The Basel Committee on Banking Supervision has published a Consultation on its proposals for the third phase of the Pillar 3 Framework. Pillar 3 comprises a set of quantitative and qualitative disclosure requirements applicable to banks in relation to capital, risk exposures and risk assessment processes, which are designed to allow other market participants to assess each bank’s capital adequacy.

The Pillar 3 framework was last updated in March 2017, following a Basel Committee review. The Basel Committee now proposes some revisions and additions to the Pillar 3 framework which result from the finalization of the Basel III framework in December 2017.

Read more.

The U.S. Office of the Comptroller of the Currency issued a final rule that makes certain technical amendments to its annual stress testing regulation.  The stress testing regulation provides that the OCC may require an institution to include trading and counterparty components in its adverse and severely adverse scenarios if the institution has significant trading activities.  Under the final rule, the date range of this position data has been expanded from between January 1 and March 1 of the current calendar year to between October 1 of the preceding calendar year and March 1 of the current calendar year.  The final rule notes that this will provide the OCC with greater flexibility in establishing an appropriate as-of date and that the U.S. Board of Governors of the Federal Reserve System has made a similar change to its corresponding regulations.  The final rule also amends and clarifies the transition period for institutions that meet the $50 billion asset threshold, which subjects the institution to different stress testing requirements.  Under the final rule, if an institution crosses the $50 billion threshold in the fourth quarter of a calendar year, it will not be subject to the supervisory stress testing requirement until the third calendar year after it crossed the threshold.  Otherwise, institutions become subject to the over $50 billion stress testing requirements two calendar years after crossing the threshold.  The final rule also makes definitional and other technical changes.  The final rule will become effective 30 days from its publication in the Federal Register.

View full text of final rule.

The U.K. Prudential Regulation Authority has published a Policy Statement on Pillar 2 liquidity, following two consultations in May 2016 and July 2017. The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework complements the Pillar 1 Liquidity Coverage Ratio requirements by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. In its May 2016 and July 2017 consultations, the PRA set out proposals for liquidity assessments, the introduction of a framework for cashflow mismatch risk (CFMR) and survival guidance on the granular liquidity coverage requirement stress within the CFMR framework.

The PRA received a number of consultation responses. The Policy Statement sets out the PRA's feedback and explanation of a number of changes it has made to its original proposals.

Read more.

The U.K. Financial Conduct Authority has published a new "Dear CEO" letter that it has sent to the Chief Executive Officers of certain firms for which it acts as prudential regulator.

The letter is addressed to the CEOs of "IFPRU Firms" (firms solo-regulated by the FCA that fall within the definition of "investment firm" in the Capital Requirements Directive and which are subject to the requirements of CRDIV) and "BIPRU Firms" (firms solo-regulated by the FCA that fall outside the definition of "investment firm" for CRD IV purposes). The FCA has observed that the prudential returns (in particular the Common Reporting (COREP) and Financial Reporting (FINREP) returns) submitted by these firms often contain inaccurate or incomplete data. The FCA stresses that, while errors or omissions can appear minor in isolation, they can materially distort data that are aggregated and used to analyse a sector or a group of firms.

Examples of the issues the FCA has observed include; failure to submit certain returns, such as the FINREP return; failure to complete underlying templates; inaccurate calculations; inconsistent submissions; reporting using incorrect units; and failure to report cumulatively where that is required.

The FCA instructs CEOs of IFPRU and BIPRU firms to review their firm’s regulatory reporting practices to ensure that they are fit for purpose, comply with the relevant reporting provisions and produce materially accurate data. The FCA plans to conduct a review of a sample of firms' returns as of October 1, 2018 and, should the same issues persist at that time, it will consider taking further steps to improve reporting standards.

View the Dear CEO letter.

The Prudential Regulation Authority is consulting on its expectations regarding the eligibility of guarantees as unfunded credit protection for the purposes of a firm's Pillar 1 regulatory capital requirements. The PRA is intending to add a new section to the Supervisory Statement 'Credit risk mitigation'.

The EU Capital Requirements Regulation allows firms to recognize certain forms of credit risk mitigation when calculating their regulatory capital requirements. Unfunded credit protection can be attained through a guarantee where a third party becomes obliged to pay out in the event of non-payment or default of the credit obligor. The CRR sets out the eligibility criteria for a guarantee to qualify for CRM.

Read more. 

