this year. First, the risk weights on the foreign exchange (FX)-denominated required reserves for banks and Reserve Option Mechanism (ROM) deposits at the Central Bank of the Republic of Turkey (CBRT) will increase in April 2016. At the same time, risk weights on consumer and mortgage lending will be lowered, in anticipation of introducing debt-to-income ratios. Second, certain subordinated loans will no longer be counted as Tier 2 capital. Taken together, these measures are expected to lower the average Capital Adequacy Ratio (CAR) in the banking system by about 0.6% points.

Additionally, the Banking Regulation and Supervision Agency (BRSA) has announced the detailed schedule of the introduction of additional capital buffers. While the schedule foresees a gradual phase in of these buffers over the period 2016–19, the required minimum CAR will increase by a total of 4.5%–7.0% points. Taken together, these developments may put the CAR of many banks close to, or even below the required minimum, thus necessitating capital increases. Without such increases, the capacity of banks to lend may be curtailed. Over the medium term, the move toward IRB risk weighting may increase the capital ratio, providing some relief. The upcoming Financial Sector Assessment Program (FSAP) will review these issues in detail.

The Selected Issues report focusses on the status of savings in private sector, and presents policy options to raise the private sector saving rate in the country. The report highlights that non-financial corporate sector (NFC) debt and foreign currency leverage has increased substantially in recent years. This has translated into a large and widening net open foreign currency position. Partially mitigating these developments, the maturity of foreign currency debt has lengthened, thereby alleviating short term refinancing and interest rate risks for firms. Over the short term, concentration of NFC foreign currency leverage in a few non-tradable industries may also pose risks for the domestic banking sector.

Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, IRB, NFC

http://www.cbb.gov.bh/assets/Consultations/Consultation%20Letter.pdf

http://www.cbb.gov.bh/assets/Consultations/IFSB%20ED%20TN-2%20Eng.pdf

http://www.imf.org/external/pubs/ft/scr/2016/cr16104.pdf



22 APRIL 2016

Americas

United States of America

Key Developments

Proposed FFIEC 101 Revisions: Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework

- FFIEC

April 27, 2016



The FED, the FDIC, and the OCC, under the auspices of the Federal Financial Institutions Examination Council (FFIEC), published proposed revisions to the FFIEC 101 in the Federal Register for public comment (81 FR 22702, as corrected on April 27, 2016, by 81 FR 24940). The proposed revisions were initially published on April 18, 2016. This proposal is consistent with the July 2013 revised regulatory capital rule of the agencies, as amended by subsequent revisions to the supplementary leverage ratio (SLR), and Regulation YY, Subpart O. The agencies are proposing to add two new tables to FFIEC 101 Schedule A to collect information related to the SLR disclosures required in Table 13 of Section 173 of the advanced approaches risk-based capital rule (advanced approaches rule) of the agencies. Proposed Tables 1 and 2, which would replace existing items 91 through 98 of FFIEC 101 Schedule A, generally would be aligned with the international leverage ratio common disclosure template adopted by the BCBS in January, 2014. The proposal would incorporate this complete template into Schedule A to ensure transparency and comparability of reporting of regulatory capital elements among internationally active banking organizations.

The proposed collection of SLR data in Tables 1 and 2 of FFIEC 101 Schedule A would apply to all banking organizations subject to the advanced approaches risk-based capital rule (generally, banking organizations with USD 250 billion or more in total consolidated assets or USD 10 billion or more in on-balance sheet foreign exposures) (advanced approaches banking organizations), unless the advanced approaches banking organization is:

» A consolidated subsidiary of a Bank Holding Company (BHC), Savings and Loan Holding Company (SLHC), or depository institution that is subject to the disclosure requirements in Table 13 of section 173 of the advanced approaches rule

» A subsidiary of a non-U.S. banking organization that is subject to comparable public disclosure requirements in its home jurisdiction. Advanced approaches banking organizations would begin reporting the proposed SLR data items in FFIEC 101 Schedule A, Tables 1 and 2, effective with the September 30, 2016 reporting date.

Separately, the proposed collection of SLR data in Tables 1 and 2 of FFIEC 101 Schedule A would apply to any U.S. intermediate holding companies formed or designated for purposes of compliance with the Board’s Regulation YY (12 CFR 252.153) that are advanced approaches banking organizations, effective with the March 31, 2018, reporting date. Any subsidiary BHC controlled by a Foreign Banking Organization (FBO) that was subject to the SLR requirements prior to the formation of an intermediate holding company would complete FFIEC 101 Schedule A, Tables 1 and 2, through the December 31, 2017 reporting date. The agencies would release publicly, Tables 1 and 2 of FFIEC 101 Schedule A for all covered banking organizations, including intermediate holding companies that are required to complete Schedule A.

In addition, the agencies are proposing to have advanced approaches banking organizations provide their Legal Entity Identifier (LEI) on the cover page of the report beginning September 30, 2016, only if an organization already has an LEI. The LEI is a 20-digit alpha-numeric code that uniquely identifies entities that engage in financial transactions. An advanced approaches banking organization that does not have an LEI would not be required to obtain one for purposes of reporting it on the FFIEC 101.

