Cyber risk and regulation for European banks

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2018 will be an important year for the regulation of cyber resilience in banks. Indeed, almost three quarters of the G20 Financial Stability Board’s members recently indicated that they intend to release new standards or supervisory initiatives on cyber security in the year ahead. As part of this drive, regulators are not only likely to clarify their expectations for the level of cyber resilience they expect to see in banks, but they will also begin to intervene more actively when they observe deficiencies.

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Posted on 20/02/2018 | 0 Comments

Effective governance of algorithmic trading in wholesale markets

Algo Trading blog_image

On 12 February the FCA and the PRA both published papers relating to regulated firms’ use of algorithmic trading. The FCA published a report on algorithmic trading compliance in wholesale markets, and the PRA proposed a number of expectations regarding a firm’s governance and risk management of algorithmic trading through a formal consultation on a Supervisory Statement. Together the documents represent further scrutiny of and more detailed expectations from the UK regulators on the use of algorithms by capital markets participants. The two regulators will continue to collaborate on the subject to ensure coordinated approaches going forward.

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Posted on 15/02/2018 | 0 Comments

PRIIPs and MIFID II: true transparency and comparability at last?

PRIIPs

Overview

The Markets in Financial Instruments Directive II (MiFID II) and the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation rules went live in January this year, introducing requirements for firms to disclose specific information on the costs and charges of certain investment products or services. The overriding regulatory objective is to help consumers assess the value for money of these investments - since charges can absorb a significant proportion of total returns – and make more informed investment decisions.

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Posted on 12/02/2018 | 0 Comments

Liquidity risk management for investment funds | IOSCO’s new recommendations

Liquidity risk management  IOSCO  International Organization of Securities Commissions  asset portfolio  liquidity management  ESMA  ECB  FCA

In response to the Financial Stability Board’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities (see our blog), the International Organization of Securities Commissions (IOSCO) has published two documents:

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Posted on 08/02/2018 | 0 Comments

Tipping Point: Threshold models in IFRS 9 and Stress Testing models

Tipping Point Threshold models in IFRS 9 and Stress Testing models - Copy

Introduction

Under IFRS 9, financial institutions are required to account for loan loss impairment by recognising an allowance for expected future credit losses (IFRS9.5.5.1) in a manner that considers a range of possible outcomes (IFRS9.5.5.17), including current conditions and a range of forecasts of economic conditions (IFRS9.B.5.5.49).

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Posted on 06/02/2018 | 0 Comments

A New Regulatory Capital Regime for MiFID Investment Firms – European Commission Proposals

European Commission Proposals

The European Commission (‘the Commission’) set out its plans for a regulation and directive to amend the prudential rules for investment firms. The Commission’s proposals are closely aligned to recommendations published by the EBA last September as described in our previous client note, with some important clarifications.

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Posted on 05/02/2018 | 0 Comments

Commercial Real Estate Indexation – IFRS 9 implications

IFRS 9 implications on real estate

Background

The IFRS 9 standard requires firms to quantify an unbiased expectation of credit losses (ECL) for in-scope instruments (IFRS9.5.5.17) that incorporates all reasonable and supportable information (IFRS9.5.5.4). As the transition date approaches, many firms have finalised their collective quantification approaches and, indeed, a consensus around modelling approaches may be beginning to appear.

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Posted on 02/02/2018 | 0 Comments

Passing the embedding test – How does a Building Society know?

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This blog is part of a series of insights on Building Society risk management.

Given the content of each of the earlier blogs in this series, one could be forgiven for assuming that if your Society effectively addresses each of the key concerns outlined in our previous blogs, you should be well on your way to satisfying the regulatory requirements and expectations in this regard. However, a topical question asked by members of Boards as well as members of both Risk Committees and Audit Committees is “how do we know we’ve passed the embedding test?”.

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Posted on 01/02/2018 | 0 Comments

The IFRS 9 capital transitional arrangements and capital planning

The IFRS 9 capital transitional arrangements and capital planning

Background

On 1 January this year, IFRS 9 became effective for banks and building societies. The capital impact of the changes introduced by IFRS 9 may be significant both on the IFRS 9 application date and on an ongoing basis. As a result, a five year transitional arrangement has been agreed and fast tracked into European law, allowing firms to “phase in” the Day 1 capital impact.

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Posted on 24/01/2018 | 0 Comments

Accountability, escalation and risk-based decision making in Building Societies

Accountability  escalation and risk-based decision making in Building Societies

This blog is part of a series of insights on Building Society risk management.

In the last year, an increasing number of supervisory reviews performed by the Prudential Regulation Authority (‘PRA’) in the sector have commented on the extent to which risk management is properly embedded within the first line of defence. The root causes behind the level and strength of comment made by the PRA have generally been driven as a result of, one or more of, the following:

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Posted on 02/01/2018 | 0 Comments

Insurance Capital Standard (ICS) – was any meaningful progress made in Kuala Lumpur?

Insurance

In our recent blog, we took stock of efforts to establish a global capital standard for insurers ahead of the IAIS annual conference in Kuala Lumpur1 . This follow-up assesses what, if any, progress was in the event made on the ICS against the three key issues that we highlighted in our last blog as being the most important for the IAIS to resolve, and hence “assays” of the degree of progress achieved, namely:

  • a single valuation basis;
  • the incorporation of internal models into the ICS framework; and
  • a satisfactory approach to the MOCE (the margin over current estimate, equivalent to the risk margin in Solvency II).

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Posted on 20/12/2017 | 0 Comments