Thomas Curry, Comptroller of the Currency provided remarks at The Clearing House’s Annual Conference, focusing on value of strong capital, the need for liquidity, and importance of effective supervision.

Curry began by highlighting that increased capital requirements, and leverage ratio requirements that supplement these capital standards, have led to large bank holding companies being projected to remain well-capitalized under most severe stress test scenario. He argued against reduction in capital and leverage requirements. He similarly emphasized the importance of strong liquidity requirements that were implemented since the financial crisis and noted that US banks have higher revenues and higher profits than their European counterparts under the new regulations.

Curry discussed the importance of “holistic” supervision, arguing that regulators and banks must continue to improve both metrics and “soft” standards of performance. Curry mentioned a trend in some banks to separate Chairmanship of the Board from the CEO position and noted that the OCC is considering whether it would make sense for all, or all of the largest, federally supervised banks to make the same change. Curry concluded by highlighting the performance of community banks and smaller institutions alongside large institutions and noting the progress made since 2008.

View  Comptroller Curry's remarks.

The Bank of England published its latest Financial Stability report. In the Report, the Financial Policy Committee explains the key risks affecting the UK financial system, how it is addressing these risks and the developments since the Brexit referendum. The Report also includes a summary of the results of the Bank of England's 2016 bank stress test.

The first part of the Report outlines in detail the Committee’s analysis of major risks posed to the stability of the UK economy and the action it is taking in light of such risks. The second part of the Report contains a summary of the Committee’s analysis of those risks and of the resilience of the financial system. The Committee comments that since the Referendum, financial stability in the UK has been maintained despite a challenging period of uncertainty around the domestic and global economic outlook. For example, there have been significant movements in asset prices, including a 12% fall in the sterling exchange rate index. The Committee also comments that the outlook for financial stability in the UK remains challenging as the economy has entered into a period of adjustment. Since July, vulnerabilities that stem from the global economic environment and financial markets have further increased, such as the expected expansionary fiscal policy that could follow the recent US election. The Committee comments that the UK banking system is capitalized to sustain the provision of financial services when faced with severe stresses. Since the global financial crisis, UK banks have built up capital resources with the aggregate common equity Tier 1 capital held by major UK banks now at 13.5% of risk-weighted assets (as at September 2016).  

Read more.

Antonio Weiss, Counselor to the US Treasury Secretary, argued that the FSOC has become a “critical nerve center during episodes of market volatility or stress,” providing a forum to assess system-wide risks, which was missing during the financial crisis. In the speech, Weiss stated that the establishment of FSOC has improved the ability of regulators to share information and collaborate in a way that no single regulator can do on its own.

View text of Weiss’s remarks.
 

The European Banking Authority announced the launch of a second impact assessment on the implementation of International Financial Reporting Standard 9. The second impact assessment builds on the findings in the first impact assessment that was published by the EBA in a report on November 10, 2016. The Report analyzes the estimated impact of implementing IFRS 9 on firms and their regulatory capital and assesses the interaction between IFRS 9 and other prudential requirements. The implementation efforts by firms (such as the development of processes, systems and models) are ongoing and the EBA expects that implementation measures will continue to evolve until at least the initial application of IFRS 9 on January 1, 2018. The EBA highlights that smaller banks are lagging in preparation compared to larger banks and notes that firms should not underestimate the work required to implement IFRS 9.

The second impact assessment will include questions focused on specific aspects around the main topics and findings from the first impact assessment. The EBA expects more detailed and accurate information from banks relating to their implementation of IFRS 9 than the previous assessment, as the information previously given reflected that banks were at an early stage of implementation.

Read more. 

The European Banking Authority published translations of the final Guidelines on implicit support for securitization transactions under the Capital Requirements Regulation. The substantive content of the Guidelines is unchanged since the final Guidelines were published in August 2016. The publication of the translations triggers the application of the Guidelines which will apply from March 1, 2017.

Examples of relevant transactions include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR places restrictions on providing implicit support to securitizations. These rules apply in addition to the so-called "skin in the game" requirements on originators to retain part of the risk on securitizations. To prevent uncapitalized risks of implicit support, the CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR also states that a transaction is not considered to provide support to a securitization if it is executed under arm’s-length conditions and taken into account in the assessment of significant risk transfer. The CRR requires a sponsor or originator institution that has failed to comply with this requirement to, at a minimum, hold own funds against all of the securitized exposures as if they had not been securitized.

Read more.

The US Federal Reserve Board issued a final rule, amending Regulation I to implement provisions of the Fixing America’s Surface Transportation (FAST) Act, a five-year bill that reauthorized, at then-current levels, the core programs providing federal transportation funding to the states. The final rule adopts substantively all of the provisions of the interim final rule issued in February of this year. The rule will reduce the dividend rate for banks with total assets of more than $10 billion to the lesser of 6% or the most recent 10-year Treasury auction rate prior to the dividend payment. The rule also adjusts the treatment of accrued dividends when a Federal Reserve Bank issues or cancels capital stock owned by a large member bank.

