This briefing note aims to present first the forthcoming ECB's supervisory stress tests, highlighting areas that banks should anticipate by the summer of 2019, especially concerning operational issues. Secondly, this paper shares a number of market practices surrounding liquidity stress test frameworks for internal management and strategic steering purposes.
The comprehensive common EU SREP framework was established in 2014 and has been applied in practice since 2016. Following global regulatory developments, as well as the EBA's supervisory convergence assessments, specific changes were needed to reinforce the SREP framework.
This briefing note focuses on the key sets of guidelines on institutions' stress testing, highlighting areas that banks should carefully evaluate to address the requirements in a timely fashion considering compliance and associated operational issues.
On the 31 October 2017, the EBA published a consultation paper. The objective is to consult on the revisions in the first quarter of 2018, targeting practical implementation by the end of 2018. This publication focuses on the implications of these latest developments for banks, highlighting areas that should be evaluated when addressing the requirements, considering all compliance operational issues.
On 18 April, the FCA released their 2017/18 Business Plan describing their planned work for the coming year. Amongst their priorities relating to retail customers, technology and AML was an announcement from the FCA of planned supervisory interventions in the custodian banking sector.
On 27 March the BoE published the scenarios for their fourth annual stress test. Clearly this is not just a routine annual process; the BES and IFRS 9 make this test more operationally challenging. This paper takes a brief look at ways banks can improve the efficiency of their stress tests in the future.
The EIOPA issued on 2 December 2016 a discussion paper on “potential harmonisation of recovery and resolution frameworks for insurers”. The aim of this document is to focus on key aspects of the discussion paper on which EIOPA is seeking feedback from insurers.
This Briefing Note focuses on the business model analysis, highlighting areas that banks should carefully evaluate to address the requirements in a timely fashion, considering all compliance and associated operational issues.
On 23 November 2016, the European Commission released its proposals to amend the Capital Requirements Regulation (CRR) and the fourth Capital Requirements Directive (CRD 4). This Briefing Note presents an overview of these regulatory developments highlighting areas that banks should carefully evaluate.
The Bank of England has published the results of their annual concurrent stress test confirming that, in aggregate, the UK banking system is sufficiently capitalised to withstand a severe stress. However the regulator has been clear: there is more work to do for banks to have a sufficiently robust stress testing process. In this briefing, Avantage Reply provides its analysis and its perspectives on how banks can up their stress testing game.
The second consultative document for revisions to the Standardised Approach for Credit Risk was published in December 2015. It proposed significant revisions to the current credit risk capital framework and the first consultative document published in December 2014.
In 2012, the Financial Stability Board set up the Enhanced Disclosure Task Force (”EDTF”), which focused on the quality, comparability and transparency of these disclosures, particularly those flowing from IFRS 9 and US GAAP changes in Expected Credit Loss (“ECL”) approaches. In December 2015, the EDTF issued detailed guidance, including templates, for the requirements relating to changes in disclosures under the IFRS's new ECL regime.
On the 14th of December 2015, the European Banking Authority (“EBA”) issued final guidelines for Limits on exposures to shadow banking entities, outlining how financial institutions are to manage limits on shadow banking exposures, effective from 1st January 2017.
'Leverage' means the relative size of an institution's assets, offbalance sheet obligations and contingent obligations to pay or to deliver or to provide collateral, including obligations from received funding, made commitments, derivatives or repurchase agreements, but excluding obligations which can only be enforced during the liquidation of an institution, compared to that institution's own funds.
This publication offers valuable commentary from a
broad spectrum of stakeholders including the standard
setter, regulators and market participants. It targets
C-Level Officers through the IFRS 9 Primer section,
which outlines upcoming regulatory impacts and a
case study. The remainder of the paper covers more
technical topics and is appropriate for Accounting and
Risk management staff.
This document provides an overview of the main changes between the technical standards (RTS and ITS) for MIFID II and the final Draft Technical Standards from ESMA.
With the Fundamental Review of the Trading Book (FRTB) nearing completion, the industry’s attention will move from assessing the impact to implementing the requirements. Given the magnitude of the changes required, this move will create many interesting challenges for banks. One of these challenges will be the adaptation of their IT systems to comply with the new requirements.
In September 2015, the European Commission released the Securitisation Initiative. On one hand, it establishes a common framework for all regulated financial institutions in Europe and defines the concept of a simple, transparent and standardised, or STS, securitisation. On the other hand, it implements in Europe the Basel III securitisation framework – finalized by the Basel Committee in December 2014 – but with a twist as STS securitisations qualify for a preferential treatment in the form of reduced capital charges.
The EBA published a consultation paper on shadow banking entity exposure limits on 19 March 2015. The EBA intends to finalise its guidelines by the end of 2015. It defines “shadow banking entities” as those that carry out credit intermediation activities (bank-like activities involving maturity transformation, liquidity transformation, leverage, credit risk transfer or similar activities) and are not defined excluded undertakings.
The Basel Committee on Banking Supervision’s (“BCBS’s”) second full consultative document on the fundamental review of the trading book (“FRTB”) , supplemented by a third paper in December 2014 covering outstanding issues , sets out significant revisions to the market risk capital requirements framework. Key areas include moving from Value at Risk (“VaR”) to Expected Shortfall (“ES”), varying liquidity horizons, the trading book/banking book boundary, the treatment of credit, hedging and diversification, and the relationship between the internal models-based and standardised approaches. The FRTB document succeeded the Committee’s initial consultation from the previous year. Its proposed revisions are part of a broader reform agenda in response to the material weaknesses exposed in the financial crisis, and they incorporate the lessons learned from recent investigations into the variability of market Risk-Weighted Assets (“RWA”). This note reviews the FRTB changes to internal models-based market risk approaches – Expected Shortfall, confidence level, liquidity horizons, stressed ES, migration risk and backtesting -- assessing their implications for firms and capital requirements.
Commodity dealers are subject to important changes under MiFID II regulation. This has far-reaching implications for both commodity trading market participants and for the market as a whole. Exemptions for commodity derivative dealers are being removed and more firms will be regulated under MiFID II, many for the first time. ESMA, the European supervisor and regulator, is empowered to enforce new position limits on market participants (read: forcibly close out positions) in exceptional circumstances. Trading firms will report their positions daily to the market operator, who will report positions daily to ESMA. ESMA will publicly disclose an overview of the positions held on contracts. The 3rd January 2017 implementation date of MiFID II may seem a long way off, but for the many firms who fall under the expanding scope of MiFID II, there is a great deal of work to do. Necessary plans need to be put in place now and there will be little regulatory sympathy for those who have not prepared.