Brexit Watch #4 : A snapshot of how the financial services regulators are reacting
Perspectives
Brexit Watch #4 : A snapshot of how the financial services regulators are reacting
Mon 01 Apr 2019
Brexit preparation is one of the largest undertakings that regulators and market participants have ever done, considering the uncertainty and the impact it carries.
Many financial institutions have stopped waiting for lawmakers to finalise negotiations over the terms of the exit and are already working towards contingency plans. Banks and brokers are setting up new entities in mainland Europe, a process that carries high operational risk, particularly given the accelerated timescale for its completion.
Regulatory bodies in the UK and EU have also been making final arrangements for a no-deal Brexit, with the authorities continuing their focus on information sharing, in order to enable a smooth transition within the financial services industry.
Sources: https://www.bbc.co.uk/news/uk-politics-47379308
Will the UK and EU continue sharing information post-Brexit?
It was announced on 20 March 2019 that the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and the European Banking Authority (EBA) have agreed a Memorandum of Understanding (MoU) template regarding the future of supervisory co-operation and information sharing post-Brexit. The aim of this template is to ensure that the EU and UK continue to co-operate on supervisory matters in the event of a no-deal exit, preventing the flow of information being interrupted.
Sources: https://www.fca.org.uk/news/press-releases/pra-and-fca-agree-memorandum-understanding-mou-eba
Will EU Credit Rating Agencies be recognised by UK regulators and reversely?
The FCA has endorsed Credit Rating Agencies (CRAs) from the EU into the UK for regulatory purposes, in the event of a ‘hard Brexit’. The FCA assessed the EU regulatory and supervisory framework to be as rigorous as that of the UK’s, in order to allow UK registered CRAs to endorse credit ratings into the UK from affiliated EU CRAs.
At the same time, the European Securities and Market Authority (ESMA) issued a statement setting out the implications for UK CRAs, including the endorsement of UK credit ratings, in a no-deal scenario. It concluded that the foreseenUK legal and supervisory framework for CRAs meets the conditions for endorsement. However, ESMA added that “the decision to endorse some or all of the credit ratings issued by UK based CRAs lies exclusively with the EU27 CRAs.”
Sources: https://www.fca.org.uk/news/statements/endorsement-eu-credit-ratings-no-deal-brexit
Is there further guidance in relation to MIFID II/ MiFIR and other regulatory regimes?
In relation to MIFID/ MIFIR and Benchmark provisions, ESMA has published a statement on its approach to the application of some of the key aspects under a no-deal scenario:
- The MiFID II C(6) carve-out
- Trading obligation for derivatives
- ESMA opinions on post-trade transparency and position limits
- Post-trade transparency for OTC transactions between EU investment firms and UK counterparties
- Benchmark Regulation: ESMA register of administrators and 3rd country benchmarks
Furthermore, FCA has developed a new Benchmarks Register which will replace the ESMA’s Register for the UK supervised users. The new UK Benchmarks Register will also include benchmark administrators and third-country benchmarks.
https://www.fca.org.uk/news/statements/fca-to-introduce-uk-benchmarks-register
What is the guidance in relation to the issue of overlapping of MIFIR trading obligations?
Following the requests received from many institutions, ESMA has provided guidance on the application of the trading obligation for shares in the absence of an equivalence decision by the European Commission, in a ‘hard Brexit’ scenario.
ESMA’s approach may lead to an overlap of trading obligations for a number of shares and potentially a greater level of fragmentation of trading, should the UK apply an identical approach. However, ESMA considers that not providing a clarification would, by default, lead to the application of the MiFIR to every share traded in the EU27. ESMA’s approach seeks to limit potential market disruption while also ensuring Article 23 MiFIR is adequately and consistently applied across the EU.
The FCA, whilst acknowledging the need for clarification, believes that a comprehensive approach is still required in order to prevent the overlapping of obligations and therefore considers that further dialogue is needed on this subject in order to minimise the risks of disruption.
https://www.fca.org.uk/news/statements/fca-statement-share-trading-obligations
How is the political negotiation timeline affecting the application window for the Temporary Permissions Regime (TPR)?
The TPR is a process that allows relevant institutions which passport into the UK, to continue providing business in the UK when the regime falls away on the exit day.
Since the EU Council and the UK Government have decided to delay the exit process, the FCA has extended the notification window for TPR (previously set to 28 March 2019) to 11 April 2019.
Sources: https://www.fca.org.uk/brexit/temporary-permissions-regime
What is the FCA’s opinion and what are they doing to prepare?
The FCA has been working closely with firms to ensure that Brexit related risks are dealt with and mitigated in the hope that the overall process runs smoothly.
The FCA has emphasised their commitment to London maintaining its position as a successful global financial centre and is therefore preparing for all possible scenarios, including hard Brexit.
