Briefing Notes

Briefing Note

Solvent Exit Planning for Non-Systemic Banks and Building Societies

The Consultation Paper outlines the Prudential Regulation Authority’s (”PRA”) proposals for non-systemic banks and building societies in the UK to prepare, as part of their business-as—usual activities, for an orderly ‘solvent exit’ and if needed, to be able to execute one.

Briefing Note

BCBS 239: A renewed ECB Priority

Since the release of the BCBS 239 Principles in 2014, the European Central Bank (ECB) has been urging European banks to comply with these Principles. These Principles cover three main topics: Overarching governance and structure, risk data aggregation capabilities, and risk reporting practices (often referred to by the ECB as 'RDAR').

Briefing Note

DORA - Overview of the Joint Consultation on the First Batch of DORA Policy Products

On 19th June 2023, The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) launched a public consultation on the first batch of policy products under the DORA. This pack provides an overview of the four draft regulatory technical standards (RTS) and one set of draft implementing technical standards (ITS) released.

Briefing Note

SMCR Overview for 2023

The SM&CR was introduced in response to failures in senior management conduct and accountability evidenced in the Global Financial Crisis of 2008. The regulatory expectations under the regime are proportional to the degree of influence a stakeholder has on the firm’s decision-making. In particular, it is categorised under three key elements.

Briefing Note

Unique Product Identifier - UPI

The Unique Product Identifier (UPI) is necessary to improve transparency and reduce risk in the OTC derivatives market, but implementing it poses challenges for financial institutions, including data quality, system integration, cost, and industry coordination. High-quality data and system integration are crucial for effective implementation, and coordination is necessary for consistent global adoption.

Briefing Note

Last amendment on SFTR

The European Securities and Markets Authority (ESMA) released an update to Validation Rules and XML Schemas for the Securities Financing Transaction Regulation (SFTR) and Reply’s team will support you in defining the main impacts.

Briefing Note

BASEL 3.1: BRACE FOR IMPACT

The Bank of England has published its position on Basel 3.1 reforms, introducing a series of fundamental changes to the current prudential regulation regime in the UK. CP16/22 - Implementation of the Basel 3.1 standards has largely been adopted from BCBS standards and its core principle are aligned to global practices. However, there remain some key points of difference/divergence, specific to the practices in the UK market.

Briefing Note

NEW SUPERVISORY REGIME FOR NON-SYSTEMIC BANKS

Following Brexit, the UK Government has sought out ways to improve, clarify, and simplify the regulatory regime for UK financial institutions. On April 29, 2021, the PRA published a Discussion Paper, “A Strong and Simple Prudential Framework for Non-Systemic Banks and Building Societies”, outlining its proposed changes to the prudential framework regime for non-systemic banks and building societies to ensure the resilience, stability, and soundness of smaller firms.

Briefing Note

SUPERVISORY EXPECTATIONS FOR NEWLY AUTHORISED BANKS

Following Brexit, the UK Government has sought out ways to improve, clarify, and simplify the regulatory regime for UK financial institutions. On April 15, 2021, the PRA published a Supervisory Statement, “Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks”, outlining its supervisory expectations for newly authorised non-systemic banks in the UK.

Briefing Note

Regulatory Reporting - Practical roadmap to implementing regulatory changes

The European Banking Authority (EBA) is responsible for setting harmonised prudential rules for financial institutions throughout the EU. To achieve this objective, the EBA has developed Binding Technical Standards and guidelines commonly known as Implementing Technical Standards (ITS) for regulatory reporting – standards that must be respected by all European financial institutions.

Briefing Note

Carbon Asset Risk Assessment Framework

Among the many challenges relating to climate risk management is the question of identifying and assessing exposure to Carbon risk. Indeed, Carbon risk could affect a wide range of physical assets and businesses.

