Being better informed - PwCThe scope of firms subject to stress testing keeps expanding. 2015’s...
Transcript of Being better informed - PwCThe scope of firms subject to stress testing keeps expanding. 2015’s...
Being better informedFS regulatory, accounting and audit bulletin
PwC FS Risk and Regulation Centre of Excellence
June 2015
In this month’s edition:
EBA guidelines on paying into the DepositGuarantee Scheme
ESMA guidelines on defining commodity derivativeslooking to bring consistency
a look at stress testing "super-systemicallyimportant" CCPs
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 1
Welcome to this edition of “Beingbetter informed”, our monthly FSregulatory, accounting and auditbulletin, which aims to keep you up tospeed with significant developmentsand their implications across all thefinancial services sectors.
Summer’s started and it’s all happening: we
have a new UK government, we’ve greeted a
new princess and our BBQs are sputtering
to life even though El Niño seems
determined to put a dampener on our
outdoor plans. But as we head toward
holiday season (or strife) and parliamentary
recess, there’s no holiday from the debate
about the UK’s relationship with the EU.
The government has confirmed a
referendum will take place before 2017 on
the big question: ‘Should the United
Kingdom remain a member of the
European Union?’ Lots of debate to come
on this critical question. With the
Conservatives achieving a clear majority in
the May election, the new government will
face high expectations about what it can do
to improve regulation to benefit both
businesses and consumers.
But for now, the UK / EU relationship isn’t
the only matter up for review. The EU’s
adoption of the Better Regulation Package is
poised to change the very nature of
regulation. Under this programme, the EC
strives to achieve its objectives at minimum
cost and implement policy in an open,
transparent way. It also commits to
providing further evidence of its reasons for
decisions and to engage more with
stakeholders when gathering evidence. So,
what does this mean for financial services?
Shortly after the package was announced,
signs of EMIR II began to emerge. In this
month’s edition, we consider the European
Commissioner for financial stability
Jonathan Hill’s promise of: ‘regulating
only where necessary, of being smaller on
the small things and bigger on the big
things. Of legislating less, of reviewing
more.’ With firms already struggling to meet
the EMIR transaction reporting
requirements, could there be respite ahead
or more complication? And that’s just one of
many areas that could be changing.
In the UK, the BoE is consulting on its new
resolvability powers for failing institutions.
The powers include the ability to direct
firms to limit or cease activities, to sell
assets and to change the legal or operational
structure of a group. The BoE outlines how
it intends to apply these powers and its
expectations of firms during such process.
Also, the PRA fine-tuned its position on the
continuity of service and facilities
requirements under ring-fencing
arrangements in a new policy statement.
Notably, the PRA won’t dictate the types of
subsidiary that a ring-fenced bank can own
and it will not stop owners of ring-fenced
banks from owning stakes in non-ring
fenced entities. But the end isn’t yet in sight
- the PRA expects to consult on ring-fencing
again later this year.
The FCA began its market study into
investment and corporate banking this
month, issuing its terms of reference. It’ll be
looking at competition in primary market
activities (like equities and debt capital
markets), but also how those activities are
linked to others such as corporate broking.
In the insurance sector, the FCA has also
reviewed how premium finance is provided
to general insurance customers. It found
consumers need more information about
the true cost of premium finance in
household and motor insurance.
And in our feature this month we look in
detail at stress testing of CCPs – a topic that
has been gaining momentum in the first half
of 2015. CCPs are attracting much more
regulatory focus with the growing
recognition of the critical function that they
play in our financial markets. The debate is
likely to intensify with CCP resolution and
recovery plans being discussed at an
international level.
We’re continuing to see an unabated flow of
new regulatory changes – we hope you’ll
find much to spark your interest in this
month’s edition.
Next month we’ll be evaluating the
Chancellor’s recent announcements on the
outcome of the Fair and Effective Markets
Review.
Laura Cox
FS Risk and Regulation Centre of Excellence
020 7212 1579
@LauraCoxPwC
Executive summary
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 2
How to read this bulletin?
Review the Table of Contents therelevant Sector sections to identify thenews of interest. We recommend yougo directly to the topic/article ofinterest by clicking in the active links
within the table of contents.
ContentsExecutive summary 1
Stressing CCPs 3
Cross sector announcements 6
Banking and capital markets 11
Asset management 15
Insurance 17
Monthly calendar 18
Glossary 22
Contacts 27
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 3
Stress testing is becoming business as usual
now for many different types of financial
firms. It’s used to shed light on potential
shortcomings in a firm’s risk management
and it forms part of regulators’ toolkit for
avoiding wide-scale market disruption
caused by failing institutions.
The scope of firms subject to stress testing
keeps expanding. 2015’s stress testing
season brings a shift in focus, from banks
and insurers to occupational pension funds
and central counterparties – ‘CCPs’. For
CCPs, there’s no sign this attention will fade
away any time soon; regulations requiring
central clearing of OTC instruments are
beginning to bite. As that happens, risks are
becoming much more concentrated in CCPs,
hence the increased regulator focus.
Market commentators, including an ECB
executive, have dubbed CCPs ‘super-
systemically important’ institutions in light
of this reallocation of risk. It’s no wonder
CCP risk management policies and
procedures are drawing interest from
market participants and regulators. But this
isn’t the only reason why CCP stress testing
is commanding attention. At present, there
is no universal approach to stress testing
that enables regulators, users and observers
to compare the risk and default
management procedures of different CCPs.
Some interested parties call for uniformity
and a global standard; for others the utility
of harmonised CCP stress testing and what
value this adds for institutions sporting
markedly diverse business models and
ownership structures is questionable.
In March 2015, CPMI and IOSCO, global
regulators of CCPs, started looking at how
CCPs have undertaken the stress testing
mandated by the PFMI. These rules were
introduced in April 2012 and they apply to
FMIs, including CCPs, trade repositories
and central securities depositories. CCPs
and industry bodies, seemingly spurred by
the review’s launch, hastened to share their
experience and outline their thoughts on
what workable stress testing for the industry
looks like.
More is sure to come on CCP stress testing
and recovery models, but at this point it’s
worth looking at the current state of affairs
in more detail and considering the
arguments for uniform and tailored stress
CCP testing models.
How do CCPs concentraterisk?A CCP manages and absorbs the
counterparty risks in trades between its
members by placing itself in between the
parties to each trade. It assumes the
responsibilities of the buyer to the seller and
of the seller to the buyer via a legal process
called novation.
Novation cancels the original agreement
between the buyer and seller and
immediately replaces it with two
agreements of identical terms:
one between the buyer and the CCP and
one between the seller and the CCP.
The seller and buyer perform their
obligations agreed under the original
agreement to the CCP and not to each other.
The CCP passes performance (e.g. the
payment of interest under an interest rate
swap) on from one party to the other,
assuming the risk itself in the process.
A CCP therefore amasses risk: if the seller or
the buyer fails to deliver their obligations to
it, the CCP is still bound to perform the
obligation – even if that involves calling
upon its own resources to do so. With an
OTC market estimated at $630 trillion and
half of that being cleared, that’s quite a lot
of risk landing with a relative small number
of CCPs globally.
In practice, a CCP manages the risk of
defaulting members through a number of
loss absorbing mechanisms that provide it
with reserves it can tap in to. These
mechanisms include collecting an initial
margin from members on each transaction
and maintaining a default fund financed by
members’ contributions. It follows that a
CCP’s own resources may not actually be at
stake (unless it puts its ‘skin in the game’ by
Stressing CCPs
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
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contributing to the default fund, as some
CCPs are required to do). In any case, this
is where CCP stress testing comes in –
challenging risk management models to
ensure a CCP can continue to operate in the
event of member default.
