Sustainability and climate risk: what can banks expect?
Sustainability and climate risk: what can banks expect?
Thu 27 Jan 2022
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 climate risk awareness in the financial sector. This approach involves promoting shared best practices, including providing climate scenarios for central banks and supervisors in environmental and climate risk management.
Recently, major banking supervisors, including the European Central Bank (ECB), Bank of France and Bank of England, have set out new expectations and developed requirements which, in 2022, will see the first European climate stress test run by the ECB take place.
In parallel, there are ongoing global efforts to develop, clarify and harmonise disclosure requirements to make sure everyone speaks the same language and avoid greenwashing.
Regulatory expectations and disclosure requirements
All major regulators have declared an interest in environmental issues and have recently put pressure on financial institutions to make sure they integrate such risks into their respective risk management practices. The French Prudential Supervision and Resolution Authority (ACPR) conducted its first climate stress test in 2020, and the ECB plans its first EU-wide climate stress test in 2022. In 2021 the ECB asked a large sample of European banks to conduct a self-assessment exercise related to climate and environmental risks and test results against the regulatory expectations described in the ECB guide published in November 2020. In addition, the banks were asked to submit their plans explaining how and when they will be in line with ECB expectations. Based on feedback received, the ECB published a report in November 2021 on the state of climate-related and environmental risk management in the banking sector. Due to the current regulatory focus on climate and environmental risk management, banks are likely to see a gradation of increasing requirements, ranging from awareness to potentially a capital charge in the future.
Where are we today?
In terms of supervisory dialogue, we are currently between the third and the fourth step, as shown in the diagram. As the ECB and national regulators have made their expectations clear through specific feedback in autumn 2021 and have provided some benchmarking, banks are now expected to have identified any shortcomings and data gaps and are taking steps to correct them.
It is particularly important to define clearly the banks’ understanding of definitions and coverage of climate and environmental risks. It is also essential to recognise and document the anticipated impact of these risks on the business environment in which the banks operate. At the same time, banks need to differentiate between physical risks, transition and responsibility risks and take them into account when defining the business strategy. In concrete terms, banks have to integrate those risks within their risk appetite and, like all other risks, manage to navigate them along the different business lines. Banks should also adapt their governance to ensure risks are managed at the appropriate organisational level and across the three lines of defence. Finally, these risks should be consolidated in internal reporting systems and reported to the management bodies and relevant committees.
At this stage, the ECB has noted that EU banks have begun to integrate some of those risks in their respective risk appetite and risk management frameworks. This is true for the more easily manageable environmental risks such as phasing out the financing of activities highly exposed to climate-related risks, financing coal or systematically evaluating real estate collateral towards climate risks. However, banks struggle to integrate climate risk exposure in existing credit, market and liquidity risk management operations and in internal reporting systems. For the latter in particular, few banks seem to have developed specific risk indicators. Therefore, the ECB pressure is likely to increase in 2022 with the outcome of stress tests included in the context of Supervisory Review and Evaluation Process (SREP) discussions.
Currently, only qualitative assessment requirements are expected. Nevertheless, as the Bank of England has already mentioned, capital discussions will follow shortly. However, this will not come before consultations take place as the solution is not obvious due to a time horizon that is quite different from traditional risk timelines. For example, how are regulators going to cope with the very long-term horizon of those risks? Also, will future regulation seek to have a higher capital charge on non-green activities or have a lower capital charge on green financing as an incentive? While these are open questions today, banks should be prepared to confront them.
Multiple new sustainability reporting requirements across Europe
Just as critical as moving the sustainability agenda across all industries is the need to improve the quality and relevance of sustainability reporting significantly, as there cannot be sound risk analysis and monitoring without robust and reliable data at the outset. This was identified as a key driver of an effective sustainable finance strategy by the EU back in 2018 and since then has led to a mushrooming of global initiatives.
