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BANKS NEWSLETTER

SEPTEMBER 2015ENTERPRISE RISK SOLUTIONS

Regulatory Insight

Key Developments at a Glance The Financial Stability Board (FSB) plan to finalize the total loss-absorbing capacity (TLAC) standard for global systemically important banks (G-SIBs) by November 2015 and it has approved Phase 3 of its initiative to collect data on G-SIB exposures and funding through common data templates.

The Bank of International Settlements (BIS) made publicly available its Basel III monitoring workbook, accompanying instructions, and a list of frequently asked questions. A consultation document on collecting data on direct and ultimate parents of legal entities in the Global LEI System was published by the Legal Entity Regulatory Oversight Committee. The Business 20 (an outreach group of G20 which represents the international business community) produced reports and task force policy papers on various topics including Anti-Corruption initiatives, Employment, Trade, and Financing Growth.

KEY DEVELOPMENTS PER REGION

> EUROPE: The European Banking Authority (EBA) published a Single Rulebook Q&A and a consultation and Quantitative Impact Study on the definition of default. Separately, the EBA recommended to the EU Commission to retain the maturity ladder in the ITS on additional liquidity monitoring metrics. The EBA issued an updated data point model (DPM) and 2.4.0 XBRL taxonomy, that will be applicable in 2016, for remittance of supervisory reporting along with a revised list of validation rules.

The EC published final disclosure requirement for compliance with the Countercyclical Capital Buffer. The BIS produced the working paper “Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer (CCB)”. The central bank of the Netherlands published decisions on liquidity and liquidity reporting requirements. The central bank of Russia published a decision to introduce a liquidity coverage ratio (Basel III) from 1 January 2016. The Prudential Regulation Authority (PRA) of the UK issued clarifications on CRD IV Liquidity Coverage Ratio (LCR) reporting and on certain common reporting errors.

> MIDDLE EAST AND AFRICA: The IMF published an Article IV consultation and a Selected Issues paper on Israel. The BIS released a Basel III implementation assessment of Saudi Arabia. The South African Reserve Bank proposed amended Basel III and LCR regulations for Banks. “Evolving Banking Trends in Sub-Saharan Africa: Key Features and Challenges” was published by the IMF.

> AMERICAS: The US Federal Reserve proposed revising several schedules of the FR Y–14A/Q/M. The FFIEC in the US detailed plans to streamline regulatory reporting requirements for community banks. Canada’s OFSI clarified annual public disclosure requirements for Global Systemically Important Banks. Daniel Tarullo of the US FED gave a speech on “Capital Regulation Across Financial Intermediaries”. Several proposed changes to call reports were announced by the US FED.

> ASIA PACIFIC: Australia’s APRA released a consultation on proposed clarification of the Countercyclical Capital Buffer (CcyB) requirements and published a collection of speeches of its chairman Wayne Byres. The HKMA published a consultation on Basel III Capital Buffer requirements, finalized the Return of Liquidity Monitoring Tools, and the CcyB rules.

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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ENTERPRISE RISK SOLUTIONS

2 SEPTEMBER 2015

Table of Contents

International 3

Europe 13 European Union 13 Netherlands 23 Norway 25 Russia 27 United Kingdom 27

Middle East & Africa 28 Israel 28 Saudi Arabia 28 South Africa 29 Sub-Saharan Africa 30

Americas 31 United States of America 31 Canada 37

Asia Pacific 37 Australia 37 Hong Kong 39 India 41 Malaysia 43 Myanmar 43 Philippines 44

Glossary 46


3 SEPTEMBER 2015

International

Key Developments

Basel III Monitoring Updates for the Collection of June 2015 Data

- BCBS

September 29, 2015

Type of Information: Statement

BCBS issued Basel III monitoring updates for the collection of June 2015 data. These updates are as follows:

» Basel III monitoring workbook v 3.1.1

» Frequently asked questions on Basel III monitoring

BCBS 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: Current Data Collection Exercise, Workbook, FAQ on Basel III Monitoring Keywords: Basel III Monitoring, QIS

Meeting of the Financial Stability Board in London

- FSB

September 25, 2015


The FSB had a meeting in London to discuss progress on its ongoing work plan. The key remaining policies to help end too-big-to-fail were also discussed.

The FSB has been working, based on the work plan agreed upon in March, to identify risks associated with market liquidity and asset management activities. The FSB and IOSCO will continue to conduct detailed analyses in these areas and, as necessary, develop policy recommendations in the first half of 2016.

Additionally, the total loss-absorbing capacity (TLAC) standard and its timelines will be finalized by the time of the G20 Summit in November. The FSB reviewed the findings from the first round of the Resolvability Assessment Process for G-SIBs and the actions to address remaining impediments to resolvability. The FSB also endorsed the first version of the Higher Loss Absorbency requirement for Global Systemically Important Insurers (G-SIIs) developed by the IAIS. The Higher Loss Absorbency standard will be revised before its implementation in 2019 to reflect further work by the IAIS on the G-SII assessment methodology and insurance capital requirements. The Plenary:

» Approved Phase 3 of its initiative to collect data on global systemically important bank (G-SIB) exposures and funding through a common data template. Phase 3 involves the collection of more granular data, thus expanding the availability of consistent information for supervisory, financial stability, and policy purposes.

» Agreed on the approach for applying the FSB framework of numerical haircut floors to non-bank-to-non-bank securities financing transactions. The final framework will be published shortly with an implementation date by the end of 2018.

» Reviewed progress in implementing OTC derivative market reforms.

» Discussed the findings of a thematic peer review of OTC derivatives trade reporting, with the final report of this review scheduled to be published next month.

» Discussed the draft of its first annual report on implementation and effects of reforms that will be presented to the Antalya G20 Summit.

With regard to the auditing, accounting, and disclosure issues, the Plenary reiterated its support for the objective of achieving a single set of high-quality global accounting standards and called on the IASB and the FASB to continue efforts to achieve this. The Plenary supported the work of the International Forum of Independent Audit Regulators (IFIAR) to enhance audit quality and encouraged IFIAR to continue working with the big six audit firms to promote greater consistency of audit quality in global systemically important firms. The FSB noted ongoing work to promote consistent and comparable application of the new accounting standards for expected loss, including work by the Enhanced Disclosure Task Force on disclosures and work by the BCBS to develop guidance to support IFRS 9. It called on the International Auditing and Assurance Standards Board to develop further audit guidance on this standard. The Plenary noted the importance of IASB completing its standard for insurance contracts as a high priority.

Link: Press Release Keywords: G20, Roadmap

http://www.bis.org/bcbs/qis/index.htm

http://www.bis.org/bcbs/qis/biiiimplmoniwb_sep15.xlsx

http://www.bis.org/bcbs/qis/biiiimplmonifaq_sep15.pdf

http://www.financialstabilityboard.org/wp-content/uploads/September-Plenary-press-release.pdf


4 SEPTEMBER 2015

Progress Report on Work to Enhance Central Counterparty Resilience

- FSB/BCBS/ CPMI/IOSCO

September 22, 2015

Type of Information: Report

The FSB, the BCBS, the CPMI and the IOSCO released a progress report on their work to enhance the resilience, recovery planning, and resolvability of central counterparties (CCPs).

The progress report provides an update on delivery against the 2015 work plan developed by these bodies to ensure effective coordination of policy work to make CCPs more resilient. In 2009, the G20 Leaders committed to ensuring that all standardized OTC derivatives contracts are cleared through CCPs. Increased use of central clearing of derivatives is intended to enhance financial stability. Fully realizing the benefits of CCPs requires them to be subject to strong regulatory oversight and supervisory requirements.

The agreed work plan focuses on CCPs that are systemic across multiple jurisdictions.

Link: Progress Report Keywords: CCP, Recovery Planning, Resilience

FSB Reports to G20 Finance Ministers and Central Bank Governors

- FSB

September 22, 2015


The FSB released three reports that were sent to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Ankara on 4-5 September. The key highlights of these reports follow:

Corporate Funding Structures and Incentives

The report presented to the G20 highlights the growth of non-financial corporate debt in many countries over the past 15 years, including an acceleration in emerging markets since the financial crisis. It notes that high corporate leverage can amplify shocks and dampen economic growth and considers whether there are factors incentivizing firms to choose to issue debt rather than equity. The FSB report proposes that further work in 2016 could include:

» Further data analysis on economic factors driving corporate liability decisions and whether any financial stability risks arise

» Case studies on countries’ actions to address the debt-equity tax bias

» Sharing country experiences on the use of macro-prudential tools to counter these risks

The Financial Crisis and Information Gaps

The IMF and the FSB published their sixth annual progress report on the implementation of the G20 Data Gaps Initiative begun in 2009. The report notes significant progress over the six years in addressing the data gaps identified following the financial crisis, with data increasingly being used to support financial stability analysis and macro-policy decision making. The report proposes a second phase with a five-year horizon with more specific objectives that promote the regular flow of high-quality statistics for policy use. The G20 September communiqué endorsed the recommendations in the report for this second phase.

Work on Foreign Currency Exposures

The IMF, FSB, and BIS presented the report providing an update on their work to address data gaps involving foreign currency exposures. The main objective of this ongoing work is to set the stage for improved assessments of cross-border risks. The G20 September communiqué notes the expectation that this work will be taken forward as part of the second phase of the overall Data Gaps Initiative.

Link: Press Release Keywords: Corporate Funding, Foreign Exchange Cross-Border risk, G20 Data Gap Initiative

http://www.financialstabilityboard.org/2015/09/progress-report-on-work-to-enhance-ccp-resilience/

http://www.financialstabilityboard.org/2015/09/recent-fsb-reports-to-g20-finance-ministers-and-central-bank-governors/


5 SEPTEMBER 2015

Report on Cross-Border Regulation

- IOSCO

September 17, 2015


IOSCO published its final report on the cross-border regulation. The report indicates that cross-border regulation is moving toward more bilateral and occasionally multilateral engagement via different forms of recognition to solve regulatory overlaps, gaps, and inconsistencies. Multilateral engagement is likely to develop further as markets continue to grow and emerge around the world, and with the greater use of supervisory Memoranda of Understanding (MoUs). The report:

» Presents a series of concrete next steps aimed at supporting cross-border regulation and embedding the consideration of cross-border issues more effectively into IOSCO´s work

» Provides a detailed resource for regulators

» Includes a toolkit of three broad types of cross-border regulatory options: supporting case studies, a description of the processes used to assess comparability of foreign regulatory regimes, and considerations on the application of the toolkit; these options better equip regulators and policymakers to develop, implement, and evaluate cross-border regulatory approaches

The report’s analysis and findings are based on a survey across the IOSCO membership regarding their regulatory approaches to cross-border financial activities involving market intermediaries, securities exchanges and markets, collective investment schemes, and financial market infrastructures. Emphasis was placed on the underlying rationale, experiences, and challenges of developing and implementing these approaches.

Link: Report Keywords: Cross-Border Regulation, Cross-Border Toolkit, MoU

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD507.pdf


6 SEPTEMBER 2015

Preparing for the Expected: Implementing IFRS 9

- IFRS

September 15, 2015

Type of Information: Speech

Hans Hoogervorst, Chairman of the IASB, spoke about preparation for the implementation of IFRS 9, which is based on a forward-looking expected credit loss (ECL) model, at the ICAEW-IFRS Foundation conference in London, UK.

The IASB Chairman highlighted that this more forward-looking expected loss model in IFRS 9 should help investors get a better picture of the risks banks face with regard to potential losses on loans extended to customers. The new impairment model requires banks to recognize, at a minimum, 12-month expected losses on all loans and full lifetime losses on loans that have experienced a significant increase in credit risk. First indications are that this model will lead to a substantial increase in the level of provisioning, to the tune of nearly 35%. However, “some think that IFRS 9 is not tough enough and that banks should be required to recognize full expected lifetime losses on all loans as soon as the loan has been made.”

“I am all in favour of imposing tough prudential requirements on banks [sic],” said Mr. Hoogervorst. However, he highlighted that imposing high, artificial losses on banks as they issue new loans is not a good way to make banks safer. Such a move would seriously distort a bank’s performance and might have highly undesirable side-effects. Forcing banks to recognize expected lifetime losses on the day they make the loans clearly does not reflect the economics. Booking a loan on market terms does not cause the bank to suffer a loss immediately. Day-one losses based on lifetime expected losses could be quite substantial, especially for long-term loans such as 30-year mortgages.

Another issue, as he pointed out, is that booking a loss on Day One would cause loans to be on the books at amounts substantially below their true value, thus creating a distorted picture. Since such Day-One losses do not reflect the economics, imposing full lifetime losses at inception would have perverse consequences. A bank that is increasing its long-term lending business could show depressed earnings, even when its lending practices are perfectly healthy. That is clearly not a reflection of economic reality.

The effective date of this standard, January 01, 2018, is now less than two and a half years away. The impairment element of IFRS 9 will result in a fundamental change to the current practice and when it comes to making big accounting changes this is not a long time. Therefore, this conference, which aims to focus on the practicalities of implementation, is so important.

Many parties need to do work when a change of this magnitude comes into force and that requires international collaboration, as per Mr. Hoogervorst. For example, the Basel Committee will deliver guidance on implementation and is also looking at how the new standard will affect capital requirements. The Enhanced Disclosures Task Force (EDTF) is expected to discuss, later this year, potential updates to its recommended disclosures by banks in relation to the ECL impairment models. The IASB is also closely involved with these initiatives.

IFRS 9 is not only relevant for banks, but will also have an impact on the insurance industry. The IASB is getting close to finalizing a new standard for insurance contracts. Since it is clear that the new insurance contracts standard will have a later effective date than the effective date of IFRS 9, insurers have raised concerns. They are worried about potential accounting mismatches and temporary volatility if they are unable to implement both standards at the same time. The IASB is working hard to find a pragmatic solution to those concerns.

Links: IFRS Homepage Keywords: ECL, IFRS 9, Impairment

IASB Meeting for the Month of September

- IASB/FASB

September 15, 2015


The IASB meeting is scheduled to take place this month from September 21 to 24, 2015.

On September 23, the FASB is expected to discuss the progress on insurance contract projects and the disclosure initiative project. In addition, the FASB staff will provide an update on the FASB’s projects on:

» Clarifying the definition of a business

» Accounting for goodwill, for public business entities, and not-for-profit entities

» Accounting for identifiable intangible assets in a business combination for public business entities and not-for-profit entities

Links: IFRS Homepage, FASB Notice of Open Meetings Keywords: IASB- FASB Convergence, Insurance Contracts

http://www.ifrs.org/Meetings/Pages/IASB-Meeting-September-2015.aspx?mc_cid=a15824c632&mc_eid=3bd6ef59ba

http://www.ifrs.org/Meetings/Pages/IASB-Meeting-September-2015.aspx?mc_cid=a15824c632&mc_eid=3bd6ef59ba

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220079452


7 SEPTEMBER 2015

Basel III Monitoring Report

- BCBS

September 15, 2015


BCBS published a report presenting the results of its latest Basel III monitoring exercise. Data have been provided for 221 banks, comprising 100 large internationally active banks (Group 1 banks, defined as internationally active banks that have tier 1 capital of more than EUR 3 billion) and 121 Group 2 banks (that is, representative of all other banks).

The results of the monitoring exercise assume that the final Basel III package is fully in force, based on data as of December 31, 2014. No assumptions were made about bank profitability or behavioral responses, such as changes in bank capital or balance sheet composition. For that reason, the results of the study are not comparable to industry estimates.

Data as of December 31, 2014 show that all large internationally active banks meet the Basel III risk-based capital minimum requirements, as well as the common equity tier 1 (CET1) target level of 7.0% (plus the surcharges on global systemically-important banks, or G-SIBs, as applicable). Between June 30 and December 31, 2014, Group 1 banks reduced their capital shortfalls relative to the higher tier 1 and total capital target levels; the additional tier 1 capital shortfall has decreased from EUR 18.6 billion to EUR 6.5 billion and the tier 2 capital shortfall has decreased from EUR 78.6 billion to EUR 40.6 billion.

Under the same assumption, no capital shortfall exists for Group 2 banks included in the sample for the CET1 minimum of 4.5%. For a CET1 target level of 7.0%, the shortfall narrowed from EUR 1.8 billion to EUR 1.5 billion since the previous period. The average CET1 capital ratios under the Basel III framework across the same sample of banks are 11.1% for Group 1 banks, and 12.3% for Group 2 banks.

