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Prudential Regulation Review
- Crisis management
- Rethinking the domestic and international architecture for regulation
- Disclosure, valuation and accounting
- Central Bank of Ireland
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June saw the publication of some significant EU proposals on the treatment of central counterparties (CCPs) as part of the review of the European Markets Infrastructure Regulation (EMIR). The regulatory implications of IFRS 9 were also in focus, with both the Bank of England and the European Banking Authority (EBA) publishing materials on the incorporation of the new accounting standard into stress testing, and the European Council agreeing to fast-track legislation to introduce a transitional phase-in of the impact of IFRS 9 on capital requirements.
The European Commission published a set of proposals which would create a pan-European Personal Pension Product, or “PEPP”. The Single Resolution Board (SRB) undertook its first resolution in the Eurozone with the resolution of Spain’s Banco Popular.
This note is produced for information only on a best effort basis, and does not constitute advice of any kind.
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- The European Securities and Markets Authority (ESMA) published an opinion addressed to the EU27 national regulators setting out nine general principles aimed at fostering consistency in authorisation, supervision and enforcement related to the relocation of entities, activities and functions from the United Kingdom. The opinion covered all legislation referred to in the ESMA Regulation, including the AIFMD, the UCITS Directive, MiFID I and MiFID II.
Capital (including stress testing and macro prudential)
- The EBA consulted on the draft methodology for the 2018 EU-wide stress test, covering 49 EU banks. For the first time, the methodology will account for the implementation of IFRS 9.
- The EBA sought views on the application of the structural FX provision, which allowed banks to exclude positions of a “non-trading or structural nature” for the calculation of capital requirements, provided the position had deliberately been taken to hedge against the impact of the exchange rate on the capital ratio.
- The ECB published its third biannual macro prudential bulletin, which described the ECB floor methodology for other systematically important institution (O-SII) capital buffers, the quantitative analysis of the European Deposit Insurance Scheme (EDIS) and summarised the macro-prudential measures implemented in euro area countries since October 2016.
- Vítor Constâncio, Vice-President of the ECB, gave a speech on structural and cyclical factors affecting the profitability of the euro area banking sector.
- Sabine Lautenschläger, Vice Chair of the ECB’s Supervisory Board, spoke about the importance of harmonised rules for a stable European banking market. She also spoke on bank business models, noting that “in the long run, only banks that make profits can be stable”.
- Valdis Dombrovskis, the Vice-President of the European Commission, wrote to Andrea Enria, Chair of the EBA, with respect to the CRD IV/CRR review.
- The European Commission published an Implementing Regulation extending the CRR transitional period for banks’ exposure to third-country CCPs in the Official Journal of the EU.
- The Basel Committee on Banking Supervision (BCBS) reported on the range of practices in implementing the countercyclical capital buffer (CCyB).
- The BCBS consulted on an alternative version of the Standardised Approach (SA) to market risk capital requirements. The BCBS also sought feedback on whether retaining a recalibrated version of the Basel II SA to market risk would better serve the purpose of a simplified method for calculating market risk capital requirements.
- The BCBS updated for a second time a set of frequently asked questions (FAQs) on the Liquidity Coverage Ratio (LCR). The additions covered a wide range of aspects of the LCR, including in relation to Level 2B eligible debt securities, the periodic monetisation of Higher Quality Liquid Assets, the treatment of secured funding and lending, and central bank facilities.
Governance and risk management (including remuneration)
- The EBA launched the Credit Valuation Adjustment (CVA) risk monitoring exercise using end-2016 data, and said that it would put on hold the work on its draft Guidelines on the treatment of CVA risk under the Supervisory Review and Evaluation Process (SREP) until revised international standards on CVA risk were made public.
- The ECB published its second stocktake of national supervisory practices and legal frameworks related to non-performing loans (NPLs).
- Sabine Lautenschläger spoke about four priorities for supervisors of banks: the global nature of the issue of banking regulation and the importance of focusing on the application of the rules of banking regulation; banks applying for a licence in the EU to respond to Brexit; developing ways of dealing with the issue of non-performing loans; and the complex nature of risk management models used by banks.
Crisis management (including special resolution, systemically important firms, and business continuity)
- The SRB resolved Banco Popular following the ECB’s decision that the bank was “failing or likely to fail”, and all shares of were transferred to Santander Group. Separately, the SRB announced that it would not take resolution action over two Italian banks, which were placed into national insolvency proceedings following the ECB’s determination that they were “failing or likely to fail”.
Rethinking the domestic and international architecture for regulation
- The European Commission published feedback from its consultation paper regarding the future operations of the ESAs, focusing on the ESAs’ tasks and powers, governance, supervisory architecture and funding.
Disclosure, valuation and accounting
- The European Council agreed to fast-track transitional provisions to phase-in the regulatory capital impact of the new impairment methodology under IFRS 9 as part of the CRDIV/CRR review. The Council also agreed to fast-track a Directive which would create a new class of “non-preferred” senior debt eligible to meet the subordination requirement for TLAC.
- Deloitte’s Centre for Regulatory Strategy outlines the increasingly fragmented landscape that “Basel IV” could create and sets out a divergence-resilient approach to regulatory complexity that banks can adopt to support the development of a more sustainable business model.
Central Bank of Ireland
- Central Bank Commission approves restructuring of financial regulation functions.
- A research paper by James Carroll and Fergal McCann examines how banks in Ireland treat collateral provided by SMEs against loans.
- The EBA published its 2016 annual report, which included areas of focus in the coming years.
- The UK Financial Policy Committee (FPC) published its biannual Financial Stability Report (FSR). The FSR also summarised recent work and future plans on cyber resilience.
- The ECB consulted on the methodology and criteria for calculating the annual supervisory fee, which is levied on institutions according to their status as either significant or less significant.
- The European Systemic Risk Board (ESRB) published its risk dashboard, which indicated that market-based measures of systemic stress in the EU remain low.