Sources: https://www.fca.org.uk/news/speeches/brexit-and-beyond
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Simplicity is a complex issue
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Along with Mazars banking regulatory advisory specialists Pauline Pelissier and Audrey Cauchet, Greg Simpson provides an overview of the banking regulatory outlook in the UK and Europe over the next 12 to 18 months. They also discuss IFRS9 in the context of regulatory treatments, credit risk management, non-performing loans, CRD5 and CRR2. Podcast player
Asset Management sector under scrutiny from UK regulator
The Asset Management industry is positioned to be the main focus of the Financial Conduct Authority (“FCA”). On 28 June 2017, the FCA published the final report of its Asset Management Market Study. This follows on from the interim report published in November 2016. In the publication, the FCA has highlighted a number of pertinent […]
Data privacy – too strategic for boards to ignore
Personal data security is increasingly important, but many companies may not be ready to comply with the EU’s tough new data protection laws, which must be implemented by May 2018. All EU businesses that handle data will have to comply with the General Data Protection Regulation (GDPR), which will require investment in systems and training […]
Unilateral deregulation by the USA would lead banks to seek new trade-offs
Solvency, liquidity, transparency and oversight requirements: as the Basel Committee meeting in Santiago, Chile in November 2016 demonstrated, there is still much to be discussed on the finalisation of the Basel III agreements. However, the inauguration of the new President of the USA could change the condition of the international dialog. Some might decide to […]
The Reduction of Regulatory Compliance Examinations for Financial Institutions
Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks Under $1 Billion in Total Assets. The Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board (“FRB”), and the Office of the Comptroller of the Currency (“OCC”) issued joint final rules that increased the number of small banks and […]
Infrastructure Investments: the Impact on Solvency II Balance Sheets for Insurers
Background and issues The Cambridge dictionary defines ‘infrastructure’ as ‘the basic systems and services that a country or organisation uses to work effectively’. This rather broad definition covers a wide range of assets at the heart of economic activity: they do not just provide a service to an individual or enterprise, but to economic agents […]
Brexit : Insights for the Real Estate Sector in France
In the third of our blogs looking at how the UK’s decision to exit the EU is impacting key real estate locations, our experts outline some important post-Brexit political and practical considerations for French real estate investors. Need for visibility as political issues take centre stage It’s looking increasingly unlikely that real estate investors will […]
Consolidated Audit Trail Approved by the U.S. Securities and Exchange Commission
The Securities and Exchange Commission (“SEC”) approved a plan on November 15, 2016, to create the consolidated audit trail (“CAT”), a central data source to collect and accurately identify every order, cancellation, modification and trade execution for all exchange-listed equities and options across all U.S. markets. This plan is pursuant to SEC Rule 613, in […]
Creating a compliance pathway for dealing with NPLs
Non-Performing Loans (NPLs) are a key issue and will continue to be on the European agenda as a top priority for a long time. On the one hand, the ECB guidelines are already applicable, as they represent a best practice reference for the day-by-day work of the Joint Supervisory Teams. On the other hand, the […]
Revision of the CRR / CRD IV package
On Wednesday 23 November, the European Commission presented its long-awaited revision of the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD IV), including the regulatory changes that mark the finalisation of the Basel III agreements. This revision follows five years of consultations conducted by the Basel Committee. It aims to foster financial stability and to enhance […]
What’s at stake with the ECB draft guidance to banks on non-performing loans?
The European Central Bank (“ECB”) recently launched public consultation on guidance to banks on non-performing loans (“NPL”). Consultation periods runs until 15 of November 2016. As NPL harms the profitability, funding and capital of banks and more globally the real economy, the ECB issued this guidance, aiming to achieve common practices for how to handle […]
The management of regulatory capital following the transition to IFRS 9
On 1 January 2018, banks applying IFRSs move into a new era with the implementation of IFRS 9 on financial instruments, which will supersede the existing IAS 39. Although adopting this new standard will lead to many changes, it was phase 2 of the standard, on provisions, that interested the Basel Committee on 11 October, […]
Brexit – playing for a draw?
On 20th October, I was delighted to chair an event in collaboration with OMFIF on the implications of Brexit for the financial services industry. We had an excellent panel of experts representing banks and asset managers as well as the City of London in general. The event was badged as a 100 days post referendum […]
SEC Adopts Amendments to Investment Adviser Act Rules
On August 25, 2016, the Securities and Exchange Commission (the “SEC” or the “Commission”) adopted amendments to various rules under the Investment Advisers Act of 1940 (the “Act”). The amendments will be effective 60 days after the date of publication in the Federal Register, but investment advisers are expected to comply with the amendments after […]
100 Days Post Brexit Referendum – How much smarter are we?
Saturday 1 October marked the 100th day since the result of the UK referendum to leave the European Union became known. And it seems neither the British nor their European neighbours have fully come to terms with the idea of a European Union without the UK. Yes, all continental Europeans love British eccentricity: driving “on […]
Brexit : Insights for the Real Estate Sector in the UK
Following the UK’s landmark referendum decision to leave the European Union, real estate investors have been dealing with the push and pull of post-Brexit market sentiment. Initial panic surrounding the outcome of the vote saw a raft of UK-based fund managers suspend redemptions from property funds worth £18bn[1] as investors looked to exit the asset […]
Brexit : Insights for the Real Estate Sector in Germany
In the second of our blogs looking at how the UK’s decision to exit the EU is impacting key real estate locations, our experts shine a light on some of the challenges facing German real estate investors, as well as the potential for greater breadth and depth of real estate opportunities going forward. Berlin: Strong […]
COVID-19: Phase 1 of SFTR delayed
The European Securities and Markets Authority (ESMA) has issued a public statement to announce the delay of the industry’s compliance with phase one of the Securities Financing Transactions Regulation (SFTR). This is in response to ESMA’s awareness of the financial industry’s struggle to devote resources to comply with the new reporting obligation, as firms face […]
How will COVID-19 affect the financial regulatory response to climate change?