In its 2018 Action Plan on Financing Sustainable Growth, the European Commission (EC) structured its whole sustainable finance strategy around three key objectives; reorienting capital flows towards a more sustainable economy, mainstreaming sustainability in risk management, and fostering transparency and long-termism.
Each of these three objectives led to the adoption of several new regulations and legislations in the EU. Some prompted the review and amendment of existing prudential and regulatory requirements for financial institutions, such as MiFID II, Solvency II, CRD and DDA directives. All had in common the creation of new sustainability reporting obligations.
Significant new reporting obligations
Three cornerstone texts creating significant immediate or near-term new sustainability reporting obligations for financial institutions in line with the above three key objectives. These include the Sustainable Finance Disclosure Regulation (SFDR) adopted in late 2019. The SFDR targets financial market participants and aims to enhance the integration of sustainability risks in investment policies and compensation policies, foster transparency on the principal adverse impacts of investments on the environment, society and governance practices, and on sustainability characteristics and objectives of so-called ESG products. Therefore, it requires financial market participants to disclose related information at entity and product levels in various places and documents. This includes websites, pre-contractual and contractual documents, and periodic reports. Implementation was phased in, starting in March 2021 until 1 July 2022, when all requirements will come into force.
The Taxonomy regulation, also called the green taxonomy, adopted in June 2020, establishes a classification of “green” or sustainable activities and will significantly and rapidly contribute to Europe’ sustainability agenda if performed according to demanding environmental performance conditions. Today, it only covers the climate change objectives of mitigation and adaptation. By the end of 2022, it will aim to cover all six environmental goals, including biodiversity, circular economy, water resources and pollution. The purpose is to provide financial institutions with science-based tools to make informed investment decisions on environmentally-friendly activities, projects and industries, thus contributing to financing sustainable growth, as announced in the 2018 Action Plan.
All entities in scope of the taxonomy regulation, which includes all large Public Interest Entities (PIEs) and financial institutions, will have to publish the amount of turnover, capex and opex generated by taxonomy-aligned activities in their periodic report. For banks, it means reporting their Green Asset Ratio (GAR), which is the share of their assets that finance sustainable or green activities as defined by the taxonomy. Banking supervisory authorities will closely monitor GAR at national and EU levels. Implementation will start as early as 2022, progressively ramping up to reach full disclosure mode in 2024.
Corporate Sustainability Reporting Directive (CSRD) aims to standardise sustainability reporting on an equal footing with financial reporting. If adopted by the European Council and Parliament, the CSRD proposal will impose mandatory reporting requirements on all listed and large companies in the EU, including financial institutions. These requirements will cover all aspects of the ESG spectrum and the obligation to have sustainability reports audited by independent reviewers.
By creating a reliable, common sustainability language, based on clearly defined disclosures, and imposing high-quality sustainability reports that are independently reviewed, the CSRD should help streamline and refocus the reporting exercise and enhance relevance and usefulness of data provided to the users of sustainability information, starting with investors and banks. If adopted by mid-2022 as expected, the CSRD would come into force in 2024 for reporting year 2023.
International initiatives gaining momentum
In the wake of the leading European efforts, international players have also gathered momentum. Two recent moves that will require scrutiny in the next few months include the consolidation of SASB, IIRC and CDSB into the Value Reporting Foundation, which will pursue an investor approach to continue developing sector-specific standards of voluntary use by international companies. Also, the creation of an International Sustainability Standards Board (ISSB) alongside the IASB will help support initiatives. The ISSB’s recently appointed Chair confirmed that it will discuss and adopt its work program for the coming years in 2022 and will aim to adopt the final version of its first two prototypes on general presentation and climate-related disclosure by the end of 2022.
Both organisations have the support of the investor community because their approach to sustainability gives priority to valuable information for decision making, including elements that have consequences on the entity’s financial performance, also called financial materiality. The European approach gives equal importance to information relating to the entity’s impacts on its ecosystem. Such impact materiality is also important to other stakeholders.
