Shearman & Sterling LLP | Financial Regulatory Developments Focus
Financial Regulatory Developments Focus
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The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • EU Legislation Published to Update Supervisory Reporting Requirements
    11/09/2018

    A Commission Implementing Regulation supplementing the Capital Requirements Regulation has been published in the Official Journal of the European Union. The Implementing Regulation amends the existing Implementing Regulation ((EU) No 680/2014) to reflect the gradual supplementation and amendment of elements of the CRR reporting requirements by the adoption of further Regulatory Technical Standards. The Amending Regulation was adopted by the European Commission on October 9, 2018. It amends the existing Implementing Regulation to set out:
    • additional requirements relating to prudent valuation adjustments of fair-valued positions;
    • additional requirements to accommodate the reporting on securitization positions subject to the revised securitization framework; and
    • minor changes to the reporting requirements on the geographical distribution of exposures.

    The Amending Regulation will enter into force on November 29, 2018 and will apply directly across the EU from December 1, 2018.

    View Commission Implementing Regulation (EU) 2018/1627.
  • European Banking Authority Final Guidelines on Managing Non-Performing and Forborne Exposures
    10/31/2018

    The European Banking Authority has published a final report setting out finalized Guidelines on management of non-performing exposures (NPEs) and forborne exposures (FBEs). The EBA consulted on a draft of the Guidelines in March 2018. The aim of the Guidelines is to help to reduce NPEs on banks' balance sheets by providing supervisory guidance to ensure that credit institutions effectively manage NPEs and forborne exposures (FBEs) on their balance sheets.

    The final Guidelines cover: (i) key elements for developing and implementing an NPE strategy; (ii) the key elements of governance and operations in relation to an NPE workout framework; (iii) governance and operations in relation to FBEs; (iv) governance and operations for NPE recognition; (v) NPE impairment measurement and write-offs; (vi) collateral valuation of immovable and movable property; and (vii) supervisory evaluation of management of NPEs and FBEs.

    The Guidelines will apply from June 30, 2019. Credit institutions should calculate their NPL ratios using the reference date of December 31, 2018.

    View the final report.

    View details of the EBA's consultation on the Guidelines.
  • UK Prudential Regulator Updates Approach Document on Banking Supervision
    10/31/2018

    The U.K. Prudential Regulation Authority has published an updated version of its document entitled "The Prudential Regulatory Authority's approach to banking supervision." The document replaces the previous version that was dated March 2016.

    In the latest update, the PRA has removed duplicative information and replaced some text with links to information contained in legislation or other material on the PRA's or Bank of England's website. The update includes a new foreword by the PRA's Chief Executive Officer, Sam Woods.

    The update includes two new chapters, on identifying the risks to the PRA's objectives and on how the PRA tailors its supervisory approach. A number of new sections to existing chapters have also been added, covering safety and soundness and the stability of the financial system, the PRA's regulatory principles and operational resilience. Further detail in areas such as capital and resolvability is also added.

    View the Updated Approach Document.
  • EU Amending Legislation Published for Liquidity Coverage Requirement
    10/30/2018

    An Amending Regulation supplementing the Capital Requirements Regulation has been published in the Official Journal of the European Union, following its adoption in July 2018 by the European Commission. The Amending Regulation, which relates to the Liquidity Coverage Requirement for credit institutions, makes changes to the existing Delegated Regulation on the LCR with the objective of improving its practical application. The existing Delegated Regulation sets out detailed requirements on the LCR and specifies which assets are to be considered as liquid (so-called high quality liquid assets) and how the expected cash outflows and inflows over a 30-day stressed period are to be calculated.

    The Amending Regulation makes the following changes:
    • full alignment of the calculation of the expected liquidity outflows and inflows on repurchase agreements, reverse repurchase agreements and collateral swaps transactions with the international liquidity standard developed by the Basel Committee on Banking Supervision;
    • treatment of certain reserves held with third-country central banks;
    • waiver of the minimum issue size for certain non-EU liquid assets;
    • the application of the unwind mechanism for the calculation of the liquidity buffer; and
    • integration in the existing Delegated Regulation of the new criteria for simple, transparent and standardized securitizations.

    The Amending Regulation will enter into force on November 19, 2018 and will apply directly across the EU from April 30, 2020.

    View the Amending Regulation.
  • EU Supervisory Authorities Propose Revisions to Implementing Technical Standards for Mapping of External Credit Ratings
    10/26/2018

    The Joint Committee of the European Securities Authorities (that is, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) has published a consultation paper setting out proposed revisions to Implementing Technical Standards on the mapping of External Credit Assessment Institutions' credit assessments under the Capital Requirements Regulation.

    The proposed revisions will amend the existing Implementing Regulation ((EU) 2016/1799), which sets out how ECAIs' credit assessments should be "mapped" to credit quality steps for the purposes of calculating capital requirements. The proposed amendments reflect the result of a monitoring exercise on the adequacy of mappings, which necessitates amendments related to: (i) the re-allocation of the credit quality steps for two ECAIs; and (ii) changes in credit rating scales/types for ten ECAIs. The consultation webpage also contains mapping reports for each of the 11 ECAIs concerned.

    Comments on the consultation are invited by December 31, 2018. Respondents are asked to provide comments via the "Send your comments" button on the EBA's consultation webpage.

    View the consultation paper.