Basel III's LCR came into effect on January 01, 2015. The minimum requirement is set initially at 60%, and will then rise in equal annual steps to reach 100% in 2019. The weighted average LCR for the Group 1 bank sample was 125% on June 30, 2014, up from 121% six months earlier. For Group 2 banks, the weighted average LCR was 144%, up from 140% six months earlier. For banks in the sample, 85% reported an LCR that met or exceeded 100%, while 98% reported an LCR at or above 60%.

Basel III also includes a longer term structural liquidity standard—the NSFR—which was finalized by the Basel Committee in October 2014. The weighted average NSFR for the Group 1 bank sample was 111%, while for Group 2 banks the average NSFR was 114%. As of December 2014, 75% of the Group 1 banks and 85% of the Group 2 banks in the NSFR sample reported a ratio that met or exceeded 100%, while 92% of the Group 1 banks and 93% of the Group 2 banks reported an NSFR at or above 90%.

Link: Report Keywords: Basel III Monitoring, QIS

BIS Quarterly Review, September 2015

- BIS

September 13, 2015


The BIS published its quarterly review for September 2015 and the key special features follow:

» Introduction to BIS statistics. The BIS is expanding its statistics by publishing additional data, revamping how these data are disseminated, and strengthening the policy orientation. This special feature briefly describes each BIS data set and explains how the statistics can be used for analysis.

» Enhanced data to analyze international banking. The latest enhancements to these statistics introduce information about banks' domestic business and add more details about the counterparties with which banks interact. Taken together, the enhancements enrich analysis of banks' lending and funding and of their role in the transmission of shocks across countries.

» A new database on general government debt. The BIS presents a new data set on credit to the general government sector for 26 advanced and 14 emerging market economies.

Link: Quarterly Review Keyword: Statistics

http://www.bis.org/bcbs/publ/d334.htm

http://www.bis.org/publ/qtrpdf/r_qt1509.htm


8 SEPTEMBER 2015

Summary Reports and Task Force Policy Papers

- B20

September 09, 2015


The Business 20 or B20 is an outreach group of G20, which represents the international business community. Bringing together business leaders from across the globe, the B20 reflects the private sector’s role as the driver of strong, sustainable, and balanced economic growth. The B20 published its summary reports on:

» Key messages and summary of B20 recommendations to the G20

» Responding to the “three I’s,” that is, Inclusiveness, Implementation, Investment, which contains B20 policy proposals to the G20

» B20 recommendation development process

Additionally, the recently published policy papers from B20 taskforces are:

» Trade taskforce policy paper

» Financing growth taskforce policy paper

» Infrastructure and investment taskforce policy paper

» Employment taskforce policy paper

» Anti-corruption taskforce policy paper

» Small and medium-size enterprises (SMEs) and entrepreneurship taskforce policy paper

Links: Policy Papers, B20 Overview Keywords: B20, G20

Consultation on Collecting Data on Direct and Ultimate Parents of Legal Entities in the Global Legal Entity Identifier System

- LEIROC

September 07, 2015

Type of Information: Regulation

Regulatory Status: Proposed Rule

The LEIROC’s consultation document seeks input into the design of a process for collecting data on direct and ultimate parents of legal entities within the Global Legal Entity Identifier System (GLEIS).

Entities that have or acquire an LEI would report their “ultimate accounting consolidating parent” defined as the highest level legal entity preparing consolidated financial statements, as well as their “direct accounting consolidating parent”. The identification of the consolidating entity would be based on the local accounting definition of control or consolidation. Accounting definitions were chosen as a starting point because

» They are applicable to both financial and non-financial companies

» Their international comparability has increased, following greater convergence between IFRS and U.S. GAAP on the scope of consolidation

» They are widely used and publicly available and their implementation is periodically reviewed by external auditors

Comments Due Date: October 19, 2015 Effective Date: N/A First Reporting Date: N/A Link: LEI ROC Website Keywords: GLEIS, LEI, ROC

http://hera.bigg.pro/b20turkey/policy-papers/

http://hera.bigg.pro/b20turkey/about-the-b20/

http://www.leiroc.org/


9 SEPTEMBER 2015

Release of Report on Corporate Funding Structures and Incentives, atG20 in Ankara

- G20

September 05, 2015


In the post-crisis period, there has been a noteworthy increase in nonfinancial corporate debt, particularly in some emerging economies. This has taken the form both of bond issuance and bank borrowing and has led to higher levels of corporate leverage, as measured by the ratio of nonfinancial corporate debt to GDP. Questions have been raised about the incentives that have led to this increase, and whether the trend represents a risk to financial stability.

This report responds to the request of G20 Finance Ministers and Governors in their February 2015 communique for “the FSB, coordinating the inputs of the IMF, OECD, BIS, IOSCO, and World Bank Group to prepare a report by our [FSB] meeting in September preceded by an interim report to the June Deputies meeting to examine the factors that shape the liability structure of corporates focusing on its implications for financial stability”. The report has been prepared by the FSB Secretariat, based on contributions by staff of the six international organizations. It describes:

» Growth in nonfinancial corporate debt since the crisis, including differences across countries and regions (section 1)

» Insights into the incentives, including structural and regulatory factors, influencing these trends (section 2)

» Possible related financial stability concerns (section 3)

» The potential role of macro-prudential policies (section 4)

» Possible next steps (section 5)

The report also focuses on developments and issues for publicly-traded nonfinancial companies, and highlights that the corporate funding markets and corporate liability structures may be relevant for financial stability.

Link: Final Report Keywords: FSB Key Standard, G20

Release of G20/OECD Principles of Corporate Governance at G20 in Ankara

- G20

September 05, 2015


The OECD report to G20 finance ministers and central bank governors on Principles of Corporate Governance has been published.

The principles have a proven record as the international reference point, and as an effective tool for implementation. They have been adopted as one of the Financial Stability Board’s (FSB) Key Standards for Sound Financial Systems serving FSB, G20, and OECD members. They have also been used by the World Bank Group in more than 60 country reviews, and serve as the basis for the guidelines on corporate governance of banks issued by the BCBS, as the OECD guidelines on Insurer and Pension Fund Governance, and as a reference for reform in individual countries. The Principles provide guidance through recommendations and annotations across six chapters:

» Ensuring the basis for an effective corporate governance framework (Chapter I)

» The rights and equitable treatment of shareholders and key ownership functions (Chapter II)

» Institutional investors, stock markets, and other intermediaries (Chapter III)

» The role of stakeholders in corporate governance (Chapter IV)

» Disclosure and transparency (Chapter V)

» The responsibilities of the board (Chapter VI)

Links: Corporate Governance Principles, Key Standards for Sound Financial Systems Keywords: FSB Key Standard, G20, Governance

http://www.oecd.org/g20/topics/financial-sector-reform/Corporate-funding-structures-and-incentives-FSB-Report.pdf

http://www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf

http://www.financialstabilityboard.org/what-we-do/about-the-compendium-of-standards/key_standards/table-of-key-standards-for-sound-financial-systems/


10 SEPTEMBER 2015

G20 Communiqué: Finance Ministers and Central Bank Governors Meeting in Ankara, Turkey

- G20

September 05, 2015


The G20 published communication regarding highlights of its meeting of Finance Ministers and Central Bank Governors in Ankara, Turkey. The key highlights of the meeting follow.

In recognition of major financing needs for long-term investments, the G20 also focused on examining possible alternative capital market instruments. The policy recommendations by the IMF and the World Bank Group on systematically integrating the features of asset-based financing practices into global finance were highlighted. To help ensure a strong corporate and public governance framework that will promote private investment, G20 also endorsed the G20/OECD Principles on Corporate Governance. It recognized the potential to facilitate financial intermediation for SMEs, including by improving systems for credit reporting, lending against movable collateral, and insolvency reforms. It welcomed the progress on the G20/OECD High Level Principles on SME financing and the establishment of the private sector-led World SME Forum, a new initiative to serve as a global body to drive the contributions of SMEs to growth and employment.

The G20 also reaffirmed its resolve to finalize the remaining core elements of the global financial reform agenda this year. It welcomed the work by the FSB, BIS, and BCBS on rigorous and comprehensive quantitative impact assessments on a total-loss-absorbing-capacity standard (TLAC) for G-SIBs, and by the BCBS and IOSCO on criteria for identifying simple, transparent, and comparable securitizations. It is also looking forward to the:

» Finalization of the common international standard on the TLAC for G-SIBs, and robust higher loss absorbency requirements for global systemically-important insurers (G-SIIs) by the Antalya Summit

» Completion of the previously agreed work on the extension of the contractual recognition of temporary stays on early termination rights for OTC derivatives contracts to include other instruments and firms, excessive variability in risk-weighted asset (RWA) calculations for bank capital ratios, and implementation of the G20 shadow banking roadmap

» FSB’s first annual report on the implementation and the effects of all reforms, including any material unintended consequences, particularly for Emerging Markets and Developing Economies

» Progress, this year, on the agreed work plans regarding central counterparties’ resilience, recovery planning and resolvability, misconduct risk, and withdrawal from correspondent banking and remittances services

G20 will work to address legal barriers to the reporting of OTC derivatives contracts to trade repositories and to the cross-border access of authorities to trade repository data, as well as to improve the usability of that data. It will continue to closely monitor financial stability challenges, including those associated with asset management activities, and will ensure that related risks are fully addressed.

Moreover, G20 recognized the potential risks to financial stability arising from liability structure distortions in corporate balance sheets, and asked the FSB, in coordination with other international organizations, to continue to explore any systemic risks and consider policy options.

Link: G20 Meeting Overview Keywords: G20, Regulatory Reform

Review of Implementation of Incentive Alignment Recommendations for Securitization

- IOSCO

September 03, 2015


IOSCO published its final report on the Peer Review of Implementation of Incentive Alignment Recommendations for Securitization.

The report describes the implementation progress made by 25 jurisdictions in adopting legislation, regulation, and other policies in relation to incentive alignment in securitization. It covers three Incentive Alignment Recommendations in the IOSCO Global Developments in Securitization Regulations 2012 report, which call for national authorities to:

» Evaluate incentives across the securitization value chain and formulate and implement approaches to incentive alignment (Recommendation 1)

» Set out elements of the incentive alignment approach, including risk retention (Recommendation 2)

» Seek to minimize the potentially adverse effects to cross-border securitization transactions resulting from differences in approaches to incentive alignment and risk retention (Recommendation 3)

Of the 25 respondents, only five reported having completed implementation of all measures to implement Incentive Alignment Recommendations covered by this report in respect of the whole securitization market. EU jurisdictions and the U.S generally demonstrated better progress in the implementation of these measures than many jurisdictions with smaller securitization markets.

Links: Media Release, Report, 2012 Report on Securitization Regulations Keywords: Incentive Alignment Recommendations, Risk Retention, Securitization

https://g20.org/wp-content/uploads/2015/09/September-FMCBG-Communique.pdf

http://www.iosco.org/news/pdf/IOSCONEWS397.pdf




11 SEPTEMBER 2015

Working Paper on Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer

- BIS

September 02, 2015

Type of Information: Research

The BIS published a working paper (No. 511) that evaluates the impact of CCyB on mortgage pricing, after Switzerland became the first country to activate this Basel III macro-prudential tool.

By analyzing a database with several offers per mortgage request, the authors construct a picture of mortgage supply and demand. It was found that:

» The CCB changes the composition of mortgage supply, as relatively capital-constrained and mortgage-specialized banks raise prices more than their competitors do

» Risk-weighting schemes linked to borrower risk do not amplify the CCB’s effect

To conclude, changes in the supply composition suggest that the CCB has achieved its intended effect in shifting mortgages from less resilient to more resilient banks, but stricter capital requirements do not appear to have discouraged less resilient banks from risky mortgage lending.

Link: Working Paper Keywords: Basel III, CCyB, Macro-Prudential Policy

Harmonization of key OTC Derivatives Data Elements

- CPMI/IOSCO

September 02, 2015



The CPMI-IOSCO launched a consultation on the harmonization of the key OTC derivatives data elements reported to trade repositories. The purpose of this consultative report is to help develop guidance to authorities on definitions for a first batch of key data elements that are important for the globally consistent and meaningful aggregation of data on OTC derivatives transactions, other than the Unique Transaction Identifier and the Unique Product Identifier.

This first batch of data elements was selected from the list of minimum data reporting requirements set out in Annex 2 of the January 2012 CPSS-IOSCO Report on OTC derivatives data reporting and aggregation requirements. Priority was given to data elements common to multiple jurisdictions, applicable across asset classes, and forming the basic economic terms of an OTC derivatives transaction. Related data elements were added for harmonization, with a view mainly to more accurately capturing the basic economic terms of OTC derivatives transactions.

A second batch of key data elements is being worked on in parallel to this consultative report. The final list of key data elements, combining the two batches, will be the outcome of a dynamic and iterative process that takes into account industry feedback.

For each of the key data elements in the first batch, individual tables specify the “definitions,” containing the definition, naming convention, standard, format, list of allowable values, and cross-references for identifying interdependencies between data elements. Each data element is also illustrated with at least one example demonstrating how this data element supports authorities’ data needs. The guidance aims to provide consistent “definitions” of data elements with the same characteristics, referencing existing industry standards whenever possible and allowing independent application from the chosen communication protocol. For several data elements of the first batch, multiple harmonization alternatives are proposed and discussed.

Comments Due Date: October 09, 2015 Effective Date: N/A First Reporting Date: N/A Link: Press Release Keywords: Data Elements, OTC Derivatives, Trade Repository

http://www.bis.org/publ/work511.pdf

http://www.bis.org/cpmi/publ/d132.htm


12 SEPTEMBER 2015

Final Report on the Peer Review of Regulation of Money Market Funds

- IOSCO

September 02, 2015


IOSCO published the final report on the peer review of regulation of money market funds (MMFs). The report describes the implementation progress made by 31 jurisdictions in adopting legislation, regulation, and other policies in relation to MMFs in eight areas:

» Definition of MMFs in regulation and appropriate inclusion of other investment products presenting features and investment objectives similar to MMFs

» Limitations to the types of assets of, and risks taken by MMFs

» Valuation practices of MMFs

» Liquidity management for MMFs

» Addressing the risks and issues that may affect the stability of MMFs that offer a stable NAV

» Use of ratings by the MMF industry

» Disclosure to investors

» MMF practices in relation to repurchase agreement transactions

Implementation progress varied between jurisdictions and between reform areas. Using the most current data available at the reporting date, the global MMF market was dominated by five jurisdictions (the U.S., France, Luxembourg, Ireland, and China), which together accounted for almost 90% of global assets under management in MMFs.

Among these jurisdictions, only the U.S. reported having final implementation measures in all reform areas. China and the EU members were still in the process of developing and finalizing relevant reforms. For jurisdictions with smaller MMF markets, implementation progress was less advanced: only four other participating jurisdictions (Brazil, India, Italy, and Thailand) reported having final implementation measures in all reform areas.

Links: Media Release, Report Keywords: MMF, Peer Review

http://www.iosco.org/news/pdf/IOSCONEWS395.pdf



13 SEPTEMBER 2015

Europe

European Union

Key Developments

Asset Encumbrance in EU Banks

- EBA

September 30, 2015


EBA published its first analysis of asset encumbrance among EU banking institutions. This preliminary analysis provides important elements for EU supervisors to assess the sustainability of banks funding structures. It shows there is no indication of a general increase in the level of asset encumbrance over recent years across EU banking institutions.

I in the future, the report will be published annually, as data quality improves with the full establishment of reporting requirements for asset encumbrance, a key component of risk management policies and decision making processes in the EU banking sector.

Link: News Release Keywords: Asset Encumbrance, CRD IV, CRR

Capital Markets Union: An Action Plan to Boost Business Funding and Investment Financing

- EC

September 30, 2015


The Capital Markets Union is a medium-term project, but with some important early initiatives. The EC is unveiling the first set of measures to relaunch high-quality securitization, and to promote long-term investment in infrastructure. In addition, the EC will announce proposed changes to the Prospectus Directive before the end of the year, with a view to making it easier and less expensive for small and medium-sized companies to raise capital.

In addition, the EC has started two consultations on Venture Capital Funds and on Covered Bonds. The EC is also launching a call for evidence on the cumulative impact of financial legislation—to make sure that it is working as intended, without (for example) overlapping reporting requirements or inconsistencies between the various laws.