Why are more trades beingcleared?Back in 2009, G20 leaders committed to
improving transparency in the derivative
markets, mitigating system risk and
protecting against market abuse (a year
after the financial crisis peaked). The
agreement, known as the Pittsburgh Accord,
provided that by the end of 2012 at the
latest:
all standardised OTC derivative
contracts should be cleared through
CCPs where appropriate and
higher capital requirements should
apply to non-centrally cleared contracts.
The US and Japan have already
implemented mandatory clearing
requirements for some types of derivatives,
increasing the volume of trades passing
through CCPs. The EU rules under EMIR
hit stumbling blocks, with draft RTS to-ing
and fro-ing between ESMA and the EC. But
it looks like progress has been made: EC
Commissioner for Financial Stability,
Financial Services and CMU Jonathan Hill
announced on 29 May2015 that the EC had
finalised discussions with ESMA on the RTS
and is starting the process of adopting the
RTS. The EMIR clearing obligation for new
OTC trades will come into force on a
staggered basis for different categories of
instruments after the RTS are published in
the OJ. Mandatory clearing will be required
for the first category of trades 6 months
after publication, for the second category of
trades in 18 months and the final category
in 3 years.
CCPs are bound to gain a more systemically
important function when the compulsory
clearing of certain instruments is
prescribed. But the increased capital
requirements for banks also serves as a
strong incentive to centrally clear their
trades. In the EU, CRR is the vehicle
carrying the G20’s goal. It requires credit
institutions and investment firms to hold
additional own funds to cover their
exposure to derivatives that are not
centrally cleared through EMIR authorised
(or equivalent third country) CCPs.
CCP stress testing rulesPrinciple 4 of the PFMIs addresses credit
risk. It provides general rules for all CCPs,
like effective monitoring and management
of credit exposures and maintaining
sufficient financial resources to cover credit
exposures for each member. It also includes
a couple of more tailored measures, the
applicability of which depend on the nature
and size of the CCP as follows:
CCPs with more complex risk profiles, or
which are systemically important across
a number of jurisdictions, should hold
enough capital to cover the default of
their two largest members (in terms of
credit exposure) in extreme but
plausible market conditions and
all other CCPs should hold enough
capital to cover the default of their single
largest member (also in terms of credit
exposure) in extreme but plausible
market conditions.
The PFMI also specify the types of stress
scenarios CCPs should use when conducting
stress tests in the ‘Considerations’ section of
Principle 4. CCPs are told to consider a
number of factors, including the impact of
defaulters’ positions, price changes in
liquidation positons, relevant peak historic
price volatilities and simultaneous
pressures in funding and asset markets.
CCPs are expected to carry out stress tests
on a daily basis and thoroughly analyse the
results each month –but in times of
irregularity in the market (like high
volatility and low liquidity) or a significant
increase in a concentration of positions, the
analysis should be more frequent. On
reporting, CCPs are required to:
have clear procedures to report the
results of its stress tests to decision
makers at the CCP and
use the results to review and adjust the
adequacy of their total financial
resources.
CPMI-IOSCO rules on stress testing are
fairly broad and not prescriptive. CCPs
retain a good degree of discretion in
formulating their risk-management models
and subsequent stress testing. But should
CCPs be following a uniform stress test?
Uniformity orindividualisation?Market participants and interested parties
were swift to respond to the launch of CPMI
and IOSCO’s stress test review. They
outlined the benefits of both uniform and
more individualised stress testing models.
The benefits of uniform stress tests include:
regulators and members can better
assess the strength of CCPs through
improved transparency and enhanced
comparability and
CCPs will benefit from harmony and a
level playing field across jurisdictions.
The benefits of individualised stress tests
include:
each CCP will have more meaningful
and granular reports – which can’t be
achieved with one stress test that fits all
CCPs and products and
CCPs will be incentivised to perform
ongoing assessments and honing stress
test methodologies, leading to
innovation.
The majority of commentators appear to
favour more granularity – but that’s not to
say there isn’t a middle way. Benoît Cœuré,
suggested one option when speaking to an
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
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audience at the Federal Reserve Bank of
Chicago in April this year. He said that
requiring CCPs to apply a set of minimum
standards to their models could achieve an
optimal balance between individual
granularity and uniformity.
CPMI and IOSCO have remained silent
since the announcement of their review and
it’s not clear what the regulators are
thinking. Cœuré’s suggestion sounds like a
sensible compromise, but it’ll be up to CPMI
and IOSCO to ultimately determine what
they want to see in CCP stress testing.
A straightforward pathahead?Reforming CCP stress testing models can’t
be considered in insolation, alluring as it
may be to do so for reasons of simplicity. In
fact, it would be unusual for CCP stress
testing to develop in a silo and away from
the development of other risk management
tools, such as rules on loss-absorption
mechanisms for CCPs (and even banks).
The two are inherently connected: one tests
the other.
While CPMI and IOSCO have kicked-started
the debate into CCP risk management,
there’s probably still some way to go. For
instance, global variety in risk management
tools needs to be addressed on a number of
fronts – including ‘skin in the game
provisions’. Rules require CCPs in the EU
contribute 25% of their regulatory capital to
a default fund, CCPs in Singapore to
contribute 25% of the default fund itself,
whereas CCPs in the US aren’t obliged to
provide a contribution. The meaningfulness
of stress testing and comparability
assessments could be impaired by the
presence of such differences. Discussions
over harmonising risk management tools
will need to conclude before any changes are
made to the stress testing framework.
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 6
In this section:
Regulation 6
Capital and liquidity 6
CMU 6
Financial stability 7
Market infrastructure 7
MiFID II 8
Operational resilience 9
Payments 9
Retail products 9
Accounting 10
IFRS 10
PwC Publications 10
Regulation
Capital and liquidityPensions get stressed
On 11 May 2015 EIOPA launched the first
IORP stress test and announced it would
carry out a further quantitative assessment
on the solvency of IORPs. National
supervisors select the IORPS to be included
and both exercises are to run concurrently
until 10 August 2015.
The stress test applies to both defined
benefit and defined contribution schemes in
17 EU member states with ‘material IORP
sectors’ - i.e. covering at least 50% of the
national market. EIOPA expects the exercise
will provide insight and raise awareness of
risks and vulnerabilities in the sector by
assessing IORP's resilience to adverse
market scenarios and ‘longevity scenarios’.
The ESRB initially supplied EIOPA with
adverse macro-financial scenarios for the
stress test on a confidential basis in March
2015 and then published its paper on 12
May 2015.
The quantitative assessment will gather data
from participating IORPs on potential uses
of a ‘holistic balance sheet’, a concept
EIOPA consulted on in 2014 that involves
market-based and risk-sensitive balance
sheets. It plans to develop its advice on
solvency rules for IORPs to the EC in light
of the results from the assessment. The
advice is due in March 2016.
CMUCMU to empower ESAs
Eurosystem published its response the EC's
Green Paper on the CMU on 21 May 2015. It
argues that the success of the initiative
hinges on expanding the scope of European-
wide financial regulation and enhancing the
oversight authority of the ESAs.
Eurosystem favours EU regulations, with
direct applicability on firms, should be the
norm instead of directives which still afford
a high degree of interpretative flexibility to
the Member States. Further, EU regulation
should minimise the opportunities for "gold
plating" by Member States keen to
distinguish themselves through more
stringent requirements.
While in the short term Eurosystem believes
ESAs should be given enhanced oversight of
Member State implementation, through
increased use of peer reviews, it believes
that ultimately there should be single, EU-
level supervision of certain market
segments. Eurosystem believes that EU-
level supervision should be expanded to
market data providers and consolidators as
well as benchmark setters, noting it already
exists for trade repositories and credit
rating agencies. However, Eurosystem
observes that supervision of financial
market infrastructures should always
include central bank involvement.