    View the EBA's consultation webpage.
  • European Banking Authority Sets Out Its Work Priorities for 2019
    10/23/2018

    The European Banking Authority has published its Work Programme for 2019, setting out details of, and planned main outputs from, 37 separate work streams across the following five key strategic priorities:
     
    1. Leading the Basel III implementation in the EU.
    2. Understanding risks and opportunities arising from financial innovation.
    3. Collecting, disseminating and analyzing banking data.
    4. Ensuring a smooth relocation of the EBA to Paris.
    5. Fostering the increase of the loss-absorbing capacity of the EU banking system.

    The EBA also confirms that work related to Brexit will remain a horizontal priority for the EBA in 2019 and explains that the EBA's other activities may be affected in the future by Brexit-related developments. Should that be the case, any substantial change in the work programme will be communicated in due time, in order to seek steering and approval from its Management Board and Board of Supervisors.

    View the EBA's 2019 Work Programme.
  • European Commission Announces Work Plan for 2019
    10/23/2018

    The European Commission has published a Communication, outlining its work plan for 2019. The Communication is addressed to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. The Communication discusses the ongoing challenges for the EU in the run-up to the European Parliamentary elections and the post-Brexit Summit in Sibiu at which a new multi-annual framework for the EU27 will be finalized.

    Separately published Annexes to the Communication relating to: (i) new initiatives; (ii) REFIT initiatives; (iii) priority pending proposals; (iv) legislative initiatives that have been withdrawn; and (v) a list of envisaged repeals. Priority pending proposals of particular relevance to financial institutions include legislative proposals relating to the forthcoming sustainable finance package, cross-border distribution of collective investment schemes, crowdfunding, amendments to the European Market Infrastructure Regulation, prudential regulation and supervision of investment firms and a proposed amending regulation relating to minimum loss coverage for non-performing exposures.

    Read more.
  • Basel Committee on Banking Supervision Consults on Leverage Ratio Treatment of Client-Cleared Derivatives
    10/18/2018

    The Basel Committee on Banking Supervision has published a consultation paper entitled "Leverage ratio treatment of client-cleared derivatives," seeking views from stakeholders on whether a targeted and limited revision of the leverage ratio exposure measure is warranted with respect to the treatment of client cleared derivatives.

    On the publication of the finalized Basel III framework in December 2017, the Basel Committee stated that it would continue to monitor the impact of the Basel III leverage ratio’s treatment of client-cleared derivative transactions. It confirmed that it would review the impact of the leverage ratio on banks’ provision of clearing services and any consequent impact on the resilience of central counterparty clearing. The Basel Committee has completed its review and is of the view that only a strong evidence-based case would justify making revisions to the current leverage ratio treatment of client cleared derivatives.

    Read more
  • Basel Committee on Banking Supervision Highlights Concerns About Leverage Ratio "Window-Dressing"
    10/18/2018

    The Basel Committee on Banking Supervision has issued a statement on leverage ratio "window-dressing" behavior by banks.

    To comply with the Basel III leverage ratio standard, among other things, banks are required to publicly disclose their leverage ratio, calculated on a quarter-end basis, or more frequently in certain jurisdictions. The Basel Committee has noted what may be a tendency in banks to engage in so-called window-dressing by temporarily reducing transaction volumes around key reference dates, which has the effect of allowing banks to report and publicly disclose higher leverage ratios.

    The Basel Committee states that window dressing is unacceptable as it undermines the policy objectives of the leverage ratio standard and risks disrupting the operations of financial markets. The Basel Committee calls on banks to desist from undertaking transactions for window-dressing purposes and makes several suggestions for actions by supervisors to address these concerns. These include increasing the frequency of reporting and supervisory monitoring, focused supervisory inspections and/or additional public disclosures. The Basel Committee will continue to monitor potential window-dressing behavior and may consider adjusting the Pillar 1 minimum capital requirements and/or Pillar 3 disclosure requirements if necessary.

    View the Basel Committee's Statement.
  • Basel Committee on Banking Supervision Publishes Updated Stress Testing Principles
    10/17/2018

    The Basel Committee on Banking Supervision has published a final version of its Stress Testing Principles, which replace its 2009 Principles for Stress Testing and Supervision. The Basel Committee conducted a review of the 2009 Principles during 2017 and launched a consultation on proposed revisions in December 2017.

    The new principles reflect the growth in importance of stress testing since the 2009 version was produced and its evolution into a critical element of risk management for banks as well as a core tool for both banking supervisors and macroprudential authorities.

    The new principles are also set at a higher level than the previous version, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. The principles focus on the core elements of stress testing frameworks, including the objectives, governance, policies, processes, methodology, resources and documentation that guide stress testing. Each principle is followed by a short description of considerations that are equally relevant for banks and authorities, along with additional considerations for banks or authorities.

    View the Stress Testing Principles.
  • UK Prudential Regulator Consults on Managing Financial Risks from Climate Change
    10/15/2018

    The Prudential Regulation Authority has published a consultation paper on a draft Supervisory Statement on managing the financial risks from climate change. The consultation follows the PRA's publication in September 2018 of its report "Transition in thinking: The impact of climate change on the U.K. banking sector." The consultation paper is relevant to banks, insurers, re-insurers, building societies and PRA-designated investment firms. The PRA wants firms to take a strategic approach to financial risks from climate change by taking into account current and credible risks and identifying actions needed now to mitigate existing and future risks.