The FDIC adopted amendments to its international banking regulations that primarily impact the asset pledge requirements applicable to FDIC-insured branch offices of non-U.S. banks (of which there are only 10) as well as certain securities-related powers of foreign branch offices of state nonmember banks, which depend in part on whether the branch is transacting in investment grade securities.  The amendments implement Section 939A of the Dodd-Frank Act, which generally requires the removal of reliance on credit ratings in banking (and other) regulations for determining the creditworthiness of a security or money market instrument.  Under the amended regulation, an investment grade security is one “whose issuer has adequate capacity to meet all financial commitments under the security for the projected life of the exposure.”

Read more.

The U.S. Board of Governors of the Federal Reserve System issued a letter permitting Deutsche Bank AG to establish a second U.S. intermediate holding company to hold its asset management business pursuant to Regulation YY.

View More.

The European Banking Authority has published a letter, dated February 9, 2018, from the EBA Chairperson, Andrea Enria, to Olivier Guersent, Director-General of DG-FISMA at the European Commission, relating to the regulatory perimeter of the Capital Requirements Regulation and the Capital Requirements Directive. The letter is in response to the January 22, 2018 letter to the EBA from the European Commission regarding the EBA's Opinion on regulatory perimeter issues under the EU capital requirements framework and the proposed changes under CRD V.

Read more. 

A Commission Delegated Regulation on Regulatory Technical Standards for the materiality threshold for credit obligations past due has been published in the Official Journal of the European Union. The Delegated Regulation supplements the Capital Requirements Regulation with regard to the conditions for use of the internal ratings-based approach. 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 obligation is to be assessed against a threshold set by the national regulator according to its view of a reasonable level of risk. The European Banking Authority was obliged to prepare draft RTS specifying the conditions for setting that threshold by a national regulator.

The Delegated Regulation sets out those conditions for retail exposures and for exposures other than retail exposures as well as providing for notification of materiality thresholds to the EBA, the updating of the thresholds and the applicable date for thresholds.

The Delegated Regulation applies from May 7, 2018.

View the Delegated Regulation.

The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve System, the US Federal Deposit Insurance Corporation, the US Farm Credit Administration and the US Federal Housing Finance Agency issued a joint notice of proposed rulemaking seeking comment regarding the minimum margin requirements for covered swap entities (the “Swap Margin Rule”).  The proposed rule would amend swap margin requirements to ensure conformity with rules recently adopted by the Federal Reserve Board, the OCC and the FDIC, which impose restrictions on certain swap and other financial contracts that are deemed to be qualified financial contracts.  The proposed rule would amend the definition of “Eligible Master Netting Agreement” to align with the revised definition of “Qualifying Master Netting Agreement” in the recent rules adopted by the Federal Reserve Board, the OCC and the FDIC, and would ensure that a netting agreement for a firm subject to the Swap Margin Rule is not excluded from the definition of “Eligible Master Netting Agreement” solely on the basis of the firm’s compliance with the recently promulgated qualified financial contract rules.  The proposed rule would also provide that certain legacy agreements would not become subject to the Swap Margin Rule solely on the basis of their amendment to comply with the qualified financial contract rules recently promulgated by the Federal Reserve Board, the OCC and the FDIC.  Comments to the proposed rule are due no later than 60 days following publication in the Federal Register.

View interagency notice of proposed rulemaking.

The US Board of Governors of the Federal Reserve System issued a cease-and-desist order against a large US financial institution.  The order requires the institution to utilize its resources to ensure compliance with consent orders issued by other US federal financial regulators.  The order also requires the institution to submit written plans to its applicable Federal Reserve Bank that are designed to further enhance board-level oversight and governance of the institution and further improve the institution’s compliance and operational risk management program.  These plans must be approved by the relevant Federal Reserve Bank and are subject to third-party review once implemented.  In addition, the institution may not grow until the requirements of the cease-and-desist order are satisfied, absent specific Federal Reserve Board approval.  Concurrently with the release of the cease-and-desist order, the Federal Reserve Board sent letters addressed to the institution’s board of directors, its former lead independent director, and its former Chair describing governance deficiencies identified by the Federal Reserve Board.  The Federal Reserve Board press release accompanying the publication of the order also noted upcoming changes in the composition of the institution’s board of directors.

View the Federal Reserve Board announcement.

