The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the conditions to allow institutions to calculate capital requirements, including on expected loss, arising from securitized exposures (known as KIRB) in accordance with the purchased receivables approach under the Capital Requirements Regulation.

As part of the new EU Securitization framework that will apply from January 1, 2019, an Amending Regulation makes amendments to the CRR to revise the capital requirements for securitizations.

Read more.

The European Banking Authority has published its Annual Report for 2017.

The Annual Report summarizes the progress made in a number of workstreams undertaken by the EBA in 2017, including the EBA's work on: (i) developing and maintaining an EU Single Rulebook for banking; (ii) promoting supervisory convergence; (iii) developing resolution policies and promoting common approaches for the resolution of failing financial institutions; (iv) determining and monitoring key risks in the banking sector across Europe; (v) strengthening the EBA's role as EU data hub for the collection, use and dissemination of banking data; (vi) protecting consumers, monitoring financial innovation and contributing to easy retail payments in the EU; (vii) Brexit preparations; (viii) international engagement; and (ix) cross-sectoral work by the European Supervisory Authorities under the Joint Committee.

Read more.

The U.S. Office of the Comptroller of the Currency has issued clarifying guidance with respect to the examination and evaluation of institutions under the Community Reinvestment Act. The bulletin issued by the OCC notes that clarifications with respect to CRA evaluation processes were previously communicated to examiners, and that effective June 1, 2018, the OCC rescinded its previous "Large Bank CRA Examiner Guidance," issued December 29, 2000 (OCC Bulletin 2000-35). The OCC bulletin provides clarification with respect to a number of aspects of the CRA evaluation process, including the frequency and timing of CRA performance evaluations, the applicable CRA performance evaluation period, full-scope and limited-scope reviews, the evaluation of various components of CRA evaluations and the timing for the finalization of CRA performance evaluations when there is an open investigation regarding potential discriminatory or other illegal credit practices. The OCC bulletin also outlines the guidance provided to examiners with respect to CRA evaluations, including the factors to consider in the evaluation process, communication with supervised institutions during the evaluation process and the presentation and analysis of performance data.

View the full text of the OCC bulletin. 

U.S. Comptroller of the Currency Joseph M. Otting has discussed the priorities of the U.S. Office of the Comptroller of the Currency before the U.S. House Financial Services Committee and U.S. Senate Committee on Banking, Housing, and Urban Affairs. Comptroller Otting identified the following as his key priorities: modernizing the OCC's approach to the Community Reinvestment Act, encouraging institutions to meet the short-term, small-dollar credit needs of their customers, enhancing Bank Secrecy Act and anti-money laundering compliance, simplifying regulatory capital requirements, simplifying the Volcker Rule and promoting efficacy and efficiency in the supervisory activities of the OCC.

View the full text of Comptroller Otting’s prepared testimony before the two committees, here, here and here.

The U.S. Board of Governors of the Federal Reserve System approved a final rule, which implements section 165(e) of the Dodd-Frank Act, and establishes single-counterparty credit limits for bank holding companies and foreign banking organizations with $250 billion or more in total consolidated assets (including any U.S. intermediate holding company of these foreign banking organizations with $50 billion or more in total consolidated assets) and any other bank holding company classified by the Federal Reserve Board as a global systemically important bank.

Under the final rule, a U.S. GSIB cannot have aggregate net credit exposure to another single global systemically important banking organization or a nonbank financial company supervised by the Federal Reserve Board that exceeds 15% of its tier 1 capital, and cannot have aggregate net credit exposure that exceeds 25% of its tier 1 capital to any other counterparty (defined under the final rule to include a company (including any consolidated affiliates of the company); a natural person (including the person's immediate family collectively where the exposure to the natural person exceeds 5% of the institution's tier 1 capital); a U.S. state (including all of its agencies, instrumentalities, and political subdivisions); foreign sovereign entities that are not assigned a zero risk weighting under the risk-based capital rules (including their agencies and instrumentalities); and political subdivisions of foreign sovereign entities (including their agencies and instrumentalities)). Other financial institutions subject to the final rule (other than U.S. IHCs subject to the rule) cannot have aggregate net credit exposure to any other counterparty that exceeds 25% of an institution's tier 1 capital.

Read more. 