    Read more.
  • UK Prudential Regulator Proposes Period of Overlap for Transition to New Pillar 2 Reporting Template
    10/12/2018

    The U.K. Prudential Regulation Authority has published a consultation proposing a six-month overlap period following the introduction of the new Pillar 2 Liquidity reporting template (PRA110) from July 1, 2019. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements, to capture those liquidity risks that are either not captured or not fully captured under the Pillar 1 framework. The final element - Pillar 3 - involves public reporting of capital. The PRA published its final Policy Statement on the introduction of its Pillar 2 framework in February 2018. The PRA110 template was scheduled to replace the existing "daily flows" and "enhanced mismatch" liquidity reports (FSA047 and FSA048) from July 1, 2019.

    Since its Policy Statement, the PRA has reassessed the risks from transitioning to the PRA110 template and considers it prudent to delay the termination of FSA047 and FSA048, to ensure data quality and continuity. The PRA proposes that the PRA110 is introduced on July 1, 2019 as planned. However, between then and January 1, 2020, firms should additionally continue to submit liquidity reports using FSA047 and FSA048. The overlap will allow the PRA and firms alike to assess the quality of PRA110 reporting.

    The PRA is inviting comments on the proposal by November 12, 2018. The PRA considers that the short consultation period is justified due to the fact that firms are already reporting using FSA047 and FSA048.

    View the consultation paper (PRA CP22/18).

    View details of the PRA's Pillar 2 Policy Statement.
  • UK Conduct Regulator Consults on Brexit-Related Changes to Its Rulebook and Binding Technical Standards
    10/10/2018

    The U.K. Financial Conduct Authority has published its first consultation on proposed changes to the FCA Handbook to ensure a functioning legal and regulatory framework for financial services in the event of a "no-deal" scenario whereby the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement in place and there is consequently no transitional period for firms. The proposed amendments will not take effect if the U.K. enters into a transitional period after exit day.

    The consultation includes the FCA's proposals in relation to the Binding Technical Standards it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterward. These are the retained EU "Level 2" delegated and implementing regulations that set out regulatory technical standards and implementing technical standards. The consultation also sets out the FCA's proposed approach to non-legislative "Level 3" materials such as guidelines, recommendations and opinions that will also be onshored.

    The FCA states in the consultation that the majority of the proposed changes are consequential in nature and follow the amendments to retained EU law that HM Treasury is proposing, as set out in the series of financial services-related statutory instruments being made under the European Union (Withdrawal) Act 2018.

    Read more.
  • UK Financial Policy Committee Publishes Outcome of its October Meeting
    10/09/2018

    The Financial Policy Committee has published a statement from its meeting held on October 3, 2018 where it reviewed developments since June 19, 2018. The FPC continues to consider that the U.K. banking system is sufficiently robust to withstand the disruption of a "hard Brexit" and that there is no need for additional capital buffers for banks as a result. The FPC is of the view that the banking system would be able to absorb, in addition to a disorderly Brexit, further costs that might arise from trade tensions. However, the FPC is concerned about the lack of action taken by EU authorities to address the risks of disruption in the event of the U.K. leaving the EU without a deal on March 29, 2019. In particular, the FPC would like mitigating action to be taken to address the risks associated with derivatives contracts and the transfer of personal data.

    Aside from the risks presented by Brexit, the FPC considers that domestic risks are still at a standard level overall. However, the FPC is concerned about the swift growth of leveraged lending and intends to: (i) assess the implications for banks in the 2018 stress test; and (ii) review the impact of the increasing role of non-bank lenders and changes in the distribution of corporate debt. The FPC has decided to maintain the U.K. countercyclical capital buffer rate at 1% and will review the rate again at its meeting on November 28, 2018.

    Read more.

  • US FDIC Seeks to Improve Communication, Transparency and Accountability
    10/05/2018

    The U.S. Federal Deposit Insurance Corporation published a notice and request for comment seeking input on how to improve the efficacy, efficiency and transparency of the agency’s communication with insured depository institutions.  The notice outlines current forms of communication, including, regulations, policies, procedures and guidance; news and updates; industry data, educational materials and outreach; general communication; and direct communication.  The notice requests comment with respect to the efficiency, ease of access and content of communications with insured financial institutions.  Comments to the FDIC’s notice are due no later than December 4, 2018.

    Read more.
  • UK Prudential Regulator Consults on Changes to Forms for Regulatory Transactions
    10/01/2018

    The U.K. Prudential Regulation Authority has launched a consultation entitled "Regulatory transactions: Changes to notification and application forms." The proposals in the consultation are for the amendment of various PRA forms that are used for applications and notifications for regulatory transactions. The PRA has chosen to combine the proposals into one substantial consultation paper to avoid having to issue multiple separate consultations on the same forms. The affected forms are located in the Passporting, Change in Control, Insurance Special Purpose Vehicles (ISPVs) and Notifications Parts of the PRA Rulebook.

    The consultation proposals are relevant for PRA-authorized firms and any firms that have, or intend to acquire, a qualifying holding in a PRA-authorized firm.

    Comments on the consultation are invited by November 1, 2018. The PRA expects that the proposals will take effect immediately after the publication of its planned Policy Statement.