The US Office of the Comptroller of the Currency and the US Board of Governors of the Federal Reserve System released the 2018 scenarios for the Dodd-Frank Act Stress Test (DFAST), and the Federal Reserve Board issued its instructions to the firms participating in the 2018 Comprehensive Capital Analysis and Review (CCAR).

Read more.

The US House of Representatives passed five bills focused on regulatory reform for financial institutions.  The bills passed by the House include:  the Housing Opportunities Made Easier Act (H.R. 2255), which amends the Truth in Lending Act to allow mortgage appraisal services to be donated to organizations eligible to receive tax-deductible contributions;

Read more.

Treasury Secretary Steven Mnuchin testified before the US Senate Committee on Banking, Housing, & Urban Affairs at the committee’s Financial Stability Oversight Council annual report to Congress hearing.  In his prepared statement, Secretary Mnuchin noted that the FSOC annual report recommended that member agencies review existing rules and regulations to reduce overlap and duplication, modernize regulations that have become outdated and tailor regulations to fit the size and complexity of the financial institutions for which the regulations are applicable.  Secretary Mnuchin praised Congress for the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act, a legislative proposal that seeks to ease the regulatory burden on smaller community-based financial institutions, and urged both the US Senate and the US House of Representatives to take quick action to reduce regulatory burdens.  Secretary Mnuchin also stressed that cybersecurity is a key risk identified in the FSOC annual report. While Secretary Mnuchin stated that progress has been made with regard to cybersecurity, he highlighted the danger that a large-scale cybersecurity incident could significantly disrupt the financial system, especially given the ever-increasing reliance on technology.

View full text of Secretary Mnuchin’s statement.

The US Government Accountability Office released a report that details the compliance of six US federal financial institution regulators (the US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, the US Securities and Exchange Commission, the US Commodity Futures Trading Commission and the US Consumer Financial Protection Bureau) with the requirements of the Regulatory Flexibility Act (RFA).  Under the RFA, regulators must either consider a proposed rule or regulation’s impact on smaller financial institutions and consider potential alternatives, or certify that the proposed rule or regulation will not have a significant impact on a large percentage of small financial institutions.  The GAO report identified a number of weaknesses with the agencies’ compliance with both aspects of the RFA, including a lack of transparency with respect to documentation supporting an agency’s regulatory flexibility analysis, and missing information in certifications. The GAO report makes 10 recommendations—each tailored to respond to perceived weaknesses at specific regulators—with each of the 6 reviewed agencies receiving at least 1 recommendation. The recommendations include enhancing transparency, developing policies and procedures that better document and explain the respective agency’s analysis, and requiring the agencies to review existing evaluation frameworks to ensure harmonization with the requirements of the RFA.

View full text of the GAO report.

The US Consumer Financial Protection Bureau published a notice in the Federal Register requesting public comment regarding the agency’s Civil Investigative Demands (CID) processes.  Further to statements issued by CFPB Acting Director Mick Mulvaney, the request for information provides an opportunity for the public to provide comments aimed at improving and streamlining the CID processes for consumers and financial institutions.  The request for information asks for comment regarding a number of aspects of the CFPB’s CID processes, including suggestions for modifying or updating CID processes, proposed improvements to how information is conveyed to entities that receive CIDs and suggestions regarding the timing and deadlines under the existing CID framework.  Comments are due by March 27, 2018.

View CFPB’s Information Request.

The US Consumer Financial Protection Bureau published a final rule that amends the regulations implementing the Electronic Funds Transfer Act (Regulation E), and the Truth in Lending Act (Regulation Z), and corresponding official interpretations.  The final rule makes a number of modifications to these regulations, including changes to error resolution requirements and limited liability provisions, which will now apply after a consumer’s identity has been verified, designed to promote prompt registration of prepaid cards by individuals.  In addition, the final rule clarifies how the prepaid rule applies to credit cards linked to digital wallets, which promotes consumer use of digital wallets, while providing the same protections that apply to traditional credit card accounts.  The final rule also delays the effective date of these provisions until April 1, 2019.

View the CFPB’s final rule.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation announced that the agencies will give favorable consideration under the Community Reinvestment Act for bank activities that helped with revitalization and stabilization of the US Virgin Islands and Puerto Rico, which were designated as major disaster areas because of Hurricane Maria.  The agencies announced that financial institutions located anywhere in the United States, including outside of the affected areas, will receive favorable CRA consideration for their community development activities concerning affected areas and individuals, provided that the institution has been responsive to the CRA needs of its own assessment area.  The agencies clarified that favorable CRA consideration will be given to institutions that aid affected areas and individuals—including those who have been displaced and relocated outside of the affected areas—regardless of census information or the personal income of the individual being assisted.  The agencies did, however, note that greater weight will be given to activities that assist areas and individuals that are of low and moderate income.