View text of the rule.

The European Commission published a package of proposed legislative amendments in relation to the Bank Recovery and Resolution Directive, the Single Resolution Mechanism Regulation, the Capital Requirements Regulation and the Capital Requirements Directive. The amendments aim in part to introduce some of the revised global prudential standards from latest FSB/Basel developments, to apply a more proportionate approach to regulating banks and investment firms depending on their size and complexity and to remove some of the options and discretions that are currently available to EU Member States.

The changes to CRR and CRD IV include a new requirement on non-EU G-SIBs (or non-EU banking groups that have EU firms with total assets of at least EUR 30 billion) that have two or more EU firms to establish an EU intermediate holding company.  This controversial proposal does not square well with US or other third country bank structural laws nor will it be reflected in banks' existing resolution and recovery plans, and so will doubtless be a contentious issue as it is developed further.

Read more.

The European Banking Authority published a Report and the final draft Regulatory Technical Standards under the Capital Requirements Regulation on the assessment methodology national regulators should use when a firm applies for approval to calculate their own funds requirements using their internal models for one or more risk categories. In particular, the final draft RTS cover: (i) the methodology for national regulators to assess whether a firm complies with the requirements to use an Internal Model Approach for market risk; and (ii) the conditions under which national regulators assess the significance of the positions that will be included in the scope of an IMA. When finalizing the final draft RTS, the EBA took into account, to the extent possible under the existing CRR, the Fundamental Review of the Trading Book that the Basel Committee on Banking Supervision published in January 2016. The final draft RTS have been submitted to the European Commission for consideration.

View the final draft RTS.

The European Banking Authority published a response to the European Commission’s request for further information on the EBA’s Opinion on the application of the principle of proportionality to remuneration provisions in the Capital Requirements Directive. On December 21, 2015, the EBA published its first Opinion, recommending a possible set of exemptions from some of the remuneration principles, specifically the variable elements of remuneration. The EBA's proposed amendments included: (i) the application of deferral arrangements; (ii) the pay out in instruments for small and non-complex institutions; and (iii) for identified staff that receive only a low amount of variable remuneration when specific criteria are met. The Commission requested further information from the EBA through a letter dated April 21, 2016 on the issue of proportionality. The EBA responded on May 27, 2016, noting the scope of its then-planned analysis and the limitations on such a response given the timing and available data resources.

The EBA found that all but five Member States allow for waivers in the areas of remuneration, that most Member States permit the application of waivers through thresholds based on balance total or by making case-by-case assessments. The EBA concluded that the extent to which banks and identified staff benefit from waivers differs significantly across the EU. 

Read more.

The Financial Stability Board published an updated list of global systemically important banks. The 2016 list of G-SIBs includes the same banks as those in the 2015 list. However, some banks have moved to a higher or lower bucket due to improved data quality, changes in underlying activity and/or the use of supervisory judgement. 

View the 2016 list of G-SIBs.

The US Federal Reserve Board announced that it was broadening the scope of post-employment restrictions applicable to senior examiners and officers of Federal Reserve Banks. The revised rule broadens the one-year bar on accepting paid work from a financial institution from applying to only examiners who are “central points of contacts” (CPCs) to include deputy CPCs, senior supervisory officers (SSOs), deputy SSOs, enterprise risk officers and supervisory team leaders. The new policy also prohibits former Federal Reserve Bank officers from representing third parties before current Federal Reserve employees for one year after leaving their position, and imposes a one-year ban on current employees discussing official business with these former officers.

The restriction on former officers became effective on December 5, 2016, and the restriction on senior examiner employment will become effective on January 2, 2017.

View press release.

The European Banking Authority published a list of public sector entities that may be treated as regional governments, local authorities or central governments when firms are calculating their capital requirements to EU public sector entities for credit risk purposes under the Capital Requirements Regulation. Exposures to the public sector entities that are included in the EBA's list will attract the same risk weight as the respective regional governments, local authorities or central governments. The EBA has compiled the list on its own initiative to enhance harmonization across the EU in this area.

View the EBA's list. 

Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee, gave a speech to the Exchequer Club laying out a potential financial regulatory agenda for the Trump Administration and Congressional Republicans to pursue. He began by calling for thwarting the Department of Labor’s fiduciary rule, as well as preventing the Consumer Financial Protection Bureau from regulating small dollar, “payday” loans.

Read more.

The European Banking Authority published for consultation draft amending Implementing Technical Standards to amend the current ITS on supervisory reporting of firms as amended by the ITS on additional monitoring metrics for liquidity reporting. Under the Capital Requirements Regulation, banks are subject to liquidity reporting requirements. The ITS on supervisory reporting include provisions on a firm's liquidity reporting requirements. Additional monitoring metrics for liquidity were added to the ITS in March 2016. The EBA's final draft ITS on those additional monitoring metrics included a maturity ladder templates and instructions which were removed by the European Commission before it adopted the ITS. The European Commission has since requested the EBA to update the maturity ladder in line with the detailed information of liquid assets as set out in the Delegated Act on the Liquidity Coverage Ratio. The EBA's proposed amending ITS are mostly concerned with reintroducing a maturity ladder in line with the reporting requirements provided for in the LCR Delegated Act. The EBA is due to submit the final revised draft ITS in March/April 2017. It is expected that the revised reporting requirements would apply from March 2018. The consultation closes on January 2, 2016. 