Comments Due Date: June 27, 2016 Effective Date: September 30, 2016 First Reporting Date: N/A Links: Proposed Rule, FFIEC 101 Reporting Forms Keywords: FFIEC 101, IHC, SLR

http://www.ffiec.gov/pdf/FFIEC_forms/FFIEC101_20160427_letter.pdf

https://www.ffiec.gov/forms101.htm


23 APRIL 2016

Financial Accounting Standards Board Voted to Proceed with Final Standard on Credit Losses

- FASB

April 27, 2016


The Financial Accounting Standards Board (FASB) voted to proceed with a new accounting standard that provides timelier financial reporting of credit losses on loans and other financial instruments held by financial institutions and other organizations. At the meeting, the Board decided to defer the original effective dates by one year to the following:

» For public companies that meet the definition of a SEC filer, the upcoming standard will be effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2019

» Other public companies will be required to apply the guidance for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years

» For private companies, not-for-profit organizations, and employee benefit plans, the standard will be effective for annual periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021

» Early adoption will be permitted for all organizations for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The decision to issue the final standard followed extensive stakeholder outreach. The FASB received more than 3,360 comment letters on a 2010 Exposure Draft and a 2012 Exposure Draft. The FASB participated in more than 95 meetings with financial statement preparers; and hosted 8 public roundtables, and 15 preparer workshops. In addition, the FASB met with more than 200 users of financial statements. It is expected that the final standard will be published in June, 2016, giving preparers enough time to review and prepare for the changes by the effective dates.

Link: Press Release Keywords: CECL, Credit Losses

Proposed Revisions to the FFIEC 009 and FFIEC 009a Reports

- FFIEC

April 26, 2016



The FED, FDIC, and the OCC, under the auspices of the FFIEC, published in the Federal Register for public comment proposed changes to the Country Exposure Report (FFIEC 009) and the Country Exposure Information Report (FFIEC 009a). No changes have been proposed for the Country Exposure Report for U.S. Branches and Agencies of Foreign Banks (FFIEC 019). The proposed changes to the FFIEC 009 and FFIEC 009a reports include:

» The collection of an institution’s Legal Entity Identifier, only if it already has an Legal Entity Identifier, on the cover page of the FFIEC 009 and FFIEC 009a report forms

» An expansion of the scope of entities that must file the FFIEC 009 and FFIEC 009a reports to include Intermediate Holding Companies (IHC)

Comments Due Date: June 13, 2016 Effective Date: September 30, 2016 First Reporting Date: N/A Link: Proposed Revisions, Reporting Forms and Instructions Keywords: FFIEC 009, FFIEC 009a, IHC

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FNewsPage&cid=1176168101253

http://www.ffiec.gov/pdf/FFIEC_forms/FFIEC009_FFIEC009a_FFIEC019_20160426_letter.pdf

http://www.ffiec.gov/forms009_009a.htm


24 APRIL 2016

Proposed Rule on Amendments to Net Stable Funding Ratio Along With Liquidity Risk Measurement Standards and Disclosure

- U.S. Agencies

April 26, 2016



The OCC (12 CFR Part 50), the FED (12 CFR Part 249, Regulation WW), and the FDIC (12 CFR Part 329) are inviting comment on a proposed rule that would implement a stable funding requirement, the Net Stable Funding Ration (NSFR), for large and internationally active banking organizations. Additionally, the proposed rule would amend certain definitions in the LCR rule that are also applicable to the NSFR.

The proposed NSFR requirement would apply to BHCs, certain savings and loan holding companies (SLHCs), and depository institutions that, in each case, have USD 250 billion or more in consolidated assets or USD 10 billion or more in total on-balance sheet foreign exposure and to their consolidated subsidiaries that are depository institutions with USD 10 billion or more in consolidated assets. Additionally, a modified NSFR requirement is being proposed for BHCs and certain SLHCs that, in each case, have USD 50 billion or more, but less than USD 250 billion in consolidated assets and less than USD 10 billion in total on-balance sheet foreign exposure.

Neither the proposed NSFR requirement nor the proposed modified NSFR requirement would apply to banking organizations with consolidated assets of less than USD 50 billion and total on-balance sheet foreign exposure of less than USD 10 billion. A BHC or SLHC subject to the proposed NSFR requirement or modified NSFR requirement would be required to publicly disclose the company’s NSFR and the components of its NSFR each calendar quarter.

Comments Due Date: August 05, 2016 Effective Date: January 01, 2018 First Reporting Date: N/A Link: Proposed Rule, Memorandum: Proposed Rule to Implement Liquidity Risk Standards Keywords: Basel III, LCR, NSFR

Proposal to Approve the Extension for Three Years, with Revision, of Annual Report of Holding Companies, Annual Report of Foreign Banking Organizations, Report of Changes in Organizational Structure, and Supplement to the Report of Changes in Organizational Structure

- FED

April 25, 2016



The Federal Reserve, under delegated authority from the OMB (OMB control number: 7100-0297), proposed to revise the Annual Report of Holding Companies (FR Y-6), the Annual Report of Foreign Banking Organizations (FR Y-7), and the Report of Changes in Organizational Structure (FR Y-10), along with the Supplement to the Report of Changes in Organizational Structure. The FED proposed to:

» Revise the FR Y-6, FR Y-7, and FR Y-10 by modifying confidential treatment questions on the reporting forms and instructions

» Revise the FR Y-7 and FR Y-10 to incorporate U.S. Intermediate Holding Companies (IHC) formed under the final rule for enhanced prudential standards for foreign banking organizations or FBOs (Regulation YY)

» Revise the FR Y-6 and FR Y-10 to make certain clarifying changes to the instructions

» Extend for three years, without revision, the FR Y-10E

The proposed changes to the FR Y-10 reporting form and instructions would be effective August 15, 2016. The proposed changes to the FR Y-6 and FR Y-7 reporting forms and instructions would be effective with fiscal year-ends beginning December 31, 2016.