View the interagency statement regarding the announcement.

The UK Financial Conduct Authority has published a Policy Statement and final rules to introduce changes to its client money rules to amend the existing 30-Day Rule, under which firms are prevented from placing client money in bank accounts with unbreakable terms of longer than 30 days. The client money rules require firms to deposit client money in an account opened with an authorised bank, a central bank or in a qualifying money market fund. An unbreakable deposit is one where the firm placing the deposit has no contractual ability to request the return of the monies prior to the end of the agreed term.

The rule changes have been made following feedback from firms that banks have been increasingly reluctant to provide 30-day unbreakable deposits. This reluctance appears to have been due to the interaction of the client money and prudential regimes. All client money is subject to the Liquidity Coverage Ratio which requires banks to have highly liquid assets to cover 100% of their potential net cash outflows over 30 days. Unbreakable deposits of a maximum of 30 days are therefore capital inefficient for banks.

Read more.

Vice Chairman of the US Board of Governors of the Federal Reserve System, Randal Quarles, delivered remarks at the American Bar Association Banking Law Committee’s annual meeting. In his remarks, Mr. Quarles discussed his approach as Vice Chair of Supervision and outlined a number of items that were areas of focus. Mr. Quarles noted that the post-crisis regulatory framework was largely complete—with the exception of the implementation of the Basel III framework—and noted that this provided an opportunity to reflect on these regulations and assess their utility and move towards efficient and transparent regulation. Mr. Quarles reiterated the need to reduce the regulatory burden for smaller financial institutions and echoed prior comments from Federal Reserve Board Chairman-nominee Jerome Powell that key regulatory areas that need improvement include resolution planning, stress testing and simplification of the Volcker Rule. Specifically, he noted that the relevant agencies have begun work on a proposal to streamline the Volcker Rule and “congeal around a thoughtful Volcker rule 2.0.”  Mr. Quarles also discussed a few emerging areas for consideration, including (i) tailoring regulation to match    an institution’s size, footprint, risk profile and business model, (ii) a re-evaluation of loss absorbency requirements, (iii) a recalibration of the leverage ratio and (iv) the Federal Reserve Board’s framework for control determinations under the Bank Holding Company Act, which he generally views as too opaque.

View full text of VC Quarles' speech.

The US House Financial Services Committee announced that it had advanced 15 bills, many of which would alter the regulatory framework for financial institutions.

Read more.

The US Federal Reserve Board issued a notice finalizing its revisions to the Form FR Y-7 (Annual Report for Foreign Banking Organizations), regarding how a foreign banking organization should certify its compliance with US risk committee and home country capital stress testing requirements under Regulation YY.

Read more.

The European Commission has published a Communication to the European Parliament, the Council of the European Union and the European Central Bank, setting out its first progress report on the implementation of the "Action Plan To Tackle Non-Performing Loans in Europe" that was adopted by the Council in July 2017. The Communication discusses addressing NPLs as part of risk reduction in the financial sector and reports that the general improvement in NPL ratios over recent years continued in 2017. The ratio of NPLs is at its lowest level since Q4 2014. The Communication concludes by stressing the importance of maintaining the pace of NPL reduction and the need, not only for continued action by individual banks and by Member States, but also for concerted action at EU level by the Commission and other EU institutions, including the ECB.

A Commission Staff Working Document, published jointly with the Communication, provides further detail on the workstreams identified as necessary to deliver the Action Plan and on developments in selected Member States.

Read more.

The UK Prudential Regulation Authority has announced that it is postponing by six months the introduction of a new liquidity reporting template, PRA110. PRA110 is intended to capture information on cashflow mismatch risk within the Pillar 2 framework.

The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework involves additional capital requirements set through regulatory discretion and complements the Pillar 1 Liquidity Coverage Ratio requirements, by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. The PRA consulted in July 2017 on a draft liquidity reporting template for CFMR, to be numbered PRA110. PRA110 will build on the European Banking Authority's maturity ladder reporting template, which will apply from March 2018, by including additional columns and rows to capture additional information. The PRA originally proposed that the PRA110 template would be implemented on January 1, 2019 and that, on implementation of PRA110, it would terminate the old FSA047 and FSA048 returns.
 