View the consultation paper. 

The Government Accountability Office released a report highlighting limitations in the Federal Reserve stress testing programs. The GAO report noted three specific areas that could hinder the effectiveness of stress tests: qualitative assessment disclosure and communication, scenario design and model risk management. Specifically, the GAO faulted the Federal Reserve for not disclosing full information on its qualitative assessment approach, posing challenges to companies that must meet assessment goals and for not analyzing whether the severe scenario used for stress testing adequately reflects a full range of possible outcomes in the event of a crisis. The GAO report makes 15 specific recommendations, which it reported that the Federal Reserve “generally agreed” with and noted specific ongoing and future efforts to implement these recommendations.

View GAO press release.

View the report.

The Board of the FDIC approved a final rule establishing recordkeeping requirements for FDIC-insured institutions with more than two million deposit accounts. Such institutions are required to maintain complete and accurate data on each depositor and to implement information technology systems capable of calculating the amount of insured money for depositors within 24 hours of a failure. The final rule also established alternative requirements for certain deposit accounts with “pass through” deposit insurance coverage, including trust and brokered deposits, allowing for institutions to process these accounts during a longer time period after a failure. The rule will become effective on April 1, 2017.

View FDIC press release.

View final rule.

Guidelines laying down principles for the coordination of the assessment and monitoring by the European Central Bank and regulators of institutional protection schemes pursuant to the Capital Requirements Regulation was published in the Official Journal of the European Union. The Guidelines are applicable to Single Supervisory Mechanism regulators, which includes the ECB and regulators of the participating states. The Guidelines relate to the assessment of IPSs for the purpose of granting prudential permissions and waivers to IPS members pursuant to the CRR and to the monitoring of IPSs that have been recognized for prudential purposes. The Guidelines apply where member institutions simultaneously submit their application for prudential waivers. An IPS is a contractual or statutory liability arrangement that protects its member institutions and ensures that they have the liquidity and solvency needed to avoid bankruptcy where necessary. The CRR requires that regulators must approve and monitor the adequacy of the IPS’s systems for the monitoring and classification of risk and further requires that the IPS conducts its own review. Regulators may allow for certain derogations by an IPS member from certain CRR requirements. The Guidelines outline the process for regulators in making decisions relating to members of the same IPS that consist of both significant and less significant credit institutions. The purpose of the Guidelines is to ensure that regulators apply the same criteria when assessing IPS applications from less significant institutions and consistently monitor ongoing legal requirements. SSM regulators must comply with the Guidelines by December 2, 2016.

View the Guidelines.

The European Central Bank published for consultation draft Guidance on the fit and proper assessment of members of management bodies of significant banks. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism. The purpose of the draft Guidance is to outline how the ECB will evaluate the qualifications, skills and proper standing of a candidate for becoming a member of a management body. The draft Guidance builds on the current draft guidance under the Capital Requirements Directive and the revised Markets in Financial Instruments Directive published by the European Securities and Markets Authority and the European Banking Authority on October 28, 2016. The assessment criteria for the fitness and proprietary of members of the management body are outlined in the draft Guidance. The criteria include experience, reputation, conflicts of interest and independence of mind, time commitment and collective suitability. The draft Guidance provides information on the purpose, scope and type of interviews conducted by the ECB of appointees. The draft Guidance highlights how a decision is taken by the ECB after every fit and proper assessment and the various types of decisions that may be taken. The draft Guidance also notes that under the SSM Regulation, the ECB has the power to remove, at any time, members from the management body of a significant supervised entity who do not fulfill the fit and proper requirements, which is provided for in the SSM Regulation. The ECB is seeking feedback on its draft Guidance by January 20, 2017.

View the draft Guidance.

The European Banking Authority published a consultation paper proposing revisions to the Implementing Technical Standards on supervisory reporting.The ITS on supervisory reporting collate the prudential reporting requirements of banks under the Capital Requirements Regulation, related technical standards and other financial information required by national regulators. The ITS on supervisory reporting are updated when prudential or supervisory requirements change. The EBA is proposing to revise the ITS in relation to supervisory reporting in order to address weaknesses in the existing supervisory reporting requirements concerning sovereign exposures. The EBA has identified areas where additional information or gaps should be filled. In addition, the EBA is proposing to amend the ITS on supervisory reporting in relation to operational risk so that national regulators can more closely monitor losses due to operational risk events and analyze the drivers behind those events that lead to material losses, in particular for larger banks.

The EBA intends to submit the final draft revised ITS to the European Commission in March or April 2017. The revised reporting requirements are expected to apply from March 1, 2018. Responses to the consultation are requested by January 7, 2017.

View the consultation paper.