Links: Press Release, Capital Markets Union Homepage Keywords: Capital Markets Union, Covered Bonds

Public Consultation on Covered Bonds in the European Union

- EC

September 30, 2015



This consultation paper falls under the scope of the Capital Markets Union project and evaluates signs of weaknesses and vulnerabilities in national covered bond markets as a result of the crisis. The aim is to assess the convenience of a possible future integrated European covered bond framework that could help improve funding conditions throughout the Union, and facilitate cross-border investment and issuance in member states currently facing practical or legal challenges in the development of their covered bond markets.

The consultation paper is intended to trigger a debate with stakeholders on the feasibility and potential merits of greater integration between covered bond laws.

Comments Due Date: January 06, 2016 Effective Date: N/A First Reporting Date: N/A Link: Consultation Keywords: Capital Markets Union, Covered Bonds

http://www.eba.europa.eu/-/eba-looks-at-asset-encumbrance-in-eu-banks

http://europa.eu/rapid/press-release_IP-15-5731_en.htm

http://ec.europa.eu/finance/capital-markets-union/index_en.htm

http://ec.europa.eu/finance/consultations/2015/covered-bonds/index_en.htm


14 SEPTEMBER 2015

The Single Rulebook in Banking: Is It ‘Single’ Enough? A Speech by Andrea Enria, Chairman EBA

- EBA

September 28 , 2015


Andrea Enria, the EBA Chairman, spoke about whether the Single Rulebook is “single” enough and supports the objective of achieving financial integration.

To investigate this further, the focus should be less on rules and more on the potential threats to their uniform application across the EU. Central to the current debate is, therefore, the governance of the Single Rulebook and the allocation of the regulatory powers among EU institutions. He presented his views along the two lines:

» First, the inconsistency between the goal of a centralized regulation at EU level, and the room left to national authorities for exercising domestic options, discretions, and practices.

» Second, the tension between the rigidity of the EU rule-making process and the flexibility required by banking regulators to keep abreast with changes in financial markets and innovative practices.

These factors affect the uniformity and effectiveness of the Single Rulebook and weaken its contribution to financial integration. He argued that the way forward is further centralization and harmonization of regulation at the EU level, and an increase in delegation, to the EBA, of directly applicable and easily amendable rules on clearly identified technical matters. Achieving a more uniform and flexible regulatory framework is not just a matter of interest for legal scholars, or a quest for power from an authority. It reflects deep-rooted needs for both the smooth functioning of the currency union and the integrity of the Single Market as a whole.

The CRD IV-CRR includes 80 options and national discretions left to member states or competent authorities. The number goes up to 155 on consideration of the options and discretions that are applied by competent authorities on a case-by-case basis (that is, to individual institutions). In some areas, the impact is significant. For instance, when conducting EU-wide stress test exercises, both the EBA and, more recently, the ECB observed that the options and national discretions hamper the comparability of the outcomes of supervisory assessments.

He clarified that he is arguing against the exercise of supervisory discretion, since this is obviously an intrinsic feature of banking supervision. However, he thinks that options and discretions should be limited in the regulatory field, and governed at the EU level. Otherwise, they could undermine the uniformity of the Single Rulebook and be used for protectionist purposes or supervisory forbearance, eventually conducing to distortions of competition and threatening the integrity of the Single Market. Thus, the EBA Chairman is firmly convinced that national discretions should be ironed out from the Single Rulebook and avoided in the future legislation.

Differentiated national practices for the implementation and application of the common rules pose another threat to the uniformity of the Single Rulebook. Room for local discretion is often generated via additional quasi-rules embedded in administrative guidance, supervisory manuals, and similar tools.

Link: Speech Keywords: CRD IV, Options and National Discretions, Single Rulebook

Technical Standards on Markets in Financial Instruments Directive, Market Abuse Regulation, and Central Securities Depositaries Regulation

- ESMA

September 28 , 2015


ESMA published its final technical standards on some of the most important pieces of post-crisis financial regulation: the Markets in Financial Instruments Directive (MiFID II), the Market Abuse Regulation (MAR), and the Central Securities Depositaries Regulation (CSDR).

ESMA’s technical standards translate how the legislation will apply in practice to market participants, market infrastructures, and national supervisors. The new technical standards will alter the functioning of European financial markets by increasing their transparency, safety, and resilience as well as investor protection. The different sets of final draft technical standards have been sent for endorsement to the EC.

The EC now has three months to approve these standards. Once endorsed, both the European Parliament and the Council have an objection period. After CSDR, which entered into force back in 2014, MAR and MiFID II will enter into force in 2016 and 2017 respectively.

Link: News Release Keywords: CSDR, MAR, MiFID II

http://www.eba.europa.eu/documents/10180/1208645/2015+09+28+-+Single+Rulebook+at+UniPadova.pdf/4ee29f76-c8ab-4cc3-afc2-d613aeac0b14

http://www.esma.europa.eu/news/ESMA-readies-MiFID-II-MAR-and-CSDR?t=326&o=home


15 SEPTEMBER 2015

Draft Regulatory Technical Standards on European Electronic Access Point

- ESMA

September 25 , 2015


ESMA delivered its regulatory technical standards (RTS) on the European Electronic Access Point (EEAP), as required under the amended Transparency Directive to the EC for endorsement.

The objective of the EEAP is to provide an easy search and access tool for end users looking for regulated information, annual reports and major shareholdings for example, on issuers admitted to trading on regulated markets in Europe. The EEAP will be a web portal, built and operated by ESMA, to provide a single point of access at the EU level, to the regulated information stored by officially appointed mechanisms in each member state. Currently, end users must search each officially appointed mechanism individually.

The EEAP will be developed over the next couple of years, and will be made available to end users after January 01, 2018. ESMA encourages officially appointed mechanisms to start preparing for implementation at the national level as soon as possible.

Link: News Release Keywords: EEAP, ESMA Web Portal, RTS

Recommendation for Removing the Maturity Ladder from the Implementing Technical Standards on Additional Liquidity Monitoring Metrics

- EBA

September 25 , 2015


EBA issued an opinion to the EC dissenting to its proposed amendment to remove the maturity ladder from the EBA final draft implementing technical standard (ITS) on additional liquidity monitoring metrics. However, the EBA supports the proposed amendment by the EC with regard to the application date of the ITS from July 01, 2015 to January 01, 2016.

The final draft ITS submitted by EBA on December 18, 2013 (a slightly updated submission took place on July 24, 2014) includes a set of metrics related to the additional monitoring tools that are designed to complement the supervision of an institution's liquidity risk beyond the scenario for which the LCR is defined. These final draft ITS were built on the basis of the definition of liquid assets for the purpose of reporting in the CRR.

The EC considers that the maturity ladder needs to be adapted to the detailed definitions of liquid assets set by Commission Delegated Regulation (EU) 2015/61 (Delegated Act on the LCR), published in the Official Journal of the European Union on January 17, 2015. For this reason, the EC suggests removing the maturity ladder from the ITS also because, in its view, it would avoid unnecessary regulatory burden and the duplication of implementation costs for the industry.

As explained in detail in the opinion, the EBA, while sharing some of the concerns raised by the EU Commission, deems it essential to keep the maturity ladder in the ITS. This is based on the relevance of the metric in the liquidity risk assessment by supervisors, and the need to have a harmonized metric for this purpose. However, the EBA supports the proposed amendment made by the EC on the date of application of the ITS to be moved from July 01, 2015 to January 01, 2016.

The final draft ITS on additional liquidity monitoring metrics have been developed according to Article 415(3)(b)of the CRR, and were submitted to the EC for endorsement on December 18, 2013. On August 13, 2015, the EC informed the EBA that, in accordance with the procedure set out in the fifth subparagraphs of Article 15(1) of Regulation (EU) No 1093/2010, it intended to amend the final draft ITS submitted by the EBA. The EBA's competence to deliver an opinion is based on the fifth subparagraph of Article 15(1) of Regulation (EU) No 1093/2010. In accordance with Article 14(5) of the Rules of Procedure of the Board of Supervisors, the Board of Supervisors adopted this opinion.

Link: Press Release Keywords: CRR, ITS, LMM

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

- EBA

September 24 , 2015

Type of Information: Q&A

The updates for this month include eight answers dated September 25, 2015 and one answer dated September 04, 2015.

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

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

http://www.esma.europa.eu/news/ESMA-publishes-draft-RTS-European-Electronic-Access-Point?t=326&o=home

http://www.eba.europa.eu/-/eba-recommends-to-the-eu-commission-to-leave-the-maturity-ladder-in-the-its-on-additional-liquidity-monitoring-metrics

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


16 SEPTEMBER 2015

Regulation Concerning Statistics on the Money Markets

- ECB

September 24, 2015


Regulatory Status: Final Rule

The ECB’s final rule (ECB/2015/30) amending Regulation 1333/2014 on statistics on the money markets has been published in the Official Journal of the European Union. The amendments as stated in Article 1 are:

» Annex I to Regulation (EU) No. 1333/2014 (ECB/2014/48) is replaced by Annex I to this regulation.

» Annexes II and III to Regulation (EU) No 1333/2014 (ECB/2014/48) are amended in accordance with Annex II to this regulation.

This regulation shall be binding in its entirety, and directly applicable in the member states in accordance with the treaties.

Comments Due Date: N/A Effective Date: October 14, 2015 First Reporting Date: N/A Link: Final Rule Keywords: MFI, Money Markets, Statistics

Consultation on Harmonized Definition of Default

- EBA

September 22, 2015



EBA launched a consultation on its draft guidelines specifying the application of the definition of default. The work is in line with an EBA Discussion Paper on the topic published earlier in the year, which described the EBA's upcoming work on improving consistency and comparability in capital requirements. The consultation runs until January 22, 2016, and the EBA is also asking the public for feedback on a quantitative impact study (QIS) of the guidelines.

The EBA guidelines harmonize the definition of default across the EU prudential framework, which will in turn improve consistency in the way EU banks apply regulatory requirements to their capital positions. A detailed clarification of the definition of default and its application is provided in these guidelines. They cover key aspects, such as the days past due criterion for default identification, indications of unlikeliness to pay, conditions for the return to non-defaulted status, treatment of the definition of default in external data, application of the default definition in a banking group, and specific aspects related to retail exposures.

The tools provided in the guidelines will allow for increased comparability of own funds requirements, as well as for a reduction in the variability of the risk estimates under the Internal Ratings-Based (IRB) approach. As indicated in its Discussion Paper on the IRB approach, which was published earlier this year, and received broad support from the EU banking industry, the EBA believes that a regulatory review of the IRB models will strengthen confidence in the IRB approach in the EU banking sector.

Additionally, the EBA is looking to obtain feedback from institutions on the impact of these requirements, and is making its quantitative impact assessment available for comments. Institutions are also welcome to share their views and comments on the templates and instructions of the QIS. The EBA will hold a public hearing at its premises on November 13, 2015.

Comments Due Date: October 09, 2015 Effective Date: N/A First Reporting Date: N/A Link: News Release Keywords: CRR, Definition of Default, QIS

Enhanced Statistics on Loans to the Euro Area Private Sector, Adjusted for Sales and Securitization

- ECB

September 21, 2015


The ECB published new statistical series on loans adjusted for sales and securitization, based on an enhanced adjustment method. The new method enables a more comprehensive view of developments in loans originated by euro area banks, by taking into account, on an ongoing basis, stocks and repayments of loans that are no longer recorded on banks’ balance sheets (that is, derecognized loans) as a result of a securitization or other transfer.

Previously, statistical series on loans adjusted for sales and securitization published by the ECB took into account only the one-off impact of transactions resulting from (net) loan transfers, off or on balance sheet, in the period during which the transfer took place. The refined adjustment method also uses data on repayments and stocks of securitized loans that have been derecognized and are serviced by monetary financial institutions (MFIs).

These new requirements were introduced under Regulation ECB/2013/33 concerning the balance sheet of the MFI sector, which was implemented with the data transmission for the reference period December 2014. Data on other derecognized loans are also taken into account, where available.

Link: Press Release Keywords: Derecognized Loans, Statistics

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2015_248_R_0012&from=EN

http://www.eba.europa.eu/-/eba-consults-on-harmonised-definition-of-default

http://www.ecb.europa.eu/press/pr/date/2015/html/pr150921.en.html


17 SEPTEMBER 2015

Regulatory Technical Standards for Disclosure of Information in Relation to the Compliance of Institutions with the Requirement for a Countercyclical Capital Buffer

- EC

September 19, 2015



The EC published a final rule (Commission Delegated EU Regulation 2015/1555) on regulatory technical standards (RTS) for the disclosure of information in relation to the compliance of institutions with the requirement for a CCyB). The key highlights of the regulations follow:

» Article 1 specifies the disclosure requirements for compliance with the requirement for a CCyB

» Article 2 states that the geographical distribution of an institution's credit exposures relevant for the calculation of CCyB shall be disclosed in the standard format as set out in Table 1 of Annex I, in accordance with the instructions contained in Parts I and II of Annex II, and with the provisions laid down in Delegated Regulation (EU) No 1152/2014.

» Article 3 is focused on the disclosure of the amount of institution-specific CCyB. The amount of an institution's specific CCyB referred to in Article 440(1)(b) of Regulation (EU) No 575/2013 shall be disclosed in the standard format as set out in Table 2 of Annex I, in accordance with the instructions contained in Parts I and III of Annex I.

» Article 4 informs that this Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Comments Due Date: N/A Effective Date: January 01, 2016 First Reporting Date: N/A Link: Final Rule Keywords: CCyB, CRD IV, Disclosures

Working Paper on Systemic Risk Rankings and Network Centrality in the European Banking Sector

- ECB

September 16, 2015


The ECB published a working paper (No. 1848) on systemic risk rankings and network centrality in the European banking sector.

This paper presents a methodology to calculate the Systemic Risk Ranking of financial institutions in the European banking sector using publicly-available information. The model makes use of the network structure of financial institutions by including the stock return series of all listed banks in the financial system. Furthermore, a wide set of common risk factors (macroeconomic risk factors, sovereign risk, financial risk, and housing price risk) is included to allow these factors to affect the banks. The model uses Bayesian Model Averaging (BMA) of Locally Weighted Regression models (LOESS), that is, BMA-LOESS.

The network structure of the financial sector is analyzed by computing measures of network centrality (degree, closeness, and “betweenness”) and it is shown that this information can be used to provide measures of the systemic importance of institutions. Using data from 2005 (second quarter) to 2012 (third quarter), this paper provides further insight into the time-varying importance of risk factors. Additionally, it is shown that the model produces superior conditional out-of-sample forecasts (that is, projections) than a classical linear Bayesian multi-factor model.

Link: Working Paper Keywords: BMA, Financial Network, Systemic Risk

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2015_244_R_0001&from=EN

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1848.en.pdf?5d3b4c06c4fa3e669a317c4bd49bf195


18 SEPTEMBER 2015

Results of the Basel III Monitoring Exercise as of December 31, 2014

- EBA

September 15, 2015


EBA published its eighth report of the Basel III monitoring exercise on the European banking system. This exercise, run in parallel with the one conducted by the BCBS at a global level, allows the gathering of aggregate results on capital ratios, leverage ratio, and liquidity ratios (LCR and NSFR) for banks in the EU.

The exercise monitors the impact of the transposition of the Basel III requirements on EU banks. In particular, it monitors the impact of fully-implemented CRD IV and CRR on capital and risk-weighted assets (RWA), and the impact of fully implementing the Basel III framework on leverage ratio and liquidity ratios, using data as of December 2014 under a static balance sheet assumption.

Results show that the common equity tier 1 capital ratio (CET1) of the largest internationally active European banks (Group 1 banks) would be, on average, 11.4% under full implementation compared to a ratio of 12.2% under the current implementation of the regulation. None of the Group 1 banks would face a CET1 capital shortfall to achieve the minimum requirement of 4.5%, while the same group of banks would be short of EUR 1.5 billion to reach the 7.0% level (minimum CET1 of 4.5% plus capital conservation buffer of 2.5%). The shortfall figure remains the same when the surcharge for G-SIBs is considered.

For Group 1 banks, the overall impact of fully-implemented CRD IV/CRR on the CET1 ratio is mostly attributed to changes in the definition of capital, while the changes related to the calculation of RWA have marginally contributed to the change of CET1 ratio. The fully-implemented leverage ratio of Group 1 banks would be 4.2%, assuming the joint compliance with the 6% tier 1 capital requirement. The shortfall for Group 1 banks to meet all risk-sensitive capital and leverage ratios would be EUR 19.4 billion.