    View the consultation paper (PRA CP 21/18).
  • International Task Force Report Shows Momentum Building for Climate-Related Financial Disclosures
    09/26/2018

    The Task Force on Climate-related Financial Disclosures has issued a status report outlining progress on adoption of the TCFD disclosure recommendations issued in June 2017. The TCFD was established by the Financial Stability Board in 2015 and its 2017 recommendations provide a voluntary framework for companies to develop more effective climate-related financial disclosures through their existing reporting processes. The recommendations are structured around four areas: (i) governance; (ii) strategy; (iii) risk management; and (iv) metrics and targets.

    Read more.
  • Prudential Regulator Reports on Climate-Related Financial Risks for the UK Banking Sector
    09/26/2018

    The U.K. Prudential Regulation Authority has published a report entitled "Transition in thinking: The impact of climate change on the U.K. banking sector".

    The purpose of the report is to: (i) examine the financial risks from climate change that impact PRA regulated banks, building societies and designated investment firms; (ii) assess how those entities are responding to and managing the financial risks from climate change; and (iii) assist those entities in understanding the PRA's supervisory approach to the financial risks from climate change. The report will also be used to inform the Bank of England's wider work to assess the system-wide financial risks from climate change.

    Read more.
  • European Central Bank Guide to On-site Inspections and Internal Model Investigations
    09/21/2018

    The European Central Bank has published its finalized Guide to on-site inspections and internal model investigations under the Single Supervisory Mechanism. The ECB is empowered under the SSM Regulation to conduct, with respect to Eurozone entities within its supervisory remit: (i) on-site inspections, which are in-depth investigations of risk, risk controls and governance; and (ii) internal model investigations, which involve in-depth assessments of internal models used for the calculation of own fund requirements.

    The ECB has developed the Guide as a reference document for supervised entities and other legal entities for which the ECB has decided to launch an on-site inspection. It consulted on a draft of the Guide in July 2017 and has published a separate feedback statement on the consultation responses that were received. The Guide applies to ECB inspections of significant institutions, less significant institutions and other legal entities referred to in the SSM Regulation, including third parties to whom credit institutions have outsourced functions.

    The Guide comprises three sections: (i) the general framework for inspections; (ii) the inspection process; and (iii) applicable principles for inspections. The Guide is not a legally binding document and does not replace the legal requirements laid down in the relevant applicable EU law.

    View the Guide.

    View the feedback statement.
  • Basel Committee on Banking Supervision Provides Brief Update on Various Workstreams
    09/20/2018

    The Basel Committee on Banking Supervision has published a press release summarizing the outcome of its meeting on September 19-20, 2018. The Committee committed to consider Pillar 1 and Pillar 3 measures to prevent banks adjusting their balance sheets around regulatory reporting dates to manipulate reported leverage ratios. In addition, the Committee intends to further analyze banks' exposures to crypto-assets to reach a conclusion on whether action is needed to address the risks that these assets may present.

    The Basel Committee will publish the following before the end of the year:
    • an updated 2018 list of global systemically important banks, along with the high-level indicator values of all the banks that are within the G-SIB assessment exercise;
    • final revisions to the market risk framework (towards the end of the year);
    • a consultation paper (in October 2018) on whether the exposure measure should be revised to alleviate its impact on client clearing, including presenting options for revising this; and
    • the revised Principles on Stress Testing (in October 2018).

    The Basel Committee also published responses to Frequently Asked Questions on the treatment of settled-to-market derivatives under the Liquidity Coverage Ratio and Net Stable Funding Ratio.

    View the press release.

    View the FAQs.
  • US-UK Financial Regulatory Working Group Holds Inaugural Meeting
    09/18/2018

    The U.S.-U.K. Financial Regulatory Working Group has issued a statement following its inaugural meeting held on September 12, 2018 in London. Participants discussed the outlook for financial regulatory reforms and future priorities, including possible areas for deeper regulatory cooperation to facilitate further financial services activity between U.S. and U.K. markets. Participants also discussed Brexit-related issues, including: (i)  U.S.-U.K. financial regulatory issues resulting from the U.K.’s exit from the EU;  and (ii) the implications of Brexit for financial stability and cross-border financial regulation, including contractual continuity and potential cliff-edge risks.

    The Working Group was established in April 2018 to serve as a forum for staff from the U.S. Department of the Treasury and HM Treasury and financial regulatory authorities to exchange views on the regulatory relationship between the U.S. and the U.K. Its objectives are to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.

    The next meeting of the Working Group will be held in the first half of 2019 in Washington, D.C.

    View the statement
  • European Central Bank Consults on Part 2 to Guide to Licensing Credit Institutions
    09/14/2018

    The European Central Bank has opened a consultation on a draft Part 2 to its Guide to Assessments of Licence Applications by banks. The ECB published the Guide to Assessment of Licence Applications in March 2018, which applies to all license applications to become a credit institution within the meaning of the Capital Requirements Regulation.  The ECB developed the Guide, which is not legally binding, to promote awareness and enhance the transparency of the assessment criteria and processes for establishing a credit institution within the Single Supervisory Mechanism.

    The consultation on the draft Part 2 of the Guide focuses on assessment criteria for capital requirements and business plans, including initial capital, own funds, location, operations and structural organization, banking group and outsourcing.

    The consultation closes on October 25, 2018.

