Culture remains at the forefront of the global regulatory agenda: central bankers and supervisors set out their views

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On 16 and 21 March, Andrew Bailey (Chief Executive of the Financial Conduct Authority), Mark Carney (the Governor of the Bank of England) and William C Dudley (President and Chief Executive of the Federal Reserve Bank of New York), gave speeches on improving culture in banking and financial services. The speeches together highlight the ways in which governance, remuneration and incentives drive the culture of a firm. They also provide a stocktake on regulatory initiatives intended to tackle these issues, and give insights into the areas that will attract particular scrutiny when supervisors assess a firm’s culture. The Governor also outlined a broad framework for addressing conflicts of interest.

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Posted on 03/04/2017 | 0 Comments

“Harrowing the ploughed field” – PRA updates its P2A methodology for credit risk

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The Prudential Regulation Authority’s (PRA) consultation paper on “Refining the PRA’s Pillar 2A capital framework” (CP3/17) introduces revisions to the assessment of capital requirements for credit risk. The changes are important for firms using the Standardised Approach (SA).

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Posted on 31/03/2017 | 0 Comments

Article 50 trigger – from planning to implementation

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The Prime Minister’s announcement of the Government’s decision to trigger Article 50 (Art 50) and commence the process of the UK’s formal withdrawal from the EU is momentous in many ways.  However, for financial services firms - many of which have been working on their Brexit contingency planning for six months or more - the significance of today is that it means that they now have a maximum of two years in which to implement their plans.

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Posted on 29/03/2017 | 0 Comments

IFRS 9 Disclosures: Not Quite Yet…

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The majority of large European banks have now released their 2016 Annual Financial Statements which included certain disclosures around IFRS 9 implementation.

The European Securities and Markets Authority (ESMA) has previously issued a public statement outlining its expectations of preparers of financial statements in the lead-up to the implementation of IFRS 9.

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Posted on 28/03/2017 | 0 Comments

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 | 1 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 | 1 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