The U.K. Prudential Regulation Authority has published a Policy Statement on reporting the minimum requirement for own funds and eligible liabilities and an updated Supervisory Statement "Resolution Planning", following a consultation which ran from January 8 to April 9, 2018. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to U.K. authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to U.K. authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

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The Bank of England has published a Policy Statement setting out its feedback to the responses it received to its October 2017 consultation on its approach to setting a minimum requirement for own funds and eligible liabilities. MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution and results in a top-up to standard regulatory capital requirements, similar in concept to the old Tier 3 requirements under Basel II. The requirement will apply to U.K. authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to U.K. authorized subsidiaries of such firms. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

The BoE's October 2017 consultation set out proposals for changes to the BoE's 2016 Statement of Policy on its approach to setting "external" MREL for resolution entities, to include the BoE's approach to "internal" MREL, i.e. instruments that are issued to a resolution entity from other legal entities in a group. Internal MREL is intended to cover U.K.-headquartered banking groups as well as U.K. subsidiaries of overseas banking groups.

Read more.

The Financial Stability Board is seeking feedback on the technical implementation of standards on the adequacy of total loss-absorbing and recapitalization capacity for Global Systemically Important Banks in resolution - the TLAC Standard. The FSB wants to assess whether implementation aligns with the timelines and objectives set out in the TLAC Standard. The TLAC Standard is being phased in, with G-SIBs expected to reach the first minimum requirement by January 1, 2019.

The FSB is due to report to the G20 on the implementation of TLAC by the end of 2019. The comments provided in response to the call for feedback will help the FSB to prepare that report. The FSB highlights that the objective of the call for feedback is to monitor implementation by jurisdictions of the TLAC Standard and to identify whether there are any technical issues or operational challenges in implementation. The aim is not to seek views on the substantive aspects of the standard or whether any changes should be made to it. The FSB will consider whether further implementation guidance is needed based on the feedback.

The FSB requests views and evidence on:

1. the regulatory adoption of the TLAC principles and Term Sheet;
2. cross-border aspects of the implementation of the TLAC Standard;
3. G-SIBs' issuance strategies and overall progress towards meeting external and internal TLAC requirements;
4. distribution of TLAC instruments and liabilities in the market; and
5. any technical issues or material factors impacting implementation of the TLAC Standard.

Responses to the call for feedback should be submitted via email by August 20, 2018.

View the call for feedback.

The Basel Committee on Banking Supervision has published its 2018-2019 work program, setting out its focus areas for policy development, supervision, implementation and monitoring. Industry will welcome the news that the Committee intends to adopt a limited number of new policy initiatives, concentrating primarily on cyber risk, operational resilience and proportionality. On the implementation of the Committee's post-crisis reforms, one of the more immediate actions will be to finalize the revised market risk framework, which is due to be implemented by January 1, 2022. Other revisions to be finalized include the assessment framework for Global Systemically Important Banks and the Pillar 3 disclosure framework. Other work will include:

• Furthering discussions on the regulatory treatment of sovereign exposures.
• Continuing to promote strong supervision, which will involve holding discussion sessions and workshops on emerging challenges for supervision, such as how supervisors should comprehensively assess risks when banks change their business models, oversight of third-party origination practices and oversight of risk management practices, in particular, lending standards, collateral management and valuation practices.

Read more.

The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency, U.S. Federal Deposit Insurance Corporation, U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission released for public comment a proposal that would simplify and tailor the Volcker Rule. The joint notice of proposed rulemaking includes 342 specific questions for public comment largely focused on reducing compliance burdens under the Volcker Rule.

Read more.

A Commission Implementing Regulation has been published in the Official Journal of the European Union, following a consultation by the European Commission in April 2018 which closed on May 15, 2018. The Commission Implementing Regulation extends the transitional periods related to own funds requirements for exposures to CCPs that are set out in the Capital Requirements Regulation and the European Market Infrastructure Regulation.

Thirty-two third-country CCPs have been recognized by the European Securities and Markets Authority to date. However, a number of third-country CCPs are still awaiting recognized status and their recognition process is not scheduled to be completed by the expiry of the existing CRR and EMIR transitional periods on June 15, 2018. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are awaiting recognized status.

The Commission Implementing Regulation takes effect on June 7, 2018 and will apply directly across the EU. The effect of the Commission Implementing Regulation is to extend the transitional periods by a further six months, to expire on December 15, 2018.

View the Commission Implementing Regulation ((EU) 2018/815).

The European Banking Authority and the European Central Bank have written to the European Commission, the European Parliament and the Council of the European Union expressing concerns about the impact of proposed data waivers for non-performing loans. The letter refers to a proposal put forward by certain stakeholders, in particular the Bank of Italy, that losses due to the sale of NPLs should be permanently eliminated from the dataset used for the Loss Given Default (LGD) estimation for the firm disposing of the NPLs. The proposal is based on the belief by some stakeholders that the disposal of NPLs and the corresponding capital release is hindered by the regulatory framework for internal models, in particular the requirements in the Capital Requirements Regulation for LGD estimation.