ESMA reacts to the CMU
On May 21, 2015, ESMA published its
response to the EC's Green Paper on the
CMU, signalling its strong support for both
the overarching CMU principles as well as
the EC's specific priorities and
implementation approach. It made a
number of specific suggestions that either
considerably fleshed out points made in the
Green Paper or brought up novel points,
such as:
developing a pan-European
crowdfunding regime that would include
prospectus requirements
creating uniform substantive
requirements around cost and fees for
UCITs, moving beyond simple
disclosure, so as to encourage increased
retail investment
developing harmonised rules for loan
origination by investment funds
ensuring consistent pan-European
supervision by strengthening existing
ESA authority, including clarifying the
obligation of national competent
authorities to respond to ESMA's
requests for information.
Given that the EC is still very much
sketching out the long-term scope of the
Cross sector announcements
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 7
CMU, and ESMA's inevitably important
role, its comments and policy agenda will
likely be an important driver of CMU
developments. Unlike the Eurosystem
response, ESMA did not directly advocate
expanding its direct supervisory authority
beyond its current scope.
Financial stabilityRisks facing Europe intensify
On 5 May 2015 the EBA, ESMA and EIOPA
jointly published a Joint Committee report
on risks and vulnerabilities in the EU
financial system. The ESAs found that since
the previous report in August 2014,
financial system risks in the EU have
intensified, though the substance of the
risks remain the same. These include:
low growth, deflationary tendencies,
volatile asset prices and their
consequences for financial entities
search for yield behaviour risks
exacerbated by already materialising
and potential snapbacks
risks from deteriorating conduct of
business of financial institutions
increased concern about IT risks and
cyber-attacks.
The ESAs recommend that supervisors
strengthen product oversight and corporate
governance controls, improve the regulatory
framework applicable to conduct risks, by
establishing peer reviews, and improve
supervisory practices to address conduct
risks. To address macro-prudential conduct
risk the ESRB separately recommended that
SREP assessments take into consideration
the systemic impact of potential
misconduct, that misconduct costs are
included in future stress tests, enhancing
coordination in international fora and
extending the LEI regime to a larger range
of counterparties.
The ESAs found IT risk rose due to costs
pressures, outsourcing, the need for
additional capacities and a mounting
number of cyber-attacks. They concluded
that the systematic integration of IT risk in
overall risk management still needs to
progress.
ECB releases Financial StabilityReview
The ECB published its Financial Stability
Review on 28 May 2015. The Review
provides an overall mixed assessment of the
euro-zone area's current economic health. It
notes that while profitability has increased
marginally for euro-zone banks, return on
equity remains below the cost of capital for
many. Moreover, levels of real investment
have stayed low despite appreciating
financial asset prices. The ECB also
observes that liquidity has lessened
(demonstrated by a decline in turnover
ratios and decreasing deal sizes for euro
areas government bonds) with a
corresponding amplification of market
stress. Other risks affecting the euro market
include:
banks and insurers - weak
profitability prospects in a low nominal
growth environment, with slow progress
in resolving problem assets
sovereign and corporate sectors - a
rise in debt sustainability concerns amid
low nominal growth
shadow banking - prospective stress
and contagion effects in a rapidly
growing sector.
The ECB stressed the critical role of post-
crisis regulation in addressing these risks
and it expressed confidence that their
finalisation and calibration would address
many of the concerns laid out in the report.
Market infrastructureReforming LIBOR
ICE Benchmark Administration Ltd (IBA)
published Evolution of ICE LIBOR -
feedback statement on 1 May 2015. IBA
plans to enhance elements of LIBOR,
following changes introduced since it
assumed responsibility for administrating
the LIBOR benchmark on 3 February 2014.
IBA also responded to the FSB's report on
reforming major interest rate benchmarks.
The feedback statement summarises the
views on the initial position paper and
accompanying questionnaire on the usage of
LIBOR in specific currencies and tenors.
IBA plans to launch a formal consultation in
summer 2015 which will set out its
proposals in greater detail.
EMIR consultative issues
On 21 May 2015 the EC consulted on the
following EMIR-related issues:
providing uniform requirements for CCP
access to central bank liquidity
determining whether or not the current
clearing thresholds adequately capture
the systemic risk posed by non-financial
counterparties
obtaining stakeholder feedback on the
effectiveness of CCP colleges
strengthening requirements for CCPs to
assess procyclicality when calculating
margin requirements
assessing the adequacy of CCPs
collecting of initial and variation margin
whether market participants have
observed any notable impediments to
meeting requirements around clearing,
risk mitigation and collateral and
determining whether EMIR has
impeded EU entities from transacting on
a cross-border basis.
The consultation period closes on
13 August 2015.
Benchmark Regulation moves a stepcloser
MEPs agreed the EP's version of the
Benchmark Regulation on 19 May 2015. All
benchmark administrators will have to be
registered with ESMA and publish a
'benchmark statement' defining precisely
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
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what their benchmark measures and to
what extent it is reliable. The proposed
Regulation also sets out requirements for
benchmark submitters and benchmark
users. Trilogue negotiations between the
EP, Council and EC will now take place in
order to reach an agreement on the final
Level 1 legislative text.
ESMA consults on EMIR interest rateswaps
ESMA consulted on Clearing Obligations
under EMIR (no 4) for interest rate swaps
(IRS) on 11 May 2015. IRS denominated in
the currencies of six European countries
outside of the Eurozone - Czech Republic,
Denmark, Hungary, Norway, Poland and
Sweden are included. ESMA reused the
methodology and data from its similar EC
submission on clearing of IRS instruments
denominated in the G4 (EU, GBP, USD,
JPY) currencies, even though the RTS has
yet to be endorsed.
ESMA concluded that the non-euro
denominated swaps have the requisite
standardisation, liquidity and availability of
pricing information to be subject to the
EMIR clearing obligations. However, the
RTS only directly subjects three forward
rate agreement products and six fixed-to-
float products to the requirements.
ESMA uses the same phase-in periods as
the G4 currencies:
six months for clearing members of one
of the IRS classes subject to the clearing
obligation
12 - 18 months for financial
counterparties and certain alternative
investment funds
3 years for non-financial counterparties
that exceed the clearing thresholds as set
by EMIR.
Counterparties in the same category may
face two different implementation deadlines
in quick succession if the two RTS are
adopted shortly after one another. It
therefore proposes to add a 3 month
extension for latter IRS instruments if the
two RTS are adopted within 3 months of
each other.
The consultation period closes on
15 July 2015.
ESMA opinions on CCP colleges
On 7 May 2015, ESMA published an
Opinion on the composition of CCP colleges
under EMIR, to ensure supervisory
uniformity across the EU. EMIR requires
the formation of supervisory colleges to
monitor CCP compliance. Each college
consists of a CCP's national competent
authority (NCA) and NCAs from the
Member States with the largest
contributions to the CCP's default fund.
ESMA clarifies that where the ECB assumes
prudential responsibilities under the SSM,
NCAs will still remain college members
provided they retain financial conduct
oversight. In addition, both the NCA and
the ECB have seats on the college, with the
ECB enjoying a vote regardless of ongoing
NCA participation.
Lord Hill on reviewing EMIR
On 29 May 2015, Jonathan Hill announced
that EMIR, and other EU regulations, will
be reviewed as part of the EC's efforts to
assess whether the current regulatory
framework successfully addresses market
risk without compromising economic
growth.