The reporting frequency is annual for FR Y-6 and FR Y-7 while the reporting frequency is event-generated for FR Y-10 and FR Y-10E. The estimated number of respondents is 4,814 for FR Y-6; 243 for FR Y-7; 530 for FR Y-10 initial; 5,298 for FR Y-10 ongoing; and 5,298 for FR Y-10E. The reporters for these forms include BHCs and SLHCs (collectively, holding companies); securities holding companies; FBOs; state member banks unaffiliated with a BHC, Edge Act, and agreement corporations; and nationally chartered banks that are not controlled by a BHC (with regard to their foreign investments only).

Comments Due Date: June 24, 2016 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: FR Y-6, FR Y-7, FR Y-10

https://www.fdic.gov/news/board/2016/2016-04-26_notice_dis_c_fr.pdf

https://www.fdic.gov/news/board/2016/2016-04-26_notice_dis_c_mem.pdf

https://www.gpo.gov/fdsys/pkg/FR-2016-04-25/pdf/2016-09457.pdf


25 APRIL 2016

Brief Reviewing the Use of Credit Ratings in Financial Regulation

- OFR

April 21, 2016


The Office of Financial Research (OFR) published a brief on credit ratings in financial regulation, which reviews how credit ratings have been used in financial regulation, the incentives they created, and how they were replaced after the Dodd-Frank Act.

The use of credit ratings in financial regulation created perverse incentives for market participants and contributed to the financial crisis. As part of the Dodd-Frank Act, Congress called for eliminating credit ratings in financial regulation. Regulatory agencies, in turn, introduced alternative means for evaluating credit. However, these alternatives have their own challenges. Additionally, the new regulatory framework could promote the growth of new types of services that are similar to rating agencies but subject to less stringent supervision.

Link: OFR Brief Keyword: CRA, Dodd-Frank Act, Rating Alternatives

https://financialresearch.gov/briefs/files/OFRbr_2016-04_Credit-Ratings.pdf


26 APRIL 2016

Update on Review of Asset Management Products and Activities

- FSOC

April 18, 2016


The Financial Stability Oversight Council (FSOC or Council) published a statement providing a public update on its review of potential risks to the U.S. financial stability that may arise from asset management products and activities. FSOC’s evaluation of risks focused on liquidity and redemption, leverage, operational functions, securities lending, and resolvability and transition planning. The statement also details the next steps to respond to these potential risks.

Liquidity and redemption risk

The Council believes financial stability concerns may arise from liquidity and redemption risks in pooled investment vehicles, particularly where investor redemption rights and underlying asset liquidity may not match. To help mitigate these potential financial stability risks, the Council believes that the following steps should be considered:

» Adoption of robust liquidity risk management practices for mutual funds, particularly with regard to preparations for stressed conditions by funds that invest in less-liquid assets

» Establishment of clear regulatory guidelines addressing limits on the ability of mutual funds to hold assets with very limited liquidity, such that holdings of potentially illiquid assets do not interfere with a fund’s ability to make orderly redemptions

» Enhanced reporting and disclosures by mutual funds of their liquidity profiles and liquidity risk management practices

» Steps to allow and facilitate the use of tools by mutual funds to allocate redemption costs more directly to investors who redeem shares

» Additional public disclosure and analysis of external sources of financing for mutual funds

The Council also believes that regulators should consider whether these or other measures may be appropriate for reducing potential liquidity risks in collective investment funds and similar pooled investment vehicles subject to their respective jurisdictions.

Leverage risk

The Council’s analysis of data from the SEC’s Form PF showed that many hedge funds use relatively small amounts of leverage, but leverage appears to be concentrated in larger hedge funds, based on certain measures. While reporting on Form PF has increased transparency, it does not provide complete information on the economics and corresponding risk exposures of hedge fund leverage or potential mitigants associated with reported leverage levels. In addition, major counterparties of the hedge funds are regulated by various regulators with different jurisdictions. Therefore, no single regulator currently has all the information necessary to evaluate the complete risk profiles of hedge funds.

Consequently, the Council believes further analysis is needed, and therefore is creating an interagency working group that will share and analyze relevant regulatory information to better understand hedge fund activities and further assess whether there are potential risks to financial stability. This group is expected to report its consolidated findings to FSOC by the fourth quarter of 2016. The working group will:

» Use regulatory and supervisory data to evaluate the use of leverage in combination with other factors—such as counterparty exposures, margining requirements, underlying assets, and trading strategies—for assessing potential risks to financial stability

» Assess the sufficiency and accuracy of existing data and information, including data reported on Form PF, for evaluating risks to financial stability, and consider how the existing data might be augmented to improve the ability to make such evaluation

» Consider potential enhancements to, and the establishment of, standards governing the current measurements of leverage, including risk-based measures of synthetic leverage

Links: News Release, Update on the Review Keywords: Asset Management, Financial Stability Risks, Form PF

https://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/Financial%20Stability%20Oversight%20Council%20Releases%20Statement041816.pdf

https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf


27 APRIL 2016

Notice on Reporting of Stress Testing Results by Regulated Entities, Along With Summary Instructions and Guidance

- FHFA

April 18, 2016



The Federal Housing Finance Agency (FHFA) published a notice stating that it has issued orders, dated March 02, 2016, with respect to stress test reporting as of December 31, 2015, under section 165(i) (2) of the Dodd-Frank Act.