Briefing Note

Initial Margin Requirements Phases 5 & 6

The European Market Infrastructure Regulation (EMIR) introduced initial margin requirements (IMR) for uncleared over-the-counter (OTC) derivatives, which constitutes the last piece of a series of measures aimed at reducing counterparty credit risk and systemic risk within the derivative markets.

Briefing Note

Solvency and Liquidity stress test self-assessment tools

Leveraging on its experience and in line with market practices, Avantage Reply has developed Solvency & Liquidity Stress Test self-assessments tools. Interactive and practical, these self-assessment tools cover the key building blocks of Solvency & Liquidity Stress test frameworks and provide an overview that will help benchmark the internal approaches in relation to supervisory expectations and market best practices.

Briefing Note

The impact of draft its on prudential disclosure on esg risks: an analysis

The European Banking Authority (hereafter “EBA”) introduced a consultation paper on the 1st of March 2021 regarding draft Implementing Technical Standard (hereafter ITS) for disclosures on Environmental, Social and Governance (hereafter “ESG”), and climate change related risks.

Briefing Note

SREP 2020: INSIGHTS AND ANALYSIS FROM THE OUTCOMES

Earlier this year, the ECB published the results of the 2020 Supervisory Review and Evaluation Process (SREP) after following a pragmatic approach towards the implementation of its annual exercise to reflect economic uncertainties caused by the Covid-19 pandemic. In this briefing note, we contextualise the 2020 SREP results against the previous five years and identify key areas of impact due to Covid-19.

Briefing Note

Transforming Data Collection from the UK Financial Sector

In February 2021, the Bank of England (BoE) published its plan for transforming data collection from the UK financial sector. Learn more about the BoE’s vision, key proposed reforms, the transformation programme timeline, and how Avantage Reply can help businesses along this journey.

Capital Management

Briefing Note

Capital Planning Tool - Forecasting Capabilities for Solvency Ratios

Leveraging on its experience and in line with market practices, Avantage Reply has developed a Capital planning tool. Flexible and easy to use, it provides financial institutions with a tactical tool which allows them to easily perform capital simulations under different scenarios and integrate key outcomes into capital management and decision-making processes.

Risk Management

Briefing Note

The IRB Supervisory Formula and Estimation Risk

The PRA has previously expressed concerns regarding potential errors stemming from the internal model estimation process within credit risk, calling for Margin of Conservatism (MoC) to cover for possible underestimation. We have summarised the approach explored by the EBA to account for this possible underestimation.

Credit Risk Management

Briefing Note

New Trends In Credit Risk Management: Real-Time Analysis And Data Teams

In Credit Risk management, it is common practice for banks to use financials for assessing the creditworthiness of large and mid-corporates, with the drawback of being outdated by the time the credit review takes place. This paper proposes the use of real-time transactional data to circumvent this issue. This process can be further improved by setting in place teams dedicated to data management and preparation with the benefit of centralising the information used for other purposes, e.g. modelling, loss collection, monitoring, validation.

Climate Risk

Briefing Note

Environment & Climate Risk RMF Self-assessment

Leveraging on ECB Guide on climate-related and environmental risks and emerging market practices, Avantage Reply has developed a self-assessment tool for financial institutions. The key objective is to help financial institutions while engaging bilateral discussions with ECB early 2021 and evaluating internal capabilities in terms of Environment and Climate-related risk management framework. Interactive and practical, the self-assessment tool covers the key building blocks of ERM function and assesses an institution’s readiness and preparedness in identifying, measuring and managing climate-related risks. Integration of climate dimensions at the highest level of the organization is key due to the transversal impact of climate risk over credit, market, liquidity, operational and other transversal risks.

Stress Testing

Briefing Note

Impact of COVID-19 on Stress Test Models

Since the 2008 financial crisis, regulators have emphasised the importance for banks of using stress tests to better identify potential weaknesses in their banking books, trading books and liquidity positions in the event of market turmoil. This paper will show model outcomes likely to be observed by banks in the 2021 STEBA and propose solutions and considerations for banks to mitigate the risk of having to deal with unrealistic model outcomes.