Lord Hill specifically mentioned that
questions around data had been raised -
including whether it was the right kind and
in manageable quantities. He mentioned
many of the milestones that have been
reached - such as 17 EU CCPs and 10 non-
EU CCPs obtaining authorisation. Lord Hill
also provided updates on those components
of the regulation that have yet to be
finalised, stating:
the process to get the first clearing
obligations finalised is under way, and
could well be in place by April 2016
the transitional relief for EU pension
funds from central clearing will soon be
put in place and
the ESAs are set to deliver draft
guidelines for non-centrally cleared
margin in the next couple of months.
The review is led by First Vice President
Frans Timmermans and fits in with the EU's
Better Regulation initiative.
MiFID IIDefining commodity derivatives
ESMA published Guidelines on the
application of definitions in Sections C6 and
C7 of Annex 1 of Directive 2004/39/EC
(MiFID) on 6 May 2015. The purpose of the
Guidelines is to ensure the term 'commodity
derivatives' under MiFID is commonly
applied across Member States. ESMA notes
that the implementation of MiFID across
Member States thus far has resulted in
different interpretations among competent
authorities on what constitutes a financial
instrument and what should be classified as
a derivative contract. Differing
interpretations can lead to an inconsistent
application of MiFID, EMIR and other
Directives or Regulations that rely on
MiFID definitions of financial instruments.
ESMA's Guidelines set out that section C6 of
Annex 1 of MiFID has a broad application,
applying to all commodity derivative
contracts - including forwards - where:
they can or must be physically settled
and
they are traded on a regulated market or
multilateral trading facility (MTF).
ESMA explains that commodity derivative
contracts that can be physically settled but
which are not traded on a regulated market
or MTF may fall within the definition of
section C7 of Annex 1 provided they meet
certain conditions.
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ESMA expects competent authorities to
incorporate the Guidelines into their
supervisory practices, and notify ESMA
whether they comply or intend to comply
with them.
Operational resilienceIOSCO consults on alternatives tocredit rating agencies
On 7 May 2015, IOSCO issued a
consultation report - Alternatives to the use
of credit ratings to assess creditworthiness.
It outlines draft best practices to assist
market intermediaries to move away from
relying on CRAs and instead develop their
own robust, internal credit worthiness
assessments. The report also covers draft
corporate governance practices that are
already widely adopted across industry to
manage and monitor credit risk, both at
counterparty and instrument level.
IOSCO considered survey responses and
presentations by large market
intermediaries. It proposes a number of
'draft sound principles,' including:
establishing an independent credit
assessment function
developing a coherent oversight function
adequately informing governing
committees
incorporation of qualitative measures
subject non-investment grade financial
products to enhanced scrutiny.
The consultation closes on 8 July 2015.
EBA standardises paymentinformation
On 11 May 2015, the EBA published final
guidelines under the EU Payment Accounts
Directive, as a first step towards developing
standardised terminology for payment
accounts across the EU.
EU Member States are required to provide
provisional lists of10 to 20 payment account
services that are most commonly used by
consumers and which generate the highest
cost for consumers. The EBA will use the
lists to create templates for EU payment
services providers to use in presenting
certain fee information to EU customers.
The EBA plans to consult further on the fee
information in 2016.
PaymentsMIFs Regulation published in OJ
On 19 May 2015, the EU published the
Regulation on interchange fees for card-
based payment transactions ((EU)
2015/751) (MIF Regulation) in the Official
Journal.
The Regulation imposes a cap of 0.2% on
the amount charged for a debit card
transaction and 0.3% for a credit card
transaction. In addition to the introduction
of the fee caps, the Regulation imposes
requirements for the legal separation of
payment card scheme and processing
activities and the removal of the Honour All
Cards rule (‘HACR’).
The Regulation comes into force 20 days
after publication in the Official Journal (8
June 2015) but the caps and associated
information requirements apply from 9
December 2015 while the HACR is effective
from 9 June 2016.
EBA to harmonise payment services
On 21 May 2015, the EBA announced plans
to harmonise regulatory and supervisory
practices for payments services across the
EU in line with its mandate under the
forthcoming revised Payments Services
Directive (PSD2).
The planned measures include setting
minimum security requirements to protect
EU consumers against payment fraud on
the Internet and ensuring that payment
card schemes and processing entities are
independent from one another in terms of
accounting, organisation and decision
making processes.
The EBA will approach industry and other
interested parties to gather views following
final agreement on PSD2 by the EC, Council
and EP.
Retail productsESA's report on securitisation
On 12 May 2015 the ESAs published a Joint-
Committee report on securitisation. The
report reviews the existing legislative and
regulatory framework and implementing
measures for due diligence and disclosure
requirements. This includes the Prospectus
Directive, CRR/CRD IV, AIFMD, CRA
Regulation, Solvency II and central banks’
collateral frameworks. The ESAs wanted to
assess the existing framework and, where
inconsistencies are identified, to put
forward recommendations that could be
adopted at the EU level. The
recommendations include:
due diligence requirements should be
harmonised across different investor
types
a standardised investor report should
reflect the dynamics of structured
finance instruments (SFIs) and be
stored in a centralised public space
data providers should be allowed to fulfil
disclosure requirements
loan by loan data should be provided to
investors
all types of investors should be
empowered to effectively conduct their
own stress tests
a harmonised approach should be
developed for private and bilateral SFIs
Some of these proposals (such as for private
and bilateral SFIs) are currently being
consulted on by the ESAs. Others may form
part of the backbone for the new CMU
initiative, since a drive in good quality
securitisations will be a key goal.
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Accounting
IFRSRevised Conceptual Framework
The IASB issued ED/2015/3 - Conceptual
Framework for financial reporting on 28
May 2015. It aims to improve the
Conceptual Framework used when
developing IFRS. Proposed improvements
include:
measurement detail describing options
(historical cost, current value and fair
value) and selection criteria
guidance on when income and expenses
could be reported in other
comprehensive income
refined definitions of assets, liabilities,
equity, income and expenses.
The comment period ends on 26 October
2015.
Insurance Contracts project update
The IASB held an education session on 19
May 2015 to discuss the implications of the
variable fee approach for direct
participation contracts and the accounting
for ‘indirect participation contracts’, such as
US style universal life contracts. The Board
did not make any decisions. See our
Insurance Alert: IASB education session on
19 May 2015 for notes of the meeting.
Revenue standard deferral
The IASB published ED/2015/2 - Effective
Date of IFRS 15 (Proposed amendments to
IFRS 15) on 19 May 2015. It proposes
deferring the effective date of the revenue
standard, IFRS, 15 from 1 January 2017 to 1
January 2018, to clarify the requirements
and add examples to aid implementation.
The comment period closes on 3 July
2015.
Balance sheets explored
The IASB published The Essentials – Issue
number three on 14 May 2015.
This issue includes:
offsetting explained
when do banks report a net figure?
jargon-busting
how does this tie in with Basel III?
It also explains how investors can leverage
the notes to the financial statements to
make comparisons between the balance
sheets of banks.
PwC PublicationsIFRS News - March 2015
The May edition of IFRS News considers:
revenue recognition: proposed deferral
of effective date.
employee benefit: IASB research project.
cannon street press:
disclosure initiative.
annual improvements.
fair value of quoted instruments.
questions and answers: ‘Z’ for Zoos and
IAS 41.
Amended IFRS for SMEs
Our In brief: A look at current financial
reporting issues - Review of IFRS for SMEs
completed looks at the IASB’s amendments
to IFRS for SMEs, effective from 1 January
2017. The most significant changes are:
the option to use the revaluation model
for property, plant and equipment
alignment with IAS12, ‘Income taxes’ for
deferred income tax
default 10-year life for goodwill
amortisation.
