Management Solutions compiles new regulations published in recent weeks by different regulatory and supervisory authorities (with a focus on the financial industry).
(26/10/2017) BCBS – GL on identification and management of step-in risk
The BCBS has published Guidelines on the identification and management of step-in risk, (i.e. the risk that a bank decides to provide financial support to an unconsolidated entity that is facing stress, in the absence of, or in excess of, any contractual obligations to provide such support) aiming to provide banks and supervisors with a method for identifying step-in risk and with a list of possible responses.
Risk management principles
(23/10/2017) OCC – Bulletin 2017-43 on New, Modified, or Expanded Bank Products and Services
The Office of the Comptroller of the Currency (OCC) has published Bulletin 2017-43 on New, Modified, or Expanded Bank Products and Services in order to adapt bank’s risk management framework to new technology. In particular, this document sets out a description of the bank’s Risk Management system and Risk Management Principles that guides bank management and boards of directors to understand the impact of new activities on banks’ financial performance, strategic planning process, etc.
UK withdrawing from the EU
(13/10/2017) EBA – Opinion on issues related to the departure of the UK from the EU
The EBA has issued an Opinion on issues regarding to the departure of the UK from the EU, to provide guidance on supervisory expectations and to address regulatory and supervisory arbitrage risks. In particular, this Opinion addresses a number of relevant policy topics relating to authorisations; internal models; internal governance, outsourcing, risk transfers and ‘empty shell’ companies; and resolution and Deposit Guarantee Schemes (DGSs).
(13/10/2017) EBA – CP on ITS on provision of information for the purpose of resolution plans / Annex I - Resolution templates / Annex II – Instructions
The EBA has published a Consultation Paper (CP) to amend the ITS on the information which institutions must provide to resolution authorities (RAs) for the purpose of drawing up and implementing resolution plans, which aims at achieving three objectives: i) clarifying the scope of the reporting framework; ii) specifying the minimum procedural and technical reporting requirements; and iii) updating the templates.
IRRBB Stress test
(10/10/2017) ECB – Sensitivity analysis of IRRBB – Final results
The ECB has published the final results of the supervisory stress test consisting on a sensitivity analysis of the banking book, with a focus on interest rate changes. Findings show that, on average, banks are equipped to cope with changes in the interest rate environment.
(05/10/2017) ECB – Public Consultation on the draft Addendum to the ECB Guidance to banks on non-performing loans (NPL): Prudential provisioning backstop for non-performing exposures
The ECB has launched a Consultation on the draft addendum to its guidance to banks on NPL, specifying quantitative supervisory expectations concerning the minimum levels of prudential provisions expected for non-performing exposures (NPEs), aimed at a prudent treatment of NPEs and therefore avoiding the excessive build-up of non-covered aged NPEs on banks’ balance sheets in the future.
LR, Pillar 2A and IRB approach in UK
(05/10/2017) PRA – PS21/17 on UK leverage ratio: treatment of claims on central banks / PS22/17 on Refining the PRA’s Pillar 2A capital framework / PS23/17 on Internal Ratings Based (IRB) approach: clarifying PRA expectations
The Prudential Regulation Authority (PRA) has now published three Policy Statements (PS) which provide feedback to responses and introduce minor amendments to some consultation papers (CP) published during 2017, aimed at discussing the implementation of several aspects set out in the CRR, as well as modify accordingly the relevant Supervisory Statements: i) ‘PS21/17 UK leverage ratio: treatment of claims on central banks’; ii) ‘PS22/17 Refining the PRA’s Pillar 2A capital framework’; and iii) ‘PS23/17 IRB approach: clarifying PRA expectations’.
Resolution and MREL
(03/10/2017) BoE – The BoE’s approach to resolution / CP on the BoE’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL) within groups, and further issues
The Bank of England (BoE) has now published an update to the 2014 BoE’s approach to resolution, which explains the key features of the UK resolution regime and how the BoE would be likely to implement a resolution. Along with this document, the BoE has also published a CP on the BoE’s approach to setting MREL within groups, which addresses some elements of Internal MREL, and also proposes amendments to the Statements of Policy (SoP) to address operational continuity requirements and the setting of External MREL for multiple point of entry (MPE) groups.
(02/10/2017) EBA – Opinion in response to the European Commission’s Call for Advice on Investment Firms / Annex to the EBA Opinion
The EBA has published an Opinion in response to the second part of EC’s “Call for Advice” (CfA) on investment firms, which includes a set of recommendations regarding the criteria for identifying Class 2 and Class 3 firms, the level of initial capital requirements, the liquidity regime, remuneration requirements and corporate governance rules, etc.
Risk Dashboard 2Q17
(26/10/2017) EIOPA – Risk Dashboard – second quarter 2017
The EIOPA has published its updated Risk Dashboard based on the 2Q2017 Solvency II data, which summarises the main risks and vulnerabilities in the EU insurance sector. The results show that the risk exposure of this sector remains overall stable with some slight improvements or that inflation rate forecast is decreasing, among other findings.