However, they currently remain voluntary standards. So, the question is: will they be endorsed and made mandatory by some countries and when? Most likely not before the European effort is fully operational and implemented throughout Europe. Therefore, it is probable that Europe will continue to lead the way in sustainability reporting for some time.
The good news is that as the investor-focused international approach is a sub-part of the European approach, they are not contradictory and should largely overlap. This avoids the trap of multiple reporting obligations, which is good news for preparers and users of sustainability information alike.
 Based on current discussions in EU Parliament and Council, a one-year delay in implementation is highly likely. First time application of CSRD would then be 2025 on reporting year 2024.
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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 […]
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, […]
BCBS’ amendments on Simple, Transparent and Comparable (STC) securitisations
As implied in the BCBS consultative document on November 2015, the BCBS published new standards on 11 July 2016 to include amendments on STC securitisations and thus make its final decision for their calibration. The securitisation framework was highlighted in the 2008 financial crisis because of the major role of subprimes in the collapse of […]
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 […]
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 […]
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 […]
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, […]
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 […]
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 […]
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 […]
Business funding diversification, helping to increase options for savers and making the economy more resilient are some of the main objectives set out in the European Commission’s Action Plan on Building a Capital Markets Union (CMU) published on 30 September 2015. While a better spread of financing sources over the capital markets, insurers, households and […]
Latest consultation puts systemically important banks (G-SIBs) under the microscope
On 6 April 2016, the Basel Committee published a new consultative document outlining revision plans for the calculation of the leverage ratio and submit proposals for additional requirements applicable to systemically important banks (G-SIBs). This new consultation comes as no surprise. Since 2014 the leverage ratio, calculated by dividing Tier 1 capital by the bank’s […]
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, […]
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 […]
The first supervisory climate risk stress test (2022 CST) conducted by the European Central Bank (ECB) has concluded with official results and findings made public on 8 July 2022. The exercise has complemented the broader ECB’s agenda to assess the readiness of banks in Europe to manage climate-related and environmental risks. The 2022 CST was […]
The revised Payment Services Directive (PSD2) that comes into force in January 2018 will essentially remove many of the barriers to new players looking to enter the payments market by providing access to customer data and accounts through an EEA wide common legislative platform. Already under pressure from regulatory change and increased competition PSD2 is […]
The FED announced a pilot climate scenario analysis exercise for early 2023
The Federal Reserve Board (FED) will commence its first bottom-up climate scenario analysis exercise at the beginning of 2023, as announced on 29 September. The exercise will be exploratory in nature and will not result in extra capital requirements. The list of designated participants consists of six of the largest U.S. banks, i.e., Bank of […]
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 […]
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 […]
To be a ‘good bank’, a bank must be efficient, innovative and trustworthy. Given its central role at the heart of the economy and financial system and the risks associated with fulfilling its role, banks have to operate within an environment subject to laws, regulations and directives. Outcomes can often be subject to the constraints […]
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. […]
Climate change valuation adjustment: introducing a climate change scenario extrapolation to long dated CDS curve
The global climate crisis has triggered the financial sphere to address the way in which it conducts business. Climate risk consideration is currently growing in the banking industry but should also be considered by banks in the Credit Valuation Adjustment (CVA) when pricing derivatives. The credit risk for long dated derivatives (beyond 10 years), reflected […]
“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 […]
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, […]