The European Banking Authority published a consultation paper on proposed Guidelines on the application of the Internal Ratings-Based approach, in particular, the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets. The draft Guidelines focus on the definitions and modelling techniques used in the estimation of risk parameters for both non-defaulted and defaulted exposures. The Guidelines aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms which the EBA raised in its Opinion and Report on the implementation of the regulatory review of the IRB approach to calculating risk-weighted exposure amounts for credit risk, published in February 2016. 

Responses to the consultation are due by February 10, 2017. The EBA is proposing that the Guidelines would apply from the end of 2020 due to the numerous changes to rating systems that the Guidelines would involve.
 
View the consultation paper. 

View the EBA's Opinion and Report on the implementation of the IRB approach.

The European Securities and Markets Authority issued a public Statement on the implementation of IFRS 9. The purpose of the Statement is to promote consistent application of European securities and markets legislation, and more specifically, International Financial Reporting Standards. ESMA notes that issuers of securities admitted to trading on regulated markets and their auditors should take the public statement into consideration during the implementation of IFRS 9; in particular, when disclosing and auditing its effects on such financial statements. ESMA is of the view that in most cases it would be appropriate to provide disclosures about changes in accounting policies and impacts on an entity’s financial statements in the period of initial application already prior to the entity’s 2017 annual financial reports.  ESMA highlights that IFRS 9 is expected to have significant impacts on firms and, in particular, on credit institutions, due to the new classification for financial assets as well as implementation of the new impairment model based on the ECL. ESMA's Statement provides an illustrative timeline for implementation and a non-exhaustive list of good practices of disclosure when issuers (in general, and not limited to financial institutions) expect the application of IFRS 9 to have a significant impact on their financial statements. ESMA notes that each individual issuer should take into account materiality and its individual circumstances to ensure that relevant and transparent financial information is provided to users of its financial statements. 

View ESMA’s Statement.

The European Banking Authority published a Report outlining observations from its impact assessment on the implementation of International Financial Reporting Standard 9.  The report analyzes the estimated impact of implementing IFRS 9 on firms and assesses the interaction between IFRS 9 and other prudential requirements. The impact assessment was launched in January 2016 on a sample of approximately 50 firms. The implementation efforts by firms (such as the development of processes, systems and models) are ongoing and the EBA expects that implementation measures will continue to evolve until at least the initial application of IFRS 9 from January 1, 2018. The EBA highlights that smaller banks are lagging in preparation compared to larger banks and notes that firms should not underestimate the work required to implement IFRS 9. The EBA is proposing further steps to assist in monitoring the implementation of IFRS 9, including a second exercise on the impact of IFRS 9, ongoing dialogue on the implementation issues outlined in the Report through engagement with the EBA, firms and auditors and considering additional regulatory guidance on the interaction between existing prudential requirements and the applicable accounting framework, including any guidance on transitional arrangements for the application of revised accounting frameworks and clarifications regarding the current regulatory technical standards for specifying specific credit risk adjustments and general credit risk adjustments.

View the Report.

The Prudential Regulation Authority published its final Supervisory Statement on the relationship between a firm's Minimum Requirement for own funds and Eligible Liabilities (MREL) and capital and leverage buffers as well as the relationship between MREL and the PRA's Threshold Conditions which are a set of minimum requirements that authorized firms must meet in order to continue carrying out their regulated activities. The PRA also provided feedback on the responses to its consultation on its proposed approach. The PRA is maintaining its proposed approach without any substantive changes but has amended the Supervisory Statement to provide clarity to firms. The PRA's approach is to prohibit firms from being able to double-count common equity Tier 1 capital towards MREL and to risk-weighted capital and leverage buffers. Some guidance has been given on enforcement: when a firm is in breach of its MREL requirements, the PRA may investigate whether that firm is failing or likely to fail to meet the Threshold Conditions, although investigation will not be automatic. The PRA's Supervisory Statement should be read in conjunction with the Bank of England's policy documents on setting MREL. The PRA will apply the MREL buffer and Threshold Conditions policies in line with the interim and end-state MREL dates set by the BoE. A firm that cannot meet its MREL requirement should notify the PRA promptly.

View the PRA's Policy Statement on buffers and capital requirements for MREL.

View the PRA's Supervisory Statement on buffers and capital requirements for MREL.

The Bank of England published the final rules on implementing the EU Minimum Requirement for own funds and Eligible Liabilities (MREL). This is the equivalent of the US Total Loss Absorbing Capacity (known as TLAC) rule. Under the Bank Recovery and Resolution Directive and related UK legislation, the BoE is responsible for directing relevant firms to maintain MREL. 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 UK authorized banks, building societies and PRA-designated investment firms, parent undertakings of those firms that are financial holding companies and to UK authorized subsidiaries of such firms.

Read more.