Read more.

The European Central Bank has published an updated Guide to Fit and Proper assessments for the suitability of members of the management body and key function holders in significant institutions. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The ECB Guide covers fit and proper assessments of members of management bodies, both in their management function (executives) and supervisory function (non-executives). It applies to all institutions under the direct supervision of the ECB, namely in-scope credit institutions, financial holding companies and mixed financial holding companies. In the context of licensing or qualifying holdings, the ECB Guide will also apply to less significant institutions.

The ECB Guide has been updated following the publication of the joint European Banking Authority and European Securities and Markets Authority Guidelines on the suitability of management body members and key function holders, which will apply from June 30, 2018, and the EBA Guidelines on Internal Governance.

Read more.

U.S. President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act; the first major financial services reform bill since the enactment of the Dodd-Frank Act in 2010.  While the act is not a wholesale repeal of the Dodd-Frank Act, and does not offer the broad regulatory relief that was proposed under the Financial Choice Act of 2017, it does modify or eliminate certain requirements on community and regional banks and nonbank financial institutions in particular that have been perceived to be especially burdensome.  The key aspect of the act may be the increase, from $50 billion to $250 billion, of the threshold at which a large banking organization automatically becomes subject to enhanced prudential standards.  The act contains several other important provisions, including: exempting banks with less than $10 billion in total consolidated assets from the Volcker Rule and easing certain fund naming restrictions under the Volcker Rule; exempting certain deposits held by custodial banks from the calculation of the supplementary leverage ratio; reducing reporting and supervision requirements applicable to community banks; and easing certain securities law requirements.  Many of the provisions in the act are self-executing, although a number of other provisions require positive action to be taken by U.S. federal financial regulatory agencies.

View ​more detailed discussion of the act.

View full text of the act.

The U.S. Office of the Comptroller of the Currency announced the publication of its spring 2018 Semiannual Risk Perspective.  The OCC report discusses risks facing national banks and federal savings associations and provides high-level overviews of the economic operating environment, bank performance, and trends in supervisory actions. The report highlights key risks in three areas: easing underwriting practices with respect to credit underwriting practices, elevated operational risk, due, in part, to cybersecurity and increased use of third-party service providers, and compliance risk, particularly with respect to high BSA/AML/OFAC compliance risk, changing regulatory landscape and evolving risks outpacing compliance management systems.  The report also focuses on risk that is emerging with respect to rising interest rates and their effect on increased uncertainty in deposits. With respect to trends in supervisory actions, the report notes that the number of banks with composite ratings of 4 or 5 have declined year-over-year through the end of 2017, that the number of outstanding matters requiring attention has been declining over the past few years, and that the number of outstanding enforcement actions has declined since 2010.

View ​full text of the OCC report.

The European Banking Authority has launched two consultations on standards for estimation and identification of an economic downturn in Internal Ratings Based modelling.

The first consultation sets out draft Regulatory Technical Standards on the specification of the nature, severity and duration of an economic downturn in accordance with the Capital Requirements Regulation. The nature of the economic downturn is defined as a set of relevant economic factors and its severity is specified via the most severe values observed on the relevant economic factors over a given historical period. The duration of an economic downturn is specified using the concept of a "downturn period", namely the period of time where the peaks or troughs, which relate to the most severe values of one or several economic factors, are observed. The aim of the RTS is to ensure that institutions using the IRB approach can use a well-defined and common specification of the nature, duration and severity of an economic downturn for portfolios relating to comparable types of exposure.

Read more.

The U.K. Prudential Regulation Authority has published a Consultation Paper, setting out the PRA's proposals on its approach to supervision under the new EU securitization framework that will take effect from January 1, 2019. The incoming EU framework consists of: (i) the Securitization Regulation, which imposes general requirements for all EU securitization activity and outlines the criteria and process for designating certain securitizations as "Simple, Transparent and Standardised"; and (ii) revisions to the banking securitization capital framework within the Capital Requirements Regulation.

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A Commission Delegated Regulation has been published in the Official Journal of the European Union, setting out Regulatory Technical Standards on procedures for excluding from the own funds requirement for credit valuation adjustment risk transactions with non-financial counterparties that are established in a third country and that do not hold positions over the clearing threshold under the European Market Infrastructure Regulation (so called NFC-s). The RTS supplement the requirements of the Capital Requirements Regulation.