Read more.

The European Banking Authority has published a final Report and final Guidelines on uniform disclosures under the Capital Requirements Regulation regarding the transitional period for mitigating the impact of the introduction of International Financial Reporting Standard 9 (known as IFRS 9) on own funds.

IFRS 9, which applies for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The application of IFRS 9 could lead to a sudden significant increase in expected credit loss provisions and consequently to a sudden decrease in an institution's Common Equity Tier 1 capital. For this reason, institutions that prefer not to recognize the full impact of IFRS 9 (or analogous ECL models) immediately have the option of phasing in implementation of IFRS 9 over a transitional period.

IFRS 9 is being implemented in the EU through a regulation amending the CRR which sets out transitional provisions. The amending Regulation applied directly across the EU from January 1, 2018. A firm that uses the transitional arrangements must publicly disclose its own funds, capital ratios and leverage ratios both with the application of the transitional arrangements and also on a "fully-loaded" basis, i.e., as if the transitional arrangements had not been applied.

Read more.

The US Senate Committee on Banking, Housing and Urban Affairs held a full committee hearing entitled “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement.” Chairman Mike Crapo and ranking member Sherrod Brown each delivered opening statements at the hearing. Mr. Crapo highlighted the vital importance of robust anti-money laundering laws, rules and regulations, and their implementation through financial institution policies and procedures. Mr. Crapo also noted, however, that much has changed since the Bank Secrecy Act was enacted nearly 50 years ago, and stressed the need for its modernization. Mr. Brown also emphasized the importance of a robust AML regime, and noted that many large US and international financial institutions have been penalized for AML deficiencies. Mr. Brown noted that broadening information-sharing may make sense but that important questions about privacy protections must also be addressed.

Read more.

The UK Prudential Regulation Authority has published a "Dear CFO" letter that was sent to the Chief Finance Officers of larger UK-headquartered credit institutions. The "Dear CFO" letter sets out the PRA's expectations as to the minimum disclosures those firms should be making on transition to the new standard for loan loss provisioning based on "expected credit losses" that forms part of standard 9 of International Financial Reporting Standards. The ECL requirements will replace the old "incurred loss" provisioning model that was contained in standard 39 of the International Accounting Standards. ECL will require banks to provision for expected credit losses from the time a loan is originated, rather than awaiting "trigger events" signalling imminent losses. IFRS 9 has been implemented through Commission Regulation (EU) 2016/2067, which requires credit institutions and investment firms that use IFRS to prepare their financial statements to apply IFRS 9 as of the starting date of their first financial year starting on or after 1 January 2018. The Regulation permits banks and investment firms that are required to use IFRS 9 to apply transitional provisions where the application of IFRS 9 leads to a significant increase in credit loss provisions and a decrease in the firm's Common Equity Tier 1 capital. Firms that use these transitional arrangements must publicly disclose their own funds, capital ratios and leverage ratios with and without the application of those arrangements.

Read more. 

The US Board of Governors of the Federal Reserve System requested comment regarding revisions to the FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES and FR Y-9CS call reports for holding companies. The notice requests comment with respect to, among other things, the utility of the reports, the accuracy of agency assumptions with regard to the burden imposed by the data collection activities, and means to enhance the quality of information collected or reduce the burden of the information collection activities. The proposed revisions include deletions or combination of certain sections of the reports, reducing the reporting frequency and increasing/adding reporting thresholds for certain data items. Comments to the Federal Reserve Board’s proposed revisions are due March 5, 2018.

View the Federal Reserve Board’s notice and request for comment.
 

Two new EU Regulations introducing the new EU securitization framework for simple, transparent and standardized securitizations have been published in the Official Journal of the European Union - the STS Regulation and a Regulation amending the existing Capital Requirements Regulation. The two Regulations implement the Basel Committee on Banking Supervision's amended Securitization Framework for alternative regulatory capital treatment for simple, transparent and comparable securitizations in 2014 as part of Basel III.

The STS Regulation provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. Originators and sponsors will be required to notify the European Securities and Markets Authority of any securitization that meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

Read more.

