Banking in Financial Services UK
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The European Commission’s FinTech Action Plan, published today, represents a significant milestone in the development of EU financial services (FS) policy. It gives the strongest indication yet that technological innovation and disruption will be among the main drivers of the EU’s future FS policy agenda, particularly after the next Commission takes office in 2019.
The IFRS 9 standard requires firms to quantify expectations of lifetime default risk and Expected Credit Losses (ECL) for certain financial instruments. The standard recognises that future losses are uncertain and asks firms to evaluate a range of possible outcomes to arrive at an estimate of expected loss that is “unbiased and probability-weighted” (paragraph 5.5.17).
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.
Under IFRS 9, financial institutions are required to account for loan loss impairment by recognising an allowance for expected future credit losses (IFRS18.104.22.168) in a manner that considers a range of possible outcomes (IFRS22.214.171.124), including current conditions and a range of forecasts of economic conditions (IFRS9.B.5.5.49).
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.
After more than a year of stalled negotiations, the Basel Committee on Banking Supervision (BCBS) announced an agreement on the remaining elements of the Basel III post-crisis bank capital framework. Striking a deal on this package of reforms (often called ‘Basel IV’) is a significant milestone in the post-crisis regulatory journey and a huge achievement for the BCBS.
The announced framework bridges a gap – particularly between American and European regulators – on the extent to which banks can use internal models to determine their capital requirements.
Earlier this week, the European Commission published the final Regulatory Technical Standard (RTS) on Strong Customer Authentication and Common Secure Communication under the revised Payment Services Directive (PSD2). In this final version, the Commission confirmed that screen scraping will no longer be allowed once the RTS comes into effect, heeding concerns expressed by the European Banking Authority (EBA) and other stakeholders around security. However, Account Servicing Payment Service Providers (ASPSPs) will still be required to put in place contingency measures in case of unavailability or under performance of their dedicated interfaces during a communication session with Third Party Providers (TPPs).
This blog is part of a series of insights on Building Society risk management.
A key ongoing consideration for the Senior Management of Building Societies is risk appetite and tolerance, and the Society's adherence to it. The question of risk appetite and tolerance has been on the agenda of Board's and regulators for some time now; however, the level of focus given to this in recent years has now increased to the point where no Board or Board sub-committee meeting fails to touch on this in some way.
The importance the FCA places on protecting vulnerable consumers has become increasingly clear with the recent publication of its Financial Lives and draft FCA Mission: Our Future Approach to Consumers documents. Throughout these documents, as well as in its Business Plan and Mission Statement (both published in April) the FCA emphasises its clear operational commitment to prioritising the needs of the most vulnerable and least resilient consumers.
Two months from today, on 13 January, the revised Payment Services Directive (PSD2)1 will come into effect across the European Union (EU). To understand how prepared the industry is for this deadline Deloitte surveyed over 70 firms across 18 European countries, between August and September, to gather their views.