Under the CRR, transactions between an institution and a NFC- are excluded from the own funds requirements for CVA risk, irrespective of whether that NFC- is established in the EU or in a third country. As NFC-s established in third countries are not subject directly to EU regulation, the RTS clarify that EU firms are responsible for: (i) taking the necessary steps to identify all NFC-s under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFC-s if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds.

Read more.

A Commission Implementing Regulation has been published in the Official Journal of the European Union, setting out changes to Implementing Technical Standards contained in a Commission Implementing Regulation published in 2016. The ITS cover benchmarking portfolios, reporting templates and reporting instructions for the purposes of the supervisory benchmarking exercise under the Capital Requirements Directive. The benchmarking exercise is conducted at least annually to assess the internal approaches used by firms for calculating own funds. The European Banking Authority consulted on the proposed revisions to the ITS in a consultation which closed in January 2018 and subsequently submitted draft revised ITS to the European Commission, on which provisions of the Amending Regulation are based.

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The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have published an updated version of the sound practices document, "Criteria for identifying simple, transparent and comparable short-term securitisations", which was originally published in 2015. The Basel Committee has also published an updated version of its standards document, "Capital treatment for simple, transparent and comparable short-term securitisations".

The Basel Committee and IOSCO consulted on the proposed updated Criteria in July 2017. The Basel Committee consulted at the same time on proposed additional guidance and requirements for the purpose of applying preferential regulatory capital treatment for banks acting as investors in, or as sponsors of, STC short-term securitizations, typically in asset-backed commercial paper structures.

Read more.

The European Central Bank has published a report on the thematic review on effective risk data aggregation and risk reporting. The ECB launched the thematic review in 2016 to carry out an in-depth assessment of credit institutions' governance, data aggregation capabilities and reporting practices. The thematic review was based on 25 Eurozone significant institutions and took into account the Basel Committee on Banking Supervision's principles for effective risk data aggregation and risk reporting.

The ECB has ascertained that implementation of the Basel Committee's principles is unsatisfactory and that the issues are mostly as a result of a lack of clarity around responsibility for data quality. The ECB considers that further efforts are needed to enhance the effectiveness of risk data aggregation and risk reporting.

View the report.

The U.S. Board of Governors of the Federal Reserve System approved final amendments to Regulation A (Extensions of Credit by Federal Reserve Banks).  The amendments make technical changes to provisions regarding establishing the primary credit rate in a financial emergency and delete obsolete provisions of Regulation A. With respect to the former, Regulation A will be amended to provide that in a financial emergency (defined as “a significant disruption to the U.S. money markets resulting from an act of war, military or terrorist attack, natural disaster, or other catastrophic event”), the primary credit rate will be the target federal funds rate or, if the Federal Open Market Committee has established a target range for the federal funds rate, a rate corresponding to the top of the target range. The amendments also delete references to credit ratings for Term Asset-Backed Securities Loan Facilities, given that the program has expired. The amendments to Regulation A will take effect on June 8, 2018.

View full text of the final rule.

The European Banking Authority has announced that the European Commission had requested technical advice on implementing the final Basel III reforms into EU law. The Basel Committee on Banking Supervision published the final revisions to Basel III on December 7, 2017. The revisions cover the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards will take effect from January 1, 2022, except for the output floor which may be phased-in until January 1, 2027.

The Commission has asked the EBA to provide technical advice on the potential impact of the revisions on the EU banking sector and the wider EU economy and on any potential implementation challenges. The Commission has also requested that the EBA consider the potential changes to the Basel market risk framework, on which the Basel Committee is currently consulting.

Read more.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles discussed the relationship between liquidity and other post-crisis regulation and the Federal Reserve Board’s balance sheet.

Read more.

The U.K. Prudential Regulation Authority has published a Policy Statement setting out its proposals to amend the Groups policy framework it has in place for the application of prudential standards to firms on an individual and consolidated basis within banking groups.

The PRA consulted between October 2017 and January 2018 on proposals to enable: (i) assessment and mitigation of the risks to group resilience due to the use of "double leverage" (which occurs when one or more parent entities in a group funds some of the capital in its subsidiaries by raising debt or lower forms of capital externally); (ii) assessment and mitigation of the risks highlighted by prudential requirements applied by local national regulators on overseas subsidiaries of U.K. consolidation groups; and (iii) improved monitoring of the distribution of financial resources across different group entities.