Implementing credible environmental, social and governance (ESG) actions requires successful enablers. So how can firms identify these enablers and, crucially, remove barriers to implementation? If we take our latest C-Suite Sustainability Barometer, we can see that out of the over 1,100 businesses accounted for in the survey, 75% are planning to increase their investment in […]
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, […]
Banks need to step up efforts on climate and environmental risk disclosures
In March 2022, the European Central Bank (ECB) published its second snapshot of climate-related and environmental risk disclosure levels among significant institutions under its direct supervision. In line with the results of the first snapshot published in November 2020 – regarded as the baseline measurement – none of the institutions in scope for this second […]
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 […]
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. […]
The Brexit debate last week was overshadowed by Theresa May becoming the UK’s new Prime Minister and some of her more radical appointments to her Cabinet. On top came the horrific terror attack in Nice and the failed coup d’état in Turkey. Understandably, the core Brexit debate did not take centre stage but instead provided […]
At a time when the European Banking Authority’s stress tests have provided valuable insights into the solvency levels of European banks, these banks are continuing their efforts to formalise the conceptual and operational framework of risk management. While changes in capital requirements (the Basel Pillar 1 quantitative requirements) still command the attention of bankers and […]
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 […]
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 […]
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 […]
Are you prepared? New York State issues new BSA/AML/OFAC transaction monitoring and filtering program regulation
Recently released guidelines require institutions to adopt risk-based programs to monitor and filter transactions for potentially suspicious activity. Beginning January 1, 2017, financial institutions registered under the New York banking law are responsible for complying with anti-terrorism transaction monitoring and filtering program regulations, established by the New York Department of Financial Services (NYDFS). Last month, […]
Greece’s financial systems have been tightly monitored by the institutions – once called the Troika – of ECB, IMF and EU Commission in recent years. The systemically relevant Greek banks are under close control of the Joint Supervisory Team (JST), consisting of staff from the European Central Bank and members of the Bank of Greece, […]
Brexit continues to dominate the political and financial world across Europe and beyond as people wrestle with its impact. But there’s another massive storm on the horizon for the EU that has been brewing for some time and Brexit may well have brought forward its impact: The Italian Banking Crisis. As reported in the Wall […]
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 […]
The impact of Brexit on foreign banks, and especially the larger ones, has already been the subject of extensive media coverage and speculation. Discussions on the advantages and disadvantages of Brexit for larger overseas banks have been wide-ranging. Will the uncertainty over business models be solved in the short or mid-term? Would relocation bring cost […]
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 […]
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) […]
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 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, […]
Cyberattacks aren’t just getting more frequent, they are also becoming significantly more vicious and sophisticated. The majority of today’s data breaches result from human error, making cybersecurity a “people problem” as well as a technology issue. The solution to this people problem can’t be solved by purchasing new hardware or software or implementing sophisticated network […]
Change in French regulatory landscape for electronic money issuers
The number of electronic money players in the European market has increased in recent years, from 4 in 2010 up to 48 in 2014*. Add to this the fact that numerous players beyond the banking world have also created their own electronic money institutions, including Leetchi, Google and Amazon and the sector is now seen […]
Regulatory reform in uncertain times: no rest for the weary
Despite “reform fatigue” and squeezed profit margins, financial services firms are dealing with a continued flood of regulation. Some are turning to new technologies for compliance help. In this article, written by the Economist Intelligence Unit and sponsored by Mazars, we explore regulatory change in the financial services sector and the impact that it has […]
The Emergence and Significance of ‘FX GLOBAL CODE-2017’
The FX Global Code (Code) was finally published by the Foreign Exchange Working Group (FXWG) on 25th May 2017, clearly laying down the guidelines for good practices in the FX Wholesale marketplace. With numerous scandals causing turbulence in the FX marketplace in the past, it was deemed necessary for global bodies to roll out a […]