Tax reporting update
Our In brief: A look at current financial
reporting issues - Finance (No.2) Bill 2015
sets out the main accounting implications
for current and deferred tax balances of the
Finance (No.2) Bill 2015. Although the main
rate of corporation tax was unchanged, the
bill included the following changes:
a new diverted profits tax to be applied
at 25% when multinational enterprises
artificially divert profits from the UK to
connected entities in low-tax
jurisdictions.
bank loss relief restricted to 50%
new loss refresher anti avoidance rule.
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In this section:
Regulation 11
Bank structures 11
Capital and liquidity 13
Compensation schemes 13
Financial stability 13
Market based finance 14
Supervision 14
Regulation
Bank structuresEC reasons over BRRD non-compliance
On 28 May 2015, the EC issued a ‘reasoned
opinion’ asking Bulgaria, the Czech
Republic, France, Italy, Lithuania,
Luxembourg, the Netherlands, Malta,
Poland, Romania and Sweden to fully
implement the BRRD.
Reasoned opinions represent the second
stage of EU infringement proceedings.
Member States have two months to comply
with the EC’s opinion, failing which the EC
may refer them to the ECJ.
Indicators that a firm is in trouble
On 6 May 2015 the EBA published
Guidelines on the minimum list of
qualitative and quantitative recovery plan
indicators. Under BRRD institutions are
required to develop and maintain recovery
plans which outline measures to be taken to
restore their financial position. The EBA
identifies points at which appropriate
actions referred to in the recovery plan
should be taken. These must be quantitative
and qualitative and should at the minimum
include actions relating to:
capital
liquidity
profitability
asset quality.
Firms should also include information on
macroeconomic and market based
indicators - unless they can justify that they
are not relevant. The EBA identifies specific
indicators to be included in each category of
recovery plan, unless an institution can
justify that the sub-indicators are not
relevant to their legal structure, risk profile,
size and/or complexity (i.e. a rebuttable
presumption).
The final guidelines allow regulators to
partially exclude applying the mandatory
recovery plan indicators if they consider
certain categories irrelevant considering the
business model of investment firms.
Similarly, supervisors can exclude certain
categories and indicators that are subject to
rebuttable presumption if they deem that
such categories and indicators cannot apply
to certain types of investment firms. These
include the minimum list of recovery plan
indicators, market based and
macroeconomic indicators.
The guidelines will apply from 31 July 2015.
Meeting the conditions for Resolution
On 26 May 2015 the EBA published its final
Guidelines on the interpretation of the
different circumstances when an institution
Banking and capital markets
Mark JamesPartner, Jersey office+44 (0) 1534 [email protected]
James de VeulleDirector, Jersey office+44 (0) 1534 [email protected]
Nick VermeulenPartner, Guernsey office+44 (0) 14 81 [email protected]
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shall be considered as failing or likely to
fail under Article 32(6) of Directive
2014/59/EU. The EBA outlines
circumstances under which an institution
should be designated as ‘failing or likely to
fail’. Meeting the criteria used to make this
designation is a condition for entering a
firm into resolution. The criteria fall under 3
headings:
capital Position
liquidity Position
any other requirement for continuing
authorisation including governance
arrangements and operational capacity.
The finalised guidelines combine the
objective elements used to determine if a
firm is ‘failing or likely to fail’ so regulators
and resolution authorities use the same
criteria but maintain separate procedural
rules. The EBA also clarified that the
valuation necessary to meet the conditions
set out in the guidelines could be an a priori
valuation that doesn’t need to be performed
by an independent valuer or the resolution
authority and which follows simplified
procedures rather than the full valuation set
out in Article 36 of the BRRD.
The date of implementation was changed to
1 January 2016.
BRRD asset separation tool
The EBA published final draft guidelines on
The determination of when liquidation of
assets or liabilities under normal
insolvency proceedings could have an
adverse effect on one or more financial
markets under Article 42(14) of the BRRD
on 20 May 2015.
The guidelines build on Article 42 of the
BRRD and set out three elements that
should be considered by resolution
authorities:
whether the market for these assets is
impaired
the impact of a disposal of these assets
on the markets where they are traded
the situation of the financial markets
and the direct and indirect effects of an
impairment on the markets for these
assets.
For each of these elements, the guidelines
identify a non-exhaustive list of factors that
resolution authorities should assess having
regard to the risk of putting additional
pressure on prices and causing contagion.
In particular, where the transfer involves a
portfolio of derivatives or trading assets and
liabilities that are legally or economically
interlinked, the resolution authority should
assess the three elements with respect to the
portfolio as a whole and to comparable
portfolios. The authority should also take
into account the effect on counterparties to
these assets and liabilities, such as the
discontinuance of hedging relations and the
need to find a replacement for them, or the
impact on, or special requirements of,
central counterparties.
The EBA aims to promote a level playing
field and convergence of resolution
practices particularly where a firm under
resolution has a large cross-border
dimension. The guidelines apply from 1
August 2015 and competent authorities
must confirm their compliance status to the
EBA within two months of publication of
the guidelines in all EU languages. The EBA
will review the guidelines by 31 July 2017.
EBA guidelines for BRRD sale ofbusiness tool
The EBA published its final draft guidelines
on Factual Circumstances amounting to a
material threat to financial stability and on
the elements related to the effectiveness of
the sale of business tool under Article 39(4)
of BRRD on 20 May 2015.
The guidelines build on Article 39 of the
BBRD and set out a non-exhaustive list of
the circumstances amounting to a material
threat to financial stability and the elements
relating to the effectiveness of the sale of
business tool. For example, there may be
leeway on the principle of non-
discrimination amongst potential
purchasers; certain purchasers can, due to
their financial or market position, structure
and business model, integrate the failed
business in good time and so continue its
market critical functions and meet the
needs of counterparties, infrastructure
providers, depositors and the wider market.
The guidelines aim to promote a level
playing field and convergence of resolution
practices particularly where a firm under
resolution has a large cross-border
dimension.
The guidelines apply from 1 August 2015
and competent authorities must confirm
their compliance status to the EBA within
two months of publication of the guidelines
in all EU languages. The EBA will review
the guidelines by 31 July 2017.
Valuing derivatives in resolution
On 13 May 2015, the EBA published Draft
RTS on the valuation of derivatives under
the BRRD. The draft RTS provide resolution
authorities with a methodology for valuing
derivative liabilities of credit institutions
placed under resolution for the purpose of
bail-in.
The EBA proposes applying a statutory
valuation methodology based on the costs or
gains that would be incurred by the
counterparty in replacing the contract.
Derivative counterparties will be given the
opportunity to provide evidence of
commercially reasonable replacement
trades and to determine the close-out
amount within a certain deadline. If no
feedback is received, then resolution
authorities will apply their valuation based
on mid-market prices and bid-offer spreads.
The EBA standards also specify that
resolution authorities should establish the
value of derivative liabilities at the date of
close-out or when a price is available in the
market for the contract or the underlying
assets, which allows for a final valuation
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within a matter of days with maximum
accuracy. As early terminations of
derivatives may bring specific additional
costs, the RTS further specify the
circumstances in which resolution
authorities might exempt contracts from
close-out and bail-in where the application
of the bail-in tool is likely to bring
destruction in value that would exceed the
bail-in potential of the corresponding
liabilities.
The standards take into account the specific
regulatory framework applicable to centrally
cleared derivatives, for which EMIR has
introduced rules and procedures for valuing
derivatives in resolution. In very exceptional
circumstances, resolution authorities will
impose their own valuation where CCPs do
not deliver a close-out amount or do not
apply default procedures within an agreed
deadline.
In cases of particular emergency
constraints, in certain situations, resolution
authorities will also be able to apply
resolution actions on the basis of
preliminary valuations and even before
pricing is available in the market.