    View the consultation paper

    View the consultation webpage

    View details of the Guide to Assessments of Licence Applications.
  • US Federal Deposit Insurance Corporation Seeks Comments Regarding the Treatment of Reciprocal Deposits
    09/13/2018

    The U.S. Federal Deposit Insurance Corporation published a notice of proposed rulemaking and request for comments regarding a limited exception for a capped amount of reciprocal deposits from treatment as brokered deposits.

    Read more.
  • European Commission Proposes Enhancements to the European Banking Authority's Supervisory Powers for Anti-Money Laundering
    09/12/2018

    The European Commission has published a Communication setting out a broad strategy for strengthening the EU's framework for anti-money laundering supervision. The Communication is accompanied by a fact sheet setting out Questions and Answers on the strategy.

    The Commission notes that, despite the recent strengthening of the EU's framework, through the Fourth Money Laundering Directive (4MLD) and the forthcoming Fifth Money Laundering Directive (5MLD), there are concerns that gaps remain in the EU's supervisory framework. The Commission highlights that there is no clear articulation between the prudential and anti-money laundering rules for financial institutions. It identifies shortcomings in the reaction time of national supervisors and in the level of cooperation and information sharing both between prudential and anti-money laundering supervisors and on a cross-border basis between EU supervisors and other supervisors based both within and outside the EU. While the Commission recognizes that 5MLD will remove certain obstacles to cooperation between anti-money laundering and prudential supervisors, it also notes that further steps are necessary to ensure effective supervisory cooperation, especially where financial institutions operate across borders.

    Read more.
  • UK Prudential Regulator Consults on Revisions to Supervisory Reporting Requirements
    09/12/2018

    The U.K. Prudential Regulation Authority has launched a consultation on changes to the PRA's reporting requirements to reflect proposed changes set out by the European Banking Authority in EBA consultations launched in August 2018. The EBA proposes a number of revisions to the existing Implementing Technical Standards on the supervisory reporting requirements under the Capital Requirements Regulation. These include proposed revisions to the financial reporting (FINREP) annexes of the ITS, which add new reporting requirements for non-performing and forborne exposures, amend the reporting of profit or loss items (in particular on expenses) and amend the reporting on leases following International Financial Reporting Standard 16. Proposed revisions to the common reporting (COREP) annexes relate to the Liquidity Coverage Requirement for credit institutions.

    Read more.
  • US Office of the Comptroller of the Currency Proposes to Permit Certain Federal Savings Associations to Operate with National Bank Powers
    09/10/2018

    The U.S. Office of Comptroller of the Currency published a notice of proposed rulemaking regarding permitting federal savings associations with total consolidated assets of $20 billion or less as of December 31, 2017 (“covered savings associations”), to elect to operate with the same rights and privileges as a national bank.  The proposed rule seeks to implement Section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amends the Home Owners’ Loan Act, and is intended to provide business flexibility for certain federal savings associations to adapt to change without a corresponding requirement to change charters.   Under the proposed rule, a covered savings association has same rights and privileges as a national bank that has its main office situated in the same location as the home office of the covered savings association, and is subject to the same duties, restrictions, penalties, liabilities, conditions and limitations that would apply to such a national bank.  The covered savings institution, however, will retain its federal savings association charter, and will be treated as a federal savings association for governance and other purposes, including consolidation, merger, dissolution, conversion, conservatorship and receivership.  Treatment as a covered savings association would generally continue even after the institution’s total consolidated assets exceed $20 billion.  Comments to proposed rule are due no later than November 19, 2018.

    View full text of the proposal.
  • US Federal Deposit Insurance Corporation Seeks to Retire Certain Financial Institution Letters
    09/10/2018

    The U.S. Federal Deposit Insurance Corporation published a proposal (FIL-46-2018) seeking comment with respect to the retirement of certain Financial Institution Letters.  FILs are letters that typically announce various types of regulations, policies, publications, and other matters of interest to those in the banking community.  The retired FILs would be archived and moved to inactive status, but would still be available for reference.  The FDIC issued the proposal pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996, which requires the FDIC (and other agencies) to conduct a review of their rules at least every 10 years to identify outdated or unnecessary regulations.  In connection with this mandate, the FDIC has identified 374 FILs issued between 1995 and 2017 regarding risk management supervision that have become outdated or redundant.  The FDIC is also currently reviewing FILs regarding other subject matters, and is exploring opportunities to update or streamline its remaining FILs generally.  Comments to the proposal are due by October 10, 2018.

    View full text of the FDIC proposal, including a list of the letters to be retired.
  • Basel Committee Finalizes Technical Amendment to Pillar 3 Disclosure Requirements
    08/30/2018

    Following a consultation in March 2018, the Basel Committee on Banking Supervision has published a finalized technical amendment to the consolidated Pillar 3 disclosure technical standard that was issued in March 2017. The amendment imposes additional Pillar 3 disclosure requirements for those jurisdictions implementing an Expected Credit Loss, or ECL, accounting model as well as for those adopting transitional arrangements for the regulatory treatment of accounting provisions. These additional disclosures require banks to disclose, where applicable: (i) the "fully loaded" impact of ECL transitional arrangements used in Total Loss Absorbing Capacity resources and ratios; (ii) the allocation between general and specific provisions for standardized approach exposures; and (iii) the rationale for their categorization of ECL accounting provisions in general and specific categories for standardized approach exposures.