The European Banking Authority published a consultation paper on proposed technical standards on the information to be provided by applicant banks to national regulators in support of their applications for authorization. The Capital Requirements Directive requires a bank to obtain authorization before it begins its operations. Member states set out the requirements for the authorization in their country which means that different standards apply across the EU. At the moment, national regulators stipulate the information required to be submitted in support of a bank's application for authorization and the requirements around the application process. CRD IV requires the EBA to prepare Regulatory Technical Standards setting out the information to be provided in support of an application for bank authorization, requirements applicable to shareholders and qualifying holdings and obstacles which may prevent the effective exercise of supervisory powers by a national regulator. The EBA is also required to prepare Implementing Technical Standards setting out the forms, templates and procedures relating to an authorization application. Once the RTS and ITS enter into force, the requirements will be directly applicable across the EU, largely replacing the existing national regimes on information requirements for authorization applications. However, the proposed RTS do allow some flexibility for national regulators to require additional information from an applicant and provide that information is not required where a national regulator has waived a certain authorization requirement for a particular applicant bank. The EBA is proposing that an application for authorization includes, amongst other things, information on a bank's identification and history, own funds, the proposed activities the bank intends to carry out, shareholders and close links, organizational structure and internal audit policies and infrastructure.

Read more. 

The US OCC announced that it will launch a web-based system for banks to file licensing and public welfare investment applications and notices early next year. The Central Application Tracking System will allow OCC-supervised institutions to draft, submit and track applications and notices online. The system also will allow OCC staff to receive, process and manage those submissions online. The first phase of the system’s rollout will start on January 17, 2017, with the second and third phases set to begin that spring. The new system will replace the current OCC systems, e-Corp and CD-1 Invest. Before the phase 1 rollout, the OCC will provide webinars and resources to explain registration and use of the new system.

View the OCC press release.

The European Banking Authority published a Report on the impact of the adoption into EU legislation of the new international frameworks for counterparty credit risk and market risk. The EBA Report responds to Calls for Advice from the European Commission received in April 2016, as part of the Commission's review of the Capital Requirements Regulation.

As part of its review, the Commission is considering the impact of implementing the Basel Committee on Banking Supervision's framework for market risk, known as the fundamental review of the trading book (FRTB), published in January 2016 and the new standardized approach for the calculation of the exposure value of derivatives, known as SA-CCR, published in March 2014. The Commission asked the EBA to provide technical advice assessing the impact for EU banks resulting from the adoption of the Basel Committee's framework on market risk and whether any adjustments to that framework would be appropriate. The EBA was also asked for advice on the impact of implementing the SA-CCR, including the proportionate application of SA-CCR to smaller firms.

Read more.

The European Central Bank launched a consultation on proposals to harmonize how Euro member state national regulators of less significant banks exercise the options and discretions available to them under the Capital Requirements Regulation and Capital Requirements Directive. The ECB has already harmonized the application of options and discretions for the banks that it directly prudentially supervises under the Single Supervisory Mechanism. The ECB considers that it is appropriate to develop a harmonized approach of supervision for all banks within the SSM, to ensure the smooth functioning of the whole euro area banking system. To do so, the ECB is intending to adopt a Guideline, which would be legally binding, and a Recommendation, which would not be legally binding. The options and discretions relate to own funds requirements, capital requirements, large exposures, liquidity and transitional provisions. The consultation closes on January 5, 2017.

View the proposed Guideline.

View the proposed Recommendation.

View further information about the ECB's proposals.

The European Banking Authority published a discussion paper on the design for a new framework for applying prudential standards to non-bank investment firms that are not deemed to be systemically important. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second CfA in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them. The EBA published an Opinion on the criteria aspect of the CfA on October 20, 2016.

Read more.

The European Banking Authority launched a consultation on draft revised Guidelines on internal governance for credit institutions and investment firms. The EU Capital Requirements Directive imposes governance requirements on banks and investment firms which include, amongst other things, requirements to have robust governance arrangements, to establish a risk committee and nomination committee and to have adequate risk management processes and internal controls. CRD requires the EBA to develop Guidelines on internal governance. The proposed new Guidelines set out the internal governance arrangements, processes and mechanisms that firms must implement to ensure effective management of the firm. The Guidelines will apply to a firm's governance arrangements, including their organizational structure and processes to identify, manage, monitor and report risks that they may be exposed to, taking into account the three lines of defense model. The EBA's current Guidelines on internal governance, published on September 27, 2011, will be repealed when the new Guidelines enter into force. Responses to the consultation are due by January 28, 2017.

View the consultation paper and proposed revised Guidelines.

View the current Guidelines.

The European Banking Authority and the European Securities and Markets Authority launched a joint consultation on proposed Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders. The revised Markets in Financial Instruments Directive and the Capital Requirements Directive require firms to assess the suitability of members of their management body. Firms subject to CRD must all assess the suitability of all key function holders that have a significant influence over the direction of the firm. The proposed Guidelines provide criteria for assessing the individual and collective knowledge, skills, experience, reputation, honesty, integrity and independence of members of the management body. The proposed Guidelines also include a framework for assessing whether individual members of management commit sufficient time to performing their duties, set out how diversity should be taken into account in the selection process for members of the management body and provide for appropriate financial and human resources to be allocated to induction and training.