Following feedback received, the PRA has made three changes to the proposals, which it does not consider to be significant changes. The first and second changes affect the PRA Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" by: (a) changing the definition of "double leverage" so that it is accounting based to reflect the reporting practices of stand-alone holding companies; and (b) clarifying the level of application of the double leverage formula. The third change affects the PRA Statement of Policy, "The PRA's methodologies for setting Pillar 2 capital" by amending the formula for double leverage.

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The U.K. Prudential Regulation Authority has published a Policy Statement and a finalized Supervisory Statement following a consultation which ran from December 2017 to March 2018 on model risk management principles for stress testing. In the consultation, the PRA proposed that firms that use stress testing models, and that participate in the Bank of England's annual concurrent stress test, should follow in full a set of four proposed principles when establishing and adopting risk management practices in relation to their models. Firms not participating in the BoE's annual stress test should instead seek to apply the four principles on a proportionate basis, taking into account their size, complexity, risk profile and the relevance to the firm of using stress test models.

The Policy Statement sets out feedback on the three responses it received to the consultation. The PRA has made a number of changes to the consultation draft of the Supervisory Statement to address issues raised by respondents. In particular, the PRA has made changes to the wording of Principles 1.2 (Model Inventory), 2.1 (Board oversight), 2.3 (Model developers, owners, users and control functions), 3.1 (Model purpose and design), 3.7 (Business Involvement), 3.8 (Model uncertainty), 3.9 (Model Monitoring), 4.1 (Scope and validation of review) and 4.2 (Independence). In addition, it has included a further section in the Supervisory Statement to set out its expectations on the application of materiality considerations.

Read more.

The Prudential Regulation Authority has published a Policy Statement confirming that updated Pillar 2 reporting requirements will apply from October 1, 2018 for banks, building societies and PRA-designated investment firms. This follows the PRA's consultation on the proposed updates, which ran from December 6, 2017 to March 5, 2018. The PRA proposed a new data item to capture stress-testing data currently included in firms' Internal Capital Adequacy Assessment Process documents. This change aims to increase transparency and comparability in stress test data provided alongside ICAAP documents and to decrease the operational risks associated with capturing stress test data manually. The PRA also proposed reducing the frequency of reporting of the data items in the Reporting Pillar 2 part of the PRA Rulebook for some firms as well as consolidating the definition of several reporting parts of the PRA Rulebook into the Glossary.

Read more.

The European Banking Authority has launched a consultation on draft Guidelines on disclosure of non-performing and forborne exposures. Since the 2007/08 financial crisis, there has been a build-up of non-performing loans in the EU, which impacts banks' viability and lending capabilities. The European authorities have agreed various actions to tackle NPLs in Europe, resulting in several recent steps being taken by the European Commission, the European Central Bank and the EBA.

The proposed Guidelines set out the content, format and frequency of disclosures for non-performing exposures, forborne exposures and foreclosed assets. The draft Guidelines would apply to all banks that are subject to any of the disclosure requirements under the Capital Requirements Regulation and would apply to all exposures that fall within the definition of either non-performing or forbearance in the ITS on Supervisory Reporting (Commission Implementing Regulation (EU) No 680/2014). The level and frequency of disclosure will depend on the significance of a firm and the level of NPEs.

The draft Guidelines should be read with the EBA's proposed Guidelines on sound risk management practices for banks for managing NPEs, FBEs and foreclosed assets.

As with the proposed risk management Guidelines, the EBA intends to publish the finalized disclosure Guidelines before the end of 2018 and for the Guidelines to apply from January 1, 2019. Feedback on the proposed Guidelines can be provided by June 27, 2018. The EBA is holding a public hearing on the draft Guidelines on June 27, 2018.

View the consultation paper.

View the EBA's proposed Guidelines on sound risk management practices for NPEs.

View the Commission's proposals to address the build-up of NPLs.

The Chair of the European Securities and Markets Authority, Steven Maijoor, has written to the European Commission recommending that clarification of certain provisions of the European Market Infrastructure Regulation should be made during the current revision of EMIR. EMIR requires clearing members of CCPs to provide initial margin and default fund contributions. ESMA has noticed that CCPs across the EU, as well as their national regulators, are adopting different approaches to these requirements for public entities. Some CCPs and national regulators exempt public entity clearing members from the requirement to provide initial margin and default fund contributions while others grant no exemptions.

ESMA requests the Commission to consider whether the scope of EMIR needs to be clarified and whether a specific amendment could be made to EMIR during the current review process.