At first glance, regulatory authorities appear to have deprioritised the issue of climate change. However, a closer look would suggest otherwise and climate change in reality remains a key long-term priority of national and European regulators. In some areas, regulatory action on climate change has been delayed Central banks around the world have taken steps […]
Our top risks for financial services firms in 2024
We have identified and ranked the key risks for financial services business leaders in 2024 based on market research, regulatory insights as well as our assessment of the current difficulties facing firms. We also highlight the changes in risk rankings compared to last year, justified by global events and new regulations that have surfaced in […]
The digital euro as we know it today
“I see digital as the future of finance”. These are the words of the Executive Vice President of the European Commission (EC), Valdis Dombrovskis, voiced in the summer of 2020. He has undoubtedly been proven right as governments and central banks around the world have heightened their efforts to keep oversight of the digital transition […]
EU regulatory framework on the establishment of the digital euro: from investigation to realisation
With the approaching end of the investigation phase of the ECB’s digital euro project in October 2023, and the expectance of a decision on starting a realisation phase by the end of this year, the pros and cons of a potential digital euro have been widely discussed in the past months. The topic became even […]
The EBA publishes new report and guidelines in response to risk within the financial services sector
New report on AML/CFT risks in payment institutions In accordance with the European Union regulations, the European Banking Authority (EBA) has been mandated to assess the management of the most significant risks in the fight against money laundering and terrorist financing (ML/FT). The entity’s analysis is centred around the identification and management of ML-FT risks […]
The European Parliament devises a new agreement to restrict access and abuse of financial services information
New measures to combat money laundering and terrorist financing The European Parliament has adopted a set of stringent measures to strengthen the fight against money laundering and terror financing, alongside circumventing sanctions within EU. These regulations are presented by EU in the form of a “legislative package” comprising three key measures which provide various practical […]
Asset managers and ESG implementation: turning regulatory and operational compliance into commercial opportunities
ESG-related regulatory requirements, and scrutiny, show no signs of abating. Asset managers have a pivotal role in financing the transition towards low-carbon economic systems. Hence, governments have introduced several ESG-related regulatory requirements that apply to asset managers. Some examples of these are the Sustainable Finance Disclosure Regulation (SFDR) in the EU and the mandatory disclosures […]
European Commission to strengthen regulatory framework for bank crisis management
The European Commission published on 18 April 2023 a new legislative package aiming to adapt and strengthen the framework for crisis management and deposit insurance (CMDI), with an acute focus on small and medium-sized banks. This proposal, which follows the announcement of the Eurogroup finance ministers inviting the Commission and the European co-legislators to review […]
ESMA’s latest Q&A: which key topics are covered and how has it impacted the AFG?
The European Securities and Markets Authority (ESMA) published on 17 November, together with EBA and IOEPA, a Q&A on the RTS of the SFDR Delegated Regulation (Commission Delegated Regulation (EU) 2022/1288), just six weeks before coming into force. The Q&A clarifies a number of points, including those relating to principal adverse impacts (PAIs) and taxonomic […]
New DORA regulation: the challenge for insurers to strengthen their IT and cyber risk management
Since the onset of 2023, regulatory news has been adorned with the latest European legislation, under the acronym DORA, adopted on 10 November 2022 by the European Parliament. Standing for the Digital Operational Resilience Act, it will apply to the members of the European Union from 2025, and concerns companies in the financial sector specifically. […]
Sustainable finance series: Why does sustainable finance matter?
The momentum towards a low-carbon economic system is only set to grow. Financial services firms are pivotal actors in the transition; consequently, increasing demands are being put on them to demonstrate their sustainable finance activities and credentials. This blog explains what sustainable finance is and why it matters to financial services firms. What is Sustainable […]
Governance, operational resilience, and business models remain crucial for banks in an environment of rising rates and digital banking
In an interview, Korbinian Ibel, Director General at the European Central Bank (ECB), shares insight on how bank-specific direct supervision works, what the current risks and challenges are, and priorities to look out for in the coming years. What does the Banking Supervision arm of the European Central Bank do? Find out about its policies, […]
The Fed shares instructions on its first pilot climate scenario analysis exercise
The Federal Reserve Board (Fed) has shared instructions on its pilot climate scenario analysis exercise (CSA). Six of the largest U.S. banks, i.e., Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo are participating in the exercise and are requested to submit their results along with documentation by July 31, 2023. […]
New reports on transaction monitoring systems and risk analysis published by the ACPR and COLB
ACPR publishes report on automated AML/CFT transaction monitoring systems In 2022, the ACPR conducted a comprehensive thematic review, focussed on the automated systems utilised by the entities under its supervision. This entails entities implementing their obligations in terms of transaction monitoring. The primary objective of this review was to assess the efficiency of the operation and […]
Results of the ECB 2022 thematic review on climate-related and environmental risks
The European Central Bank (ECB) has expressed a significant supervisory concern surrounding more than half of supervised banks in terms of the progress made on fulfilling the expectations specified in the Guide on climate-related and environmental risks. The ECB recently concluded its 2022 thematic review of the banking sector’s alignment with supervisory expectations. This review […]
EBA considers bottom-up stress testing with top-down elements
The European Banking Authority (EBA) is tasked, in cooperation with the European Systematic Risk Board (ESRB), to initiate and coordinate biennial EU-wide stress testing exercises to assess the resilience of institutions to adverse market developments. The objective is to provide supervisors, banks, and other market participants with a common analytical framework to consistently compare and […]
Can BIS develop a cryptoasset regulatory framework without limiting the innovation process?
In summer 2022, the Bank for International Settlements (BIS) published its second consultation paper on the prudential treatment of cryptoasset exposures. The guidelines outlined in the proposed document follow an initial discussion paper released in 2019 and a first consultative document issued in 2021. The complete text is set up as a new standard to […]
New pilot scheme opens pathway for blockchain technology
A new regulation introducing a pilot scheme based on blockchain technology is set to come into force on 23 March 2023. The new European regulation1 is an experiment to develop secondary markets for financial securities based on distributed ledger technology (DLT). Authorised participants in the scheme will be able to provide trading services and settlement-delivery […]
Russian sanctions: what implications for financial institutions?