3 Questions to Mister Doe When it comes to the administration of dormant bank accounts and unclaimed life policies, the quality of data, the inflexibility of internal procedures and complex processing is causing banks and insurers big problems. Vladimir Nguekam, CEO of digital analytical firm Mister Doe talks to Mazars about how taking a digital approach […]
The use of Big Data tools to improve the effectiveness for AML/CFT and KYC policy
A series of initiatives designed to help combat terrorism financing have put electronic payment cards in the spotlight due to the fact they guarantee anonymity in the use of small sums. Announced on 23 November 2015, these initiatives supplement the action plan for combatting the financing of the terrorism presented by the Minister on 18 […]
Over a decade ago looking at the state banking webpage for my home state of New Jersey, there were approximately 250 banks doing business in the state then. A similar check today would yield a list of less than 150 or so; a more than 40% decline. With banking regulation at an all-time high, the […]
In August 2017, S&P Global Market Intelligence published an analysis of where banks will set up their European hubs. Germany, namely Frankfurt and Berlin, came first with 13 financial institutions. Dublin came a close second attracting 12 banks, insurers or asset managers. Luxembourg, France, the Netherlands and Belgium will also take a share. A bit […]
Risk culture and supervision: beyond the box-ticking exercise, striving for fair balance
Since the 2008 crisis, the financial sector has been under scrutiny. Identified as one of the crisis root causes, the importance of risk management framework and risk culture and its interconnectedness to ensure the long run financial stability of each organisation has been revealed. Accordingly, institutions are expected to develop an effective risk management framework […]
Brexit : Insights for the Real Estate Sector in the USA
In the fourth of our blogs looking at how the UK’s decision to exit the EU is impacting key real estate locations, our experts in the US outline how the current lack of clarity opens the door of opportunity for investors who currently have capital to deploy. Uncertainty also brings opportunity for real estate investors […]
UK Banks are already gearing up for the introduction of the revised Payment Services Directive (PSD2) that comes into force in January 2018. By providing clear guidelines and regulations, the Directive essentially removes the barriers to new players and opens the doors to FinTechs bringing new products and services to the electronic payments market. While […]
On September 27, 2017, the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (the “Banking Agencies”) issued a proposed joint rule to simplify several requirements in the Banking Agencies’ regulatory capital rule for banks. The proposed rule would apply only to banking organizations that are not […]
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 […]
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 […]
An interview with Ian-Edward Stafrace of Atlas Insurance PCC : Embracing and enabling insurance disruption
As chief risk officer and executive committee member of Atlas Insurance PCC, Ian-Edward Stafrace is passionate about effective enterprise risk management and seeking opportunity from risk. Here Alan Craig and Enrico Federici of Mazars in Malta, talk to him about technological, regulatory and business model changes and how protected cells are enabling innovation. What do […]
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 as investors looked to exit the asset […]
Could regulation play a role in transforming the FinTech business model?
One of the main differentiators FinTechs have is their current positioning within the financial services value chain ecosystem: they focus on customer experience while their operations execution and control activities are often outsourced to banking institutions. However, is this likely to remain given the increasing interest regulators are paying to these new industry players? While […]
Embracing a pattern of change: business model innovation across banking, insurance and asset management
In this third article of our thought leadership programme around the transformation of Financial Services, we are focusing on how new business models are emerging. “THIS IS A WORLD OF SIX-MONTH PRODUCT DEVELOPMENT CYCLES AND CONSTANT UPDATES, PRIMARILY OF SOFTWARE, WITH A HUGE PREMIUM ON SIMPLE USER INTERFACES AND TRUSTED SECURITY.” Christine Lagarde, Managing Director […]
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 […]
Brexit : Five Key Insights for the global Real Estate sector
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 as investors looked to exit the asset […]
FCA data reveals 5,500 UK Companies make use of passporting rules
Brexit continues to be omnipresent. From British Airways’ Business Life (September 2016 p. 11-12, “Post Brexit, Brand Britain must show its mettle… and its sense of humour”) to the Spectator, articles are a mixed cocktail of seeing Britain great again to worries about what’s next. It really depends on the lens through which you are […]
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 […]