The European Commission published legislative proposals to amend EMIR in May - the technical revisions in so-called EMIR 2.1 - and June 2017 - the Brexit-driven CCP "location policy" or so-called EMIR 2.2, which attempts to force the relocation of UK CCPs to the Eurozone. The legislative procedures to finalize those changes are ongoing.

View the letter.

View the Commission's technical amendments legislative proposal.

View the Commission's location policy legislative proposal.

A Commission Implementing Regulation has been published in the Official Journal of the European Union. This Amending Regulation, which takes effect on May 15, 2018, revises a Commission Implementing Regulation adopted in October 2016 under the Capital Requirements Regulation.

Under the CRR, firms that use the Standardised Approach for the purposes of calculating their capital requirements for credit risk can use external credit assessments to determine the credit quality of exposures. These external credit assessments must be made by External Credit Assessment Institutions. ECAIs are either credit rating agencies registered under the CRA Regulation or central banks that issue credit ratings (which are exempt from the application of the CRA Regulation). The 2016 Implementing Regulation set out Implementing Technical Standards for the mapping of the credit quality of exposures (obtained from ECAIs) to their corresponding risk weights.

The Joint Committee of the European Supervisory Authorities consulted in July 2017 on the need to make changes to the 2016 Implementing Regulation to reflect the fact that, since it was adopted, five additional ECAIs had been recognized and one ECAI had been de-registered. The Joint Committee submitted draft revised ITS to the Commission in December 2017 and the Commission has adopted them in the Amending Regulation.

View the Amending Regulation ((EU) 2018/634).

View details of the July 2017 consultation.

The Basel Committee on Banking Supervision has published its 14th progress report on implementation of the Basel III prudential framework, based on responses from Basel Committee member jurisdictions, and reports the status as of the end of March 2018. The Report sets out in tabular form the results of the Basel Committee's monitoring of the adoption progress of all Basel III standards agreed to date, which will come into effect by 2022. The table omits details of those Basel III standards that have already been implemented by all Basel Committee member jurisdictions. It sets out the ongoing implementation progress of each member jurisdiction on aspects of the risk-based capital standards, leverage ratio requirements, liquidity requirements, the requirements for systemically important banks, interest rate risk in the banking book, the supervisory framework for large exposures and the Pillar 3 disclosure requirements.

Read more.

The Financial Stability Board has published a report, "Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors." The report is part of the FSB's work on measures to reduce misconduct in the financial sector and follows the FSB's stocktake of endeavors by international bodies, national authorities, industry associations and firms.

The Toolkit is designed to provide firms and authorities with a set of tools that can be used, taking into account the applicable legislative, judicial and regulatory frameworks. Rather than creating an international standard or adopting a prescriptive approach, the FSB's Toolkit allows firms and supervisors to decide whether and how to use the Toolkit to address misconduct risk. The FSB also states that firms and their supervisors can use individual tools separately or in combination.

The Toolkit comprises 19 tools, divided into three categories and assigned between firms and national authorities.

Read more. 

U.S. Board of Governors of the Federal Reserve System Governor Lael Brainard spoke at the Global Finance Forum regarding maintaining resiliency across economic cycles.  Governor Brainard drew comparisons between the current state of the economy and the economy prior to the financial crisis, noting positive growth, but highlighting elevated risks in asset valuation and business leverage.  Governor Brainard discussed that post-crisis regulation has greatly improved the capital and liquidity positions of financial institutions, and highlighted the importance of maintaining a dynamic capital regime, but cautioned against purely backward-looking analysis, rather than proactively seeking out emerging risks.  Governor Brainard discussed the importance of properly tailoring and calibrating existing regulations, such as the countercyclical capital buffer rule, but also stressed the importance of implementing additional critical regulatory elements, such as finalizing the net stable funding ratio, which she noted was close to finalization, and the Dodd-Frank Act limits on large counterparty exposure.  Governor Brainard also expressed her support for improving the efficiency of the Volcker Rule without undermining its efficacy, and for moving forward with minimum haircuts for securities financing transactions.  Governor Brainard distinguished these regulations, designed to promote the resiliency of large financial institutions, with the regulation of smaller institutions, suggesting that with respect to the latter, regulations should be appropriately tailored to reduce regulatory burden.

View full text of Governor Brainard's speech.

U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs regarding the Federal Reserve Board’s regulation and supervision of financial institutions.  Vice Chairman Quarles submitted identical remarks to the U.S. House Financial Services Committee two days earlier on April 17, 2018.

Read more.