The Dodd-Frank Act requires certain financial companies to conduct annual stress tests, to determine whether the companies have sufficient capital to absorb losses and support operations during adverse economic conditions. This includes companies with total consolidated assets of more than USD 10 billion, along with those institutions that are regulated by a primary federal financial regulatory agency. The Orders, through the accompanying Summary Instructions and Guidance, prescribe for the regulated entities, the scenarios to be used for stress testing (Order Nos. 2016–OR–B–1, 2016–OR–FNMA–1, and 2016–OR–FHLMC–1). The Summary Instructions and Guidance also provides to the regulated entities, advice concerning the content and format of reports required by the Orders and the rule.

Each regulated entity shall report to FHFA and to the FED, the results of the stress testing as required by 12 CFR 1238, in the form and with the content described therein and in the Summary Instructions and Guidance, with Appendices 1 through 12 thereto, accompanying this Order and dated March 02, 2016.

Comments Due Date: N/A Effective Date: April 18, 2016 First Reporting Date: N/A Links: Notice in Federal Register, Summary Instructions and Guidance Keywords: Dodd-Frank Act, DFAST, Stress Testing

Report on Systemic Importance Data and their Impact on Global Banking Risks

- OFR

April 13, 2016


The Office of Financial Research (OFR) published a report analyzing the impact of systemic important data released by the Basel Committee on Banking Supervision. The Basel Committee released this data for the world’s largest banks in November 2015 (data are as of December 31, 2014).

The annual data released by the Committee show that Chinese banks had some of the largest increases in systemic importance scores, and U.S. banks remain among the most systemically important. The scores show that many of the largest U.S banks are highly interconnected and lack substitutes for the financial services they offer. The new data identify 30 banks across the world as G-SIBs, including eight U.S. bank holding companies. An earlier OFR brief described the 2013 data.

In 2016, international regulators will use systemic importance data for the first time to determine capital requirements for large banks. The OFR also introduced an online interactive chart.

Links: Report, Chart on G-SIB Scores Keyword: G-SIB


http://www.fhfa.gov/SupervisionRegulation/DoddFrankActStressTests

https://financialresearch.gov/briefs/files/OFRbr_2016-03_Systemic-Importance-Data-Shed-Light-on-Global-Banking-Risks.pdf

https://financialresearch.gov/gsib-scores-chart/


28 APRIL 2016

Determinations and Feedback on Resolution Plans of Eight Systemically Important, Domestic Banking Institutions

- FED/FDIC

April 13, 2016


The FDIC and the FED jointly announced determinations and provided firm-specific feedback on the 2015 resolution plans of eight systemically important, domestic banking institutions.

The agencies have jointly determined that each of the 2015 resolution plans of Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street, and Wells Fargo was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the statutory standard established in the Dodd-Frank Act. The agencies have issued joint notices of deficiencies to these five firms, detailing the deficiencies in their plans and the actions the firms must take to address these deficiencies. Each firm must remediate its deficiencies by October 01, 2016; else it may be subject to more stringent prudential requirements.

The agencies jointly identified weaknesses in the 2015 resolution plans of Goldman Sachs and Morgan Stanley that the firms must address, but did not make joint determinations regarding the plans and their deficiencies. The FDIC determined that the plan submitted by Goldman Sachs was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code and identified deficiencies. The FED identified a deficiency in Morgan Stanley's plan and found that the plan was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. Neither agency found deficiencies in Citigroup's 2015 resolution plan or that it would not facilitate an orderly resolution under the U.S. Bankruptcy Code—although the agencies did identify shortcomings that the firm must address. The deadline for the next full plan submission for all eight domestic, systemically important financial institutions is July 01, 2017. The agencies will evaluate all eight of the full plans submitted in 2017 under the statutory standard.

The agencies are issuing Resolution Plan Assessment Framework and Firm Determinations (2016), which explains the resolution planning requirement and provides further information on the determinations and the agencies' processes for reviewing the plans. Furthermore, the FED is releasing the feedback letters issued to each firm. Each letter details the deficiencies and shortcomings of each firm's plan as well as the specific remediation required of each firm. Additionally, the agencies are releasing new guidance for the July 2017 submission of all firms. The agencies also announced that they are continuing to assess the plans for the four foreign banking organizations that filed resolution plans on July 01, 2015 (Barclays PLC, Credit Suisse Group, Deutsche Bank AG, and UBS).

Links: Joint Press Release, Resolution Plan Assessment Framework, 2017 Resolution Plan Submission: Guidance Keywords: Dodd-Frank Act, FBO, RRP

http://www.federalreserve.gov/newsevents/press/bcreg/20160413a.htm

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160413a2.pdf

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160413a1.pdf


29 APRIL 2016

Study on Resolution Plans and Recommendations

- GAO

April 12, 2016


The U.S. Government Accountability Office (GAO) published a study on resolution plans and recommendations. The GAO found out that the FDIC and FED have developed separate but similar review processes for determining whether a resolution plan is “not credible” or would not facilitate a company's orderly resolution under the Bankruptcy Code.

