Banking in Financial Services UK
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On 12 November 2018, approximately 6 months after the adoption of the 5th EU Anti-Money Laundering Directive (5AMLD), the European Parliament published further rules to strengthen the fight against money laundering through the 6th EU Money Laundering Directive (6AMLD).
Member States are required to transpose the 6AMLD into national law by 3 December 2020. After which, relevant regulations must be implemented by firms within Member States by 3 June 2021.
This article represents the first in a Deloitte UK Risk Advisory series on the new age of Basel Pillar 2 Economic Capital (‘EC’) modelling in banking with a particular focus on Credit Risk models. In article 1 we look at the changing use of this well-seasoned model type, starting with an overview of the resurgence of EC, challenges for both retail and corporate parameterisation, and the Concentration Risk question. We finish by considering the best way to prioritise development effort between model design & parameterisation, how EC can be used and some of our EC expert’s considerations for enhancing an EC framework.
Banks have the same challenge as any new business: how to convince investors and lenders that your business has a viable model, can generate sufficient returns and can repay its liabilities. Candidate banks face this challenge and one more – they must convince the regulators of the viability and sustainability of their business plan.
In our July blog on equity release mortgages we explored the PRA’s proposals in its Consultation Paper CP13/18 to tighten significantly its approach on equity release mortgages (ERMs). Specifically, the PRA proposed, unusually, to specify particular assumptions that it expects to underlie the calculation of the “effective value” used to assess whether firms are claiming undue Matching Adjustment (MA) benefit for ERMs backing annuities.
Europe might reasonably claim to be the 'cradle of Open Banking' - after all, PSD2 and the UK's Open Banking Standard pioneered it. But, look around now, and open banking initiatives are popping up everywhere. It is not just a matter of replicating the European approach elsewhere. Jurisdictions are adopting their own approaches to Open Banking, reflecting their markets and policy objectives, and in some cases developing cross-industry approaches beyond financial services.
EBA RTS on the specification of the nature, severity and duration of an economic downturn, and the business case for credit cycle modelling
The EBA’s consultation postbag appears to have been heavier than usual, perhaps evidenced by the second public consultation on economic downturn EBA/CP/2018/07, the consultation on guidelines for downturn LGD CP/2018/08, the quantity and nature of feedback referenced in the feedback to the public consultation, and perhaps most importantly the significant change in methodology since the original consultation CP/2017/02. We summarise the changes in each draft below:
Since taking on responsibility for the regulation of consumer credit in April 2014, the FCA has been addressing issues in this sector. It has always been one of its priorities to tackle risks in the high-cost credit market including payday lending, overdrafts, home-collected credit and catalogue credit.
In response to the increased number of complaints on unaffordable lending, the FCA published a Dear CEO letter on affordability in high-cost short-term credit on 15 October 2018. Assessing the extent to which creditworthiness assessments are compliant is a particularly topical subject in the wake of the latest changes to CONC (PS18/10) on 1 November 2018. As such, whilst this letter is addressed to high-cost short-term credit firms, other retail lending firms should also consider its content and sentiments.
Okay, so you have decided you want to be a bank.
Now what? In this blog we look at our banking licence experiences, and look at the main lessons that we took away.
Becoming a fully authorised bank can be a long and drawn out process, with many challenges to overcome along the way, nevertheless we’ve selected our 5 key pointers for navigating the process…
The European Central Bank (ECB) has published details of how it expects banks to manage the process of setting and executing their business strategy. This brings some clarity to the long-standing question of how recent supervisory focus on business models – it is again one of the ECB’s priorities for the year – will translate into action for banks, but in the process introduces an expectation that banks make significant investments in their capabilities in this area.