37 posts categorized "EMEA Centre for Regulatory Strategy"
On 7 July, the European Banking Authority (EBA) began a consultation on guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP) as provided for in the Capital Requirements Directive (CRD IV).
This is the most comprehensive document on how EU banking supervisors should assess risk issued to date - it extends the focus of the SREP from capital risk and adequacy to a much more comprehensive assessment of a bank’s business and risk profile. To put this in context the Guidelines are almost 5 times longer than those previously issued at an EU level. By providing a risk-by-risk approach, the Guidelines are intended to drive significant convergence in micro-prudential supervision across the EU. They should form the basis for SREP under the Eurozone’s Single Supervisory Mechanism (SSM), thus providing one of the first tangible insights into the practical application of supervision under the SSM.
The next few months will barely feel like a summer holiday for Eurozone banks. As banks in the single currency area prepare for the European Central Bank (ECB) to take over banking supervision under the Single Supervisory Mechanism (SSM), the balance sheets of the largest banks are being reviewed and stressed as part of the ECB’s comprehensive assessment. In October, the results – based on an asset quality review (AQR) and EU-wide stress test - will be revealed.
Through a series of announcements this week, the Prudential Regulation Authority (PRA) reiterated the need for insurers to plan for failure.
This message is certainly not new. Nor do the announcements – an updated PRA approach to insurance supervision and finalised set of Fundamental Rules – constitute a change in supervisory approach or policy. However, they confirm that the resolvability expectations communicated by the PRA in the past are being taken forward. An associated change to the PRA’s Fundamental Rules entered into force yesterday. Boards and senior management should be prepared to understand, and mitigate, the potential impact that failure will have on their firm and its policyholders.
The Bank of England’s Financial Policy Committee (FPC) met this Tuesday, 17 June. We will have to wait until 26 June when its latest Financial Stability Report is published before we know what conclusions it reached, but at least one of the topics on its agenda is clear – the housing market. The question being asked is what, if any, action the FPC will take to check what to many appears as the emergence of an asset price bubble in the UK’s residential property market, or at least that part of it centred around London and the south east of England. That the issue has risen to the top of the FPC’s agenda has been well signalled over the past several months. How though might it respond; what factors will it consider; and what are the potential implications for mortgage lenders?
The revised Markets in Financial Instruments Directive (MiFID II) and new Regulation (MiFIR) were published yesterday in the Official Journal and will enter into force on 2 July. This is an important milestone as it officially starts the countdown to the 2017 go-live date, establishing the various deadlines that firms, member states, national competent authorities (NCAs) and the European Securities and Markets Authority (ESMA) will need to meet.
In six months’ time, the Single Supervisory Mechanism (SSM) will take effect, with the European Central Bank (ECB) taking charge of prudential supervision in the Eurozone. The project to establish the SSM has been ambitious, especially against a tight time schedule, but the ECB confirmed in its latest SSM Quarterly Report on the operational implementation of the SSM that progress was on track and the SSM would start on schedule, on 4 November. Banks now need to turn in earnest to preparing for the new supervisory regime, under which they will no longer be able to deal only with a local supervisor.
Large European banks now know a lot more about what's expected of them in the forthcoming stress testing exercise, coordinated by the European Banking Authority (EBA). The stress scenario will be more severe than in previous exercises, and supervisory scrutiny more intense. The exercise has been some time in the planning and banks now need to take action. The outcome of the recent US Federal Reserve’s stress testing exercise highlights the potential dangers of shortcomings in banks' approaches to stress testing, quite apart from the numerical outcome of the test.
Earlier this week, the European Supervisory Authorities (ESAs) published the much anticipated consultation paper and draft regulatory technical standards (RTS) setting out of risk-mitigation techniques for OTC derivative contracts not cleared by a CCP under Article 11 of the European Market Infrastructure Regulation (EMIR).
Firms currently in the midst of implementing the European Market Infrastructure Regulation
(EMIR) will be left with little doubt that the cost of doing business in over-the-counter (OTC) derivatives is set to increase. But to date there has been little clarity as to the size of the increase in costs and how they will differ for a cleared trade versus a non-cleared trade. In our paper ‘OTC Derivatives – The new cost of trading’, we explore how much more expensive cleared and non-cleared OTC derivative transactions will become as a result of the EU OTC derivative reform package; how the structure of OTC derivative markets is set to change; and what strategic challenges arise for firms.
What firms can expect from the FCA over the coming year
The Financial Conduct Authority (FCA) published on 31 March 2014 its Risk Outlook and Business Plan for 2014-15. Together, these two documents are a must-read for firms as they set out the FCA’s proposed action for the year ahead. The FCA expects firms to look at their business models, strategy and structure to assess whether they are effectively identifying and managing the relevant risks outlined in the Risk Outlook. As stressed by John Griffith-Jones, FCA Chair, “the risks in this document should not just be of concern to the FCA but also to the industry as a whole”.