The regulators have made progress assessing resolution plans but have provided limited disclosures about their reviews. Following their 2012, 2013, and 2014 plan reviews, the regulators clarified and expanded their expectations for the plans—jointly providing companies with guidance or feedback. The regulators did not jointly make any not-credible determinations but reported they may do so for the 2015 plans. However, they have not disclosed their frameworks for determining whether a plan is not credible. They also developed, but have not disclosed, their criteria for reducing plan requirements for many smaller companies. Without greater disclosure, companies lack information they could use to assess and enhance their plans. The regulators view such information as confidential, but a federal directive on open government recognizes that transparency promotes accountability by providing more information on government activities. A lack of information on how the regulators assess plans and allow some companies to file reduced plans could undermine public and market confidence in resolution plans.

In addition, the resolution plan rule requires companies to annually submit plans approved by their board of directors. However, the annual filing cycle may not be feasible. GAO found that the regulators took 9 months, on average, to complete their reviews. FDIC said companies can take up to 3 months to obtain internal approval of their plans. The regulators attributed their long review time in part to the plans' complexity, and one regulator said that companies ideally should have 6 months to incorporate feedback. Absent a longer filing cycle, companies may not have sufficient time to revise their plans to incorporate regulatory feedback intended to enhance their resolvability under the Bankruptcy Code.

According to companies and stakeholders that GAO interviewed, resolution planning has improved the resolvability of large financial companies under the Bankruptcy Code. Companies with USD 100 billion or more in nonbank assets generally said that resolution planning also had led to some operational improvements, but companies with less than USD 100 billion in nonbank assets generally said that they had reaped few benefits from resolution planning. However, whether the plans of the largest companies actually would facilitate their rapid and orderly resolution under the Bankruptcy Code is uncertain, in part because none has used its plan to go through bankruptcy. At the same time, the regulators told GAO that they were incurring costs to review the plans, and companies said that complying with the rule also had raised their costs.

GAO recommends that FDIC and the FED publicly disclose information about their assessment frameworks and reduced plan criteria for smaller companies and revise the annual filing requirement. The regulators agreed with GAO's recommendations.

Links: Notification, Report Keywords: Dodd-Frank Act, Living Wills, RRP

http://www.gao.gov/products/GAO-16-341

http://www.gao.gov/assets/680/676497.pdf


30 APRIL 2016

Regulation WW on Liquidity Coverage Ratio: Final Rule on Treatment of U.S. Municipal Securities as High-Quality Liquid Assets

- FED

April 11, 2016



The Federal Reserve released the final rule (12 CFR Part 249) to include certain U.S. general obligation state and municipal securities in the range of assets large banking organizations may use to satisfy various Liquidity Coverage Ratio (LCR) regulatory requirements. The LCR requirements adopted by the federal banking agencies in September 2014 requires large banking organizations to hold a minimum amount of high-quality liquid assets (HQLA) that can be readily converted into cash during a 30-day period of financial stress.

While the LCR requirement did not initially include U.S. municipal securities as HQLA, subsequent analysis by the FED suggested that certain U.S. municipal securities should qualify as HQLA because they have liquidity characteristics similar to other HQLA classes, such as corporate debt securities. The final rule allows investment-grade, U.S. general obligation state and municipal securities to be counted as HQLA up to certain levels, if they meet the same liquidity criteria that currently apply to corporate debt securities. The limits on the amount of a state's or a municipality's securities that could qualify are based on the liquidity characteristics of the securities.

The final rule applies to all Board-regulated institutions that are supervised by the FED and subject to the LCR requirement:

» Bank holding companies (BHCs), certain savings and loan holding companies, and state member banks with USD 250 billion or more in total consolidated assets, or USD 10 billion or more in on-balance sheet foreign exposure

» State member banks with USD 10 billion or more in total consolidated assets that are subsidiaries of the above entities

» Nonbank financial companies designated by the Financial Stability Oversight Council for Board supervision, to which the Board has applied the LCR requirement by separate rule or order

» BHCs and certain savings and loan holding companies with USD 50 billion or more in total consolidated assets, to which a less stringent LCR applies

Community banks are not subject to the LCR requirement. The final rule is generally similar to the proposal; however, in response to comments, the final rule does not include the restriction on insured municipal securities and the limit on the amount of a municipal securities issuance that may count as HQLA.

Comments Due Date: N/A Effective Date: July 01, 2016 First Reporting Date: N/A Links: Final Rule Keywords: Basel III, HQLA, LCR

Public Consultation on Risk-Based Capital Surcharges for U.S. Based Global Systemically Important Bank Holding Companies

- FED

April 08, 2016



The FED is inviting comments on its proposed clarifying revisions (12 CFR Part 217; Regulation Q) regarding risk-based capital surcharges for U.S. based G-SIB surcharge rule. The proposed rule:

» Modifies the G-SIB surcharge rule to provide that a BHC subject to the rule would continue to calculate its method 1 and method 2 G-SIB surcharge scores annually using data as of December 31 of the previous calendar year, even though the data will be due quarterly beginning with the June 30, 2016 report.

» Clarifies that a BHC subject to the G-SIB surcharge rule is required to calculate its method 2 G-SIB surcharge score using systemic indicator amounts expressed in billions of dollars, even though the data is reported in millions of dollars.