Following Russia’s annexation of Crimea in March 2014, the United States (US) and the European Union (EU), together with other countries, imposed mainly economic sanctions on Russia. Since Russia’s recognition of the self-proclaimed autonomous republics of Donetsk and Lugansk, followed by Russia’s attack on Ukraine on 24 February 2022, these sanctions have taken on new […]
How to address climate risk in the banking prudential framework
Climate change is now firmly in the focus of prudential regulators and supervisors across the globe. Against this background, the European Banking Authority (EBA) is mandated to assess whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and social objectives would be justified. Based on its findings, the […]
Quarterly SSM briefing: stable supervisory priorities and the ECB’s green agenda
The last few weeks have been marked by an ongoing review of the supervisory priorities initially listed by the Single Supervisory Mechanism (SSM) for 2022-24, and developments in the climate agenda outlined by the European Central Bank (ECB). ECB’s supervisory priorities for 2022-24 remain stable despite geopolitical instabilities and challenges At the beginning of 2022, […]
The return of inflation: what consequences for banks?
For several months now, we have been in an economic and financial environment that we have not seen for some years. In May, inflation in the Eurozone reached 8.1%, with six countries exceeding 10%, while the United States recorded an 8.6% year-on-year price increase. The short-term reasons for the return of inflation are well known, […]
Leveraged transactions: supervisory expectations in the Eurozone
The chair of the European Central Bank’s Supervisory Board, Andrea Enria, has voiced several times in the past months the supervisor’s concern with the increasing growth of the leveraged finance sector, which deals with loans to highly indebted borrowers. By mid-2021, the combination of a strong global loan moratoria policy and the long-standing low interest […]
EUROFI financial forum: strengthening economic union and European competitiveness
The Eurofi financial forum is a setting for exchanges between European Union (EU) economic and financial regulators and senior financial sector executives from the industry. It occurs bi-annually alongside the Economic and Financial Affairs Council configuration (ECOFIN) meetings. This summary takes stock of the Eurofi discussions, as well as recent publications by the EU Commission […]
Equipping NEDs to challenge private investment valuations
A recent major board reshuffle in one of Europe’s largest listed investment companies has focused attention on private investment valuations. It follows concerns raised by an ex-director over the robustness of the directors’ processes for approving investment valuations. The issues primarily question whether the Board of Directors has sufficient training and experience and whether governance […]
Solvency II Directive measures to aid European economic recovery
While the European Commission’s most recent opinion on the review of the Solvency II Directive is broadly in line with the final European Insurance and Occupational Pensions Authority (EIPOA) opinion issued in December 2020, some measures have now been amended. These amendments are designed to strengthen the capacity of European insurers to contribute to the […]
Adapting governance to spearhead sustainability more effectively
There are increasing regulatory expectations globally for financial institutions to disclose and demonstrate how sustainability-related responsibilities are allocated within the organisation. In this respect, the increasing global trend towards mandatory sustainability disclosure frameworks continues to underscore the significant role that the finance function is anticipated to assume in sustainability. It’s a trend reflected in Mazars’ […]
Being an Independent Non-Executive Director in different jurisdictions: lessons learned from Mazars in Ireland roundtable
Mazars recently hosted a Financial Services INED Roundtable Dining Event in Dublin[1]. Over 50 financial services independent non-executive directors (INEDs) attended, from banking, asset management, funds and insurance entities operating across the EU and UK. The roundtable focussed on the challenges facing INEDs in the current unpredictable macroeconomic environment. The new and emerging risks and […]
The European Central Bank’s priorities for 2024: where do we stand after the first quarter?
The European Central Bank (ECB) issued the SSM supervisory priorities for the 2024-2026 cycle on 19 December 2023. They sum up what institutions under the direct supervision of the ECB should expect in terms of areas of supervision, in 2024 notably, and allow firms to prepare themselves for forthcoming onsite inspections or thematic reviews. Please […]
Unveiling the European Central Bank’s strategy: data, scenarios and models
In January 2024, the European Central Bank (ECB) published its Climate and Nature Plan for 2024-2025. This plan aims to: This plan underscores those financial risks stemming from climate change remain a key area of attention for the ECB. The ECB will continue working on several topics including stress testing, scenarios and climate-related data, and […]
Drafting the future: unveiling the next chapter of DORA
DORA is a legislative proposal that aims to improve the digital operational resilience and ensure the performance and stability of the financial system of the member countries of the European Union in the face of the risks associated with ICT (Information and Communication Technology) in the financial sector (cyber-threats, cyber-attacks). The DORA requirements will apply […]
How banks and insurers have progressed in embedding sustainability into their businesses
In late 2023, and to coincide with COP 28, Mazars published its latest Sustainability practices survey on the progress banks and insurers have made in embedding sustainability into their businesses, our most comprehensive and information-rich report to date covering 404 executives in banks and insurance companies in 16 countries Despite sustainability being in the limelight […]
SRB annual conference 2024: entering a new phase of banks testing and operationalisation of resolution plans
The Single Resolution Board (SRB) convened its annual conference on 13 February 2024 with a theme highlighting the focus for the year: ‘The road ahead: risk, readiness and resilience’. While significant strides have been made with the EU banking resolution framework and tools, the SRB’s Chair Dominique Laboureix recalled this is not the end of […]
Assessing materiality and verification of sustainability disclosures
In environmental, social and governance (ESG) reporting, materiality is crucial for enhancing transparency and accountability in sustainability and climate-related disclosures. Importantly, it helps identify and report on matters that are deemed significant, emphasizing their relevance to stakeholders. Materiality comes in various forms. Financial materiality focuses on sustainability issues impacting financial performance, aligning with annual financial […]
What’s driving financial firms’ sustainability strategies?