View the consultation paper.

The US Board of Governors of the FRS announced the annual indexing of reserve requirement exemption amount and low reserve tranche, two amounts used in determining reserve requirements of depository institutions under Regulation D.

All depository institutions must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank or as a deposit in a pass-through account at a correspondent institution. Reserve requirements currently are assessed on the depository institution’s net transaction accounts (mostly checking accounts). Depository institutions must also regularly submit reports of their deposits and other reservable liabilities.

For net transaction accounts in 2017, the first $15.5 million, up from $15.2 million in 2016, will be exempt from reserve requirements. A three percent reserve ratio will be assessed on net transaction accounts over $15.5 million up to and including $115.1 million, up from $110.2 million in 2016. A ten percent reserve ratio will be assessed on net transaction accounts in excess of $115.1 million.

The new low reserve tranche and reserve requirement exemption amount will apply to the 14-day reserve maintenance period that begins January 19, 2017. The Federal Reserve Board also announced changes in two other amounts, the nonexempt deposit cutoff level and the reduced reporting limit, that are used to determine the frequency with which depository institutions must submit deposit reports.

View the Federal Reserve Board final rule.

The US Federal Reserve Board announced that it had voted to affirm the countercyclical capital buffer at the current level of zero percent. The release notes that the CCyB is a macroprudential tool that can be used to raise capital requirements on internationally active banking organizations when such organizations are exposed to an elevated risk of above-normal future losses. In such circumstances, the CCyB would be available to help banking organizations absorb higher losses and to moderate credit supply fluctuations.

The Federal Reserve Board’s release noted that the Federal Deposit Insurance Corporation and the OCC were consulted before the Federal Reserve Board voted on this decision. Should the Federal Reserve Board in the future modify the CCyB amount, banking organizations would have twelve months before an increase becomes effective unless the Federal Reserve Board decides on an earlier effective date.

View the Federal Reserve Board press release.

The European Banking Authority published a report outlining its response to the Commission's call for advice, published on April 26, 2016, on the review of the large exposures framework laid down in the Capital Requirements Regulation. The Commission is considering whether to implement the agreed Basel Committee on Banking Supervision framework for measuring and controlling large exposures by modifying the CRR through a legislative proposal before the end of 2016. The EBA's Report analyzes the impact of aligning certain aspects of the large exposures framework pursuant to the CRR.

Read more.

The European Banking Authority published for consultation draft Implementing Technical Standards on the reporting requirements of the minimum requirements for own funds and eligible liabilities. The ITS set out the procedures and templates for the identification and transmission of information by resolution authorities to the EBA on the MREL that has been set for each firm. The Bank Recovery and Resolution Directive requires national resolution authorities to set individual levels of MREL for each firm. MREL is the EU equivalent of US Total Loss-Absorbing Capacity (TLAC). The consultation closes on November 21, 2016.

View the consultation paper.

The European Banking Authority published an Opinion on the criteria for identifying investment firms to which the EU regulatory capital requirements legislation should apply. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second Call for Advice in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them.

Read more.

The US Federal Reserve Board issued letters to two banks, granting relief from certain US risk committee requirements under Regulation YY in light of certain home country corporate governance requirements and practices of the banks involved. Regulation YY requires foreign banking organizations with combined US assets of more than $50 billion but US non-branch assets of less than $50 billion to establish a US risk committee as a committee of the global board of directors, on a standalone basis, or as a joint committee with its enterprise-wide risk committee. One member of the committee must not be an officer or employee of the company or its affiliates (or an immediate family member of a person who is an executive officer of the company or its affiliates).

Read more.

The European Banking Authority published final Guidelines on the correction required for the calculation of Modified Duration for debt instruments subject to prepayment risk under the Capital Requirements Regulation. The CRR establishes two methods to calculate capital requirements for general interest rate risk. The relevant methods are the Maturity-Based calculation and the Duration-Based calculation of general risk. The final Guidelines apply to the Duration-Based calculation. The Duration-Based calculation uses the concept of Modified Duration pursuant to the formulae outlined in the CRR. This method is only valid for instruments that are not subject to repayment risk. The EBA has is mandated to issue guidelines establishing how to correct the Modified Duration calculation to reflect prepayment risk. The EBA has proposed two approaches to correct the calculation. One option is to treat the debt instrument with prepayment risk as if it is a combination of a plain vanilla bond and an embedded option. The Modified Duration of the plain vanilla bond is therefore corrected with the change in value of the embedded option; which is estimated according to its theoretical delta, resulting from a 100 basis point movement in interest rates. The other option is directly to calculate the change in value of the whole instrument subject to a repayment risk resulting from a 100 basis point movement in interest rates. The Guidelines will apply from March 1, 2017.

View the final Guidelines.

The European Securities and Markets Authority published two sets of final Guidelines on Sound Remuneration Policies under the Undertakings for Collective Investments in Transferable Securities Directive and the Alternative Investment Funds Management Directive. The Guidelines follow ESMA’s final report that was published in March of this year.