An EU Regulation amending the Capital Requirements Regulation as regards transitional measures for mitigating the impact of the introduction of International Financial Reporting Standards (known as IFRS 9) has been published in the Official Journal of the European Union. IFRS 9, which applies for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The amending Regulation allows banks and investment firms that are required to use IFRS 9 to apply transitional provisions where the application of IFRS 9 leads to a significant increase in credit loss provisions and a decrease in the firm's Common Equity Tier 1 capital.  A firm that uses the transitional arrangements must publicly disclose their own funds, capital ratios and leverage ratios with and without the application of those arrangements.

The amending Regulation also provides for transitional arrangements for the exemption from the large exposure limit available for exposures to certain public sector debt of Member States denominated in the currency of that Member State. A transitional period of three years from January 1, 2018, will apply to these exposures incurred on or after December 12, 2017. Exposures incurred before that date will continue to be exempt from the large exposures requirements.

The amending Regulation applies directly across the EU from January 1, 2018.

View the CRR IFRS Regulation.

The US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation issued statements providing guidance for examiners with respect to data collection by financial institutions pursuant to Regulation C, which implements the Home Mortgage Disclosure Act. In the statements, both agencies noted the regulatory and compliance challenges financial institutions face due to amendments to Regulation C made by the US Consumer Financial Protection Bureau which took effect on January 1, 2018. To address these challenges, the agencies announced that they will not require resubmission of HMDA data collected in 2018 and reported in 2019 unless there are material errors. The OCC and FDIC further noted that they do not intend to assess any penalties with respect to errors in data that is collected in 2018 and reported in 2019.

View the OCC bulletin.

View the statement by the FDIC.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced an increase in the aggregate loan commitment threshold for an institution to be included in the Shared National Credit program. The agencies noted that the increase from $20 million to $100 million reflects changes in average loan size and adjustments for inflation. In their joint release, the agencies noted that this change will bring regulatory relief to 82 financial institutions, while only nominally reducing the dollar amount of loans evaluated under the Shared National Credit program.

View the joint agency press release.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced technical amendments to the asset thresholds used to define small banks and saving associations and intermediate small banks and savings associations under the Community Reinvestment Act. These adjustments, which occur annually, are required under the CRA and based upon changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Under the adjusted threshold, a “small institution” will be any institution that had assets of less than $1.252 billion as of December 31 of either of the last two years. The definition of “intermediate small institution” will be updated to include institutions with at least $313 million as of December 31 of each of the last two years, and assets of less than $1.252 billion as of December 31 of either of the last two years. The updated definitions will take effect as of January 1, 2018.

View the Interagency final rule.

The Basel Committee on Banking Supervision has published a proposed technical amendment to the Net Stable Funding Ratio. Consultation on the proposed technical amendment will run for a short 45-day consultation period, under a new procedure adopted by the Basel Committee at its meeting in December 2017.

The proposed technical amendment relates to the treatment of extraordinary monetary policy operations in the NSFR. The amendment proposes to allow reduced required stable funding factors for central bank claims with maturity of more than six months.

Read more.

The European Banking Authority has published its final report on Recommendations on outsourcing by financial institutions to cloud service providers. The EBA has developed the Recommendations on its own initiative as part of its broader work on FinTech, given the increasing importance and popularity of cloud services as an enabling technology used by financial institutions.

The Recommendations are designed to complement the guidelines on outsourcing issued by the EBA's predecessor, the Committee of European Banking Supervisors on December 14, 2006. The Recommendations further specify the CEBS guidelines in five key areas: the security of data and systems; the location of data and data processing; access and audit rights; chain outsourcing; and contingency plans and exit strategies.

The Recommendations are addressed to credit institutions, investment firms and national regulators and will apply from July 1, 2018.

View the EBA Final Report.

Following the summary it published on December 7, 2017, the European Banking Authority has issued its full cumulative impact assessment of the impact of the finalized "Basel III" prudential framework on EU banks.

The finalized Basel III framework, announced on December 7, 2017, includes further elements developed with the overall aim of addressing undue variability in the calculation of risk weighted assets and improving the comparability of banks' capital ratios.

Using December 2015 data, the EBA has conducted an analysis of the impact of the December 2017 revisions on the EU banking system. The EBA's impact assessment outlines, at a high level, the effect of the December 2017 revisions on: (i) minimum required capital; (ii) regulatory capital ratios, leverage ratios and capital shortfalls; and (iii) the extent to which banks are constrained by the different metrics of capital requirement in the revised framework, namely the output floor, the leverage ratio and risk weighted assets.

