US Federal Reserve Board Finalizes FR Y-7 Reporting and Clarifies Regulation YY Requirements
The US Federal Reserve Board issued a notice finalizing its revisions to the Form FR Y-7 (Annual Report for Foreign Banking Organizations), regarding how a foreign banking organization should certify its compliance with US risk committee and home country capital stress testing requirements under Regulation YY. The new reporting forms require institutions to certify compliance with both of the requirements via a Yes/No check-box feature on the form. Originally proposed on December 2, 2015, the final notice adopts the revisions to the FR Y-7 and related instructions to the reporting form as proposed, except that the revisions are now effective beginning with FR Y-7 reports for fiscal year-ends that end on or after March 1, 2018. The notice also provides clarification around several issues related to interpretation of Regulation YY, including composition of the US Risk Committee and compliance with home country capital stress testing requirements. Specifically, the notice states that FBOs are not required to create a special US risk committee comprised of members of the FBO’s board of directors, but that the FBO should “ensure that the FBO’s board of director or a committee comprised of members of the FBO’s board of directors has primary responsibility for oversight of the risks of the combined US operations.” For FBOs with a two-tier board structures, the notice clarifies that a committee of either the supervisory board or the management/executive board (or a combination thereof) could be members of the committee that oversees US risk for purposes of complying with Regulation YY. The notice further states that certification of compliance with home country capital stress testing requirements can be based on satisfactory completion of the home country Internal Capital Adequacy Assessment Process (ICAAP) if an ICAAP satisfies the underlying requirements for a capital stress test, including all applicable information requirements in Regulation YY. Moreover, the notice reiterates the Federal Reserve Board’s expectation that an FBO be subject to a stress testing regime that includes an annual supervisory stress test or annual supervisory evaluation of the FBO’s internal stress test. The notice explicitly states that bi-annual stress testing would not satisfy the Regulation YY requirement. The notice also clarifies that, with regard to the liquidity stress testing requirements of Regulation YY, a foreign banking organization that does not conduct consolidated liquidity stress testing using the three specific planning horizons in Regulation YY may choose to meet the requirement by providing an internal liquidity stress test for just the combined U.S. operations. A foreign banking organization that does not meet the liquidity stress test reporting requirements must limit net aggregate amount by the parent or other non-US affiliates to the U.S. operations to 25% or less of third party liabilities of the combined US operations. The notice also provides guidance regarding the confidentiality of information submitted as part of the FR Y-7 report.
View the final notice.