» In its preamble provides clarifying information on how a covered BHC should calculate its short-term wholesale funding score for calculating the method 2 score under the G-SIB surcharge rule.

Comments Due Date: May 13, 2016 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: G-SIB, Regulation Q




31 APRIL 2016

Supervisory Guidance Concerning Issuance of the Second Consultative Paper Entitled “Standardised Measurement Approach for Operational Risk”

- FED

April 06, 2016


As per the FED’s supervisory guidance (published in its Basel Coordination Committee Bulletin BCC 16-1) pertaining to the issuance of the second BCBS consultation on the Standardized Measurement Approach for Operational Risk, the FED will consider the proposals identified in the second consultation in connection with the U.S. advanced approaches risk-based capital rule. Any change to the capital framework as a result of proposals in this or subsequent papers released by the BCBS will be considered in a manner consistent with the U.S. notice and comment process.

The existing Advanced Measurement Approaches (AMA) capital requirements will remain in effect while the proposals are being considered. Reconsideration of the advanced measurement approaches for operational risk presents transitional implications both for banking supervisors and supervised banking organizations. While this matter is under review by the Board, operational risk supervisory resources of the FED will be focused on operational risk management processes and elements of the advanced measurement approaches that are important for overall safety and soundness. Board supervisory staff will contact affected banking organizations to discuss individual supervisory plans that are consistent with this principle and designed to limit burden on the institutions.

BCBS, on March 04, had published a consultative paper on the Standardised Measurement Approach for Operational Risk. The proposed revisions would apply to large, internationally active banking organizations but not to the community banking organizations. The paper proposed:

» A non-model-based method for the calculation of operational risk RWAs

» To withdraw the Advanced Measurement Approaches for operational risk from the Basel capital framework

Links: BCC Bulletins, BCC 16-1, Standardised Measurement Approach for Operational Risk Keywords: Basel III, BCC 16-1, Operational Risk

Proposal to Extend for Three Years, with Revisions, the Report on Financial Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking Organizations, Report on Abbreviated Financial Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking Organizations, and Capital and Asset Report for Foreign Banking Organizations

- FED

April 04, 2016



The FED proposes to extend for three years, with revisions, the reports on financial statements of U.S. nonbank subsidiaries held by FBOs, abbreviated financial statements of U.S. nonbank subsidiaries held by FBOs, and capital and asset report for FBOs (Forms FR Y-7N, FR Y-7NS, FR Y-7Q).

The FED proposes to revise the FR Y–7Q by collecting 14 new data items to monitor compliance with enhanced prudential standards for FBOs adopted pursuant to Subparts N and O of Regulation YY. The new data items would be used to determine whether an FBO with consolidated assets of USD 50 billion or more meets capital adequacy standards at the consolidated level that are consistent with the Basel capital framework. The FR Y-7Q collects consolidated regulatory capital information from all FBOs either quarterly or annually. The FR Y-7Q is filed quarterly by FBOs that have effectively elected to become U.S. financial holding companies (FHCs) and by FBOs that have total consolidated assets of USD 50 billion or more, regardless of financial holding company status. All other FBOs file the FR Y-7Q annually. The reporting begins with the reporting period ending on September 30, 2016, and, for some items, March 31, 2018. The estimated number of respondents is 136 for FR Y-7Q (quarterly) and 32 for FR Y-7Q (annual).

The FR Y-7N and FR Y-7NS collect financial information for non-functionally regulated U.S. nonbank subsidiaries held by FBOs other than through a U.S. BHC, FHC, or U.S. bank. FBOs file the FR Y-7N quarterly or annually or the FR Y-7NS annually predominantly based on asset-size thresholds. The number of respondents is estimated to be 43 for FR Y-7N (quarterly), 32 for FR Y-7N (annual), and 40 for FR Y-7NS.

Comments Due Date: June 03, 2016 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: Basel III, FBO, FR Y-7N

http://www.federalreserve.gov/bankinforeg/basel/basel-coordination-committee-bulletins.htm

http://www.federalreserve.gov/bankinforeg/basel/files/bcc1601.pdf

http://www.bis.org/press/p160304.htm



32 APRIL 2016

Colombia

Key Developments

Report on Detailed Assessment of Observance of Key Attributes of Effective Resolution Regimes for Financial Institutions: Pilot of the Draft Assessment Methodology

- IMF

April 13, 2016


The IMF published its detailed assessment of the observance of key attributes of effective resolution regimes for financial institutions in Colombia.

The report highlights that the Colombian authorities have strong powers to manage weak and failing financial institutions, along with a track record of using these powers. While there have not been any failures of banks or institutions of systemic importance for many years, the failures of several non-bank financial institutions important in their subsectors, and many smaller institutions, have been managed effectively.

Colombia’s resolution regime, however, has shortcomings with respect to the standards set in the key attributes. Important resolution powers are not available to the authorities; the regime does not emphasize minimizing the exposure of taxpayers to loss. Moreover, taking resolution actions does not hinge on an assessment of non-viability. While weak, failing, and insolvent financial institutions are subject to administrative powers that share features with those described in the Key Attributes and the authorities’ objectives to preserve financial stability are similar, the regime is premised on timely intervention to forestall triggering an official takeover of the firm, rather than resolution as considered in the Key Attributes.