The consultation closes on
13 August 2015.
Capital and liquidityEBA retains securitisation risk-weights
The EBA consulted on an ITS on the risk-
weights applicable to securitisation
positions on 7 May 2015.
The EBA maps credit ratings used by the
main CRAs to an associated credit quality
step and risk-weight in the CRR. The EBA’s
proposed mapping tables are identical to
the interim mapping tables used by the PRA
and the FCA. So the proposed tables, if
implemented, will not lead to an increase in
capital requirements for banks and CRD IV-
scope asset managers.
The consultation closes on 7 August 2015.
Once finalised, it will form part of the Single
Rulebook on prudential regulation.
Compensation schemesPaying into the Deposit GuaranteeScheme
On 28 May the EBA published Guidelines
on methods for calculating contributions to
deposit guarantee schemes. The DGS is to
follow the Guidelines when determining its
ex ante and ex post contributions. The
Guidelines aim to incentivise firms to
operate under a less risky business model.
Under the Guidelines, calculation methods
will include a set of core indicators
capturing the main dimensions of the risk
profile of credit institutions. The indicators
fall into the following risk categories:
capital
liquidity and funding
asset quality
business model and management
potential losses for the DGS.
These obligatory indicators will represent
75% of the risk assessment, allowing the
DGS some flexibility when determining the
remaining 25%. DGSs are therefore allowed
to take the circumstances of individual
credit institutions into account. But the
Guidelines also state that the weight of any
additional indicator or increase in the
weight of a core indicator must not exceed
15%. There is an exception for qualitative
indicators in the ‘Business model and
management’ category, where full flexibility
is allowed.
The EBA expects regulators to incorporate
the Guidelines into their supervisory
processes and procedures by the end of
2015, unless they are not able to implement
the DGSD by the deadline of 3 July 2015. In
this case they must be implemented no later
than 31 May 2016.
Payment Commitments under DGSD
The EBA published Guidelines on payment
commitments under Directive 2014/49/EU
on deposit guarantee schemes (DGSD)
published on 28 May 2015. DGSD gives
DGSs the option to authorise credit
institutions to provide up to 30% of
contributions in the form of 'payment
commitments' - i.e. fully collateralised, low
risk assets that are not encumbered by third
party rights. The Guidelines elaborate on
this concept and set out:
the terms in contractual or statutory
arrangements providing for credit
institutions to make payment
commitments to a DGS
a DGS's powers to realise or appropriate
payment commitments if an
enforcement event occurs
the terms of delivery of the payment
commitment to the DGS
criteria enabling a DGS to verify a
payment commitment is unencumbered
by third-party rights
guidance on how a DGS should
formulate criteria to determine the
eligibility of proposed payment
commitments (what is a low risk asset?)
that DGSs and designated authorities
should always apply a haircut to the
value of the low-risk assets provided as
collateral and
that competent authorities are required
to mitigate any potential advantage
stemming from the prudential treatment
of payment commitments as compared
to contributions paid in case.
The Guidelines should be implemented by
31 December 2015.
Financial stabilityMore supervision of non-banks
Vítor Constâncio, ECB Chairman, called for
a strengthening of the ECB’s
macroprudential toolkit in a speech to the
Official Monetary and Financial Institutions
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Forum on 8 May 2015. In particular he
wants to see:
a monitoring framework for non-banks
macroprudential tools tailored to the
non-bank sector
a new regulatory and institutional base
in Europe to implement those changes.
Without these new tools the measures
implemented to safeguard financial stability
are incomplete and Constâncio
recommends authorities in the EU take
lessons from their US counterparts to
enhance prudential regulation of all SIFIs.
Market based financeSpecialised lending risk-weightsconsultation
The EBA consulted on draft RTS on
Assigning Risk Weights to Specialised
Lending Exposures under Article 153(9) of
CRR, on 11 May 2015. It is relevant to banks
which use IRB models to assess their
exposure to credit risk.
The draft RTS defines specialised lending as
lending to support any of the following:
project finance
real estate (i.e. mortgage lending)
object finance (e.g. car finance)
commodities finance.
The consultation sets out two proposed
approaches to determine risk-weights for
specialised lending under the IRB approach.
The EBA is seeking feedback on which
option banks prefer.
Option 1: The risk-weight for
specialised lending is determined as one
credit quality step lower than the highest
credit quality step used in the
specialised lending category. This option
is simple, but not very risk-sensitive.
Option 2: Banks would determine the
risk-weight applicable for specialised
lending by taking the weighted average
of all the underlying exposures. This
option would be more complex but also
more accurate.
The consultation closes on 11 August
2015. Once finalised, the RTS will form part
of the Single Rulebook on prudential
regulation.
SupervisionEarly Intervention under BRRD-FinalGuidelines
The EBA finalised its Guidelines on triggers
for use of early intervention measures
under BRRD on 8 May 2015. It provides
guidance for regulators on when to consider
applying early intervention measures to
institutions and how to identify triggers for
these within the proposed common SREP
framework.
The EBA recognises that early intervention
measures may be triggered by events not
covered immediately by the SREP, e.g.
material deterioration or indicator
monitoring anomalies or by ‘significant
events.' The final guidelines require that
when regulators consider applying early
intervention measures they should take
account of any recovery actions underway.
The guidelines have also been amended so
the list of significant events reflects the
specificities of investment firms.
The guidelines will apply from 1 January
2016.
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In this section:
Regulation 15
Alternative investment 15
Reporting 15
Regulation
Alternative investmentELTIF Regulation is now Official
On 19 May 2015, the EU institutions
published the final European Long Term
Investment Fund (ELTIF) Regulation (EU
2015/760) in the OJ. The regulation comes
into force from 8 June 2015 and applies
from 9 December 2015.
Only EU-based AIFs where both the fund
and its manager are authorized under
AIFMD will be eligible. But unlike other
categories of AIFs, an ELTIF can be
marketed to certain categories of retail
investors if at least 70% of its assets support
‘qualifying portfolio undertakings’ and it
meets additional authorization and
suitability assessment requirements. The
final regulation removes the geographic
restrictions contained in the proposal
(where at least 60% of its assets were to be
invested in EU undertakings). Further, the
final version allows funds to establish early
redemptions and to seek admission of their
shares on a regulated market or MTF, to
facilitate liquidity for investors.
By expanding the original proposals around
redemption, secondary market trading and
geographically diverse investment, the
regulation seeks to expand the capital pool
for illiquid investments in infrastructure,
small and medium sized enterprises, and
unlisted undertakings (among other
categories). As such, ELTIFs have been cited
as a core component of the proposed CMU.
ReportingMore AIFMD Q&As
ESMA published an updated Q&As:
application of the AIFMD on 12 May 2015.
It provides nine new Q&As on AIFMD
reporting and confirms that:
AIFMs should report individually on
their AIFs - there is no reporting impact
if the AIFM is related to another AIFM
(e.g. in the same group or owned by
another AIFM)
capital commitments should not be
considered as investments in an AIF but
capital drawdowns should be included
registered AIFMs that have opted-in to
AIFMD must report in the same way as
above threshold AIFMs
Asset management
John LuffPartner, Guernsey office+44 (0) 1481 [email protected]
Mike ByrnePartner, Jersey office+44 (0) 1534 [email protected]
Adam GulleySenior Manager, Jersey+44 (0) 1534 [email protected]
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non-EU AIFMs under AIFMD
thresholds must report as required by
the Member States that they market into
where an AIF invests exclusively in
assets denominated in its base currency
it should report long and short positions
only in the AIF's base currency
AIFMs should not include income
distributions as redemptions in the AIF
sub-funds of an AIF should be treated
separately for reporting purposes
AIFMs should take account of cash (and
equivalent) investments when
calculating the main instruments an AIF
trades
AIFs should follow the same reporting
procedures as AIFMs when submitting
their first reports.