As for the LCR, results show that as of December 2014, the average LCR of Group 1 banks would have been 123.7%. Approximately 87% of the total sample of banks would have already met the final 100% Basel III requirement to be reached by 2019. In addition, the exercise reveals a shortfall of liquid assets of EUR 38.3 billion for Group 1 banks.

The results for NSFR indicate that, as of June 2014, the average fully-implemented NSFR would have been 102% and 109% for Group 1 and Group 2 banks respectively. The NSFR figures show that the need for more stable funding would amount to EUR 523 billion, approximately 4.5% of the total assets of all non-compliant banks participating in the NSFR part of the monitoring exercise. The increase in the need for more stable funding in December 2014, in relation to June 2014, is attributed to the broader sample of banks included in the December 2014 monitoring exercise.

Link: Press Release Keywords: Basel III Monitoring, CRD IV, CRR

http://www.eba.europa.eu/-/eba-publishes-results-of-the-basel-iii-monitoring-exercise-as-of-of-31-december-2014


19 SEPTEMBER 2015

ESMA Chair's Statements to the ECON Committee at the European Parliament

- ESMA

September 14, 201


Over the last year, on the basis of mandates in primary legislation, we have issued more than 100 draft technical standards and pieces of advice. All of these contribute to promoting greater transparency in financial markets, and improving the conduct of market participants which is the key theme running through all the Level 2 work we have delivered under, for example, MiFID II/MIFIR, MAR, EMIR, CRA, and CSDR.

In addition to technical implementation measures, ESMA’s single rule book activities have also contributed to broader issues like improving the various funding channels of EU capital markets. We have given advice to the European Commission on crowd funding, securitization, and European Venture Capital Funds – which aim at ensuring that the asset management industry can play an even bigger role in the financing of companies. We have also contributed to the wider debate on the Capital Markets Union (CMU) and our response contains specific proposals on where improvements could be made in relation to investor access to credit information for SME’s, and increasing cross-border retail participation in investment funds such as UCITS.

Our role in developing the single rulebook provides a vantage point from which to identify early on where consistent application, and common approaches and systems are most needed. For MiFIR, we identified the need for a central IT system which will collect data on financial instruments from around 300 trading venues across the EU, calculate transparency and liquidity thresholds, and publish all of this information in one place. We are also building a single platform which will provide regulators with one access point to the millions of derivative transaction reports filed with different trade repositories.

I will now turn to our supervisory role which is crucial in reducing risks to investors and financial stability. Our direct supervision of CRAs has contributed to increasing the transparency around their functioning, and ensuring that their methodologies meet the regulatory requirements. We continue to identify areas for improvement. For example, in June this year, ESMA imposed its first fine on a CRA, in this case for internal control failings. In addition, we have worked on removing the hardwiring of credit ratings in contracts and legislation to reduce the risk of over-reliance on ratings.

This year, we have moved closer to, what you could call, a “Derivatives Union”, with a high level of consistency and coordination across the EU, both regarding regulation and supervision of the derivatives market. Transparency is the cornerstone of a safe derivatives market and six trade repositories (TRs) are supervised at EU level by ESMA.

The volume of data they receive is impressive, around 300 million trade reports are now submitted to the TRs on a weekly basis, and as part of our supervisory role we will continue to promote better quality data and improved access for regulators.

ESMA participates in all colleges of supervisors of the 16 EU CCPs, which play a key role in achieving consistent supervisory practices. As mandated under EMIR, we have also taken the first three decisions to approve changes to the models that CCPs use to calculate margins. This approval at EU level is essential in achieving a level playing field for EU CCPs.

Link: News Release Keywords: ESMA Activities, ESAs Activities

Working Paper on Common Weaknesses in Banking Laws and Ways to Remedy Them

- IMF

September 10, 2015


The IMF published a working paper with focus on the 12 common weaknesses in banking laws and how to address these weaknesses.

The paper highlights that well-designed banking laws are critical for regulating the market access and operations of banks, as well as their removal from the market in case of failure. While at a financial policy level, there is a broad consensus as to the content of banking laws, from a legal perspective, their drafting often leaves something to be desired. In spite of what is often argued, the types of weaknesses of banking laws are hardly country-specific. Many weaknesses are shared by many banking laws. This working paper discusses those weaknesses and ways to remedy them, by focusing on a selected set of legal policy principles. The paper makes manifold references to current banking laws of countries.

Over the last 20 years, the IMF’s Legal Department has contributed significantly to the development of banking laws in the Fund’s membership. A “back of the envelope” exercise suggests that lawyers of the Fund have been involved in the banking laws of approximately 50 countries. This law reform support takes place within the context of financial sector surveillance (including through the Financial Sector Assessment Program or FSAP, for compliance with Basel Core Principles, or BCPs).

Link: Working Paper Keywords: Banking Law, BCP, FSAP

http://www.esma.europa.eu/news/ESMA-Chairs-statements-ECON-Committee-European-Parliament?t=326&o=home

http://www.imf.org/external/pubs/ft/wp/2015/wp15200.pdf


20 SEPTEMBER 2015

The Bank for the Accounts of Companies Harmonized Database

- ECB

September 10, 2015


The ECB published a paper (Statistics Paper Series No. 11) on the Bank for the Accounts of Companies Harmonized (BACH) database, which is a free-of-charge database containing the aggregated accounting data of non-financial incorporated enterprises for 11 European countries. Four European countries are expected to join the BACH database in the coming years (Denmark, Luxembourg, Romania, and Turkey).

While the individual accounts feeding the database were originally prepared in line with national accounting standards consistent with European Accounting Directives, they have been harmonized with a view to preserving, to the greatest extent possible, the cross-country comparability of the resulting data. This report presents the methodology underpinning BACH, including the content of the database. It describes the characteristics of national samples, and outlines the harmonization process.

BACH is a unique tool for analyzing and comparing the financial structure and performance of firms across European countries. The report also includes a simple case study.

Link: Report Keywords: BACH Database, European Non-Financial Companies, Statistics

Updated DPM and XBRL Taxonomy 2.4.0 for Remittance of Supervisory Reporting and Revised List of Validation Rules

- EBA

September 09, 2015


The EBA issued an updated data point model (DPM) and XBRL taxonomy for remittance of supervisory reporting, along with a revised list of validation rules.

The updated taxonomy incorporates changes and corrections to the COREP and FINREP reporting structures. In particular, the updated taxonomy incorporates revised reporting structures for leverage ratio, along with the new parallel reporting structures for liquidity ratio for credit institutions. These changes represent amendments to the ITS on supervisory reporting, resulting from the Commission's adoption of Delegated Acts amending the definition of the leverage ratio and specifying a new LCR framework.

In addition, the new taxonomy gives effect to the answer to the Single Rulebook question 2014_1042, which specifies that figures for LCR and NSFR templates with breakdowns in significant currencies should be reported in units of the relevant significant currency (therefore, such reports may contain values that are not all expressed in the same currency).

Since the amended LCR and leverage ratio ITS will apply six months from the date of their publication in the Official Journal of the European Union, the new 2.4 taxonomy will apply for reference dates following their point of application. The same application date will apply to the whole 2.4 taxonomy set, including reports other than LCR and leverage ratio. The new LCR templates are applicable to credit institutions, and not to investment firms. The latter will continue reporting the LCR items using the (2.4 multicurrency version of the) current LCR templates.

Regarding 2.3.2, it is not anticipated that individual FINREP data will be remitted to the EBA in the near term; therefore, the extension will have no relevant applicability at the EBA level. It is, however, anticipated that competent authorities may choose independently to make use of this harmonized taxonomy in their data collection processes—for example, under the ECB's regulation on supervisory financial information.

Links: Press Release: Updated Taxonomy, Press Release: Revised Validation Rules, Validation Rules Keywords: DPM, Validation Rules, XBRL

http://www.ecb.europa.eu/pub/pdf/scpsps/ecbsp11.en.pdf?289ccdcbc90836ea320563782429bdca

http://www.eba.europa.eu/-/eba-publishes-new-dpm-and-xbrl-taxonomy-for-remittance-of-supervisory-reporting

http://www.eba.europa.eu/-/eba-issues-revised-list-of-its-validation-rul-7

http://www.eba.europa.eu/documents/10180/1181705/EBA+Validation+Rules+-+2015+09+09.xlsx


21 SEPTEMBER 2015

Continued Risks in EU Financial Markets and Need for Rigorous Action on Assets and Liabilities

- ESA

September 09, 2015


The European Supervisory Authorities (ESAs) for securities (ESMA), banking (EBA), and insurance and occupational pensions (EIOPA) issued their August 2015 Joint Committee Report on Risks and Vulnerabilities in the EU financial system. The joint risk report informs on risks in the EU financial system (banking, securities, and insurance sectors), with a focus on cross-sectoral vulnerabilities and developments.

ESAs call for rigorous action on asset quality and business models. The report highlights the need for further efforts by financial entities to clean-up balance sheets, to address legacy assets and non-performing loans (including assessing the sustainability of business models as a key supervisory concern). The report stresses a specific need for coordination when conducting such assessments for cross-border and cross-sector institutions. It also points to the valuation risks in illiquid markets, and emphasizes the transparent disclosure of risk exposures (for example, as part of periodic financial reporting). The report also calls for further appropriate and harmonized regulation promoting the adequate marketing of investment products, and complementing recent plans to support market-based funding.

ESAs see further risks looming ahead. The joint risk report also identifies potential risk drivers for the developments ahead. It highlights the possible re-emergence of concerns on sovereign debt sustainability, reflecting high public and private sector indebtedness, large fiscal deficits, and insufficient fiscal consolidation in some countries. This could trigger a change in market sentiment if a further tightening in credit spreads would not be in line with future economic developments. Such concerns apply particularly in the euro area, and in reaction to potential adverse developments regarding the long-term development of the Greek economy.

Another potential trigger for a change of sentiment in the European markets could be increasing international risks; for example, following heightened market volatility, structural concerns about China's economy, fluctuations in commodity prices, or divergence of monetary policy conditions between major jurisdictions. Adverse spillover effects from China, or other emerging market economies facing reduced growth, could provide further challenges to the EU economy.

Links: Press Release, Report on Risks and Vulnerabilities Keywords: Risk and Vulnerability Report, Systemic Risk

Updates on Remuneration Practices and High Earners Data for 2013 Across the EU

- EBA

September 09, 2015


EBA published a report combining the benchmarking of remuneration practices across the EU and aggregated data on the remuneration of EU institutions' staff members who received, in total, EUR 1 million or more in 2013.

The analysis focuses on the identification of staff, the application of deferral arrangements, and the payout in instruments, as well as on the use of specific remuneration elements, such as guaranteed variable remuneration and severance payments. The report shows that the number of high earners slightly decreased since 2012 and that the ratio between the variable and fixed remuneration paid to identified staff was further reduced in 2013.

Overall, it can be also observed that the ratio between the variable and fixed remuneration paid to the identified staff was further reduced in 2013, and is now nearly 104%, although in many business areas and institutions this ratio is above the bonus cap that applies for performance year 2014 and onward. This is likely to further decrease following the entry into force of the Capital Requirements Directive (CRD IV) in 2014, which introduced the so called “bonus cap," thus limiting the ratio of the variable and the fixed component of remuneration to 100% (200% if approved by the shareholders).

This report will be updated annually, and the analysis based on 2014 figures is expected to be released by the end of 2015. The forthcoming report will show the full impact on institutions, of both the RTS on identified staff, as well as of the application of the "bonus cap," as the latter applies for remuneration awarded for the performance year 2014 and onwards.

Link: News Release Keywords: Bonus Cap, CRD IV, Remuneration Practices

http://www.eba.europa.eu/-/esas-see-continued-risks-in-eu-financial-markets-and-call-for-rigorous-action-on-assets-and-liabilities

http://www.eba.europa.eu/documents/10180/950548/JC+2015+053+%28JC+Autumn+Risk+Report%29.pdf

http://www.eba.europa.eu/-/eba-updates-on-remuneration-practices-and-high-earners-data-for-2013-across-the-eu


22 SEPTEMBER 2015

Working Paper Investigating the False Sense of Security in Applying Handpicked Equations for Stress Test Purposes

- ECB

September 07, 2015


The ECB published a working paper (No. 1845) to promote the use of BMA for the design of satellite models that financial institutions employ for stress testing.

Banks employing “handpicked” equations—while meeting standard economic and econometric soundness criteria—risk significantly underestimating the response of risk parameters, and therefore overestimating their capital absorption capacity. The authors present a set of credit risk models for 18 EU countries based both on the model averaging scheme, as well as a series of handpicked equations, and apply them to a sample of 108 SSM banks. Thus, the authors aim to illustrate that the handpicked equations may indeed imply significantly lower default flow estimates, and therefore overoptimistic estimates for the banks’ capital absorption capacity.

The model averaging scheme that the authors promote should mitigate that risk, and also help establish a level playing field with regard to a common level of conservatism across banks. This paper aims to address one important element that all stress tests involve—whether conducted by financial institutions themselves (in a bottom-up fashion) or by some central authorities (in a top-down fashion)—which lays in the use of satellite equation systems for translating macro-financial shock scenarios into risk parameters at the bank level.

The concern that forms the basis for this paper is that virtually all institutions tend to neglect the presence of model uncertainty. Supervisors, as well as the institutions that are being supervised, may consider using this approach in order for a risk assessment across portfolios to be more robust. It shall help develop a more level playing field across banks, with portfolios of similar (say equal, hypothetically) risk characteristics more likely resulting in similar capital requirements, if conditioned on the same centrally-defined macro scenario.

Links: Working Paper, Stress Testing Framework Keywords: BMA, Satellite Modeling, Stress Testing

Response to Consultation on the Review of the European Market Infrastructure Regulation

- ECB

September 04, 2015


The ECB published its response to the EC’s consultation on the review of the European Market Infrastructure Regulation (EMIR).

ECB believes it is of key importance to foster international convergence regarding the standards for transaction reporting. This requires mandating the use of globally-accepted standards for efficient and consistent reporting of financial transactions in a multi-jurisdictional environment. In the EU, consistency should be ensured regarding the definitions of the instruments subject to the reporting obligation. Lastly, consistency should be ensured between various reporting requirements defined in the EU legislation (for example, between EMIR and the Securities Financing Transactions Regulation, regarding collateral swaps). The ECB strongly supports defining harmonized, detailed reporting specifications for EMIR data, as opposed to the current situation in which each authorized trade repository defines its own reporting formats.

Regarding the clearing obligation, the ECB wishes to reiterate and support the points made by the ESRB in its own response to the public consultation, namely that:

» A swift process to remove or suspend the clearing obligation should be established when the relevant market situation requires (for example, certain instruments become illiquid; a CCP is under recovery or resolution procedures)

» Systemic risk issues should be more explicitly taken into account when identifying the categories of products suitable for mandatory clearing

Regarding cross-border activity in the OTC derivatives market, the ECB is concerned that differences in scope and implementation timelines across jurisdictions have created uncertainty and inefficiency for market participants. Such inconsistencies should be avoided as far as possible, as they may lead to competitive disadvantages and level playing field issues.

On the issue of transparency, the ECB believes several impediments exist to ensuring that authorities have adequate and comparable access to the data reported. Overall, the RTS that aim to address this issue are not detailed and comprehensive enough, leading to heterogeneous data provision by trade repositories. In addition, consistency in data reporting and aggregation would be greatly improved by requiring the harmonized use of international identifiers and international standards for key data and messaging formats. Lastly, in the interest of legal certainty, the ECB believes that the SSM and banking supervisors should explicitly be granted access to EMIR data.

Link: Response to EMIR Consultation Keywords: Clearing, EMIR, Regulatory Reporting

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1845.en.pdf?3158ed99e6ba54ea4c1d8fa45d960b15

https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp152.pdf?17d6e36b7272c2fb172d6bf35b97ef03

http://www.ecb.europa.eu/pub/pdf/other/ecb_reply_to_commission_public_consultation_emiren.pdf?d2d149511414150%20aa03972c156c5e9d9


23 SEPTEMBER 2015

Opinion on Bank Resolution

- ECB

September 02, 2015


On May 21, 2015, the ECB received a request from the German Federal Ministry of Finance for an opinion on a draft law adapting the national banking resolution law to the Single Resolution Mechanism (SRM) and the Union provisions on the bank levy. The draft law also delegates certain competences to the Federal Ministry of Finance related to the issuing of regulations in the areas of internal governance, risk management, outsourcing, and recovery plans of credit institutions. This opinion focuses on:

» The potential impact on the ECB’s responsibilities in the context of the Banking Union of the delegation of competence to the Federal Ministry of Finance to issue binding regulations.