To adapt to the swiftly evolving regulatory landscape and meet stakeholders’ expectations, financial firms are increasingly formulating sustainability strategies to address environmental, social and governance (ESG) factors. Notably, emissions reduction and the pursuit of net-zero targets have become central elements of ESG strategies for many financial firms, according to the latest Mazars’ survey Sustainability practices stocktake: […]
Market in crypto assets regulation: where we stand now
On 29 June 2023, the European Union’s (EU) Markets in Crypto Assets Regulation (MiCA) entered into force. It is being implemented in stages depending on the provisions, between June and December 2024. The regulation, which provides clearer rules for crypto-asset service providers and token issuers, is much needed for this fast-changing industry. The rapidly approaching […]
The insurance industry in flux: what changes are currently unfolding?
The regulatory requirements for insurance companies are becoming increasingly complex. In this interview, Marc Böhlhoff and Thomas Volkmer, Partners at Mazars in Germany, discuss the impact of this change on the industry and delve into what it means for the operations of auditing and consulting firms. Mr. Volkmer, the insurance industry is undergoing rapid change. What […]
The use of post-model adjustments to capture emerging risks
Since the Covid-19 pandemic, post-model adjustments1, or management overlays, have become an increasingly common and accepted mechanism used by banks to manage expected credit losses (ECLs). The number of post-Covid unprecedented events related to the war in Ukraine, energy crisis and global economic uncertainty has raised a number of questions relating to the consistency and […]
SSM supervisory priorities for 2024-2026: addressing identified vulnerabilities in banks
On 19 December 2023, the European Central Bank (ECB) published its updated Single Supervisory Mechanism (SSM) strategic supervisory priorities for the period 2024 to 2026. The priorities indicate what banks should expect in terms of supervisory activities in 2024. For 2024-2026, the ECB supervisory priorities are built upon three main pillars: These priorities were informed […]
How financial institutions can move sustainability reporting to real-world application
The increased demand for sustainable finance shows that awareness of environmental, social and governance (ESG) issues is generally high among financial institutions. Indeed, for many of the larger players subject to the EU’s Non-Financial Reporting Directive (NFRD), there has been a requirement to include ESG information in annual reports for some time. Others have incorporated […]
Managing tomorrow’s banking risks
While the banking sector has shown resilience over recent years, the economic environment and geopolitical situation remain tense. So, what does this mean for risks to the banking sector? More specifically, what is the impact on capital requirements for banks with the implementation of the Capital Requirements Regulation (CRR3) and the Capital Requirements Directive (CRD6), […]
Lessons from the spring 2023 banking turmoil: five areas for banks to focus their attention
The Basel Committee on Banking Supervision (BCBS) and Financial Stability Board (FSB) published reports in October 2023 on the causes and lessons learnt from the Spring 2023 banking turmoil. The BCBS report provides an assessment of the causes of the banking turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The FSB report […]
European green taxonomy eligibility ratios in the banking sector
The implementation of the European Union’s ‘Taxonomy’ regulation, which integrates two climate objectives, was carried out on 1 January 2022 through the ‘Climate’ Delegated Act released in April 2021. In line with this, the banking sector has been provided with corresponding regulations, allowing banks to measure the portion of their financing dedicated to sustainable economic […]
Transitioning to greener practices in the real estate sector
In 2022, the European Union implemented the green taxonomy for the second year, requiring companies to disclose indicators related to climate objectives. The green taxonomy aims to guide capital investment towards environmentally sustainable activities, making companies assess their alignment with the EU’s sustainable transition and enabling financial institutions to prioritise funding for projects contributing the […]
Eligibility ratios in the insurance sector: improved practices based on recommendations issued by regulators
2023 marks the second year in which insurance and reinsurance companies have published their eligibility ratios for the European Green Taxonomy. For the insurance sector, the objective is to measure the proportion of investments, as well as the proportion of gross premiums collected in non-life insurance, dedicated to financing economic activities in accordance with the […]
IIF annual membership meeting: building resilience amid turbulence and transformation
The IIF Annual Membership meeting is a setting for insights and perspectives from global financial regulators and senior financial sector executives on topical economic and regulatory issues. Being a forum with global coverage means that it is a valuable setting for picking up future economic and regulatory directions. A packed agenda under the theme of Building […]
DORA: how to move from operational risk management to operational resilience?