Read more.

The Basel Committee on Banking Supervision has published proposals on a revised version of the stress testing principles it first published in 2009. The revisions to the principles are the outcome of a review of its current stress testing principles, carried out during 2017.

The proposed new principles have been stated at a higher level than the previous principles, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. Overlaps between principles have also been removed, along with some of the descriptive wording accompanying each principle. While the application of the previous set of principles was split between banks and supervisors, it is intended that each of these new "streamlined" principles will apply to both supervisors and banks. Additional considerations for banks and supervisory authorities are set out within each principle.

Comments on all aspects of the proposed new principles are invited by March 23, 2018. Comments should be submitted using an online response form.

View the consultation paper.

View the online response form.

The European Commission has published legislative proposals to amend the EU framework on the prudential supervision of investment firms. The proposals follow the European Banking Authority's Opinion on revising the regime published in September 2017. The aim of the proposals is to tailor the prudential requirements and supervisory arrangements to the risk profile and business models of investment firms.

The Commission's proposals maintain the EBA's recommendation for three different categories of investment firm.

Read more. 

The US House of Representatives voted 288-130 in favor of the Systemic Risk Designation Improvement Act of 2017 (H.R. 3312). The bill, introduced on July 19, 2017 and sponsored by Representative Blaine Luetkemeyer, removes the $50 billion asset-threshold under the Dodd-Frank Act. In place of this automatic designation, certain Dodd-Frank provisions will now apply only to institutions designated as global systemically important bank holding companies and other bank holding companies that have been designated by the US Board of Governors of the Federal Reserve System as warranting enhanced supervision and/or enhanced prudential standards.

View the full text of H.R. 3312.

The European Securities and Markets Authority has issued three consultations on technical standards under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2019, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The STS Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and SSPEs to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

Read more.

The US Board of Governors of the Federal Reserve System announced publication of a final rule repealing Regulation C. This regulation had been promulgated to implement provisions under the Home Mortgage Disclosure Act. However, pursuant to the Dodd-Frank Act, all rulemaking authority under the HMDA was transferred to the US Consumer Financial Protection Bureau. The CFPB implemented its own Regulation C in 2016, after publishing an interim final rule in 2011. The repeal of the Federal Reserve Board’s Regulation C is effective January 22, 2018. On the same day, the Federal Reserve Board also published a notice of proposed rulemaking and request for public comment regarding revisions to Regulation M, which implements the Consumer Leasing Act. Similar to Regulation C, most, but not all, of the Federal Reserve Board’s rulemaking authority under the CLA was transferred to the CFPB under Dodd-Frank. As such, the Federal Reserve Board’s proposal seeks to tailor Regulation M to reflect only the rulemaking authority under the CLA still vested with the Federal Reserve Board. Comments to the proposal are due March 5, 2018.

View FRB's final rule repealing Regulation C.

View notice of proposed rulemaking regarding Regulation M.

The European Banking Authority has launched a consultation on proposals to amend the Implementing Technical Standards specifying the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercise by those institutions that use internal approaches for market and credit risk.

Feedback gathered by the EBA from institutions and national regulators suggest that changes to the ITS on benchmarking of internal models are needed to provide clearer instructions of reporting requirements, better data validation and more relevant portfolios for which benchmark values can be calculated. The changes proposed by the EBA relate to both market risk and credit risk. Minor changes are also proposed to the reporting templates and instructions, to keep the portfolios up to date and ensure the reported data is relevant for the 2019 assessment.

Comments on the proposals are invited by January 31, 2018. The EBA also plans to hold a public hearing to discuss the proposals on January 23, 2018.

Read more.

The European Banking Authority has published a discussion paper seeking early-stage feedback on potential implementation issues arising from proposed revisions to the Capital Requirements Regulation to incorporate new international standards for counterparty credit risk and market risk. These international standards, developed by the Basel Committee on Banking Supervision, comprise: (i) the SA-CCR framework, a new standardized approach for measuring exposure at default for counterparty credit risk, which will replace both current non-internal models approaches, namely the Current Exposure Method and the Standardised Method; and (ii) the Fundamental Review of the Trading Book framework, which makes a number of revisions and enhancements to the framework for market risk following the fundamental review of the trading book undertaken by the Basel Committee.