» The subordination of certain senior unsecured debt instruments issued by a credit institution to that institution’s other senior debt in bank insolvency proceedings, in light of the proposals of the FSB on TLAC for G-SIBs, and the Eurosystem’s collateral eligibility requirements.

» The transfer of the contributions from the German resolution fund to the SRF, including the use of the contributions accumulated by means of the bank levy between 2011 and 2014.

Link: Opinion Keywords: BRRD, SRM,SRF

Will the Eurozone Caucus on Financial Regulation? A Speech by Julie Dickson, Member of the Supervisory Board of ECB

- ECB

September 01, 2015


Julie Dickson of the ECB spoke at the Center for European Reform about the financial regulation in the Eurozone. She told the audience that the implementation of rules by supervisors matters just as much as the rules themselves, and highlighted the ECB’s focus on four key areas:

» Consistent supervisory practice in the area of non-performing loan recognition, coverage, and write-offs

» Conducting a public consultation in the autumn to work toward harmonizing over 150 options and national discretions available at the national level

» The unified application of the 2015 supervisory review and evaluation process methodology

» A targeted review of internal models at banks that will aim to ensure that capital held reflects underlying risks (will take several years to complete)

Global regulatory efforts continue and more regulation is coming, with topics on the agenda including Total Loss Absorbing Capital and risk-weights for sovereign debt. Regulation and supervision are just two parts of a bigger system. Moreover, she highlighted that bank resolution, the possibility of European deposit insurance, and the capital markets union—which will include some important issues for supervisors, such as greater harmonization of accounting practices and insolvency laws—make for a rich agenda on which to make further progress.

Link: Speech Keywords: Financial Regulation, National Discretions, SREP

Netherlands

Key Developments

Decisions on Liquidity Supervision for Branches

- DNB

September 29, 2015


The LCR becomes a binding regulatory requirement for banks throughout the European Union, on the 1st of October 2015. This will affect both EEA and non EEA branches, though in a different manner.

The EEA branches are no longer required to report the national reporting templates of 8028 and 8029 as of October 01, 2015. For the Non-EEA branches, the report and fulfilment of the 8028 and 8029 will also expire, but will be replaced by the requirements following from the Delegated Act on the Liquidity Coverage Requirement. This means that non EEA branches are subject to the same LCR requirements that apply to credit institutions established in the Netherlands, but face more limited reporting requirements.

Link: Factsheet Keywords: 8028, Bank Branches, LCR

https://www.ecb.europa.eu/ecb/legal/pdf/en_con_2015_31_f_sign.pdf

https://www.bankingsupervision.europa.eu/press/speeches/date/2015/html/se150901.en.html

http://www.toezicht.dnb.nl/2/50-234131.jsp


24 SEPTEMBER 2015

Decisions on Liquidity Requirements and Reporting

- DNB

September 29, 2015


DNB published its decisions on liquidity requirements LCR reporting. Following a delay in the implementation of the Amending ITS on LCR reporting, DNB has decided to implement early the Amending ITS on LCR reporting in the following manner:

» For all credit institutions and non EEA branches operating in the Netherlands, except if they are waived or if they are branches of EEA credit institutions

» At all levels of consolidation where the LCR requirement is applicable

» On a quarterly basis

» With reference date the last day of each quarter, starting with December 2015

» With a remittance period of 30 calendar days

» On an all-currency basis only

With regard to 8028 reporting, DNB took notice of the announcement that the maturity ladder template might not be adopted as part of the ITS on Additional Monitoring Metrics. To maintain a good monitoring of the liquidity positions beyond the 30-day horizon of the LCR, as well as some related Pillar 2 requirements, while at the same time not introducing new requirements, DNB has decided to maintain the 8028 reporting requirement:

» On a monthly basis for all credit institutions operating in the Netherlands, except if they are waived or if they are branches of either EEA or non-EEA institutions

» Only at the highest level of consolidation in the Netherlands

» With last reference date December 31, 2016 with corresponding remittance date January 30, 2017, based on the assumption that by that time more harmonization in the area of liquidity reporting and Pillar 2 is achieved

Link: Factsheet Keywords: 8028, ITS,LCR

http://www.toezicht.dnb.nl/2/50-234129.jsp


25 SEPTEMBER 2015

Norway

Key Developments

Technical Notes as Part of the Financial Sector Assessment

- IMF

September 17, 2015


The IMF published the following technical notes as part of the FSAP program on Norway:

» Crisis Management, Bank Resolution, and Financial Sector Safety Nets (cr15253). The report reveals that arrangements for crisis management, bank and group resolution, and the financial sector safety nets are well-developed and tested. Roles, responsibilities, accountabilities, and information-sharing arrangements among the relevant bodies—the Ministry of Finance, the Finanstilsynet (the Financial Supervisory Authority of Norway), Norges Bank, and the Banks’ Guarantee Fund, and the private sector-led deposit guarantee scheme—are generally well-defined and functioning. The report also contains a table summarizing key recommendations.

» Oversight and Supervision of Financial Market Infrastructure, and Selected Issues in the Payment System (cr15254). Norway has a modern and stable financial market infrastructure (FMI). Five FMIs are located in Norway. There are four interbank payment systems, including the Norges Bank Settlement System, the Norwegian Interbank Clearing System, and two private settlement systems. There is one central securities depository that also serves as a securities settlement system. There are currently no trade repositories. Two systemically important foreign CCPs have branches in Norway. All Norwegian FMIs have completed assessments against the new international standards and are in the process of improving observance, where needed. Assessments were made against the new international standards CPMI-IOSCO Principles for Financial Market Infrastructures (PFMIs) upon the authorities’ request in 2013.

» Insurance Sector Stress Tests (cr15255). The mission conducted stress tests under Solvency II principles (simplified approach) for the life and non-life insurance sectors. The insurance stress tests consisted of a combination of top-down stress tests for asset-side risks and insurance liability risks, designed by the FSAP team and Finanstilsynet, and bottom-up stress tests for other liability risks. Three large life and nonlife insurers, which cover 80% and 51% of assets in the life and non-life sectors, respectively, on a solo basis, were covered.

» Linkages and Interconnectedness in the Norwegian Financial System (cr15256). Norway’s banks have important connections with global financial centers, but regional links are also important. Norwegian banks are very dependent on global financial centers as sources of funding and to hedge currency risks. Norwegian banks arrange for a sizable fraction of their wholesale funding in foreign markets. Cross-sectoral exposures of Norway’s banks, insurance companies, and real estate companies are significant and extend beyond the Nordic region.

» Macro-Prudential Policy (cr15257). The authorities have taken or announced a wide range of macro-prudential measures to address systemic risk. These measures include higher capital requirements, including early adoption and implementation of the EU capital regulations, additional capital buffers (a three percentage-point systemic risk buffer from July 2014, a two percentage-point capital surcharge for D-SIBs from July 2016, and a one percentage-point counter cyclical capital buffer from July 2015), Pillar 2 capital requirements relating to systemic risk, and restrictions on mortgage lending RWAs (bringing the internal-ratings based RWA on residential mortgages up to about 20%-25%). These measures represent a highly active approach to macro-prudential policy.

» Stress Testing the Banking Sector (cr15258). The FSAP stress testing exercise included a comprehensive analysis of solvency and liquidity risks in the banking sector. The assessment was conducted in close collaboration with the authorities, and included three parallel top-down solvency stress tests by the Financial Supervisory Authority of Norway, Norges Bank, and the FSAP team, using different methodologies, but based on the same macroeconomic scenarios. These were complemented by bottom-up tests, conducted by individual banks on an unconsolidated and consolidated basis (the latter accounting for associated mortgage companies) and subject to the same scenarios.

Links: Bank Resolution, Supervision of Financial Market Infrastructure, Insurance Stress Tests, Financial System Interconnectedness, Macro-Prudential Policy, Banking Stress Tests Keywords: FSAP, Technical Note, Stress Testing

http://www.imf.org/external/pubs/ft/scr/2015/cr15253.pdf








26 SEPTEMBER 2015

Report on the Financial System Stability Assessment

- IMF

September 09, 2015


The IMF published its report on the Financial System Stability Assessment (FSSA) for Norway.

The country’s financial system coped well with the global financial crisis and has further increased buffers to deal with potential shocks, but significant financial imbalances have also built up since then. Stress tests suggest that under severe macroeconomic shocks banks and life insurers could face important but manageable capital shortfalls.

A combination of severe shocks—including protracted low oil prices and a sharp contraction in house prices—could result in an aggregate capital shortfall for banks of up to 4.6% of GDP over five years. This requires continued action to ensure adequate capital buffers, including through discretionary requirements under Pillar II of the capital framework. Norwegian banking groups also face liquidity gaps in domestic currency, and are exposed to maturity mismatches and rollover risks, due to their reliance on currency swaps.

Insurers’ solvency ratios would decline sharply under a combination of severe shocks under the Solvency II framework, although the rule for the transition to Solvency II would significantly reduce the immediate need for insurers to raise capital. The Financial Supervisory Authority of Norway should continue to constrain dividend distribution by weakly capitalized insurance institutions, and ensure that the insurance businesses of conglomerates are adequately capitalized on a solo basis.

The authorities have taken significant measures to improve the oversight framework, but further strengthening is needed. To boost banks’ resilience, capital requirements have been increased, including through early implementation of the EU capital regulations and additional capital buffers. The authorities applied restrictions on mortgage lending risk weights and banks’ mortgage lending standards.

Nonetheless, to further enhance the monitoring of risks, the Norges Bank and the Financial Supervisory Authority of Norway should intensify cooperation to exploit synergies between macro- and micro-prudential stress testing, further enhance their stress testing frameworks, and consider supplementing the Basel III liquidity requirements with stress tests more closely aligned with banks’ funding and cash flow profiles.

The authorities should also introduce measures to contain systemic risks arising from high real estate prices and household indebtedness (for example, stricter loan-to-value ratios and loan-to-income or debt service ratio to supplement the affordability test). Additionally, the authorities should consider reducing tax incentives for mortgage finance, and relaxing planning and building requirements to reduce imbalances in the housing market.

Link: FSSA Report Keywords: FSAP, FSSA, Stress Testing

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

- IMF

September 09, 2015


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

The report highlights that the FSAP update concluded that the Norwegian financial system is generally sound and well-managed . The authorities have taken significant measures to address financial stability risk, including early implementation of the CRD IV. More recently, risk-weights for residential mortgages used in banks’ IRB models have been tightened. A CCyB of 1% took effect on July 01, 2015 and the buffer will be increased to 1.5% from July 01, 2016. Additionally, the FSAP bank stress tests suggest that financial institutions’ capital needs in the face of severe shocks would be nontrivial but manageable.

Nevertheless, there are important challenges with a potential impact on financial stability. High house prices and household debt, and banks’ reliance on wholesale funding are areas of concern. House prices remain elevated and the household debt-to-disposable income ratio in the country is one of the highest among the OECD countries. To finance this, banks have relied extensively on wholesale funding. The IMF staff recommended further measures to reduce risks like macro-prudential policy and Banking and Insurance stress tests.

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





27 SEPTEMBER 2015

Russia

Key Developments

Introduction of Liquidity Coverage Ratio

- CBR

September 07, 2015


The Bank of Russia took a decision to introduce LCR (Basel III) from January 01, 2016. The lowest permissible ratio value will be 70%, with a 10% annual increase of up to 100% by January 01, 2019. The Bank of Russia will issue a regulation to establish the procedure for the calculation of LCR (Basel III) by December 01, 2015.

When taking a decision on the timeframe for introduction of the LCR, the Bank of Russia took into account the current situation in financial markets, as well as the necessity to give finishing touches to the internal information systems of credit institutions to provide calculation of and compliance with the short-term liquidity on a consolidated level.

The requirement to comply with the LCR will cover systemically important credit institutions recognized in this status by the Bank of Russia in accordance with its Ordinance No. 3737-U, dated July 22, 2015, “On the Methodology of Defining Systematically Important Credit Institutions”. Systemically important credit institutions, which are parent organizations of banking groups, will fall under the requirement to observe the LCR on a consolidated basis.

Link: Press Release (cbr.ru/eng/press/pr.aspx?file=07092015_171327eng2015-09-07T17_07_30.htm) Keywords: Basel III, LCR

United Kingdom

Key Developments

Amendments to Liquidity Reporting Requirement

- PRA

September 30, 2015


This policy statement (PS23/15) publishes two legal instruments following consultation in Chapter 1 of the Occasional Consultation Paper CP29/15 and a correction to the rule changes published in the Policy Statement 11/15 “CRD IV: Liquidity.” The changes are:

» The deletion of an administrative fee for late reporting, consulted on in Occasional Consultation Paper CP29/15

» An amendment to remove a liquidity reporting requirement for Currency Analysis (FSA054)

These changes had been stated in PS11/15 earlier, but had not been written into the PRA’s rules. The appendices to this statement set out two-rule instruments that implement these changes.

Link: Notification Keywords: Regulatory Reporting

Implementation of Ring-Fencing: The PRA’s Approach to Ring-Fencing Transfer Schemes

- PRA

September 18, 2015



Through this consultation (CP33/15), the Prudential Regulation Authority (PRA) seeks views on a draft statement of policy setting out its approach to ring-fencing transfer schemes (RFTS). The Financial Services (Banking Reform) Act 2013 (FSMA) gave the PRA new powers in respect of the RFTS.

The purpose of the draft statement of policy is to set out the approach of the PRA in relation to these matters, which are:

» Nomination or approval of the author of the scheme report (FSMA section 109A(2))

» Approval of the form of the scheme report (FSMA section 109A(3))

» Consent to an application to the court for an order sanctioning a RFTS (FSMA section 107(2A))

Comments Due Date: October 30, 2015 Effective Date: N/A First Reporting Date: N/A Links: Consultation Paper, Structural Reform Page, Financial Services Act Keywords: Banking Reform, RFTS, Ring Fencing

http://www.bankofengland.co.uk/pra/Pages/publications/ps/2015/ps2315.aspx

http://www.bankofengland.co.uk/pra/Pages/publications/cp/2015/cp3315.aspx

http://www.bankofengland.co.uk/pra/Pages/supervision/structuralreform/default.aspx

http://www.legislation.gov.uk/ukpga/2013/33/contents/enacted


28 SEPTEMBER 2015

CRD IV Updates

- PRA

September 14, 2015


The PRA issued the following clarifications related to CRD IV:

» LCR Reporting Clarifications. In July 2015, the PRA’s Supervisory Statement 29/15 “CRD IV: interim LCR reporting” detailed the reporting arrangements the PRA expects firms to follow in the period between October 01, 2015 and the introduction of the new EU reporting templates. These reporting arrangements are in accordance with the amending ITS on liquidity reporting to be adopted by the EC for the LCR. On September 14, 2015, the PRA published SS29/15 reporting clarifications on areas of inconsistency identified from a survey of a selection of UK firms. The PRA will revisit this matter if and when the EBA issues relevant guidance or Q&A on the LCR or on LCR reporting

» Common Reporting Errors found in COR002 Large Exposures Templates and Reporting of Eligible Capital for Large Exposures Within COR001. On September 14, 2015, the PRA published reporting clarifications on common reporting errors found in the COREP COR002 Large Exposures templates and in the COR001 CA4 template for reporting eligible capital for the purpose of large exposures.

Reporters are asked to ensure that these clarifications are applied for reporting from the third quarter of 2015.

Links: Updates, SS29/15, COREP Errors Keywords: CRD IV, LCR

Middle East & Africa

Israel

Key Developments

Staff Report and Selected Issues Report for Article IV Consultation

- IMF

September 16, 2015


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

The staff report reveals that Israel’s financial system has changed substantially over the past decade. The role of the non-bank financial sector has increased. The Bachar reform that began in mid-2005 forced banks to divest most noncommercial banking activities such as insurance, pension, and provident funds. Partly as a result, the nonbank financial sector grew rapidly and its assets now comprise about half of all financial sector assets. Additionally, an active market in corporate bonds has developed. The outstanding stock of corporate bonds grew from 5% of GDP in 2004 to 27% in 2013.