Additionally, there are no requirements for, and few tools enabling, the imposition of losses on the shareholders responsible for the institution’s failure or the avoidance of taxpayer exposure to loss or unwarranted protection of unsecured and uninsured creditors. Rather, the Colombian regime seeks to minimize financial stability risks by avoiding failures of systemic financial firms where possible, firstly through shareholder action under threat of official takeover, but also through the use of public or deposit insurance funds. In this sense, while the Colombian framework has some of the features needed for orderly resolution, it falls short of the Key Attributes’ other central objective of avoiding bail-outs of shareholders and unsecured and uninsured creditors.

Colombia has a large and diversified financial system compared with peer countries, with significant cross-border institutions and large mixed-function conglomerates. The four largest banking groups are considered systemic and account for over 70% of banking assets. Of these four groups, the top three are domestic and privately owned, while the fourth is foreign owned and currently, part of a global systemically important institution (G-SIFI) following a multiple point of entry resolution strategy. Two other G-SIFIs have a smaller presence in Colombia, which is not the home jurisdiction of any G-SIFIs. The three largest domestically owned banking groups are regionally systemic financial institutions in Central America, with subsidiaries that are materially important for the groups and systemically important for the host jurisdictions. These large groups are part of mixed-function conglomerates, with significant financial interests besides banking (organized under separate controlling entities, including nonfinancial holding companies), and common ownership with large real sector operations across a wide range of economic activities.

Links: Technical Assistance Report, Key Attributes of Effective Resolution Regimes Keywords: Key Attributes, RRP


http://www.fsb.org/2014/10/r_141015/


33 APRIL 2016

Latin America and the Caribbean

Key Developments

Examining the State of Financial Development in Latin America and the Caribbean and Further Advancements

- IMF

April 07, 2016


The IMF published a working paper examining the state of financial development in the Latin America and Caribbean (LAC) region as well as potential growth and stability implications from further development.

The analysis suggests that access to financial institutions has expanded notably in the past decade and the region compares favorably with other emerging market regions on this dimension. The region, however, continues to lag behind peers on broader financial development, especially with respect to markets, though there is substantial heterogeneity across countries. Financial systems in many LAC countries are also underdeveloped relative to their macroeconomic fundamentals. Further financial development could convey net benefits to the region, provided there is adequate regulatory oversight to prevent excesses.

Financial development has proven difficult to measure in a comprehensive way. Typical proxies in the literature have included the ratio of private credit to GDP and, to a lesser extent, stock market capitalization. These traditional indicators, however, are too narrow to capture the broad spectrum of financial sector activities such as non-banking financial institutions (pension funds, insurance companies, mutual funds). To better capture different facets of these trends, a new comprehensive and broad-based index of financial development was developed by the IMF. The index contains two major components─ financial institutions and financial markets. Each component is further divided into access, depth, and efficiency sub-components.

Link: Working Paper Keywords: Financial Development, LAC

Asia Pacific

Hong Kong

Key Developments

Annual Report 2015

- HKMA

April 29, 2016


The Hong Kong Monetary Authority (HKMA) published its annual report for 2015, detailing the Authority’s activities and achievements throughout the year.

The report highlights that the Authority has been working in full swing to implement the Basel III capital and liquidity requirements to further enhance the financial robustness and resilience of the banking system. HKMA is closely monitoring the lending business of banks, and their resilience against abrupt changes in the markets through its day-to-day supervisory work such as stress-testing and thematic supervision. As the banking system has a substantial exposure to Mainland-related lending, the supervisory efforts have been strengthened—through regular surveys, establishment of a database, more in-depth and granular analyses of the loan quality—to ensure that banks have taken comprehensive and prudent credit risk management measures.

Following its publication in the government gazette in November, the Financial institutions (Resolution) Bill (FiRB) was introduced by HKMA into the Legislative Council. The Bill seeks to implement international requirements to reduce the risk posed to the financial system by the “too big to fail” financial institutions. Another amendment bill, aimed at improving the Deposit protection Scheme, was also introduced into the Legislative Council in November to streamline the payout process and further strengthen public confidence in the banking system. Moreover, 2015 saw remarkable achievements in the development of Hong Kong’s financial infrastructure.

Link: Annual Report (hkma.gov.hk/eng/publications-and-research/annual-report/2015.shtml) Keywords: Annual Report

http://www.imf.org/external/pubs/ft/wp/2016/wp1681.pdf


34 APRIL 2016

Revised Supervisory Policy Manual Module on Supervisory Review Process

- HKMA

April 08, 2016



The HKMA issued a revised version of the Supervisory Policy Manual (SPM) module “Supervisory Review Process (SRP).” The revised SPM module contains updated text relating to the implementation of the Basel III capital buffers. In particular, the explanation of the interaction between the Pillar 2 capital requirements derived from the Pillar 2 SRP and the Pillar 1 buffer level prescribed under the Banking Capital rules has been refined.

Furthermore, with reference to the sound practices identified in “A Sound Capital Planning Process: Fundamental Elements,” issued by the BCBS in January 2014, some new provisions related to capital planning of authorized institutions have been incorporated into the SPM module. These relate primarily to the responsibilities of the board and senior management, and the integration of capital planning with the overall capital adequacy assessment process.

The opportunity has also been taken to align some of the provisions in the module with those in other SPM modules and supervisory requirements. For example, it is made clear that an authorized institution should agree on its internal capital target with the HKMA (as noted in the SPM module CA-G-1 “Overview of Capital Adequacy Regime for Locally Incorporated Authorized Institutions”). It should also aim to attain a capital level that can withstand the stressed conditions in all the current relevant stress tests (that is, supervisory-driven stress tests and other relevant stress tests conducted by the authorized institution, as well as supervisory top-down stress tests conducted by the HKMA).