The U.S. Treasury Department and HM Treasury have issued a joint statement announcing the establishment of a Financial Regulatory Working Group. The Working Group will be a forum for treasury staff and financial regulatory authorities to exchange views on the regulatory relationship between the United States and the U.K. The objectives of the Working Group will be 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.

View the statement.

U.S. Board of Governors of the Federal Reserve System Governor Lael Brainard spoke at the Federal Reserve Bank of Richmond Baltimore Community Development Gathering regarding efforts to modernize the Community Reinvestment Act.  Governor Brainard provided a brief summary of the history and importance of the CRA, noting that the current CRA regulations date back to 1995 and are in need of update to better reflect how banks currently operate and the customer base they serve, given structural and technological changes in the banking industry.

Read more.

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 announced proposed revisions to the agencies’ regulatory capital rules to reflect changes to U.S. generally accepted accounting principles regarding credit losses.  The proposed revisions will identify which of the new credit loss allowances will be eligible for inclusion in a financial institution’s regulatory capital.  The proposal will further provide for an optional transition period that will allow financial institutions to phase in the adverse effects on certain regulatory capital components over a three-year period.  The proposal also seeks to amend the stress testing regulations to allow covered institutions that have adopted these changes to U.S. GAAP to not include the effects from adopting this new standard until the 2020 stress test cycle.  The proposed amendment will also make conforming changes, including with respect to certain definitions, disclosures and regulatory reporting forms.  Comments to the proposal are due 60 days from the proposal’s publication in the Federal Register.

View ​full text of the agencies’ proposal.

The European Banking Authority has launched a consultation on draft Guidelines on certain types of exposures and the circumstances in which they can be categorized as being associated with high risk for regulatory capital purposes. The Capital Requirements Regulation provides that when firms use the Standardised Approach for determining minimum capital requirements for credit risk, risk weightings must be allocated to an exposure, based on its exposure class. One of the exposure classes is "exposures associated with particularly high risk," which are: investments in venture capital firms or private equity, speculative immovable property financing and investments in Alternative Investment Funds where the fund's mandate allows a higher leverage than required in the UCITS Directive. An exposure that is of particularly high risk receives a risk weight of 150%.

The EBA's mandate is to prepare guidelines on the types of exposures other than those set out in the CRR that must be associated with particularly high risk and under which circumstances. The EBA's draft Guidelines aim to implement that mandate by specifying that firms should classify exposures as items of high risk where the exposure has a "high risk of loss due to being structurally different from common exposures of the same asset class." The EBA provides a list of those exposures that would fall within the scope of this category.

Read more. 

The European Commission has published a legislative proposal to extend until December 15, 2018 the transitional periods related to own funds requirements for exposures to CCPs set out in the Capital Requirements Regulation and European Market Infrastructure Regulation. Thirty-two third-country CCPs have been recognized by the European Securities and Markets Authority to date. However, there are still third-country CCPs that are awaiting recognition status. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are not yet recognized.

Feedback on the proposal can be provided until May 15, 2018.

The proposals to amend the CRR include an amendment to these transitional provisions. The proposed amendment would remove the need for the European Commission to continuously extend the transitional period by basing the transitional deadline instead on the timing of an application for recognition by a third-country CCP.

View the proposed ITS and the consultation feedback page.

The Joint Committee of the European Supervisory Authorities has published a report on risks and vulnerabilities in the EU financial system. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. The ESAs make recommendations for policy actions by the ESAs, national regulators and financial institutions. A summary of the risks and recommendations contained in the report is set out below.

• To combat cyber risks, the ESAs recommend that financial institutions should continue to improve IT systems, explore risks in the context of information security and take steps to resolve risks surrounding connectivity and outsourcing to third-party providers. The ESAs will continue to keep these risks under review. ESMA is launching a supervisory project on cloud computing outsourcing and will continue work to address supervisory convergence. The EBA is developing guidelines on the management of information and communication technology risks. EIOPA is conducting a qualitative exercise on cyber risk with national regulators and the industry.

Read more. 

The U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve Board and OCC.

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The U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve Board and OCC.

Read more.

The U.S. Board of Governors of the Federal Reserve System published a notice of proposed rulemaking and request for comment intended to integrate its capital and stress rules and thereby simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets and to the U.S. intermediate holding companies of foreign banking organizations.

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The European Banking Authority has published a report entitled "Benchmarking of remuneration practices at the European Union level and data on high earners." The report sets out the EBA's analysis of the compensation data provided to it by national regulators for 2016, which the EBA has compared with data from 2015 and 2014. The Capital Requirements Directive requires the EBA to benchmark remuneration trends in credit institutions and investment firms at EU level and to publish aggregated data on high earners earning EUR 1 million or more per financial year. National regulators are required to collect the relevant information from credit institutions and investment firms and to submit it to the EBA.

