Capital Markets in Financial Services UK
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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”.
Biased Expectations: Will biases in IFRS 9 models be material enough to impact accounting values, as well as other applications such as pricing?
As European IFRS reporters enter 2017, the first generation of Expected Credit Loss (ECL) models have generally been developed, and granular transitional impacts quantified.
Looking ahead to 2017, one of the most important areas of regulatory development that we see in financial services is rising supervisory expectations of firms’ cyber resilience. A spate of recent incidents of cyber-crime and IT failure have sharpened the focus of firms on their cyber preparedness, but management and boards should now also expect to be more routinely challenged by their supervisors on how well they understand and what they have done to limit their exposure to cyber and IT risks.
2016 has been another difficult year for the financial sector, with economic and political uncertainty complicating the completion of the post-crisis regulatory repair agenda.
Three years on from CRD IV/CRR being finalised, the EU’s banking sector now faces a revised Capital Requirements Directive and Capital Requirements Regulation (CRD V and CRR II), and a host of other legislative amendments, in a 500+ page package published today. These revisions to CRD V/CRR II and amendments to the Bank Recovery and Resolution Directive (BRRD) are likely to stretch significant regulatory change into the next decade.
Assurance over bank regulatory capital | ICAEW proposes framework to support confidence in banking regulatory ratios
The ICAEW on Tuesday published its exposure draft of a technical release “Banking regulatory ratios: ICAEW assurance framework”, which proposes a flexible and modular framework for both internal and external assurance on banking regulatory ratios.
In 2017 the Bank of England (BoE) will introduce the biennial exploratory scenario (BES) as part of its annual concurrent stress test of UK banks. Outlined as part of the BoE’s 2015 update to its stress testing approach, the BES complements the annual cyclical scenario (ACS), enabling the BoE to assess firms’ resilience to a wider range of threats. The BES will be designed to delve into the more complex aspects of a firm’s risk profile, in the process testing not just its resilience, but also its capacity to model and manage risk.
On 6 October 2016, the European Banking Authority (EBA) launched a consultation on its draft “Guidelines on Information and Communication Technology (ICT) Risk Assessment” (the Guidelines) under the Supervisory Review and Evaluation Process (SREP). The consultation runs until 6 January 2017.
‘Our implementation proposals do not mean significant changes to CASS as MIFID II is broadly aligned. We therefore think firm impact will be small’ – FCA, MIFID II Implementation – Consultation paper II CP16/19.