    The technical amendment will also apply to jurisdictions adopting transitional arrangements for the regulatory treatment of accounting provisions. The interim approach to, and transitional arrangements for, the regulatory treatment of accounting provisions were published separately by the Basel Committee in March 2017.

    The amendments covered by the revised Technical Standard will take effect from January 1, 2019.

    View the Technical Amendment

    View the consultation paper.

    View the interim approach and transitional arrangements published March 2017.
  • US Office of the Comptroller of the Currency Publishes Advanced Notice of Proposed Rulemaking with Respect to Community Reinvestment Act Modernization
    08/28/2018

    The U.S. Office of the Comptroller of the Currency issued an advanced notice of proposed rulemaking with respect to the modernization of the Community Reinvestment Act.

    Read more.
  • US Federal Reserve Board Issues Interim Final Rule Expanding the Applicability of the Small Bank Holding Company Policy Statement
    08/28/2018

    The U.S. Board of Governors of the Federal Reserve System issued an interim final rule increasing the asset threshold for the applicability of the Federal Reserve Board’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (Regulation Y, Appendix C) from $1 billion to $3 billion in total consolidated assets.

    Read more.
  • European Banking Authority Proposes Revised Implementing Technical Standards for Reporting of Securitization Information
    08/28/2018

    The European Banking Authority has published a consultation paper setting out proposed amendments to existing Implementing Technical Standards on supervisory reporting, to align the reporting of securitizations with the new EU securitization framework. The new securitization framework took effect in January 2018 and comprises: (i) the Securitization Regulation (also known as the STS Regulation), which lays down common due diligence for institutional investors, risk retention and transparency measures and establishes a category of simple, transparent and standardized securitization in the EU; and (ii) a Regulation making targeted amendments to the Capital Requirements Regulation to provide for the capital treatment of STS securitizations and certain SME synthetic securitizations, including measures to reduce reliance on external credit ratings.

    Read more.
  • European Banking Authority Proposes Revised Implementing Technical Standards for Supervisory Reporting Under the Capital Requirements Regulation
    08/28/2018

    The European Banking Authority has launched a consultation on proposed revisions to the existing Implementing Technical Standards for the financial reporting, or FINREP, framework under the Capital Requirements Regulation.

    The proposed revisions relate to the reporting requirements for non-performing and forborne exposures. The EBA proposes revisions to existing templates to provide for additional breakdowns on performing and non-performing exposures, forborne exposures and collateral obtained. The proposals include some new templates for additional reporting by institutions with elevated levels of non-performing exposures that are not "small and non-complex." The new templates are designed to provide further insights into an institution's portfolios of performing and non-performing loans and/or or forborne loans and advances and on collateral obtained. The EBA also proposes revisions to the reporting on profit or loss items in FINREP and to account for the introduction of International Financial Reporting Standard 16 Leases, which is due to replace IAS 17 as the standard for the accounting of leases from January 1, 2019.

    Read more.
  • European Banking Authority Proposes Revised Supervisory Reporting Technical Standards on Liquidity Coverage Requirement
    08/28/2018

    The European Banking Authority has launched a consultation on proposed revisions to the Implementing Technical Standards that relate to supervisory reporting, under the common reporting, or COREP, framework, in line with the Liquidity Coverage Requirement, or LCR, under the Capital Requirements Regulation.

    The proposed revisions to the ITS are intended to reflect amendments made to an existing Delegated Regulation supplementing the Capital Requirements Regulation. These amendments were made by an Amending Regulation adopted by the European Commission in July 2018. The changes introduced by the Amending Regulation require the EBA to make related changes to the ITS on LCR reporting to capture the necessary elements for its calculation and monitoring. The revisions to the ITS relate mainly to the calculation of inflows and outflows in securities financing transactions and collateral swaps or the unwind waivers envisaged for some SFTs and collateral swaps with central banks. Further minor amendments are also proposed.

    Read more.
  • US Federal Reserve Board, OCC and FDIC Expand 18-Month Examination Cycle for Small Banks and Branches and Agencies of Foreign Banks
    08/23/2018

    The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation jointly issued an interim final rule and request for comment to expand the number of insured depository institutions and U.S. branches and agencies of foreign banks eligible for an 18-month on-site examination cycle.

    Read more.
  • European Central Bank Issues Opinion on Proposed Prudential Framework for Investment Firms
    08/22/2018

    The European Central Bank has published an Opinion on the legislative proposals adopted by the European Commission in December 2017 for a new framework for the prudential regulation of investment firms. The framework proposed by the European Commission comprises a proposal for a regulation on the prudential requirements of investment firms (including amendments to the Capital Requirements Regulation, the Markets in Financial Instruments Regulation and the European Banking Authority Regulation) along with a proposal for a directive on the prudential supervision of investment firms, which includes amendments to the CRD IV Directive and the revised Markets in Financial Instruments Directive. The ECB was asked by the European Parliament and the Council of the European Union to provide its opinion on the proposed framework in January 2018.

    In the Opinion the ECB states that it generally supports the objectives of the proposed framework, which are to create a prudential framework better suited to the risks and business models of different types of investment firms and to subject systemically important investment firms to the same prudential rules as credit institutions.

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  • US Federal Reserve Board, OCC and FDIC Issue Interim Final Rule with Respect to the Treatment of Certain Municipal Obligations as High-Quality Liquid Assets
    08/22/2018

    The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation jointly issued an interim final rule and request for comment to treat “liquid and readily-marketable,” investment grade municipal obligations as level 2B high-quality liquid assets (HQLAs) for purposes of the liquidity coverage ratio rule.