Furthermore, the Israeli banks are well-capitalized and liquid. minimum core tier 1 capital ratio of 9%. As the prescribed risk-weighting is conservative, the leverage ratio (7%) is high compared with that in other advanced countries. Banks have limited exposure to the wholesale funding market, as reflected in loan-to-deposit ratios of well below 100%. Guidelines for the gradual implementation of LCR have been enforced from the beginning of 2015.

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

Saudi Arabia

Key Developments

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

http://www.bankofengland.co.uk/pra/Pages/publications/ss/2015/ss2915.aspx

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




29 SEPTEMBER 2015

Basel III Implementation Assessment of the Kingdom of Saudi Arabia

- BCBS

September 30, 2015


BCBS published two reports assessing the Kingdom of Saudi Arabia's implementation of the Basel risk-based capital framework (RBCF) and the LCR. These form part of a series of reports on Basel Committee members' implementation of Basel standards under the Committee's Regulatory Consistency Assessment Program (RCAP).

A key aim of the RCAP is to assess the consistency and completeness of a jurisdiction's adopted standards and the significance of any deviations from the regulatory framework. The RCAP does not take into account a jurisdiction's bank supervision practices, nor does it evaluate the adequacy of regulatory capital and high-quality liquid assets for individual banks or a banking system as a whole. The assessment outcomes for the Kingdom of Saudi Arabia are highly positive and reflect various amendments to the risk-based capital and LCR rules undertaken by the authorities during the assessment.

The BCBS noted that several aspects of the domestic rules in the Kingdom of Saudi Arabia are more rigorous than required under the Basel framework. Overall, the domestic implementation of the risk-based capital framework is found to be "compliant" with the Basel standards, as all 14 components are assessed as "compliant". Regarding the LCR, the Kingdom of Saudi Arabia is assessed overall as "largely compliant," indicating that most but not all provisions of the Basel standards were met. The implementation of the LCR regulation is assessed as "largely compliant" and the implementation of the LCR disclosure standards is assessed as "compliant".

While assessing the Kingdom of Saudi Arabia, the assessment teams held discussions with senior officials and technical staff of the SAMA. The teams also met with a select group of Saudi Arabian banks.

Link: Press Release Keywords: LCR, RBCF, RCAP

Staff Report for the 2015 Article IV Consultation

- IMF

September 09, 2015


The IMF published its staff report in the context of the 2015 Article IV consultation with Saudi Arabia.

The Saudi Arabian Monetary Agency SAMA explained that a number of key reforms were being introduced to strengthen the banking sector. Progress has continued on the implementation of the 2011 FSAP Update Recommendations (Appendix III) and the Basel III capital requirements. A domestic systemically-important bank (D-SIB) methodology has been published and the identified D-SIBs will be required to comply from January 2016. The framework for CCyB is also being developed in line with Basel guidelines.

In addition, a draft legislation has been prepared to strengthen the resolution and recovery regime for banks. In terms of concentration risk, an aggregate large exposure limit of 400% of capital has been imposed and single borrower exposure limits will be reduced from 25% of capital at present to 15% by 2019. Furthermore, a loan-to-value ratio of 70% was introduced for mortgages in November 2014 (previously mortgages were often given for 100% of the property value) and its impact on real estate activity and mortgage lending is being monitored. Lastly, a deposit insurance fund will be introduced in January 2016 and built-up gradually. This will protect deposits in participating banks up to a maximum of SR 200,000.

SAMA also noted that the impact of de-risking by several global banks in response to enhanced implementation of global regulatory standards and economic and trade sanctions has not had a significant impact on Saudi banks; however, it is believed a dialog was needed between banks and regulators to ensure this did not become a problem for local and regional banks.

Appendix II offers a snapshot of the financial sector in Saudi Arabia. There are 24 commercial banks operating in Saudi Arabia (of which 12 are foreign-owned) and bank assets amount to 76% of GDP. Five public specialized credit institutions still play a significant role, are owned by government ministries, and are not supervised by SAMA or the Capital Market Authority. They are not deposit-taking institutions.

Non-bank financial institutions are growing in number since the passage of the Finance Law in 2012. From November 2014, all banks and finance companies providing real estate or other financing services have needed to be licensed by SAMA (37 such licenses have been granted). No data is available on the size of the finance companies. There are also 88 securities firms.

The insurance sector is growing rapidly, but is still small. There are 35 insurance companies, but assets are only 3% of GDP. All insurance companies are now regulated and supervised by SAMA. The two public pension funds are sizable institutional investors, with combined assets of 34% of GDP. There are 169 listed companies with a market capitalization of 65% of GDP as of the end of 2014. The investor base consists primarily of retail and large state investors.

Link: Staff Report Keywords: Article IV Consultation, FSAP

South Africa

http://www.bis.org/press/p150930.htm



30 SEPTEMBER 2015

Key Developments

Proposed Amended Regulations Relating to Banks

- SARB

September 04, 2015



The SARB issued (through Circular 6 of 2015) draft to amend the regulatory and supervisory framework in accordance with the latest internationally agreed regulatory and supervisory standards for Basel III:

» The LCR and liquidity risk monitoring tool

» Monitoring tools for intraday liquidity management

» Leverage ratio framework and disclosure requirements

» LCR disclosure standards and LCR restricted-use committed liquidity facilities

Comments Due Date: September 30, 2015 Effective Date: N/A First Reporting Date: N/A Links: Circular 6, Proposed Amended Regulations Keywords: Basel III, LCR, LMT

Sub-Saharan Africa

Key Developments

Evolving Banking Trends in Sub-Saharan Africa: Key Features and Challenges

- IMF

September 16, 2015


The IMF prepared a report on the evolving banking trends in Sub-Saharan Africa for the European Investment Bank Africa Day Conference held in Luxemburg on July 09, 2015.

Among other issues, the report discusses the lack of formal regulatory oversight of bank holding companies in the West African Economic and Monetary Union (WAEMU) and their supervision on a consolidated basis. At least two large pan-African banks operate in the region as unregulated holding companies. Moreover, fitness and propriety of owners and shareholders of pan-African banks are not always fully assessed and, in some cases, ownership structures are opaque.

The report also highlights that availability of financial data is also limited in many countries and the exchange of data among supervisors is constrained by national secrecy laws. In particular, limited information on cross-border exposures within a pan-African bank makes it hard for supervisors to get a firm understanding of potential spillover risks. The lack of a single accounting standard and different levels of implementation of Basel accords across the continent further complicate the assessment of the banks’ overall situation.

Link: Report Keywords: Basel III, Sub Saharan Africa, WAEMU

https://www.resbank.co.za/publications/detail-item-view/pages/publications.aspx?sarbweb=3b6aa07d-92ab-441f-b7bf-bb7dfb1bedb4&sarblist=21b5222e-7125-4e55-bb65-56fd3333371e&sarbitem=6872

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

http://www.imf.org/external/pubs/ft/dp/2015/afr1508.pdf


31 SEPTEMBER 2015

Americas

United States of America

Key Developments

Aggregation of Positions

- CFTC

September 29, 2015



CFTC published, in the Federal Register, a notice of proposed modifications to part 150 of its regulations (17 CFR Part 150) on November 15, 2013. The modifications addressed the policy for aggregation under the CFTC’s position limits regime for futures and option contracts on nine agricultural commodities set forth in part 150. The Commission also noted that if its proposed position limits regime for 28 exempt and agricultural commodity futures and options contracts and the physical commodity swaps that are economically equivalent to such contracts are finalized, the proposed modifications would also apply to the position limits regime for those contracts and swaps.

The CFTC is now proposing a revision to its proposed modification to the aggregation provisions of part 150, which addresses when aggregation is required on the basis of ownership of a more than 50% interest in another entity.

The imposition of position limits helps to restrict market participants from amassing positions that are of sufficient size to potentially cause sudden or unreasonable fluctuations or unwarranted changes in the price of a commodity derivatives contract, or to be used to manipulate the market price. The proposed exemptions would allow an owner to disaggregate the positions of an owned entity in circumstances where the CFTC has determined that the positions are less of a risk of disrupting market operation through coordinated trading. The CFTC believes that the proposed exemptions would not materially inhibit the use of commodity derivatives for hedging, as bona fide hedging exemptions are available to any entity regardless of aggregation of positions and exemptions from aggregation.

The estimated number of entities that will be affected is 25.

Comments Due Date: November 13, 2015 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: Commodities, Dodd-Frank Act, Position Limits

http://www.gpo.gov/fdsys/pkg/FR-2015-09-29/pdf/2015-24596.pdf


32 SEPTEMBER 2015

Capital Regulation Across Financial Intermediaries, A Speech by Daniel K. Tarullo of the FED

- FED

September 28, 2015


Daniel K. Tarullo of the FED spoke, at the Banque de France Conference in Paris, about the degree to which the nonbank financial intermediaries should be subject to the capital regulations developed by the BCBS and applied to bank holding companies in the United States and to all commercial and investment banks in Europe.

Mr. Tarullo highlighted that “the answer to this question might seem intuitively obvious. After all, the risk of loss associated with a particular corporate loan or mortgage-backed security or, indeed, any other asset does not vary just because its legal owner is an insurance company or mutual fund, rather than a bank. Yet we all know that regulatory capital requirements sometimes do vary with the nature of the firm. And I suspect that most people in this room believe there are good reasons why they should vary under at least some circumstances.”

He also discussed that these circumstances should be identified by looking not at the asset side of a financial intermediary’s balance sheet, but at the liability side. This is because the scope and nature of a firm’s liabilities provide the justifications for capital requirements regulation. Differences in liabilities can sometimes warrant different capital requirements for portfolios of similar assets across firms.

Mr. Tarullo also mentioned that Basel III significantly strengthened capital quality and levels post-crisis. “Important as these changes have been, the risks to the financial system posed by large amounts of short-term wholesale funding argue for closer regulatory linkage between capital and liquidity concerns. Conceptually, the cleanest approach might be to integrate capital and liquidity requirements in a single regulatory framework, which would establish minimum levels of capital and liquidity and then increase the capital requirement for intermediaries with more vulnerable funding structures.”

Higher capital levels would be especially warranted for intermediaries that are using large enough amounts of short-term debt to constrain their response when funding liquidity, which could adversely affect the overall financial system. The Basel standards have already evolved to take account of different forms of intermediation in the financial firms subject to those rules. The Basel framework might itself be enhanced by further differentiation of capital and liquidity requirements based on the liability structures of firms. Similarly, capital rules for intermediaries not subject to Basel rules should be shaped by similar considerations.

Link: Speech Keywords: Non-Bank Financial Intermediaries, Regulatory Reform

Proposed Liquidity Management Rules for Mutual Funds and Exchange-Traded Funds

- SEC

September 22, 2015



The SEC voted to propose a comprehensive package of rule reforms designed to enhance effective liquidity risk management by open-end funds, including mutual funds and exchange-traded funds (ETFs).

Under the proposed reforms, mutual funds and ETFs would be required to implement liquidity risk management programs and enhance disclosure regarding fund liquidity and redemption practices. The proposal is designed to better ensure investors can redeem their shares and receive their assets in a timely manner. A fund’s liquidity risk management program would be required to contain multiple elements, including:

» Classification of the liquidity of fund portfolio assets based on the amount of time an asset would be able to be converted to cash without a market impact

» Assessment, periodic review, and management of a fund’s liquidity risk

» Establishment of a fund’s three-day liquid asset minimum

» Board approval and review

In addition, the proposal would codify the 15% limit on illiquid assets included in the current Commission guidelines. The proposed reforms would also provide a framework under which mutual funds could elect to use “swing pricing” to effectively pass on the costs stemming from shareholder purchase or redemption activity to the shareholders associated with that activity. The swing pricing proposal would enable mutual funds, subject to board approval and oversight, to reflect in a fund’s net asset value costs associated with shareholders’ trading activity. It is designed to protect existing shareholders from dilution associated with shareholder purchases and redemptions and would be an additional tool to help funds manage liquidity risks.

The proposals will be published on the SEC’s website and in the Federal Register. The comment period for the proposed rule will be 90 days after publication in the Federal Register.

Comments Due Date: [FR Date] + 90 Days Effective Date: N/A First Reporting Date: N/A Link: Press Release Keywords: ETF, Liquidity Management, Mutual Funds

http://www.federalreserve.gov/newsevents/speech/tarullo20150928a.pdf

http://www.sec.gov/news/pressrelease/2015-201.html


33 SEPTEMBER 2015

Meeting of the Financial Stability Oversight Council

- FSOC

September 21, 2015


The FSOC held a meeting during which it received an update from the Treasury Department regarding recent international market developments.

The FSOC also discussed its ongoing assessment of potential risks to the U.S. financial stability, arising from asset management products and activities. Staff provided a progress update on their efforts, including the ongoing analysis of a range of potential risks highlighted in the FSOC’s notice, seeking public comment on asset management products and activities. The FSOC will continue to provide the public with periodic updates on the status of its analysis as this work progresses.

The notice seeking comment on asset management products and activities has been submitted to the Office of the Federal Register for publication and is currently pending placement on public display and publication in the Federal Register. The document may vary slightly from the published document if minor editorial changes have been made during the review process.

Consistent with its responsibility to identify risks to the financial stability of the United States, FSOC is issuing this notice seeking public comment (due [FR Date] + 60 Days) on aspects of the asset management industry, in particularly investigating whether asset management products and activities may pose potential risks to the U.S. financial system in the areas of liquidity and redemptions, leverage, operational functions, and resolution, or in other areas. The FSOC is inviting public comment as part of its ongoing evaluation of industry-wide products and activities associated with the asset management industry.

The FSOC also received an update about CCPs and regulators’ efforts to evaluate whether key areas of CCP-related risks are being addressed adequately, as highlighted in the FSOC’s 2015 annual report. Specifically, the staff discussed progress on several topics in the areas of CCP credit, default, and liquidity risk management; bank-CCP interactions; and CCP recovery and resolution planning.

Links: Press Release, Notice on Asset Management Products and Activities, FSOC Annual Report, 2015 Keywords: Asset Management, CCP, FSOC Meeting

http://www.treasury.gov/initiatives/fsoc/council-meetings/Documents/September%2021,%202015.pdf

http://www.treasury.gov/initiatives/fsoc/rulemaking/Documents/Notice%20Seeking%20Comment%20on%20Asset%20Management%20Products%20and%20Activities.pdf

http://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/2015%20FSOC%20Annual%20Report.pdf


34 SEPTEMBER 2015

Proposed Revision and Extension of Call Report FFIEC 031 and FIEC 041 for Three Years

- US Agencies

September 18, 2015



The FDIC, the FED, and the OCC proposed revision and extension of FFIEC 031 and FFIEC 041, which are the approved consolidated reports of condition and income (Call reports). The report FFIEC 031 is for banks and savings associations with domestic and foreign offices while the FFIEC 041 is for banks and savings associations with domestic offices only.

The deletions of certain existing data items, the revisions of certain reporting thresholds and certain existing data items, the addition of certain new data items, and certain instructional revisions are proposed to take effect as of the December 31, 2015 or the March 31, 2016 report date, depending on the nature of the proposed reporting change. At the end of the comment period, the comments and recommendations received will be analyzed to determine the extent to which the FFIEC and the agencies should modify the proposed revisions prior to giving final approval.

The reporting frequency is quarterly and the estimated number of respondents is 1,503 national banks and federal savings associations (OCC), 850 state member banks (FED), and 4,036 insured state nonmember banks and state savings associations (FDIC).