DORA (the Digital Operational Resilience Act) is the key regulatory outlook for IT and Cyber risk between now and 2025. The European Supervisory Agencies have sought to strengthen the resilience of institutions by emphasising the need to evolve the approach to operational risk management, of which information and communication technology risks are a part. DORA […]
Impacts and consequences of the war in Ukraine for banks and insurance companies
The war in Ukraine, as well as the unprecedented sanctions imposed by the European Union, the United States and their partners against Russia have had major consequences for financial services institutions. For foreign companies operating in Russia or Ukraine, the first concern was the safety of their staff. They had to make difficult choices to […]
Sustainable finance regulations signal a sea change for insurance sector
The European Green Deal aims to achieve climate neutrality by 2050 and create a modern, competitive and resource-efficient economy. To meet its objectives, the European Commission has begun to restructure the non-financial reporting requirements for companies. Although some of the requirements were partially implemented in 2021, this is only the beginning of a real sea […]
ARRC acts for a smooth IBOR transition
The Alternative Reference Rates Committee (ARRC) continues to support market participants in their efforts to transition from USD London Interbank Offered Rate (LIBOR) towards the Securities Overnight Reference Rate (SOFR). Following the Financial Conduct Authority’s (FCA) March 2020 statement that the expected LIBOR cessation deadline remains unaltered – i.e. end of 2021 – ARRC published […]
Reducing reporting burden for European banks while increasing data quality: a challenge for the EBA
Under article 430c of the updated Capital Requirements Regulation (CRR 2), the European Parliament and the Council of the European Union mandate that the European Banking Authority (EBA) perform a feasibility study on reducing the reporting burden for the European banking sector while ensuring data collection for monetary policy, resolution and supervisory purposes and take […]
2021 stress tests planned as banks face worsening crisis
The publication on 29 January of baseline and adverse scenarios, output templates, instructions and market assumptions required to carry out stress tests signals the go-ahead by the European Banking Association (EBA) for the 2021 regulatory exercise. Because of the Covid-19 pandemic, these tests, originally planned for 2020, will take place between now and 31 July […]
Resolvability is now the SRB’s key focus
With the economic repercussions of the Covid-19 crisis yet to be fully assessed, a robust resolution framework is essential to ensure the stability of the banking system. While the banks were given leave to postpone the reporting of some less urgent information in spring 2020, the Single Resolution Board (SRB) has reiterated the importance of […]
EBA discussion paper on the management and supervision of ESG risks
European sustainable finance regulations evolved considerably in 2020, and the European Banking Authority (EBA) is continuing this trend into 2021. It recently published a discussion paper assessing the potential inclusion of Environmental, Social and Governance (ESG) risks in the supervisory review and evaluation process (SREP) performed by national competent authorities (NCAs)[1]. What firms need to […]
Injecting noise into the discussion
Michael Lennard, Chief of International Tax Cooperation and Trade in the Financing for Sustainable Development Office (FfDO) of the United Nations, examines the role of tax toolkits for developing countries from a personal perspective. The Platform for Collaboration on Tax (PCT) involving the UN, OECD, IMF and the World Bank, is certainly a good example […]
Mazars’ banking regulatory radar: 2020-2025
In this edition of our Banking Regulatory Radar, we cover the key regulatory developments in the banking sector for 2020-2025. The latest version of the Mazars’ Regulatory Radar has been updated with all the Level 2 legislation published in 2020, as well as the measures that were taken in the context of the Covid-19 pandemic. […]
Building a more inclusive tax model
Michael Lennard, Chief of International Tax Cooperation and Trade in the Financing for Sustainable Development Office (FSDO) of the United Nations, discusses, from a personal perspective, a range of key issues on the UN’s approach to transfer pricing. In 2019 the United Nations Tax Committee issued draft guidance on financial transactions. It was finalized in […]
2021 Stress testing the UK banking system: the Bank of England’s approach
March 2020 marked the first time – since its inception in 2014 – that the Bank of England (BoE) cancelled its annual stress tests for the UK’s biggest lenders. Instead, they undertook a desktop analysis of the UK banking sector resilience. In late 2020, the Financial Policy Committee (FPC) judged that most banks have capital […]
UK supervision of international banks post Brexit
Around one-fifth of global banking activity is undertaken in the UK. Almost half of the UK’s banking assets are held by international banks. The PRA currently supervises approximately 250 international banks, both branches and subsidiaries, which are part of around 180 international groups. Background On 11 January 2021, the PRA shared in a Consultation Paper […]
IBOR Transition: Modelling RFR term rates to price IR derivatives
One of the anticipated challenges in the transition from IBOR rates to risk-free rates (RFRs) is the management of its impact on quantitative models. The ones currently used for pricing IBOR-linked financial instruments account for term rates which are “forward-looking”. The RFRs replacing the IBORs are all overnight rates. This means that a term rate […]
IBOR transition: impacts of the SOFR discounting switch
An important milestone in the IBOR transition is the change in rates used by LCH and CME for discounting and Price Alignment Interest (PAI) calculations for USD OTC cleared swaps. Indeed, on October 16, 2020, they moved from using the daily Effective Federal Funds Rate (Fed Funds) to the Secured Overnight Funding Rate (SOFR) for […]
Managing an increase in bank credit risk
While 2020 went relatively smoothly for the banking sector, uncertainties remain on the potential effects of Covid-19 on the real economy. Any negative impact could lead to heavy losses for the sector, especially when support measures are gradually phased out. These measures have not only contained the anticipated increase in credit risks, but have also […]
Addressing the challenges of the new sustainable finance regulations
As the world gears up for the transition to net-zero, the European Union is setting ambitious targets with respect to its own environmental footprint. For instance, by 2030 the EU is looking to reduce European greenhouse gas emissions by at least 55% compared to 1990 levels; increase the share of renewables within Europe’s total energy […]
IBOR transition and FRTB cross dependencies highlighted
The revised market risk framework – also known as the Fundamental Review of the Trading Book (‘FRTB’) – not only impacts an institution’s regulatory capital charge calculation for market risk, but also affects operational, governance and business strategies. FRTB brings significant change. With the aim of harmonising capital standards for market risks across jurisdictions and […]
IBOR Transition: modelling of SOFR risk factors
One of the major challenges of IBOR transition is the availability of historical data on alternative risk-free rates (RFRs) required to implement interest rate model changes or re-calibration. With the Secured Overnight Financing Rate (SOFR) only published since April 2018, the available time series do not provide enough observations for risk modelling. Adding to that, […]
Acceleration in changing the prudential treatment for Software Assets: Covid-19 impact
Over recent years, technology and software have become strategic assets for competitiveness and resilience in the banking sector. Institutions have no choice but to invest to develop and deliver innovative services whilst managing ever greater IT and cybersecurity risks. The pandemic and announcement of lockdown measures posed a significant challenge for banks’ technology teams as […]
Federal reserve board publishes 2020 stress testing results and additional sensitivity analysis
The Federal Reserve Board released stress test results for DFAST 2020 including additional sensitivity analysis, considering the COVID19 outbreak, to assess the resiliency of large banks under three hypothetical recessions, or downside scenarios, that could result from the coronavirus event. Furthermore, the Board provides guidance for large banks to maintain resiliency during economic uncertainties from […]
Is SOFR a strong enough USD LIBOR alternative?