Matching adjustment in UK
(25/10/2017) PRA – CP21/17 on Solvency II: Matching adjustment
The PRA has published a Consultation Paper (CP) setting out its proposed expectations of firms in respect of the application of the matching adjustment (MA), which allows firms to adjust the relevant risk-free interest rate term structure for the calculation of a best estimate of a portfolio of eligible insurance obligations. This CP, developed as part of the adjustments to the insurance prudential framework, covers two areas: i) incorporation of existing Director’s letters, and ii) introduction of updated guidance in relation to MA.
IFRS 9 in UK
(25/10/2017) PRA – Clarification on IFRS 9 for 2018 ICAAP stress testing and capital planning
The Prudential Regulation Authority (PRA) has published clarification setting out how firms should incorporate IFRS 9 into stress testing and capital planning, as part of their ICAAP obligations. Among these clarifications, firms should: i) use the initial date of application of IFRS 9 as a starting point for their ICAAPs rather than the closing IAS 39 balance sheet date; and ii) submit a full set of forecasts on an IFRS 9 basis for base and stress test scenarios.
Deposit Guarantee Fund (FGD) in Spain
(24/10/2017) BdE – Proyecto de Circular por la que se modifican la Circular 5/2016 sobre el método de cálculo de las aportaciones al FGD, y la Circular 8/2015
The Bank of Spain (BdE) has published a draft circular amending Circular 5/2016 on the method of calculating contributions to the FGD and Circular 8/2015 on determination of the previous calculation. Amendments to the first circular aim to adapt our legal system to allow the integration of a credit union in an Institutional Protection System (SIP), taking into account its risk profile, whilst amendments to the second circular set out information to determine the calculation contributions to the FGD.
Derivatives markets in the EU
(19/10/2017) ESMA – EU derivatives markets. A first- time overview
The ESMA has published an article on its overview on the size of the interest rate, credit, equity, commodity and foreign exchange derivatives markets in the EU, based on the weekly data it receives from trade repositories (TRs), aimed to enhance data quality and improve statistical. This article provides information on the size of the different derivative markets, as well as the measures of market concentration, among other aspects.
(18/10/2017) BCBS – Thirteenth progress report on adoption of the Basel regulatory framework
The BCBS has published a progress report on the adoption of the Basel regulatory framework as part of the Committee's Regulatory Consistency Assessment Programme (RCAP), focusing on the status of adoption of Basel III standards, to ensure they are transformed into national law or regulation according to the internationally agreed timeframes.
Public sector entities (PSEs)
(18/10/2017) EBA – List of public sector entities treated as exposures to regional governments, local authorities or central governments
The EBA has published an update list of public sector entities (PSEs) that may be treated as regional governments, local authorities or central governments for the calculation of capital requirements, in accordance with the CRR. This document includes changes to the list of PSEs in Slovakia.
Solvency II in UK
(18/10/2017) PRA – PS 25/17 on Solvency II and SS 7/17 on Solvency II: Data collection of market sensitivities
The Prudential Regulation Authority (PRA) has published a Policy Statement (PS) and a Supervisory Statement (SS) on Solvency II, in particular, on market risk sensitivities. Whilst the PS provides feedback on the Consultation Paper 7/17 on Solvency II, the SS sets out the PRA expectations regarding the reporting of sensitivities of solvency position to various changes in market conditions.
Interest rate in UK
(16/10/2017) BoE – SONIA key features and policies / SONIA reform to be implemented on 23 April 2018
The Bank of England (BoE) has published a document on SONIA interest rate benchmark key features and policies, which provides a consolidated summary of how this benchmark will be calculated and administered following the implementation of the reforms. In this regard, the BoE has announced that the reforms will take place by 23 April 2018.
(13/10/2017) FSB – Stocktake of publicly released cybersecurity regulations, guidance and supervisory practices
The FSB has published a stocktake on financial sector cybersecurity regulations, guidance and supervisory practices which includes findings regarding this issue (ej. two thirds of reported regulatory schemes take a targeted approach to cybersecurity and/or information technology risk; some elements commonly covered by regulatory schemes targeted to cybersecurity include risk assessment, regulatory reporting, role of the board, etc.).
Benchmarking of internal approaches
(12/10/2017) EBA – Correction of the portfolio identifiers for 2018 benchmarking exercise to ensure effective data validation
The EBA has rectified Annex 1 of its ITS on benchmarking of internal approaches, which had been amended on May 2017 to define the benchmarking portfolios for the 2018 benchmarking exercise. The corrections do not entail any change to the policy or legal content of the technical standards but facilitate effective data validation.
(12/10/2017) IASB – Narrow-scope amendments to IFRS 9 and IAS 28
The IASB ha issued amendments to IFRS 9 (Financial instruments) and to IAS 28 (Investments in associates and joint ventures) to aid implementation. The amendments to IFRS 9 allow companies to measure particular prepayable financial assets with so-called negative compensation at amortised cost or at fair value through other comprehensive income if a specified condition is met—instead of at fair value through profit or loss.