The UCITS Sound Remuneration Guidelines will apply to management companies, including those that are subsidiaries of credit institutions subject to sector-specific remuneration principles, and investment companies that have not designated a management company authorized under the UCITS Directive. The Guidelines set out the obligations of the management company to manage its financial situation and the governance of remuneration (which includes issues such as the design, approval and oversight of the remuneration policy) and outline the requirements for establishing and applying remuneration policies and practices for management companies and their identified staff, specifying the categories of identified staff. 

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The Basel Committee on Banking Supervision published the final Standard for Total Loss Absorbing Capacity holdings. The Financial Stability Board published the TLAC requirements for global systemically important banks in November 2015, which set a minimum requirement for TLAC for G-SIBs, including a Term Sheet implementing the requirements. The Term Sheet states that G-SIBs must deduct, from their own TLAC or regulatory capital, exposures to TLAC instruments and liabilities issued by other G-SIBs and calls on the Basel Committee to further specify these requirements. The Basel Committee consulted in November 2015 on the proposed treatment of TLAC holdings in G-SIBs. 

The TLAC holdings standard will require banks to deduct holdings of TLAC instruments that are not already included in regulatory capital from their own Tier 2 capital, subject to the thresholds that apply to existing holdings of regulatory capital and an additional 5 per cent threshold for non-regulatory-capital TLAC holdings only. In addition, instruments that are ranked at the same level as subordinated forms of TLAC must also be deducted. 

The TLAC holdings standard will apply to G-SIBs and non-G-SIBs from January 1, 2019 for investments in
most G-SIBs which is the same time that the TLAC requirements apply. The TLAC holdings standard will apply later for G-SIBs headquartered in emerging market economies. 

View the final Standard.

A Commission Implementing Regulation containing Implementing Technical Standards on the mapping of assessments by Credit Rating Agencies for securitization positions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR permits the risk weights under the standardized and internal ratings based approaches for securitization positions to be determined, if applicable, based on the credit quality of the positions. This credit quality is determined by reference to credit ratings issued or endorsed by ECAIs (i.e., credit rating agencies that are registered or certified under the EU Credit Rating Agency Regulation). The ITS determine the mapping between credit ratings and the credit quality steps for the allocation of risk weights set out in the CRR for securitization positions. The ITS enter into force from November 1, 2016.

View the ITS on mapping of credit assessments for securitizations.

A Commission Implementing Regulation containing the Implementing Technical Standards on the mapping of credit assessments to risk weights of External Credit Assessment Institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR requires the credit ratings scales used by ECAIs (i.e., credit rating agencies that are registered or certified under the EU Credit Rating Agency Regulation) to be mapped to the risk weights categories in the CRR. 

The European Commission has adopted ITS that amended the final draft ITS submitted by the European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority). This is despite the ESAs rejecting the Commission's proposed amendments in an Opinion published in May 2016. 

The ITS aim to ensure sound credit assessments to encourage financial stability in the EU and determine an objective approach for attributing risk weights to assessments carried out by ECAIs. 

View the ITS on mapping of credit assessments for credit risk.

The Basel Committee on Banking Supervision published a consultation paper and discussion paper on the regulatory treatment of accounting provisions under the Basel III capital framework and related policy considerations. The International Accounting Standards Board and the US Financial Accounting Standards Board have adopted new provisioning standards that require the use of expected credit loss models rather than incurred loss models - the International Financial Reporting Standard (IFRS) 9 and the Current Expected Credit Losses (CECL), respectively. These standards modify provisioning standards to incorporate forward-looking assessments in the estimation of credit loss. The new IASB Standards will apply from January 1, 2018, although earlier application is permitted. The new FASB Standards will apply from January 1, 2020 for certain banks that are public companies and from 2020 for all other banks, although early application by all banks is permitted from 2019. The Basel Committee is considering the implications of new ECL models for regulatory capital because the new models will result in fundamental changes to the provisioning practices of banks. The consultation paper sets out the current regulatory treatment of provisions as well as the Basel Committee’s proposal to retain, for an interim period, the current regulatory treatment of provisions under the standardized and the internal ratings-based approaches. In particular, the Committee is proposing that, in the interim period, jurisdictions would extend their existing approaches to categorizing provisions as general provisions (GP) and specific provisions (SP) to provisions measured under the applicable ECL accounting model.

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The European Banking Authority published an updated Report on the monitoring of Additional Tier 1 instruments and standardized templates for AT1 instruments. This follows a consultation in July 2016. The Capital Requirements Regulation sets out the eligibility criteria for AT1 instruments, which are further detailed in Regulatory Technical Standards. The CRR requires the EBA to review the quality of own funds instruments issued by banks across the EU. The Report sets out the results of its monitoring the issuances of AT1 capital instruments, assessing the terms and conditions of selected issuances against the criteria provided for in CRR and the related RTS. The Report is based on the review of 33 AT1 issuances from EU banks, which took place between August 2013 and December 2015, for a total amount of EUR 35.5 billion. The Report sets out detailed analysis of some of the clauses reviewed, including the EBA's views on those clauses, and interpretation of some of the CRR provisions, in particular the provisions relating to triggers.  

