2017 Bank of England banking sector stress test exploratory scenario – Profitability in the spotlight

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On 27 March the Bank of England (BoE) will publish the scenarios for its 2017 banking sector stress testing exercise. For the first time, the exercise will include an ‘exploratory’ scenario. Run in alternate years alongside the now familiar annual cyclical scenario (ACS), the exploratory scenario will enable the BoE to test the resilience of the banking system to a wider range of threats.

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Posted on 23/03/2017 | 0 Comments

IFRS 9: Can a phase-in arrangement be agreed in time?

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The introduction of IFRS 9 from 1 January 2018 will have a significant effect on regulatory capital across the banking industry, with four-fifths of EU banks expecting their stock of impairments to rise under the new rules according to a Deloitte survey. The European Banking Authority’s (EBA) estimates for the increase of impairment stock (provisions), compared to the current levels under IAS 39, is 18% on average and up to 30% for some firms. This led to an estimated decrease in Common Equity Tier 1 (CET1) and total capital ratios by an average of 59 bps and 45 bps, respectively. As a result, finding a mechanism to smooth any unwanted impacts following the IFRS 9 adoption, by avoiding a capital cliff-effect on day one, has rapidly become a priority for prudential regulators.  

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Posted on 17/03/2017 | 0 Comments

A future worth banking on?

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On March 9, Emma Dunkley wrote in the Financial Times about the new app-based banks aiming to steal a march on the incumbents. In her words:

“They are not expected to take a significant share of the market from the biggest banks.”

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Posted on 15/03/2017 | 0 Comments

No margin for error: Making the margin requirements for non-cleared OTC derivatives happen

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The implementation of the mandatory exchange of initial and variation margin for non-cleared OTC derivative trades in the EU commenced on 4 February for financial counterparties with the largest derivatives portfolios. The introduction of these rules – which was part of the G20’s mandate to reduce the systemic risk posed by the OTC derivatives trading – is expected to lead to an increase in the cost of trading for non-cleared trades.

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Posted on 09/03/2017 | 0 Comments

SMR – A year on but with more to do

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7 March 2017 will mark a year since the commencement of the Senior Managers Regime (SMR) for banks, building societies, credit unions and PRA-designated investment firms. This date is also significant since it will be the go-live date for the following requirements which form part of the SMR:

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Posted on 06/03/2017 | 0 Comments

IT Risk Management practices – still fit for purpose?

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The demand for IT risk management is rapidly increasing in response to the rise in threats and the unprecedented wave of innovation spreading across the financial services industry.  Now is the time for senior financial services risk professionals to begin preparing for the array of changes that are altering the world in which we live.

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Posted on 03/03/2017 | 0 Comments

PSD2 – EBA dials up flexibility to achieve a more balanced approach

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On February 23, the European Banking Authority (EBA) published its updated, and final, Regulatory Technical Standard (RTS) on Strong Customer Authentication (SCA) and common and secure communication under the revised Payment Services Directive (PSD2).

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Posted on 28/02/2017 | 0 Comments

Make sure you’re on the right track - Internal audit of remuneration

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In recent years, the regulatory and governance framework in financial services organisations has become increasingly complex. A key area of focus has been in the area of remuneration structures, policies and processes, where there has been a significant amount of regulatory development.

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Posted on 20/02/2017 | 0 Comments

Bank provisions – an unavoidable legacy?

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Last month, RBS announced it is to increase its provisions by over GBP 3 billion in relation to investigations and litigation centred on the US residential mortgage-backed securities it underwrote.i  At the same time, the US DoJ has levied further fines exceeding USD 12bn on two European banks to settle claims of abuse within the RMBS market.ii On this backdrop, and prior to the 2016 reporting season, we thought it a suitable time to reflect on the level of provisions within European banking institutions and to explore whether the tide of regulatory penalties is starting to turn.

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Posted on 14/02/2017 | 0 Comments

IFRS 9 and the “is it a bird, or is it a bomber?” problem

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With the adoption of the IFRS 9 accounting standard into EU law, it is full steam ahead for banks to deploy credit models that estimate Expected Credit Loss (ECL) accounting values. The standard requires firms to account for lifetime ECL on loans that have experienced a “significant increase in credit risk” (SICR), but allows firms to reach their own conclusions as to just how much credit risk ought to be viewed as “significant”.

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Posted on 10/02/2017 | 0 Comments

Biased Expectations: Will biases in IFRS 9 models be material enough to impact accounting values, as well as other applications such as pricing?

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As European IFRS reporters enter 2017, the first generation of Expected Credit Loss (ECL) models have generally been developed, and granular transitional impacts quantified.

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Posted on 17/01/2017 | 0 Comments