(11/10/2017) EIOPA – Guidelines on “execution-only” sales
The EIOPA has published Guidelines on Insurance-Based Investment Products (IBIPs). The aim is to minimise the risks of consumer detriment arising from misspelling of IBIPs. At the same time, they set a suitable framework to allow for “execution-only” sales of products.
(10/10/2017) FSB – Progress report on implementation of IBOR reforms
The FSB has published a progress report on implementation of the FSB’s 2014 recommendations to reform major interest rate benchmarks. IBOR administrators have continued to take important steps to implement the FSB’s recommendations, including steps to adjust methodologies used to calculate benchmark rates.
Legal entity identifier
(09/10/2017) ESMA – Briefing on Legal Entity Identifier (LEI)
The ESMA has published a Briefing on the Legal Entity Identifier (LEI) as part of its efforts to raise industry awareness and facilitate compliance with the LEI requirements under MiFID II ahead of its 3 January 2018 launch.
(09/10/2017) DGSFP – Proyecto de Circular por la que se desarrollan los modelos de informes, las guías de actuación y la periodicidad del alcance del informe especial de revisión sobre la situación financiera y de solvencia, individual y de grupos, y el responsable de su elaboración
The Dirección General de Seguros y Fondos de Pensiones (DGSFP) has launched a previous public consultation on a Draft Circular which aims at developing the formats of the report on the review of the financial situation and solvency of insurance and reinsurance undertakings. These formats should be used by those professional responsible for conducting the independent external review of the reports on the financial situation and solvency that insurance and reinsurance undertaking must publish annually.
Risk dashboard data 2Q17
(05/10/2017) EBA – Risk Dashboard Data and parameters
The EBA has published a periodical update of its Risk Dashboard and parameters summarising the main risks and vulnerabilities in the EU banking sector by a set of Risk Indicators in 2Q17.
2018 work programmes
(05/10/2017) EBA – 2018 Work Programme
The EBA has published its 2018 Work Programme describing and summarising, among other aspects, its main objectives and priorities in the forthcoming year, including a multi-annual work programme which highlights the key strategic areas from 2018 to 2021. In particular, the EBA will focus on: i) the CRR / CRD and BRRD developments, ii) EBA’s role as data hub, iii) impact of the Brexit, iv) evaluating and contributing to the Fintech regulatory perimeter, v) fostering proportionality, and vi) tackle NPLs in the EU.
(29/09/2017) ESMA – 2018 Work Programme
The ESMA has published its 2018 Work Programme which takes into account ESMA’s Strategic Orientation 2016-2020, which covers two key activities: supervisory convergence and assessing risks. In particular, ESMA’s focus areas will be on quality, usage and applicability of the data that it collects or supporting sound, efficient and consistent implementation of new supervisory requirements, among others.
(28/09/2017) EIOPA – 2018 Work Programme
The EIOPA has published its 2018 Work Programme, highlighting and specifying the activities and tasks for the coming year, within the framework of a multiannual work programme 2017-2019. Among its strategic objectives, the EIOPA focuses on strengthen the protection of consumers and financial stability of the insurance and occupational pensions sector or improve the functioning of the EU internal market of pensions and insurance.
Leverage framework in UK
(04/10/2017) PRA – CP19/17 on Groups policy and double leverage
The PRA has published a CP on Groups policy and double leverage aiming to asses and mitigate the risks to group resilience due to the use of this leverage, and risks highlighted by prudential requirements applied by local authorities.
Large exposures framework in UK
(04/10/2017) PRA – CP20/17 on Changes to the PRA’s large exposures framework
The PRA has published a CP setting out proposed changes and clarifications to requirements relating to intragroup transactions in the Large Exposures (LE) Part of the PRA Rulebook. In particular, the PRA proposes the following: i) enhanced guidance on the application of criteria for core UK group (CUG) and non-core LE group (NCLEG) permissions; ii) changing the NCLEG calibration basis for firms that have both CUG and NCLEG permission; and iii) changing how NCLEG permission applies at the UK consolidated group level.
UK regulatory framework
(03/10/2017) PRA – CP18/17 Occasional Consultation Paper
The PRA has published an occasional CP that sets out proposed changes to PRA Rulebook Parts and SS regarding market risk, transitional measures or application requirement are some of the modified chapters.
(28/09/2017) ESMA – Finalises MiFID II’s derivatives trading obligation
The ESMA has published a final RTS implementing the trading obligation for derivatives under the Markets in Financial Instruments Regulation (MiFIR). MiFIR’s trading obligation will move over-the-counter (OTC) trading in liquid derivatives onto organised venues, as in the case of fixed-to-float interest rate swaps denominated in euros; fixed-to-float interest rate swaps denominated in dollars; fixed-to-float interest rate swaps denominated in pounds; and index credit defaults swaps.
© GMS Management Solutions, S.L., 2017. All rights reserved. The information contained on this publication is of a general nature and does not constitute a professional opinion or an advisory service. The data used in this publication come from public sources. GMS Management Solutions, SL assumes no liability for the veracity or accuracy of such data.