With COVID-19, being declared a pandemic on March 11, 2020, financial institutions have had to shift most of their resources to mitigate the risks that have arisen. This has adversely affected important activities, one of which is market participants’ efforts to detach from LIBOR before its cessation at the end of 2021. As a result, […]
Covid-19 US policy changes: what banks need to know
Impacts from the COVID-19 pandemic have reverberated across every part of the global economy. Small businesses are struggling to pay their employees, banks are grappling with collapsing local economies, and many borrowers across the nation cannot meet their monthly mortgage payments. Banks will play a critical role in supporting their communities through this crisis, and […]
Are more stringent gender diversity measures required?
Gender equality, while not systematically embedded in national laws, is clearly set in European law. The Capital Requirements Regulation (CRR) requires financial institutions to adopt a policy promoting diversity within their management bodies and, for the most significant ones, to set targets to reach gender-balanced boards. Despite these regulatory requirements, the conclusions of the European […]
Progress on transitioning to SONIA
The Risk-Free Rates Working Group (RFRWG) published an update on the impact of COVID-19 on the timeline for firm’s plans to transition away from GBP LIBOR on the 29th April. While the central assumption of LIBOR’s publication being ceased after the end of 2021 remains intact, the Working Group has amended the timeline for the […]
The impact of credit risk on 2021 stress tests
On 13 November 2020, the EBA published the final methodological note for the 2021 EU-wide stress-testing exercise. The aim of the stress tests is to assess the resilience of financial institutions to adverse economic and financial developments, in particular in the event of an increase in credit risk due to the default of the borrower. […]
The Basel Committee: updated guidance on the external audit of banks
Against the background of a new year still severely affected by the persistence of the pandemic throughout the world and economies facing an unprecedented global macro-economic shock, the Basel Committee has felt it necessary to address the audit of the expected credit loss (ECL) accounting estimate within the overall financial statement audit. With IFRS 9 […]
European crisis management framework: ripe for reform?
Since the European crisis management framework was established in 2014, there have not been many failing banks in Europe. However, the recent global health pandemic, combined with the ongoing conflict in Europe between Russia and Ukraine, could easily change this. The EU crisis management framework was established in response to the global financial crisis and […]
Sustainability and climate risk: what can banks expect?
The growing importance of sustainability issues and the role of credit institutions in financing transformation places climate and environmental risks at the core of regulatory and supervisory scrutiny today. For some years now, the Network for Greening the Financial System (NGFS), comprising central banks and national supervisory authorities, has been working to enhance sustainability and […]
Can markets in crypto-assets (MiCA) give banks a regulatory edge?
Crypto-asset markets have been on banks’ radar for some time. While interest and involvement have varied, regulatory developments have been a driving force. In September 2020, the European Union (EU) published a proposal for the regulation of Markets in Crypto-assets (MiCA), offering a uniform legal framework for crypto-assets in the EU. On 14 March 2022, […]
Prudential risks for banks with a Russian presence
The invasion of Ukraine by Russia on 24 February 2022 is considered the most significant geopolitical event since the Second World War. While there is no question of military intervention by the European Union (EU) at the moment, the EU has nevertheless decided on a major package of sanctions that will have a heavy impact […]
EBA launches a central database for AML/CFT
A central database to strengthen the anti-money laundering and counter-terrorist financing (AML/CFT) framework was launched by the European Banking Authority (EBA) on 31 January 2022. Called EuReCA, the new database will be essential to coordinate efforts by national competent authorities and the EBA to prevent and fight money laundering and terrorist financing (ML/TF) risks throughout […]
GDPR has controls over subcontractors in its line of fire
Like all industries, the real estate sector has to implement a range of legal, technical and organisational measures to protect the personal data of its employees, customers, prospects and suppliers. Processing must comply with several regulations related to data protection, including, for example, the General Data Protection Regulation (GDPR), applicable since 25 May 2018. Same […]
France’s EU Council Presidency to focus on new growth model
As part of its rotating Presidency of the EU Council for a six-month mandate, France chaired its first EU Council of Finance Ministers (ECOFIN) meeting on 18 January with a view to getting certain current legislative work finalised. The ECOFIN meeting was mainly dedicated to introducing the Presidency’s roadmap for the months to come. Beyond […]
Positive behavioural and cultural change: the implementation of an accountability framework
As regulated entities execute their post-Brexit strategies and relocate their European Union (EU) operations from the UK to other EU states, a key issue to be addressed for those relocating to Ireland remain to be the impending legislative changes surrounding increased accountability standards for executives and non-executives. Not least, the breaking of the participation link, […]
The long road to proportionality in prudential regulation and supervision
The great financial crisis triggered a massive wave of bankruptcies in the worldwide banking sector, affected not only large international banks such as Lehman Brothers but also local ones such as Northern Rock in the UK. Basel prudential standards are designed to cope with financial risks stemming from the global banking system without taking into […]
Implications of Covid-19 for the LSIs and the supervisory focus: an interview with Patrick Amis, ECB