Comments Due Date: November 17, 2015 Effective Date: December 31, 2015 First Reporting Date: N/A Links: Proposed Rule, FFIEC 031 Form Keywords: Call Reports, FFIEC 031, FFIEC 041

Proposal to Approve the Extension and Revision of Capital Assessments and Stress Testing Information Collection

- FED

September 16, 2015



The FED proposed revision of several schedules of the FR Y–14A/Q/M (Capital Assessments and Stress Testing Information Collection), effective December 31, 2015, March 31, 2016, and June 31, 2016. The proposal:

» Adds an attestation requirement for Large Institution Supervision Coordinating Committee (LISCC) respondents

» Revises the reports to reflect recent changes to the regulatory capital rules and to the capital plan rule

» Modifies other elements of the FR Y–14A/Q/M reports to improve consistency of reported data across firms, address industry concerns, and improve supervisory modeling

» Notifies public that the OFR of the Department of Treasury has requested access to the FR Y–14A/Q/M reports for use in connection with its statutory mandate ‘‘to evaluate and report on stress tests,’’ and that the Board plans to share the FR Y–14A/Q/M reports with the OFR, in light of the assurances of confidentiality from the OFR

The reporting frequency can be annual, semi-annual, quarterly, and monthly. The reporting entities include any top-tier bank holding company (other than a foreign banking organization) that has USD 50 billion or more in total consolidated assets, as determined based on:

» The average of the bank holding company’s total consolidated assets in the four most recent quarters as reported quarterly on the bank holding company’s Consolidated Financial Statements for Bank Holding Companies (FR Y–9C) (OMB No. 7100–0128); or

» The average of the bank holding company’s total consolidated assets in the most recent consecutive quarters as reported quarterly on the bank holding company’s FR Y–9Cs, if the bank holding company has not filed an FR Y–9C for each of the most recent four quarters

Reporting is required as of the first day of the quarter, immediately following the quarter in which an entity meets this asset threshold, unless otherwise directed by the FED. The estimated number of respondents is 33.

Comments Due Date: November 16, 2015 Effective Date: December 31, 2015 First Reporting Date: N/A Link: Proposed Rule Keywords: Dodd-Frank Act, FR Y14, Stress Testing


https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_20150917_f_draft.pdf



35 SEPTEMBER 2015

Access to Data Obtained by Security-Based Swap Data Repositories and Exemption from Indemnification Requirement

- SEC

September 14, 2015



Pursuant to section 763(i) of the Dodd-Frank Act, the SEC is proposing amendments (17 CFR Part 240) related to regulatory access to security-based swap data held by security-based swap data repositories (SBDRs). The proposed rule amendments would implement the conditional Exchange Act requirement that SBDRs make data available to certain regulators and other authorities, and would set forth a conditional exemption from the statutory indemnification requirement associated with that regulatory access provision.

The title of the new collection of information is “Security-Based Swap Data Repository Data Access Requirements”. The SEC estimates that ten persons might register with the Commission as SBDRs. The conditions to data access under these proposed rules further will affect all persons that may seek access to security-based swap data pursuant to these provisions; these may include up to 30 domestic entities.

Comments Due Date: October 29, 2015 Effective Date: N/A First Reporting Date: N/A Link: Proposed Rule Keywords: Data Collection, SBSR

Reference Guide to the U.S. Repo and Securities Lending Markets

- OFR

September 09, 2015


The OFR working paper “Reference Guide to U.S. Repo and Securities Lending Markets,” authored jointly with staff from the Federal Reserve Bank of New York, offers an overview of the repo and securities lending markets, including the institutional structure, role and motivation of market participants, vulnerabilities and potential systemic risks, and recent efforts to limit those risks. The paper also provides an overview of existing data sources, highlighting specific shortcomings related to data standards and data quality and steps regulators are taking to improve data coverage.

A few initiatives are under way to address some of the shortcomings in the existing data. At the international level, in November 2014, the FSB issued a consultative document “Standards and Processes for Global Securities Financing,” which is aimed at improving transparency of repo and securities lending activities. Final recommendations are expected to be published in late 2015 and likely followed by a global data collection within a few years.

Domestically, the OFR and the FED launched a joint pilot data collection to improve the understanding of bilateral repo and securities lending activities. The pilot identified data elements essential for analyzing risks inherent in repo and securities lending activities. Better data are needed to determine the dependence of individual repo market participants on short-term funding, counterparty credit exposures, and interconnectedness among participants. In addition, data on collateral used are needed to assess collateral quality, diversification, and haircuts. The pilot includes the voluntary participation of selected large firms involved in these activities.

This data collection, which will be shared with the SEC, will go a long way toward improving transparency in securities financing markets, but a permanent data collection is needed to fully address the discussed data gaps. Success in these and other future efforts will require adoption of international data standards, extensive collaboration, and improvements in data sharing.

Links: News Release by OFR Director, Working Paper, Consultation: Standards and Processes for Global Securities Financing Keywords: Data Collection, Repo, Securities Lending


http://financialresearch.gov/from-the-director/2015/09/09/demystifying-u-s-repo-and-securities-lending-markets/

http://financialresearch.gov/working-papers/files/OFRwp-2015-17_Reference-Guide-to-U.S.-Repo-and-Securities-Lending-Markets.pdf

http://www.financialstabilityboard.org/wp-content/uploads/Global-SFT-Data-Standards-Consultative-Document.pdf


36 SEPTEMBER 2015

Initiative to Streamline Reporting Requirements for Community Banks

- FFIEC

September 08, 2015



The FFIEC detailed steps regulators are taking to streamline and simplify regulatory reporting requirements for community banks and reduce their reporting burden.

The objectives of this community bank burden-reduction initiative are consistent with the early feedback the FFIEC has received as part of the regulatory review being conducted under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) of 1996. Each quarter, banks and savings associations submit Consolidated Reports of Condition and Income (Call Reports), which include data used by regulators to monitor the safety and soundness, performance, and risk profile of each institution and to assess the condition of the banking system. Call Report data also help regulators target examination resources and support off-site examinations.

As an initial step by regulators to streamline some reporting requirements, the federal banking agencies, under the auspices of the FFIEC, are seeking comment on proposals to, in part, eliminate or revise several Call Report data items. These changes would not affect credit unions, but would simplify the reporting requirements for banks and savings associations. In addition to the reporting changes proposed, the FFIEC also is focusing on the following areas:

» Accelerating the start of a statutorily required review of the continued appropriateness of the data items collected in the Call Report

» Evaluating the feasibility and merits of creating a streamlined version of the quarterly Call Report for community institutions

» Continuing dialogue with community institutions to identify additional opportunities to reduce reporting burden by revising or redefining Call Report data items

» Reaching out to banks and savings associations through teleconferences and webinars to explain upcoming reporting changes and clarify technical reporting requirements

Comments on the proposed data reporting requirements will be accepted within 60 days of publication in the Federal Register. Individual reporting changes are proposed to take effect with the Call Reports for December 2015 or March 2016.

Comments Due Date: [FR Date] + 60 Days Effective Date: N/A First Reporting Date: N/A Links: Press Release, Proposed Notice Keywords: Call Reports, Community Banks, EGRPRA

Approval for Bank of America to Begin Using Advanced Approaches Framework to Determine Risk-Based Capital Requirements

- FED/OCC

September 03, 2015


Bank of America and its subsidiary national banks (Bank of America, National Association; Bank of America California, National Association; and Recontrust Company, National Association) have each completed a parallel run. These firms will use the advanced approaches framework to calculate and publicly disclose their risk-based capital ratios beginning in the fourth quarter of 2015. The firms must meet the minimum risk-based capital ratios under both the advanced approaches and the generally applicable risk-based capital frameworks.

The advanced approaches framework implements Basel III standards of BCBS and applies to large, internationally active banking organizations—generally those with at least USD 250 billion in total consolidated assets or at least USD 10 billion in total on-balance sheet foreign exposure—and includes the depository institution subsidiaries of those firms. Before a banking organization may use the advanced approaches framework, it must conduct a parallel run using the framework for at least four consecutive calendar quarters by using systems that adhere to the advanced approaches framework.

Link: Joint Press Release Keywords: Advance Approaches Framework, Basel III, RBCR

https://www.ffiec.gov/press/pr090815.htm

https://www.ffiec.gov/press/PDF/2015xInitialF_%20Notice090715final.pdf

http://www.federalreserve.gov/newsevents/press/bcreg/20150903a.htm


37 SEPTEMBER 2015

Proposed 2016 US GAAP Financial Reporting Taxonomy

- FASB

September 01, 2015



The proposed 2016 U.S. Financial Reporting Taxonomy (Taxonomy) contains updates for accounting standards and other improvements since the 2015. Taxonomy is used by issuers filing with the U.S. SEC.

The 60-day comment period is intended to solicit feedback on these updates from users of the Taxonomy, and to provide SEC filers, service providers, software vendors, and other interested parties the opportunity to become familiar with and suggest revisions to the Taxonomy.

Comments Due Date: October 31, 2015 Effective Date: N/A First Reporting Date: N/A Link: Proposed Taxonomy Keywords: Taxonomy, US GAAP

Canada

Key Developments

Public Disclosure Requirements for Global Systemically Important Banks

- OSFI

September 11, 2015


The OSFI issued public disclosure requirements for G-SIBs. The advisory clarifies the implementation of the annual public disclosure requirements outlined in the G-SIB framework in Canada.

The advisory applies to federally regulated banks with a Basel III leverage ratio exposure measure exceeding EUR 200 billion at financial year-end. The outlined requirements are to be considered an annual data disclosure exercise. Public disclosure of financial year-end data is required annually no later than the date of a bank's first quarter public disclosure of shareholder financial data in the following year. A bank may choose to disclose required information as described in Part 4 within its published report to shareholders (for example, in the Management Discussion and Analysis section. At a minimum, the published report to shareholders should provide a direct link to the completed disclosures on the bank's website.

Links: G-SIB Disclosure Requirements, G-SIB Identification, BCBS Assessment Methodology Keywords: Basel III, Disclosures, G-SIB

Asia Pacific

Australia

Key Developments

http://www.fasb.org/jsp/FASB/Page/SectionPage%26cid=1176164335312

http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/adv-prv/Pages/GSIB_adv.aspx

http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/adv-prv/Pages/GSIB_let.aspx

http://www.bis.org/publ/bcbs255.htm


38 SEPTEMBER 2015

Staff Report and Selected Issues for the 2015 Article IV Consultation

- IMF

September 30, 2015


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

The report reveals that the country’s financial system weathered the global financial crisis well, aided by flexible monetary policy, a strong fiscal position, and prudent supervision. The major banks are highly rated and profitable compared with peers. However, the financial system faces long-standing structural vulnerabilities. The four major banks are systemic with broadly similar business models. As a capital importer, the system is exposed to terms of trade shocks, with a still relatively high proportion of offshore wholesale funding. The economy is vulnerable to changes in international investor sentiment. Residential mortgages account for a large proportion of banks’ assets and household leverage is high.

The Financial System Inquiry concluded that more should be done to strengthen the system’s resilience. The Inquiry argued that Australia needed to be better placed than other economies, given its structural vulnerabilities, with a strong public balance sheet remaining a critical backstop, and the banks should have unquestionably strong capital levels and sufficient loss absorbing capacity to mitigate risks. Gradually building higher capital and loss-absorbing capacity would reduce the risks from a highly concentrated banking system.

Even after taking into account the strengths of Australia’s prudential system (and conservative measurement of capital), banks appear to have capital above the median internationally, but not in the top quartile of banks. Other economies facing similar risks are taking a variety of different measures to boost capital and tighten risk weights (Hong Kong, Sweden, and Switzerland)—the global trend is toward higher capital.

The authorities agreed that higher capital would be beneficial to increase the resilience of the financial system. They supported the findings of the Financial System Inquiry to make banks “unquestionably strong” and APRA was taking this forward. APRA is considering what action to take and is monitoring the calibration of the D-SIB surcharge in the context of industry and international developments.

Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Financial System Inquiry, Unquestionably Strong

Remarks of APRA Chairman on the Recommendation for Setting Unquestionably Strong Capital Standards

- APRA

September 16, 2015


Wayne Byres, the APRA Chairman, spoke at the RMA Chief Risk Officer Forum in Sydney (titled, “In Search Of … Unquestionably Strong”) and at the Actuaries Institute’s Banking on Change Seminar in Sydney (titled, “Regulation: Responding to Market Change or Driving it?”) about the evolving capital standards and regulations.

In Search Of …. Unquestionably Strong

He mentioned that the first recommendation of the Financial System Inquiry was that APRA should “set capital standards such that Australian authorized deposit-taking institution capital ratios are unquestionably strong.” But what “unquestionably strong” meant precisely was largely left for APRA to determine.

“We were given some guidance by the Financial System Inquiry, in the suggestion we aim for top quartile positioning against international peers—and as you know we recently published a study on how the major banks stack up against that benchmark. But we also made clear that we don’t think that international comparisons should be the ultimate benchmark against which ‘unquestionably strong’ is judged. It is undoubtedly a useful sense check, and one we will continue to make use of, but we are reluctant to tie ourselves mechanically to a moving target based on an international peer group ranking.”

Regulation: Responding to Market Change or Driving it?

The FSI established the “unquestionably strong” concept in terms of capital ratios. “I think it important, however, to point out that to be truly ‘unquestionably strong’ requires an authorized deposit-taking institution to have more than just a strong capital ratio—and there may be trade-offs in how ‘unquestionably strong’ is achieved. To be sure, it’s next-to-impossible to be regarded as ‘unquestionably strong’ if an authorized deposit-taking institution’s capital base is weak.” Hence, capital must remain at the core of any definition.

However, other financial measures—such as liquidity, earnings, and asset quality—are also important. Even then, an authorized deposit-taking institution with strong financial metrics, but weaknesses in risk management, governance, and culture, will see its financial strength eroded. Therefore, these other characteristics must also be taken into account when defining an “unquestionably strong” authorized deposit-taking institution.

Links: Speech at Banking on Change Seminar, Remarks at RMA Chief Risk Officer Forum Keywords: Financial Regulation, Financial System Inquiry, Unquestionably Strong



http://www.apra.gov.au/Speeches/Documents/12%20IAAust%20-%20regulation%20responding%20to%20market%20change%20or%20driving%20it%20-%2016%20September%202015.pdf

http://www.apra.gov.au/Speeches/Documents/11%20RMA%20CRO%20Forum%20-%20in%20search%20of%20unquestionably%20strong%20-%2015%20September%202015.pdf


39 SEPTEMBER 2015

Consultation on Proposed Clarification of the Countercyclical Capital Buffer Requirements

- APRA

September 02, 2015



APRA released, for consultation, a draft version of Prudential Standard APS 110 Capital Adequacy (APS 110). The proposed amendments relate to the CCyB requirements, which commence on January 01, 2016.

APRA has identified some potential ambiguity in the wording of the CCyB requirements in APS 110. To address this, APRA proposes minor amendments to APS 110 to clarify the requirements.

Comments Due Date: October 02, 2015 Effective Date: January 01, 2016 First Reporting Date: N/A Link: Proposed Clarification Keywords: Basel III, CCyB

Hong Kong

Key Developments

Consultation on Mandatory Clearing and Reporting for OTC Derivatives Market

- HKM/SFC

September 30, 2015



The HKMA and the SFC jointly issued a consultation on introducing the first phase of mandatory clearing and the second phase of mandatory reporting under the new OTC derivatives regime.

The first phase of mandatory clearing aims to mandate the clearing of certain standardized interest rate swaps entered into between major dealers. The key proposals identify:

» The types of transactions that will be subject to mandatory clearing

» The persons who will be subject to the clearing obligation and in what circumstances

» The exemptions and reliefs that may apply

» The process for designating central counterparties for the purposes of the clearing obligation

The second phase of mandatory reporting aims to expand the existing reporting regime. The key proposals include:

» Requiring the reporting of transactions in all OTC derivative products

» Widening the scope of transaction information to be reported, including requiring the reporting of daily valuations

» Identifying the specific data fields to be completed under the expanded reporting regime

Interested parties are invited to submit comments to the HKMA or the SFC by:

» October 31, 2015 in respect of matters other than the proposed data fields

» November 30, 2015 in respect of the proposed data fields

In line with global efforts, the HKMA and the SFC have been developing a regulatory regime for the OTC derivatives market in Hong Kong. Subsequent to two consultation exercises (in October 2011 and July 2012), the Securities and Futures (Amendment) Ordinance 2014 was passed in March 2014. This legislation introduces mandatory reporting, clearing, and trading and recordkeeping obligations in respect of OTC derivative transactions.

Two subsequent consultation exercises were conducted (in July 2014 and November 2014) on the Securities and Futures (OTC Derivative Transactions: Reporting and Recordkeeping Obligations) Rules, which came into effect on July 10, 2015. The existing reporting regime only mandates reporting transactions in certain interest rate swaps and non-deliverable forwards.

