26 posts categorized "EMEA Centre for Regulatory Strategy"
The Prudential Regulation Authority’s (PRA) new supervisory approach to foreign bank branches “is expected to require some branches to either exit the market or become a subsidiary”, according to a new consultation paper released today.
The paper sets out the PRA’s proposed approach to supervising international banks, largely focusing on branches of non-European Economic Area (EEA) firms. While the paper provides new details and explanations, it largely confirms the recent experiences of firms seeking to set up (particularly retail) branch operations. A number of things jump out from the paper:
- The PRA’s concerns are greatest with respect to retail banking activity conducted through branches, rather than wholesale activities – the PRA expects new non-EEA branches to focus on wholesale, and to do so at a level that is not critical to the UK economy; high volumes of retail business in branches of non-EEA banks will require “a very high level of assurance” over resolution;
On Friday, the European Banking Authority (EBA) announced the main features of the 2014 EU-wide stress test it will conduct. The European Central Bank (ECB) followed up today with a note on how the stress test will fit in its comprehensive assessment. The announcements were significant in setting out the direction of travel – the ways in which the 2014 stress test will differ (or not) from the 2011 stress test and how the stress test will fit within the ECB comprehensive assessment.
As the third leg in this assessment, the stress test will follow the Asset Quality Review (AQR) and inform conclusions on any capital shortfalls that big Eurozone banks will have to fill before the Single Supervisory Mechanism (SSM) begins. Eurozone banks and supervisors have been busy preparing for the AQR. Friday’s announcement signals that completing the stress test is another significant endeavour, whose deadline is fast approaching.
Today marks the ‘end of the beginning’ for EU bank structural reform, after the Commission published its long-awaited proposal for a Regulation which would ban proprietary trading at the biggest banks in the EU and ring-fence some of their remaining trading activities.
Firms that engage in securities lending and repos, referred to as securities financing transactions (SFTs), will face EMIR-like reporting requirements and stricter rules on rehypothecation under a proposal published today by the European Commission. Investment funds will also be subject to increased disclosure requirements. The proposal is designed to enhance transparency and forms part of a wider package of reforms to address the risks posed by shadow banking. It has been published alongside a proposal on structural reform for banks (see our blog for further detail), reflecting concerns from the Commission that structural separation measures might lead to banks shifting parts of their activity into the less-regulated shadow banking sector.
After more than two years of negotiations, a political agreement was reached last night on the revision to the Markets in Financial Instruments Directive and Regulation (MiFID II / MiFIR). This marks a key milestone in the progress of the reforms which are set to change the landscape for EU capital markets fundamentally. The deal is intended to make markets more resilient by overhauling over-the-counter (OTC) derivatives trading and curbing algorithmic and high-frequency trading; increase transparency in equity, bond, derivative and commodity markets; increase competition in the clearing and trading space; and enhance investor protection. While negotiations have been lengthy, the hiatus that would have been caused by the European Parliament elections in May provided the impetus to get the agreement over the line.
The Prudential Regulation Authority’s (PRAs) long-awaited final rules on recovery and resolution planning finally arrived yesterday among the flurry of pre-Christmas publications by regulators.
Three documents were published:
- A Policy Statement on RRPs which includes the high-level rules
- A Supervisory Statement on recovery planning
- A Supervisory Statement on resolution planning
Senior bank executives face the prospect of new burdens and heavier penalties when things go wrong, following the finalisation of the Banking Reform Act (née Bill) this week. Although the legislation will receive Royal Assent today, there is still a long way to go to make it a reality.
The Act began in 2013 as the Government’s vehicle to implement the retail ring-fence, but has since developed into more of a catch-all for the broader financial services industry, and most notably, for the recommendations of the Parliamentary Commission on Banking Standards (PCBS).
Work connected to the Single Supervisory Mechanism (SSM) is demanding increasing attention and resources from banks and prudential supervisors across the Eurozone. The European Central Bank’s (ECB) comprehensive assessment exercise is up and running, and in parallel work is pushing ahead to make the new supervisor operational from November 2014. Consequently, the SSM landscape is becoming increasingly complex. Staying on the front foot by keeping track of developments and coordinating SSM-related work across the organisation will enable banks to manage the challenge strategically, and ultimately better control the impact on their business. It will also support them in setting the right tone for the new supervisory relationship that needs to be established with the ECB.
The housing market topped the list of concerns of the Bank of England’s Financial Policy Committee (FPC) in its latest assessment of the prospects for financial stability in the UK. The FPC fired a salvo of initiatives that together should ensure the financial system remains resilient as housing market activity continues to pick up. What stood out though was the suggestion the Committee might in future introduce a new macro prudential tool based on the affordability of mortgages. This would open up a new front in banking supervision, adding complexity to the regulatory framework for mortgage lending, changing the nature of the affordability assessment and potentially affecting the dynamics of the mortgage market itself.
The reach of the European Market Infrastructure Regulation (EMIR) is widening with branches of non-EU financial institutions clearly on the radar of European regulators. The recently published draft rules from the European Securities and Markets Authority (ESMA) make clear that EU regulators intend to have their arms around the widest possible set of OTC derivatives transactions if they could pose a threat to financial stability within the EU.