We recommend AIFMs and service
providers pay attention to these Q&A to
keep track of ongoing regulatory thinking
for operating under AIFMD.
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In this section:
Regulation 17
Capital and liquidity 17
Solvency II 17
Regulation
Capital and liquidityEIOPA Q&A updated
EIOPA published answers to three
questions on the fundamental spread
12/31/14 on 13 May 2015. The fundamental
spread is calibrated and published by
EIOPA for insurers to use in their matching
adjustment calculation to allow for expected
defaults.
Solvency IISolvency II delegated regulation
On 15 May 2015, the EP published
Commissioner Hill’s response to a letter
from Roberto Gualtieri (ECON) of 1 April
2015 about the delegated regulation
supplementing Solvency II. Commissioner
Hill agreed to various technical corrections.
He is not proposing to change the approach
to ‘sub-tiers’ agreed with EIOPA, but he
plans to review this area in three years’
time. He also confirmed that delegated acts
re third country equivalence will be adopted
as soon as possible. Gualtieri’s letter
indicated that these were expected to be in
respect of Switzerland, confirming
equivalence for reinsurance, group solvency
calculation and group supervision, and for
Australia, Bermuda, Brazil, Canada, Mexico
and the USA confirming provisional
equivalence for group solvency calculation.
EIOPA focusses on Solvency IIreporting
EIOPA published a Solvency II update on 6
May 2015 encouraging insurers to ‘focus
their efforts both on the annual reporting,
as a real test for the Solvency II application,
and on the preparatory reporting of the 3rd
quarter 2015, as a very important step for
testing their processes and systems.’ EIOPA
has also updated its Solvency II webpage to
assist insurers in their preparations. This
webpage links to key publications and
includes a timeline. In particular, EIOPA is
planning to send the final set of ITS
including those related to regular reporting
requirements to the EC for endorsement on
30 June 2015, and to publish feedback on
the second set of Solvency II ITS and
guidelines in early Q3 2015.
EIOPA Q&A updated
EIOPA published answers to three
questions on the fundamental spread
12/31/14 on 13 May 2015. EIOPA calibrates
and publishes the fundamental spread for
insurers to use in their matching
adjustment calculation to allow for expected
defaults.
Where to go for moreinformation
Read more about Solvency II UK on our
webpages at www.pwc.co.uk/solvencyII.
Insurance
Evelyn BradyPartner, Guernsey office+44 (0) 1481 [email protected]
Adrian PeacegoodDirector, Guernsey office+44 (0) 1481 [email protected]
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Open consultations
Closing datefor responses
Paper Institution
04/07/15 Consultation paper – draft guidelines on passport notifications for credit intermediaries under the MCD EBA
06/07/15 Consultation paper – draft RTS on assigning risk weights to specialised lending exposures under the CRR EBA
08/07/15 Consultation report – sound practices at large intermediaries: alternatives to the use of credit ratings to assess creditworthiness IOSCO
10/07/15 Consultation paper – draft guidelines for the assessment of knowledge and competence ESMA
10/07/15 Second consultation paper: draft RTS on risk-mitigation techniques for OTC-derivatives no cleared by a CCP under Article 11(15)of EMIR
ESAs
15/07/15 Consultation paper – clearing obligation under EMIR (no.4) ESMA
21/07/15 Call for evidence – investment using virtual currency or distributed ledger technology ESMA
27/07/15 Impact of the best practice principles for providers of shareholder voting research and analysis – call for evidence ESMA
07/08/15 Consultation paper – draft ITS on the mapping of ECAI’s credit assessments for securitisation positions under the CRR EBA
13/08/15 Consultation paper – defining the valuation of derivatives liabilities for bail-in resolution EBA
13/08/15 Public consultation on EMIR EC
11/09/15 Consultative document – interest rate risk in the banking book BCBS
Monthly calendar
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Forthcoming publications in 2015
Date Topic Type Institution
Consumer protection
Q3 2015 Calculation of contributions to DGSs Guidelines EBA
Financial crime, security and market abuse
Q2 2015 Draft MAR technical standards Technical standards ESMA
TBD 2015 Advice to Commission on Benchmark legislation Advice ESMA
Prudential
Q2 2015 Update on ITS on reporting of the leverage ratio Technical standards EBA
Q2 2015 LGD floors for mortgage lending Consultation EBA
Q2 2015 RTS on PD estimation Technical standards EBA
Q4 2015 Report on NSFR methodologies Report EBA
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Date Topic Type Institution
Securities and markets
Q2 2015 Implementing acts on third country equivalence decisions on exposuresto third country investment firms, clearing houses and exchanges treatedas exposures to an institution
Advice EBA
Q2 2015 Consultation Paper on MAR guidelines Consultation paper ESMA
Q2 2015 Technical advice to the Commission on the review of EMIR Technical advice ESMA
Q2 2015 MiFID/MiFIR Draft Regulatory Technical Standards Technical standards ESMA
Q2 2015 Draft technical standards on CSDR Technical standards ESMA
Q4 2015 MiFID/MiFIR Draft Implementing Technical Standards Technical standards ESMA
Q4 2015 Securities Financing Transactions Regulation Discussion or ConsultationPaper on technical standards
Consultation or technical standards ESMA
Products and investments
Q3 2015 Advice on the application of the passport to third-country AIFMs andAIFs
Advice ESMA
TBD 2015 UCITS V Technical advice ESMA
TBD 2015 RTS on format and content of disclosures in KID for PRIPs Technical standards ESMA
Recovery and resolution
Q2 2015 Advice on the criteria for determining the number of years by which theinitial period for the build up of the SRF may be extended
Advice EBA
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 21
Date Topic Type Institution
Q2 2015 Partial transfer safeguards Advice EBA
Q3 2015 Notification requirements Technical standards EBA
Q3 2015 RTS on Contractual Bail in Technical standards EBA
Solvency II
TBD 2015 Solvency II Level 3 measures Level 3 text EIOPA
Supervision, governance and reporting
Q4 2015 Assessment of national SREP approaches Report EBA
Main sources: ESMA 2015 work programme; EIOPA 2015 work programme; EBA 2015 work programme; EC 2015 work programme;
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 22
2EMD The Second E-money Directive 2009/110/EC
ABC Anti-Bribery and Corruption
ABI Association of British Insurers
ABS Asset Backed Security
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers Directive 2011/61/EU
AIMA Alternative Investment Management Association
AML Anti-Money Laundering
AML3 3rd Anti-Money Laundering Directive 2005/60/EC
AQR Asset Quality Review
ASB UK Accounting Standards Board
Banking ReformAct (2013)
Financial Services (Banking Reform) Act 2013
Basel Committee Basel Committee of Banking Supervision (of the BIS)
Basel II Basel II: International Convergence of Capital Measurement andCapital Standards: a Revised Framework
Basel III Basel III: International Regulatory Framework for Banks
BBA British Bankers’ Association
BCR Basic capital requirement (for insurers)
BIBA British Insurance Brokers Association
BIS Bank for International Settlements
BoE Bank of England
BRRD Bank Recovery and Resolution Directive
CASS Client Assets sourcebook
CCD Consumer Credit Directive 2008/48/EC
CCPs Central Counterparties
CDS Credit Default Swaps
CEBS Committee of European Banking Supervisors (predecessor of EBA)
CET1 Common Equity Tier 1
CESR Committee of European Securities Regulators (predecessor ofESMA)
Co-legislators Ordinary procedure for adopting EU law requires agreementbetween the Council and the European Parliament (who are the ‘co-legislators’)