On 19 January 2022, Mr Patrick Amis, the head of ECB Directorate General Specialised Institutions and Less Significant Institutions (DG/SPL) had a formal meeting with Mazars to discuss the implications of the pandemic for the LSIs and the supervisory focus. The main risks outlined by Mr Amis, were in the areas of NPLs, digitalisation, IRRBB, […]
Quarterly SSM briefing: spotlight on supervisory priorities, banking union and liquidity ratio
Supervisory priorities 2022-2024 In December 2021, the European Central Bank (ECB) and the national supervisory authorities of the Eurozone countries published their supervisory priorities for 2022-2024. The three-year coverage enables the ECB banking supervision to achieve good progress in addressing the identified vulnerabilities while at the same time affording enough flexibility in any corresponding actions […]
New European authority aims to strengthen framework to fight money laundering
The creation of a new Anti-Money Laundering Authority will transform the supervision of money laundering and financing terrorism (AML/CFT) in the EU. Proposed reforms also extend the AML/CFT rules to all crypto-asset service providers, as well as include specific rules concerning due diligence on customers and beneficial ownership. It is expected that some of these […]
Key takeaways & industry challenges following the ECB TRIM project – a focus on CCR (Part 1)
Click here to read ‘Key takeaways & industry challenges following the ECB TRIM project – a focus on credit risk (Part 2)’ As articulated by the ECB in its recent TRIM reporting, the 236 findings cover different key aspects of supervised entities Internal Model Method (IMM) models & frameworks. Remediation actions are underway in all […]
European Commission adopts review of Solvency II
On 22 September, the European Commission adopted a review of Solvency II following the consultation launched by EIOPA in 2020, whose final guidance was published in December 2020. As the Commission notes, the 2020 review of the directive met several objectives: • remove the obstacles to long-term financing of the economy and redirect investment by […]
The FSOC weighs in on climate risk
The Financial Stability Oversight Council (FSOC) was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act as a result of the 2007-2008 US financial crisis. A first of its kind, the 15-member council is tasked primarily with identifying growing systemic risks to US financial stability and proposing coordinated regulatory responses to both preempt […]
Regulated firms: A matter of life and death
As the PRA transitions from a “rule-taker” to a “rule-maker”, small and medium-sized banks operating in the UK can expect to benefit from a more “streamlined” regulatory regime that could be easier to interpret, implement and maintain; but at the same time, they can also expect the PRA to be progressively more involved in scrutinising […]
NPL secondary market may solve the increase in credit risk
The identification and management of non-performing loans or NPLs as early as possible by banks are among supervisors’ current high-level priorities. Indeed, when prudential, monetary, and fiscal crisis mitigation mechanisms are tapered, the weakening of borrowers’ creditworthiness could materialise, along with increasing credit risks and therefore NPLs. This expected rise of new NPLs in European […]
The road to implementing the final Basel agreements
The unveiling of the new banking package “CRR3 – CRD6” on 27 October 2021 presents a further landmark on the road to implementing the final Basel III agreements. The regulatory scheme will also focus on the revision of the market risk framework from January 2019, as well as the latest developments in pillar 3 requirements. […]
First ACPR climate stress test pilot exercise results
Climate change introduces considerable economic challenges. On the one hand, financial institutions must contribute to the transition to a low-carbon and balanced economy to effectively combat global warming. On the other hand, the financial sector is exposed to climate-related and environmental risks and therefore needs to implement appropriate risk management practices within a financial stability […]
How the new prudential regime will impact EU investment firms notably French
A major step forward has been taken in implementing the European “investment firms” package in France*. The transposition of the package into local legislation, alongside EU Regulation 2019/2033 on prudential requirements for investment firms (IFR), came into full effect on 26 June 2021. In accordance with the proportionality principle, the IFR and investment firms directive […]
2021: The year of Brexit for banks
Brexit, or the UK’s departure from the European Union, became a reality on 1 January 2021. In terms of the regulatory impact for the financial sector, and the banking sector in particular, the UK being a third country, UK banks can no longer benefit from the European passport for their continental activities. Therefore, they can […]
EBA: draft technical standards on Pillar 3 disclosures of ESG risks
On 1 March 2021, the European Banking Authority (EBA) launched a public consultation on draft implementing technical standards (ITS) for Pillar 3 disclosures of environmental, social and governance (ESG) risks, under its capital requirements regulation (CRR) mandate. The consultation will end on 1 June 2021. Large banking institutions with securities traded on a regulated market […]
Key takeaways & industry challenges following the ECB TRIM project – a focus on credit risk (Part 2)
The Targeted Review of Internal Models (TRIM) was one of the largest projects by the European Central Bank (ECB) aimed at identifying potential sources of unwarranted or non-risk based variability in Significant Institutions (SIs) risk-weighted assets (RWA) from the use of Pillar 1 internal models such as Probability of Default (PD), Loss Given Default (LGD) […]
Looking ahead – ECB and NCA focus 2016, and what does it mean for the market participants?
The last five years have been a time of much challenge and change for the Central Banking Fraternity in Europe. Crisis, both economic and political, has been followed by much adjustment and change, including both practical economic and policy interventions, structural change in the form of Banking Union, much new regulation and most recently the […]