The CRR 2 proposal published by the European Commission in December 2016 is still being discussed by the Council of the European Union and the European Parliament as part of the normal EU legislative procedure. However, the EBA has considered its draft mandates under those proposals and identified a number of issues that banks implementing the SA-CCR and/or the FRTB frameworks are likely to face, due to the need to introduce changes to infrastructures, IT systems, data management, pricing models or approximating techniques.

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The US Board of Governors of the Federal Reserve System announced the finalization of revisions to certain aspects of its Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) programs.. The Federal Reserve Board had originally requested public comment on modifications to the information collected as part of the FR Y–14A/Q/M reports applicable to bank holding companies with total consolidated assets of $50 billion or more and US intermediate holding companies on June 9, 2017. As finalized, the “global market shock” component of CCAR will now include firms that (i) are not “large and noncomplex firms” under the Federal Reserve Board’s capital plan rule and (ii) that have aggregate trading assets and liabilities of $50 billion or more, or aggregate trading assets and liabilities equal to 10 percent or more of total consolidated assets. Notably, this would include certain US intermediate holding companies of foreign banking organizations. Firms that were not previously subject to the global market shock component will not      be subject to the requirement until the 2019 CCAR/DFAST cycle. The revisions also result in an elimination or modification of certain schedules to the FR Y-14A/Q/M reports, including clarifying certain aspects of the reports. Under the initial request for comment, certain of these changes would take effect on September 31, 2017 or December 31, 2017, although the Federal Reserve Board’s final announcement extends the effective date for a number of these revisions to December 31, 2017 or March 31, 2018.

View FRB's notice.

The European Central Bank is consulting on a draft ECB guide on the assessment methodology for the internal model method and the advanced CVA capital charge for counterparty credit risk under the Capital Requirements Regulation. IMM and A-CVA are internal models used by banks to calculate counterparty credit risks for over-the-counter (OTC) derivatives and securities financing transactions.

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The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the homogeneity of underlying exposures in securitizations under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The "simple" criterion provides, among other things, that the securitization must be backed by a pool of underlying exposures that are homogenous in terms of asset type and that the underlying exposures must include obligations that are contractually binding and enforceable, with full recourse to debtors and, where applicable, guarantors. The homogeneity requirement in the STS Regulation is designed to better enable investors to assess risk and conduct robust due diligence.

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The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the US National Credit Union Administration released interagency examiner guidance regarding financial institutions affected by major disasters. In accordance with the guidance, examiners will continue to assign component and composite ratings for these affected financial institutions, taking into account how the disaster has affected certain of the ratings factors, such as capital adequacy and asset quality. The guidance also notes that examiners should evaluate management capability, but should distinguish between problems intrinsic to the management of the institution, and those problems caused by the major disaster. The guidance notes that a major disaster may result in a lower component or composite rating for an affected institution, but that formal or informal action that would typically be considered for lower-ranked institutions may not be required, taking into account the institution’s disaster recovery plan and policies, which should also be evaluated for reasonableness, among other factors. If action is required, the guidance instructs examiners to appropriately tailor the response to the specific circumstances affecting the institution.

View the interagency supervisory guidance.

The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on risk retention requirements for originators, sponsors and original lenders under the new EU securitization framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The STS 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 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.

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The US Financial Stability Oversight Council published its 2017 annual report. The report addresses topics such as financial and regulatory developments and potential emerging threats and vulnerabilities, and makes a number of recommendations with respect to these topics. The report notes that market conditions have been relatively stable over the last year, and discusses the FSOC’s rescission of its designation of two nonbank financial institutions for supervision by the US Board of Governors of the Federal Reserve System—American International Group, Inc. and General Electric Capital Corporation, Inc. One key issue in the report is the continuing and growing threat that cybersecurity risks pose to the financial system. The report notes that although progress has been made in this area, more work is required to guard against significant cybersecurity events in the future. The report also discusses FinTech initiatives, both in the context of how innovation is changing financial market structure and financial products. The report notes that while these innovations can provide great benefits, they also create new risks to, and potential vulnerabilities in, the financial system.

View the FSOC report.

The European Banking Authority has published standardized data templates for non-performing loans, following calls from the European Commission and the Council of the European Union to develop templates that would assist in developing the NPL secondary markets. The templates are not a supervisory reporting requirement, but a market standard to be used by banks on a voluntary basis.

View the EBA’s press release.

View the templates.