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The European Banking Authority launched a consultation on the proposed Guidelines for the assessment of Information and Communication Technology risk under the Supervisory Review and Evaluation Process. The increasing complexity of ICT risk in the banking industry and the increasing potential adverse prudential impact such risks pose to individual firms and on the sector as a whole has led the EBA to propose the Guidelines. The purpose of the proposed Guidelines is to promote common procedures and methodologies for regulators throughout the EU when they are conducting supervisory assessments of a firm's governance and strategy on ICT and a firm's exposures and controls, as required by the Capital Requirements Directive. National regulators should apply the Guidelines to their assessment of firms proportionately, as set out in the EBA SREP guidelines. The proposed Guidelines should be read alongside the EBA SREP Guidelines. Responses to the consultation are due by January 6, 2017.          

View the draft Guidelines.

View the EBA SREP Guidelines. 

The Bank of England announced that the results of the UK 2016 banking stress test would be reported to the relevant firms involved on November 29, 2016 and published on November 30, 2016. The 2016 test is the first to be designed under the new approach to stress testing published in October 2015 and covers seven UK banks and building societies: Barclays plc, HSBC Holdings plc, Lloyds Banking Group plc, Nationwide Building Society, The Royal Bank of Scotland Group plc, Santander UK plc and Standard Chartered plc. 

The Bank also announced that for the first time the UK stress test next year will include two scenarios: the annual cyclical scenario, which assesses the risks to the banking system resulting from the financial cycle, and an additional "exploratory" scenario which assesses a bank's resilience to a wider range of potential threats. 

View the announcement.

The European Banking Authority published final Guidelines on implicit support for securitization transactions under the Capital Requirements Regulation. Examples of such transactions include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR places restrictions on providing implicit support to securitizations. These rules apply in addition to the so-called "skin in the game" requirements on originators to retain part of the risk on securitizations. To prevent uncapitalized risks of implicit support, the CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR also states that a transaction is not considered to provide support to a securitization if it is executed under arm’s length conditions and taken into account in the assessment of significant risk transfer. The CRR requires a sponsor or originator institution that has failed to comply with this requirement to, at a minimum, hold own funds against all of the securitized exposures as if they had not been securitized. The Guidelines set out an objective test in relation to the definition of arm's length conditions.

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The Prudential Regulation Authority published a Policy Statement and Supervisory Statement setting out its final policy approach to underwriting standards for buy-to-let mortgage contracts. The Supervisory Statement sets out the minimum standards that firms should use to underwrite buy-to-let mortgage contracts, including minimum requirements for affordability assessments. It also clarifies that the PRA's expectation is that the reduction of capital requirements under the Capital Requirements Regulation for loans to small and medium-sized enterprises should not be applied where the purpose of the loan is to fund a buy-to-let business. The standards will apply to all PRA-regulated firms undertaking buy-to-let lending that are not subject to regulation by the Financial Conduct Authority. The PRA expects firms within scope to ensure that the standards are adopted by other firms within their groups that undertake buy-to-let lending. 

The new standards will need to be implemented by relevant firms by January 1, 2017 for the interest cover ratio tests and interest rate affordability stress tests. The remaining standards will need to be implemented by September 30, 2017.
 
View the Policy Statement.

View the Supervisory Statement. 

A Commission Implementing Regulation amending Regulatory Technical Standards on the reporting of financial information under the Capital Requirements Regulation was published in the Official Journal of the European Union. The RTS lay down uniform requirements in relation to supervisory reporting to regulators, pursuant to the Capital Requirements Regulation, in the following areas: (i) own funds requirements and financial information; (ii) losses stemming from lending collateralized by immovable property; (iii) large exposures; (iv) leverage ratio; and (v) Liquidity Coverage requirements and Net Stable Funding Requirements. The amending Regulation amends the definitions, templates, and instructions used for the purposes of supervisory reporting. The amending Regulation is based on draft RTS submitted by the European Banking Authority in March 2016. The amending Regulation will enter into force on October 19, 2016 and will apply from December 1, 2016 with the first reporting date being December 31, 2016.

View the amending Regulation. 

The European Banking Authority published the final Guidelines specifying the application of the definition of default in relation to the Internal Ratings Based Approach and the Standardized Approach under the Capital Requirements Regulation. The CRR sets out the definition of default of an obligor that is used for the purposes of the IRB and Standardized Approaches. The purpose of the Guidelines is to harmonize the definition of default across the EU framework so that EU banks apply regulatory requirements to their capital positions in a more consistent and comparable way, especially in the context of IRB models. The Guidelines expand on various aspects of the application of the definition of default including the “days past due” criterion for default identification, indications of unlikeliness to pay, specific aspects of the application of the definition of default for retail exposures, application of the default definition in a banking group, treatment of external data and criteria for a return to non-defaulted status.