Comments Due Date: November 30, 2015 Effective Date: N/A First Reporting Date: N/A Links: Press Release (hkma.gov.hk/eng/key-information/press-releases/2015/20150930-7.shtml), Consultation (hkma.gov.hk/media/eng/doc/key-information/press-release/2015/20150930e7a1.pdf) Keywords: Clearing, OTC Derivatives, Regulatory Reporting

http://www.apra.gov.au/adi/Pages/September-2015-Consultation-countercyclical-capital-buffer.aspx


40 SEPTEMBER 2015

Return of Liquidity Monitoring Tools (Form MA(BS)23)

- HKMA

September 25, 2015



The HKMA has finalized the Return on Liquidity Monitoring Tools, or LMTs, (Form MA(BS)23) and the associated completion instructions. Taking into account the industry’s comments, the Return will be implemented in two phases:

» Phase 1. Official reporting in respect of Parts 1 to 3 of the Return will start from the position of December 31, 2015, covering the Hong Kong office position (for all authorized institutions) and the unconsolidated positions (for locally incorporated authorized institutions with overseas branches).

» Phase 2. Official reporting in respect of Part 4 (by all authorized institutions) and Part 5 (by category 1 institutions only) will start from the position of June 30, 2016, covering, where applicable, the Hong Kong office position, the unconsolidated position, and the consolidated position (in respect of Part 5 only).

To help authorized institutions prepare for official reporting under the Return, two rounds of test-reporting are to be conducted:

» The first round of test reporting will cover Parts 1 to 3 of the Return based on the position of June 30, 2015, and the results should be submitted to the HKMA by November 14, 2015.

» The second round of test-reporting will cover Parts 4 and 5 of the Return based on the position of December 31, 2015, and the results should be submitted to the HKMA by March 31, 2016.

The electronic file for this Return is not yet available for downloading for reporting purposes.

Comments Due Date: N/A Effective Date: November 14, 2015 First Reporting Date: N/A Link: Completion Guidelines (hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2015/20150925e2.pdf) Keywords: Basel III, LMT, MA(BS)23

Consultation on Regulatory Reporting for Implementation of the Basel III Capital Buffer Requirements

- HKMA

September 25, 2015



The HKMA issued a letter to consult the banking industry on certain changes to the Return of Capital Adequacy Ratio (Form MA(BS)3)) covering those associated with implementation of the Basel III Capital Buffer Requirements in Hong Kong in 2016. The consultation is scheduled to close in October 2015. The consultation covers:

» Draft Template/Instructions for Quarterly Reporting on the CCyB

» Draft Template/Instructions for the revised Return of Capital Adequacy Ratio (Part I: Summary Certificate on Capital Adequacy Ratios)

Comments Due Date: October 25, 2015 Effective Date: N/A First Reporting Date: N/A Link: Consultation (hkma.gov.hk/eng/key-functions/banking-stability/basel-3/consultation_on_regulatory_reporting _for_the_implementation_of_the_basel_iii_capital_buffer_requirements.shtml) Keywords: Basel III, CCyB, Regulatory Reporting


41 SEPTEMBER 2015

Supervisory Policy Manual Titled “Countercyclical Capital Buffer: Geographic Allocation of Private Sector Credit Exposures”

- HKMA

September 25, 2015



The Banking Capital Rules (BCR) (as amended by the Banking Capital Amendment Rules 2014) provide for regulatory capital requirements in respect of the CCyB. An earlier Supervisory Policy Manual module (CA-B-1 “Countercyclical Capital Buffer: Approach to its Implementation”) explains the Monetary Authority’s approach toward implementing the CCyB as part of the capital adequacy framework for authorized institutions incorporated in Hong Kong.

The supervisory policy module CA-B-3 provides further guidance to authorized institutions on how to determine the geographic allocation of private sector credit exposures for the purposes of calculating their “authorized institution-specific CCyB ratio” under the BCR.

As set out in section 3O(1) of the BCR and explained in Section 2 of supervisory policy module CA-B-1, an authorized institution must determine its own specific CCyB rate as the weighted average of the applicable jurisdictional CCyB rates in respect of jurisdictions (including Hong Kong) where the authorized institution has private sector credit exposures. The weight to be attributed to a given jurisdiction’s applicable CCyB rate is calculated by reference to the ratio of the authorized institution’s aggregate risk-weighted amount for its non-bank private sector credit exposures in a jurisdiction (RWAj) to the sum of the authorized institution’s RWAj across all jurisdictions in which the authorized institution has private sector credit exposure.

Comments Due Date: October 02, 2015 Effective Date: January 01, 2016 First Reporting Date: N/A Links: Notification (hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2015/20150925e1.pdf), Supervisory Policy Manual (hkma.gov.hk/eng/key-functions/banking-stability/supervisory-policy-manual.shtml) Keywords: Basel III, CCyB, Supervisory Policy Manual

Reporting of OTC Derivative Transactions

- HKMA

September 07, 2015


Since August 05, 2013, the HKMA has, as an interim arrangement, required all licensed banks to report their OTC derivatives transactions to the Hong Kong Trade Repository. The interim arrangement ceased when the reporting rules came into operation (July 10, 2015). The HKMA has performed an analysis of the transactions reported in the interim reporting period and would like to share some important findings that are related to the quality of the data kept in the Hong Kong Trade Repository.

About 32,000 transactions (or about 34% of the total number of transactions reported during the period) were found to be unlinked, that is, they cannot be matched with other transactions. Of the unlinked transactions, about 3,500 transactions (or 11%) were unlinked due to incorrect or omission of information and about 1,600 of these discrepancy transactions have more than two discrepancies. The common errors and omissions are listed in the Annex.

To help clear the discrepancy and unlinked transactions in the Hong Kong Trade Repository database, authorized institutions are advised that, as a standard practice, they should critically review the transactions listed in the reports issued by the Hong Kong Trade Repository, including but not limited to the “discrepancy report” and “uncertain unlink report,” and take appropriate rectification actions.

Link: Statement (hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2015/20150907e1.pdf) Keywords: OTC Derivatives, Regulatory Reporting

India

Key Developments


42 SEPTEMBER 2015

Basel III Implementation: Challenges for Indian Banking System, A Speech by N. S. Vishwanathan, Executive Director, Organized by Associated Chambers of Commerce and Industry of India and National Institute of Bank Management

- RBI

September 04, 2015


N. S. Vishwanathan spoke about the Basel III implementation challenges facing the Indian banking system.

In India, Basel III capital regulation is being implemented from April 01, 2013 in phases and it will be fully implemented by March 31, 2019. Further, the RBI has also introduced Basel III LCR to be implemented by banks in India from January 01, 2015, with full implementation being effective from January 01, 2019. Draft guidelines have been issued on the implementation of NSFR.

In the Indian context, any discussion on the LCR issue brings to the fore the fact that it runs parallel to Statutory Liquidity Ratio requirement. Over a period of time, the SLR has been reduced and, of the current level of 21.5%, a portion, that is, 7% is available for LCR as well. India, like several other jurisdictions, has proposed higher capital adequacy ratios under Basel III.

Links: Speech (rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=972), Statutory Liquidity Ratio Notification (rbi.org.in/scripts/ NotificationUser.aspx? Mode=0&Id=9905) Keywords: Basel III, LCR, NSFR, Statutory Liquidity Ratio


43 SEPTEMBER 2015

Malaysia

Key Developments

Concept Paper on Kafalah

- BNM

September 22, 2015



The BNM published a concept paper providing both the Shariah and operational requirements for Kafalah contract.

Kafalah refers to a contract that establishes a guaranteed party’s specified liability as a joint liability of the guaranteed party and the guarantor. In the context of Islamic financial transactions, Kafalah is used by the Islamic Financial Institutions (IFIs) to provide guarantee services, such as bank guarantee, standby letter of credit, and shipping guarantee. It is also being used as one of the contracts to supplement various primary Islamic financial products, predominantly for risk mitigation purposes such as musharakah, mudarabah, murabaha, salam, istisna, ijarah, and tawarruq.

As part of the objectives to strengthen the Shariah-compliance practices among IFIs, BNM is developing a Shariah-based regulatory policy with the objective to provide a comprehensive guidance to the Islamic financial industry with respect to end-to-end compliance with Shariah. This Shariah-based regulatory policy consists of two components, Shariah and operational requirements. The Shariah requirements highlight the salient features and essential conditions of specific Shariah contracts to facilitate sound understanding of a particular contract by the IFIs. The operational requirements set out the expectations with respect to the oversight function, structuring, risk management, reporting, and disclosure, as well as consumer and market conduct.

Comments Due Date: October 23, 2015 Effective Date: N/A First Reporting Date: N/A Link: Concept Paper Keywords: Islamic Banking, Kafalah

Myanmar

Key Developments

http://www.bnm.gov.my/guidelines/05_shariah/CP_on_Kafalah.pdf


44 SEPTEMBER 2015

Staff Report and Selected Issues Report in the Context of the 2015 Article IV Consultation

- IMF

September 18, 2015


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

The report reveals that ongoing economic transformation in the country is reducing the dominance once enjoyed by state-owned banks (SOBs). Banking sector assets have increased by 10% of GDP over the past two years, reaching 58.5% of GDP at the end of February 2015. Assets owned by private banks now account for half of the total assets, up by 12.5 percentage points, whereas SOB assets amount to 29.5% of GDP, a decline of 2.5 percentage points.

Additionally, a number of policy banks have been established in recent years, raising concerns over contingent liabilities for the government. These banks tend to be sponsored by a line ministry with private sector contributions and have a narrow sectoral focus for lending (for example, tourism or construction). Like commercial banks, the policy banks take deposits and extend loans at the administratively controlled interest rates, except when they receive donor funding at lower costs. These banks also take foreign loans and on-lend in kyat, exposing themselves to exchange rate risks.

The government is in the process of formulating a reform strategy for SOBs and this will affect policy banks as well. This work is supported by the World Bank through comprehensive diagnostic studies of SOBs. The enactment of the Banks and Financial Institutions Act will provide a new regulatory framework for SOBs and policy banks, which will be required to reapply for licenses, providing an opportunity to eliminate regulatory arbitrage by policy banks. Staff has in the past recommended to consolidate SOBs and policy banks into a couple of policy banks.

To improve access to international markets, the CBM, on October 01, 2014, granted preliminary approval to nine foreign banks to begin preparations to commence banking operations in Myanmar. Thus far, the CBM has issued final licenses to eight of the nine foreign banks, enabling them to begin their operations. In this regard, the authorities are concurrently strengthening the capacity of supervisors to supervise and regulate foreign banks. The presence of foreign bank operations will also help to promote greater use of technology and encourage international standard practices in the banking industry.

The report also reveals that the liberalization of the financial sector needs to be complemented with a stronger regulatory and supervisory framework to maintain financial stability. Changes should be implemented step by step, in line with the development of needed supervisory capability and banks’ capacity. For instance, developing money markets and improving banks’ risk management are necessary precursors to the liberalization of lending rates and maturities.

The new Banks and Financial Institutions Law, drafted based on close collaboration of the World Bank and the IMF, will help set the sector on a modern footing. It will require the development and enforcement of modernized prudential regulations, including on bank capital, nonperforming loans, connected lending, and large exposures. This has become particularly urgent given the entry of foreign banks, which will also require regulations on foreign exchange lending, and revised regulations on capital flows and net open positions. The IMF and World Bank teams will work closely with the authorities in the coming months.

Other priorities include developing a plan to reform the SOBs, establishing appropriate regulation of nonbank financial institutions, enhancing financial inclusion, modernizing financial infrastructure including the payments system and a credit bureau, and allowing banks to provide trade finance based on documentary collection.

Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Policy Banks, SOB

Philippines

Key Developments




45 SEPTEMBER 2015

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

- IMF

September 04, 2015


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

The report highlights banks in the country account for nearly 80% of the financial system assets. The BSP also supervises nonbank financial institutions (NBFIs), which account for a further 4% of the system. The insurance industry, which accounts for 7% of the assets, is supervised by the Insurance Commission, while the remaining segments largely fall under the supervisory purview of the SEC. Important supervisory gaps in the financial system relate to:

» Real estate financing provided by developers and conglomerates

» Bank secrecy laws

» Legal restrictions on interagency information sharing

» Mapping conglomerate exposures

In addition, the recent policy measures for enhancing financial stability include:

» Enhanced reporting requirements on licenses that banks have acquired from or are renewing with the SEC and other regulatory authorities to perform securities-related operations

» Establishment of a cross-border liquidity arrangement between the BSP and the Bank of Japan

» Strengthened internal control and internal audit standards for financial institutions

» Adoption of Basel III leverage ratio requirements

» Identification of domestic systemically important banks (D-SIBs)

Links: Staff Report, Selected Issues Report, Basel III Leverage Ratio Guidelines, D-SIB Identification Guidelines Keywords: Article IV Consultation, Basel III, D-SIB



http://www.bsp.gov.ph/downloads/regulations/attachments/2015/c881.pdf

http://www.bsp.gov.ph/downloads/regulations/attachments/2015/m004.pdf


46 SEPTEMBER 2015

Glossary

APRA Australian Prudential Regulation Authority BACH Bank for the Accounts of Companies Harmonized BCBS Basel Committee on Banking Supervision BCPs Basel Core Principles BIS Bank for International Settlements BMA Bayesian Model Averaging BNM Bank Negara Malaysia BRRD Bank Recovery and Resolution Directive BSP Central Bank of the Philippines CBR Central Bank of the Russian Federation CBM Central Bank of Myanmar CCyB Countercyclical Capital Buffer CCP Central Counterparty CFTC U.S. Commodity Futures Trading Commission CPMI Committee on Payments and Market Infrastructures CPSS Committee on Payments and Settlement Systems CRD IV EU Capital Requirements Directive IV CRR Capital Requirements Regulation EU CSDR Central Securities Depositaries Regulation D-SIB Domestic Systemically Important Bank DNB De Nederlandsche Bank DPM Data Point Model EBA European Banking Authority EC European Commission ECB European Central Bank ECL Expected Credit Loss EEAP European Electronic Access Point EGRPRA Economic Growth and Regulatory Paperwork

Reduction Act EIOPA European Insurance and Occupational Pensions

Authority EMIR European Market Infrastructure Regulation ESAs European Supervisory Authorities ESMA European Securities and Monetary Authority ESRB European Systemic Risk Board ETF Exchange-Traded Fund EU European Union FAQ Frequently Asked Questions FASB Financial Accounting Standards Board FDIC Federal Deposit Insurance Corporation FED Board of Governors of the Federal Reserve System FFIEC Federal Financial Institutions Examination Council FMI Financial Markets Infrastructure FSAP Financial Sector Assessment Program FSB Financial Stability Board FSI Financial System Inquiry FSOC Financial Stability Oversight Council FSSA Financial System Stability Assessment G-SIB Global Systemically Important Bank GAAP Generally Accepted Accounting Principles GLIES Global Legal Entity Identifier System

HKMA Hong Kong Monetary Authority IAIS International Association of Insurance Supervisors IASB International Accounting Standards Board ICAEW Institute of Chartered Accountants in England and

Wales IFIAR International Forum of Independent Audit Regulators IFRS International Financial Reporting Standards IMF International Monetary Fund IOSCO International Organization of Securities Commissions ITS Implementing Technical Standards LCR Liquidity Coverage Ratio LEI Legal Entity Identifier LEIROC Legal Entity Identifier Regulatory Oversight Committee LMM Liquidity Monitoring Metrics LMT Liquidity Monitoring Tool MAR Market Abuse Regulation MFI Monetary Financial Institution MiFID Markets in Financial Instruments Directive MMF Money Market Fund MoUs Memoranda of Understanding 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 OSFI Office of the Superintendent of Institutions PRA Prudential Regulation Authority Q&A Questions and Answers QIS Quantitative Impact Study RBCF Risk-Based Capital Framework RBCR Risk-Based Capital Requirements RBI Reserve Bank of India RCAP Regulatory Consistency Assessment Program RFTS Ring-Fencing Transfer Scheme ROC Regulatory Oversight Committee RTS Regulatory Technical Standards RWA Risk-Weighted Asset SAMA Saudi Arabian Monetary Agency SARB South African Reserve Bank SBDR Security-Based Swap Data Repository SEC U.S. Securities and Exchange Commission SFC Securities and Futures Commission SOB State-Owned Banks SREP Supervisory Review and Evaluation Process SRF Single Resolution Fund SRM Single Resolution Mechanism SSA Sub Saharan Africa TLAC Total Loss-Absorbing Capacity WAEMU West African Economic and Monetary Union XBRL eXtensible Business Reporting Language

47 SEPTEMBER 2015


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