The analysis shows a slight decrease in 2016 in the number of high earners paid EUR 1 million or more. There was also a significant decrease in the number of identified staff subject to a cap on the ratio of fixed to variable compensation, although the EBA notes that this was due to a significant reduction by two banks of their numbers of identified staff. The EBA also notes that the supervisory framework for compensation practices is still not sufficiently harmonized, with significant differences among Member States and among institutions in the application of deferral and payout in instruments.

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The Prudential Regulation Authority has published its Business Plan for 2018/19 which sets out its strategic goals and workplan to deliver those goals. The PRA also published a consultation paper on its fees and levies for 2018/19 alongside the Business Plan as well as a report to the Prudential Regulation Committee on the adequacy of PRA resources and independence of PRA functions.

Read a summary of the PRA's goals and workplan.

The European Commission has published a report on the effects of the EU regulatory capital framework on the economic cycle. The Capital Requirements Regulation requires the Commission to assess periodically whether risk-sensitive regulatory requirements contained in the CRR and the Capital Requirements Directive create unintended procyclical effects and to consider whether it would be appropriate to implement any remedies. The report is addressed to the European Parliament and the Council of the European Union and was prepared in cooperation with the European Banking Authority, the European Systemic Risk Board and Member States.

The Commission analyzed whether capital ratio requirements are procyclical and, if so, if they have an impact of the level of capital held by banks. The Commission has concluded that there is only weak evidence of any procyclical effects resulting from the requirements in CRR and CRD. The EU regulatory framework already provides various tools that deal with procyclical effects, such as the capital conservation buffer, the countercyclical capital buffer, the leverage ratio and risk weight adjustments for specific exposures. The Commission does not consider that any major changes to the EU framework are required at this time.

View the report.

The U.S. Department of the Treasury issued recommendations to the U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System and the U.S. Federal Deposit Insurance Corporation regarding the modernization of the Community Reinvestment Act.  The report is a follow-up to Treasury’s 2017 report to the President entitled A Financial System That Creates Economic Opportunities: Banks and Credit Unions.

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The U.S. Office of the Comptroller of the Currency, U.S. Board of Governors of the Federal Reserve System and the U.S. Federal Deposit Insurance Corporation issued a final rule that exempts commercial real estate transactions of $500,000 or less from the appraisal requirements promulgated under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.  The final rule raises the threshold from $250,000 to $500,000, for which appraisals are not required in connection with commercial real estate transactions.  The agencies originally proposed to increase the threshold to $400,000, but they determined that an increase to $500,000 would not pose a threat to the safety and soundness of financial institutions, and would result in a material reduction in the compliance-related regulatory burden for financial institutions.  For purposes of the final rule, “commercial real estate transaction” is defined as “a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property.” The final rule clarifies that construction loans of $500,000 or less secured by a single 1-to-4 family residential property are not exempted from the appraisal requirement.  In lieu of an appraisal, financial institutions are required to obtain an evaluation of the collateral that is sufficient to support the institution’s decision to engage in the transaction and consistent with safe and sound business practices.  The final rule took effect on April 9, 2018.

View full text of final rule.

Outgoing U.S. Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig discussed the importance of attaining meaningful regulatory relief without undermining the safety and soundness of the financial system.  Citing a few historical examples, Vice Chairman Hoenig discussed the similarities among past crises, as well as the deregulatory attitude that has followed these crises once the economy begins to recover.  Vice Chairman Hoenig noted that with a strong regulatory foundation, including strong capital and constraints on the reliance on government bail-outs, a number of costly administrative rules could be minimized or eliminated.

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The European Central Bank has begun a consultation on the first chapter of a proposed guide to internal models. The Capital Requirements Regulation requires the ECB to assess and grant permission for banks directly supervised by the ECB to use internal models for credit risk, counterparty credit risk and market risk. The ECB's proposed guide aims to set out how the ECB intends to approach the assessment of whether a firm meets the necessary requirements for the permission to be granted.

The consultation covers only the first chapter of the proposed guide. This chapter is on general topics comprising overarching principles for internal models, implementation of the internal ratings-based approach, internal model governance, internal validation and audit, model use and change management as well as third-party involvement. The ECB intends to consult on model-specific chapters, including for credit, market and counterparty credit risks, at a later date.

The consultation closes on May 25, 2018.

View the consultation paper.