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  • EU Final Draft Technical Standards on Reporting and Disclosure Requirements for Securitizations
    08/22/2018

    The European Securities and Markets Authority has published a final report and technical standards on the disclosure and reporting requirements under the EU Securitization Regulation (or STS Regulation). The Securitization Regulation requires originators and sponsors to notify ESMA of any securitization that meets the "Simple, Transparent and Standardized" criteria. ESMA will maintain a list of all such securitizations on its website. Securitization special purpose entities, originators and sponsors of a securitization will be required to make certain information available via a securitization repository to holders of a securitization position, to the national regulators and, upon request, to potential investors. The Securitization Regulation will apply directly across the EU from January 1, 2019 to securities issued under securitizations on or after January 1, 2019. Securitizations issued before that date may be referred to as STS securitizations provided that they meet certain conditions.

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  • US Office of the Comptroller of the Currency Publishes Updated Business Combinations Booklet
    07/31/2018

    The U.S. Officer of the Comptroller     of the Currency released an updated version of the Comptroller’s Licensing Manual Business Combinations booklet.  The booklet, which was updated in November of 2017, has been revised to make certain technical corrections and process updates with respect to clarifications regarding the public notice and comment period and a change in the public comment calculation period.

    View full text of the revised booklet.
  • Final Draft EU Technical Standards on Securitization Risk Retention Requirements
    07/31/2018

    The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation (or STS Regulation) on the risk retention requirements for originators, sponsors and original lenders. The Securitization Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The final draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.

    The final draft RTS have been submitted to the European Commission for endorsement. The final RTS will apply directly across the EU twenty days after publication in the Official Journal of the European Union.

    The Securitization Regulation, which will apply from January 1, 2019, has replaced the risk retention requirements in the Capital Requirements Regulation. Once the final RTS enter into force, the existing Commission Delegated Regulation ((EU) No 625/2014) on risk retention requirements, made under the Capital Requirements Regulation, will be repealed.

    View the final draft RTS.

    View the existing Delegated Regulation on risk retention requirements

    View details of the EBA's consultation on the draft RTS.
  • Final Draft EU Technical Standards on Homogeneity Conditions for STS Securitizations
    07/31/2018

    The European Banking Authority has published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered homogenous. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The new EU securitization framework will apply across the EU from January 1, 2019.

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  • UK Regulator Consults on Changes to Definition of Default for Credit Risk
    07/27/2018

    The Prudential Regulation Authority has opened a consultation on proposals to implement the European Banking Authority's recent regulatory products on the definition of default in the Capital Requirements Regulation. The CRR risk quantification provisions set out that a default occurs when an obligor is past due more than 90 days on any material credit obligation to a firm, its parent or any of its subsidiaries. The materiality of the credit commitment is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk.

    The EBA developed a roadmap of regulatory products that aim to reduce unwarranted variability in the risk weighted assets calculated using banks' Internal Ratings-Based models. Three of these products pertain to the definition of default: the Regulatory Technical Standards on the materiality threshold for credit obligations past due, the Guidelines on the application of the definition of default and the EBA Opinion on the use of the 180 days past due criterion.

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  • European Banking Authority Publishes Final Revised Pillar 2 Guidelines
    07/20/2018

    Following a consultation between October 2017 and January 2018 on a package of revisions to certain of its Guidelines, the European Banking Authority has published three final reports and revised Guidelines aimed at strengthening the Pillar 2 framework.

    The revised Guidelines have been prepared in line with the EBA's April 2017 Roadmap for revisions of the Pillar 2 framework, to keep the SREP Guidelines that were published in December 2014 (and in force from January 2016) up to date with respect to the EU and international standards. The EBA also aims to promote best supervisory practices and address issues identified in the EBA's ongoing work on assessment of supervisory convergence.

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  • European Banking Authority Responds to Caius Capital LLP's Challenge Against Regulatory Capital Treatment of UniCredit CASHES
    07/20/2018

    The European Banking Authority has published a response following allegations by Caius Capital LLP that UniCredit S.p.A.'s regulatory capital treatment in respect of a 2008 issuance of convertible and subordinated hybrid equity-linked securities (CASHES), which had been sanctioned by regulators including the European Central Bank, was incorrect. On May 3, 2018, Caius wrote a letter to the EBA, asking it to open an investigation for a breach of EU law on the basis that the structure of the transaction called into question the eligibility of ordinary shares underlying the CASHES as CET1 capital under the EU Capital Requirements Regulation. Caius has since published further letters restating and expanding upon its arguments that a portion of UniCredit's regulatory capital currently recognized as CET1 under the EU rules is ineligible for such classification.

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  • Financial Stability Board Consults on Initial Evaluation of the Impact of Regulatory Reforms on Infrastructure Finance
    07/18/2018

    The Financial Stability Board is seeking feedback on an initial evaluation of the effects of the post-financial crisis regulatory reforms on infrastructure finance. The initial evaluation focuses on infrastructure finance provided by the financial sector, for which the financial regulatory reforms are of immediate relevance. The FSB has established a framework for assessing whether the reforms are achieving their intended outcomes and whether there are any material unintended consequences to be addressed.