Comments Due Date: N/A Effective Date: N/A First Reporting Date: N/A Link: Supervisory Policy (hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2016/20160408e1.pdf) Keywords: Basel III, SPM, SRP, Stress Testing


35 APRIL 2016

Japan

Key Developments

Approach to Introduce the Total Loss-Absorbing Capacity Framework

- JFSA

April 15, 2016


The Japan Financial Services Agency (JFSA) released its approach to introduce the Total Loss-Absorbing Capacity (TLAC) framework for the G-SIBs in Japan. The JFSA has introduced this approach by taking account of the progress in international discussions on developing a framework for an orderly resolution of G-SIBs.

The relevant regulations (including supervisory guidelines) will be revised based on further deliberations and the policy described in the document entitled “The FSA's Approach to Introduce the TLAC Framework.”

Links: Press Release (fsa.go.jp/en/news/2016/20160415-1.html), Approach for Introducing TLAC Framework (fsa.go.jp/en/news/2016/20160415-1/01.pdf), Annex (fsa.go.jp/en/news/2016/20160415-1/02.pdf) Keywords: Basel III, G-SIB, TLAC

Korea

Key Developments

Proposed Amendments to Banking Regulations

- FSS

April 14, 2016



The Financial Supervisory Service (FSS) of South Korea launched a consultation on amendments on own funds (with contingent capital securities as allowed component), and on LCR (day-count calculation change of one month, in definition). They also published the Excel templates with highlighted changes in financial and prudential reporting.

Comments Due Date: May 24, 2016 Effective Date: N/A First Reporting Date: N/A Links (to original language material): Press Release (law.fss.or.kr/fss/lmx/law_ready/law_ready_view.jsp?seq=709&no=573), Excel Templates (law.fss.or.kr/fss/lmx/filedownload2.jsp?filedir=pre/&filename=%BA%B0%C3%B7%201,%202,%203.zip) Keywords: Basel III, LCR, Reporting


36 APRIL 2016

Glossary

ALMM Additional Liquidity Monitoring Metrics BCBS Basel Committee on Banking Supervision BCC Basel Coordination Committee BGAAP Belgian Banking Accounting Law BIS Bank for International Settlements BRRD Bank Recovery and Resolution Directive CBB Central Bank of Bahrain CDR Commission Delegated Regulation CECL Current Expected Credit Loss CEREP Central Rating Repository CIR Commission Implementing Regulation CMU Capital Markets Union CRD IV EU Capital Requirements Directive IV CRA Credit Rating Agencies CRR Capital Requirements Regulation EU CVA Credit Valuation Adjustment DFAST Dodd-Frank Act Stress Testing DNB De Nederlandsche Bank (Central Bank of Netherlands) DLTs Distributed Ledger Technologies EBA European Banking Authority EC European Commission ECB European Central Bank EMIR European Market Infrastructure Regulation ESMA European Securities and Monetary Authority EU European Union FASB Financial Accounting Standards Board FATF Financial Action Task Force FBO Foreign Banking Organizations FDIC Federal Deposit Insurance Corporation FED Board of Governors of the Federal Reserve System FFIEC Federal Financial Institutions Examination Council FHFA Federal Housing Finance Agency FINREP Financial Reports EU FINTEC Financial Integration Composite FSA Financial Services Authority FSB Financial Stability Board FSOC Financial Stability Oversight Council G20 Group of Twenty Countries GAO Government Accountability Office G-SIB Global Systemically Important Bank HKMA Hong Kong Monetary Authority HQLA High-Quality Liquid Assets IASB International Accounting Standards Board

IFRS International Financial Reporting Standards IFSB Islamic Financial Services Board IHC Intermediate Holding Companies IIFS Institutions Offering Islamic Financial Services IMF International Monetary Fund IOSCO International Organization of Securities Commissions IRB Internal Ratings-Based IRRBB Interest Rate Risk in the Banking Book JFSA Financial Services Agency, Japan LAC Latin America and Caribbean LCR Liquidity Coverage Ratio MAR Market Abuse Regulation MiFIR Markets in Financial Instruments Regulation MiFID Markets in Financial Instruments Directive MFI Monetary Financial Institution NBB National Bank of Belgium NFC Non-Financial Corporate Sector NSFR Net Stable Funding Ratio OCC Office of the Comptroller of the Currency OECD Organization for Economic Co-operation and

Development OFR Office of Financial Research OMB Office of Management and Budget O&D Options and National Discretions O-SII Other Systemically Important Institutions PRA Prudential Regulation Authority Q&A Questions and Answers QIS Quantitative Impact Study RCAP Regulatory Consistency Assessment Program RRP Recovery and Resolution Plan RTS Regulatory Technical Standards RWA Risk-Weighted Asset SA-CCR Standardized Approach for Measuring Counterparty

Credit Risk Exposures SEC U.S. Securities and Exchange Commission SFT Securities Financing Transaction SLR Supplementary Leverage Ratio SME Small and Medium Enterprise SPM Supervisory Policy Manual SRP Supervisory Review Process SRT Significant Risk Transfer TLAC Total Loss Absorbing Capacity

37 APRIL 2016


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