CFT Counter Financing of Terrorism
CFTC Commodities Futures Trading Commission (US)
CGFS Committee on the Global Financial System (of the BIS)
CIS Collective Investment Schemes
Glossary
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 23
CMA Competition and Markets Authority
CMU Capital markets union
CoCos Contingent convertible securities
Council Generic term representing all ten configurations of the Council of theEuropean Union
CRA1 Regulation on Credit Rating Agencies (EC) No 1060/2009
CRA2 Regulation amending the Credit Rating Agencies Regulation (EU)No 513/2011
CRA3 proposal to amend the Credit Rating Agencies Regulation anddirectives related to credit rating agencies COM(2011) 746 final
CRAs Credit Rating Agencies
CRD ‘Capital Requirements Directive’: collectively refers to Directive2006/48/EC and Directive 2006/49/EC
CRD II Amending Directive 2009/111/EC
CRD III Amending Directive 2010/76/EU
CRD IV Capital Requirements Directive 2013/36/EU
CRR Regulation (EU) No 575/2013 on prudential requirements for creditinstitutions and investment firms
CTF Counter Terrorist Financing
DFBIS Department for Business, Innovation and Skills
DG MARKT Internal Market and Services Directorate General of the EuropeanCommission
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act (US)
D-SIBs Domestic Systemically Important Banks
EBA European Banking Authority
EC European Commission
ECB European Central Bank
ECJ European Court of Justice
ECOFIN Economic and Financial Affairs Council (configuration of theCouncil of the European Union dealing with financial and fiscal andcompetition issues)
ECON Economic and Monetary Affairs Committee of the EuropeanParliament
EEA European Economic Area
EEC European Economic Community
EIOPA European Insurance and Occupations Pension Authority
EMIR Regulation on OTC Derivatives, Central Counterparties and TradeRepositories (EC) No 648/2012
EP European Parliament
ESA European Supervisory Authority (i.e. generic term for EBA, EIOPAand ESMA)
ESCB European System of Central Banks
ESMA European Securities and Markets Authority
ESRB European Systemic Risk Board
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 24
EU European Union
EURIBOR Euro Interbank Offered Rate
Eurosystem System of central banks in the euro area, including the ECB
FASB Financial Accounting Standards Board (US)
FATCA Foreign Account Tax Compliance Act (US)
FATF Financial Action Task Force
FC Financial counterparty under EMIR
FCA Financial Conduct Authority
FDIC Federal Deposit Insurance Corporation (US)
FiCOD Financial Conglomerates Directive 2002/87/EC
FiCOD1 Amending Directive 2011/89/EU of 16 November 2011
FiCOD2 Proposal to overhaul the financial conglomerates regime (expected2013)
FMI Financial Market Infrastructure
FMLC Financial Markets Law Committee
FOS Financial Ombudsman Service
FPC Financial Policy Committee
FRC Financial Reporting Council
FSA Financial Services Authority
FSB Financial Stability Board
FS Act 2012 Financial Services Act 2012
FSCS Financial Services Compensation Scheme
FSI Financial Stability Institute (of the BIS)
FSMA Financial Services and Markets Act 2000
FSOC Financial Stability Oversight Council
FTT Financial Transaction Tax
G30 Group of 30
GAAP Generally Accepted Accounting Principles
G-SIBs Global Systemically Important Banks
G-SIFIs Global Systemically Important Financial Institutions
G-SIIs Global Systemically Important Institutions
HMRC Her Majesty’s Revenue & Customs
HMT Her Majesty’s Treasury
IAIS International Association of Insurance Supervisors
IASB International Accounting Standards Board
ICAS Individual Capital Adequacy Standards
ICB Independent Commission on Banking
ICOBS Insurance: Conduct of Business Sourcebook
IFRS International Financial Reporting Standards
IMA Investment Management Association
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 25
IMAP Internal Model Approval Process
IMD Insurance Mediation Directive 2002/92/EC
IMD2 Proposal for a Directive on insurance mediation (recast) COM(2012)360/2
IMF International Monetary Fund
IORP Institutions for Occupational Retirement Provision Directive2003/43/EC
IOSCO International Organisations of Securities Commissions
ISDA International Swaps and Derivatives Association
ITS Implementing Technical Standards
JCESA Joint Committee of the European Supervisory Authorities
JMLSG Joint Money Laundering Steering Committee
JURI Legal Affairs Committee of the European Parliament
LCR Liquidity coverage ratio
LEI Legal Entity Identifier
LIBOR London Interbank Offered Rate
MA Matching Adjustment
MAD Market Abuse Directive 2003/6/EC
MAD II Proposed Directive on Criminal Sanctions for Insider Dealing andMarket Manipulation (COM(2011)654 final)
MAR Proposed Regulation on Market Abuse (EC) (recast) (COM(2011) 651final)
MCD Mortgage Credit Directive
Member States countries which are members of the European Union
MiFID Markets in Financial Instruments Directive 2004/39/EC
MiFID II Proposed Markets in Financial Instruments Directive (recast)(COM(2011) 656 final)
MiFIR Proposed Markets in Financial Instruments Regulation (EC)(COM(2011) 652 final)
MMF Money Market Fund
MMR Mortgage Market Review
MREL Minimum requirements for own funds and eligible liabilities
MTF Multilateral Trading Facility
MoJ Ministry of Justice
MoU Memorandum of Understanding
NAV Net Asset Value
NBNI G-SIFI Non-bank non-insurer global systemically important financialinstitution
NFC Non-financial counterparty under EMIR
NFC+ Non-financial counterparty over the EMIR clearing threshold
NFC- Non-financial counterparty below the EMIR clearing threshold
NSFR Net stable funding ratio
OECD Organisation for Economic Cooperation and Development
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
FS regulatory, accounting and audit bulletin – June 2015 PwC 26
Official Journal Official Journal of the European Union
OFT Office of Fair Trading
Omnibus II Second Directive amending existing legislation to reflect LisbonTreaty and new supervisory infrastructure (COM(2011) 0008 final)– amends the Prospectus Directive (Directive 2003/71/EC) andSolvency II (Directive 2009/138/EC)
ORSA Own Risk Solvency Assessment
OTC Over-The-Counter
PPI Payment Protection Insurance
p2p Peer to Peer
PERG Perimeter Guidance Manual
PRA Prudential Regulation Authority
Presidency Member State which takes the leadership for negotiations in theCouncil: rotates on 6 monthly basis
PRIIPsRegulation
Proposal for a Regulation on key information documents forinvestment and insurance-based products COM(2012) 352/3
PSR Payment Systems Regulator
QIS Quantitative Impact Study
RDR Retail Distribution Review
RFB Ring Fenced Bank
RRPs Recovery and Resolution Plans
RTS Regulatory Technical Standards
RWA Risk-weighted assets
SCR Solvency Capital Requirement (under Solvency II)
SEC Securities and Exchange Commission (US)
SFT Securities financing transactions
SFD Settlement Finality Directive 98/26/EC
SFO Serious Fraud Office
SIPP Self-invested personal pension scheme
SM&CR Senior managers and certification regime
SOCA Serious Organised Crime Agency
Solvency II Directive 2009/138/EC
SSM Single Supervisory Mechanism
SSR Short Selling Regulation EU 236/2012
T2S TARGET2-Securities
TLAC Total Loss Absorbing Capacity
TR Trade Repository
TSC Treasury Select Committee
UCITS Undertakings for Collective Investments in Transferable Securities
XBRL eXtensible Business Reporting Language
Executive summary Stressing CCPs Cross sector
announcements
Banking and capital
markets
Asset management Insurance Monthly calendar Glossary
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Asset Management Banking & Capital Markets Insurance Local regulations & AML
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Evelyn Brady
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Nick Vermeulen
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