    The initial evaluation shows the results of a qualitative and quantitative analysis of the Basel III reforms to regulatory capital and the OTC derivatives reforms. The results of a qualitative analysis of reforms that are at an earlier stage of implementation, such as investment funds rules and accounting standards, are also presented.

    Feedback on the initial evaluation is invited by August 22, 2018. The FSB will consider the feedback in finalizing its report to the G20, due to be published towards the end of November 2018.

    View the consultation paper.
  • US Federal Reserve Vice Chairman Randal Quarles Discusses Streamlining the Supervision and Regulation of Large Financial Institutions
    07/18/2018

    U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, Randal Quarles, discussed the tailoring of supervision and regulation for large financial institutions.  Vice Chairman Quarles noted that post-crisis regulations made the financial system demonstrably stronger and more resilient, and that there was some degree of tailoring that occurred in the initial creation of the post-crisis regulatory framework.  Vice Chairman Quarles stressed that while steps have been taken since to improve the efficiency and efficacy of regulation, more can be done to streamline this framework.  He noted that there are still improvements that can be made to allow for greater differentiation in the supervision and regulation of large firms and further tailoring, a theme he has reiterated in several prior speeches.

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  • Financial Stability Oversight Council Announces Proposed Decision to not Apply "Hotel California" Provision to Large US National Bank
    07/18/2018

    The U.S. Financial Stability Oversight Council issued a proposed decision with respect to a national bank’s petition to not treat the surviving entity of a bank holding company parent merging into its large U.S. national bank subsidiary as a nonbank financial company supervised by the U.S. Board of Governors of the Federal Reserve System pursuant to Section 117 of the Dodd Frank Act (commonly referred to as the “Hotel California” provision).  Section 117 applies to any entity, or its successor entity, that received financial assistance under, or participated in, the Capital Purchase Plan established under the Troubled Asset Relief Program and was a bank holding company with total consolidated assets of at least $50 billion as of January 1, 2010.

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  • US Federal Financial Regulators Publish Proposed Changes to the Volcker Rule
    07/17/2018

    The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission published their previously announced notice of proposed rulemaking entitled Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds in the Federal Register.  The proposed rules seek to simplify and tailor the Volcker Rule.  Comments to the proposal are due by September 17, 2018.

    View proposed changes to the Volcker Rule.

    View full text of the proposal.
  • EU Court Annuls European Central Bank Leverage Ratio Decisions for Six Banks
    07/13/2018

    The General Court of the European Union has annulled decisions of the European Central Bank, refusing to allow six French banks to exclude from the calculation of the leverage ratio certain exposures connected to French savings accounts. Banque Postale, BPCE, Confédération Nationale du Crédit Mutual, Société Générale, Crédit Agricole and BNP Paribas applied to the ECB, as their direct prudential supervisor under the Single Supervisory Mechanism, for permission to exclude exposures consisting of sums in a number of savings accounts taken out with them and transferred to the Caisse des Dépôts et Consignations, a French public investment vehicle. National regulators and the ECB have discretion to allow banks to exclude exposures that satisfy a number of conditions from the calculation of the leverage ratio under the Capital Requirements Regulation.

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  • EU Secondary Legislation Adopted Amending Liquidity Coverage Requirement
    07/13/2018

    The European Commission has adopted an Amending Regulation to make amendments to an existing Delegated Regulation (Regulation (EU) 2015/61) supplementing the Capital Requirements Regulation. The existing Delegated Regulation sets out detailed requirements on the Liquidity Coverage Requirement and specifies which assets are to be considered as liquid (so-called high quality liquid assets) and how the expected cash outflows and inflows over a 30-day stressed period are to be calculated.

    The European Commission consulted on a draft of the Amending Regulation between January and February 2018. The Amending Regulation makes changes to the existing Delegated Regulation with the objective of improving its practical application, relating to:
    • full alignment of the calculation of the expected liquidity outflows and inflows on repurchase agreements, reverse repurchase agreements and collateral swaps transactions with the international liquidity standard developed by the Basel Committee on Banking Supervision;
    • treatment of certain reserves held with third-country central banks;
    • waiver of the minimum issue size for certain non-EU liquid assets;
    • the application of the unwind mechanism for the calculation of the liquidity buffer; and
    • integration in the existing Delegated Regulation of the new criteria for simple, transparent and standardized securitizations.

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  • UK Prudential Regulator Provides Hurdle Rate Change Information for 2018 Stress Test
    07/12/2018

    The U.K. Prudential Regulation Authority has published a statement on Systemic Risk Buffers and Pillar 2A in stress test hurdle rates. The Bank of England announced in its March 2018 Key Elements of the 2018 Stress Test that it would be making four changes to the way hurdle rates are calculated. Hurdle rates are the level that a firm's capital ratio falls to during a stress scenario relative to the level of capital a firm is expected to maintain during the scenario. The PRA's statement provides details on two of the ways in which hurdle rates will change: (i) hurdle rates will incorporate buffers to capture domestic systemic importance, in addition to global systemic importance; and (ii) the calculation of minimum capital requirements (incorporated in the hurdle rates) will more accurately reflect how they would evolve in a real stress scenario.

    The PRA has not commented on when further details of the other changes to hurdle rates will be published. The BoE expects to publish the results of the stress test in Q4 2018.

    View the statement.

    View details of the Key Elements of the 2018 stress test.
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