It’s two weeks since the Brexit Referendum and it’s fair to say that its consequences are already being felt. At a broad economic level, sterling has hit a 31 year low and economists have revised down the economic outlook for the UK and the Eurozone. The UK has been downgraded by Standards & Poor to […]
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 […]
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 […]
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 […]
Permanent tsb: Digitalisation’s role in the ethical banking mix
The arrival of technology has been a game changer for Ireland’s banking industry. Niall O’Grady Commercial Director of permanent tsb (PTSB) talks to Liam McKenna Partner Consulting Services – Mazars Ireland, about how the bank is using digitalisation to create more meaningful relationships with customers. Liam McKenna: Where does technology fit into PTSB’s proposition – as an […]
Bank of Ireland: Placing ethics at the heart of banking
Customers trust their banks with an increasing amount of data that paints a picture not just about their financial situation and preferences, but about their lifestyles. Bank of Ireland’s Garvan Callan, Director, Customer, Digital & Innovation talks to Liam McKenna Partner, Consulting Services – Mazars Ireland, about how ethics and good principles are essential in shaping […]
Data governance : the key to reconciling contradictory requirements
Confronted with legislation that is becoming increasingly constrictive, banks must optimize the management of their data. It’s a challenge that is compounded by the fact that data is often dispersed throughout information systems – a fact that aggregators are capitalising on to offer new multi-bank applications. Banks have a role to play in detecting abnormal […]
A closer look at the factors underlying the decision to sell NPLs in Italy
There is a clear pipeline of jumbo disposal Non-Performing Loans (NPLs) in Italy, thanks to the ECB push, however vendors will need to take into careful consideration a few factors in their decision, such as recent regulatory reforms of insolvency and foreclosure and a possible EU bad bank. 1. ECB Push Europe’s NPL assets are […]
IFRS 9 new provisioning and the phase-in period of regulatory capital: a discretionary approach
In about nine months, IFRS 9 will replace IAS 39 and the new accounting environment won’t be the only element to be impacted. In recent months, the Basel Committee on Banking Supervision (BCBS), the EU Commission and the European Banking Authority (EBA) have also been tackling the impact of the new IFRS 9 provisioning on […]
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 […]
Compte Nickel is a current account service accessible to all. Operated by the Financial Supervisory Committee of electronic payments (EPF), this new payment account which has been launched recently in France can be opened in 5 minutes at a newsagent/tobacconist by anyone regardless of income requirement. Ryad BOULANOUAR, President of the the French Financial Supervisory […]
In this podcast Greg Simpson discusses cyber security with our expert Francisco Sanches. They discuss major threats such as emerging risks, FCA guidance on cloud data storage and the cyber security skill gaps to name a few. Podcast player
Brexit: the resilience of the infrastructure sector
In previous weeks, I have commented mostly on early signs and emerging risks in the banking sector, including some early warning shots in the property space in particular. But banks and funds invest in many other types of assets and one sector – infrastructure and energy – may even be feeling some benefits from Brexit. […]
Harmonisation of internal model approaches, a new era for banks?
Basel 4 and Single Supervisory Mechanism act to reduce the excessive variability in the results of internal model approaches to credit risk. For more than ten years, Basel reform has encouraged the development and use of internal models designed to better place risk management at the heart of banks’ control arrangements. Basel II saw massive banking […]
Arkéa Banking Services began life in 2009 by offering white label banking services on behalf of third parties. CEO, Christophe Bitner tells Mazars why offering support to Fintechs is now an important next step. What’s the driving force behind the evolution of Arkéa Banking Services and what are the levers for growth? Christope Bitner: when the […]
Over a beer with David Cameron in October last year, Chinese leader Xi Jinping expressed a very clear opinion on which way he wanted Britain’s vote on Brexit. He wanted a “prosperous Europe and a united EU” with the UK firmly in the EU. Britain certainly reached out to China during the last period of […]
Banks prepare for the reinforcement of prudential supervision via the Single Supervisory Mechanism (SSM). After successive waves of new regulatory requirements in recent years, the outlook for the calculation of risks and Pillar 1 capital requirements is becoming clearer. At the same time, whereas the implementation of these new requirements has and continues to mobilise […]
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 […]
Podcast: Implications of Banks Implementing IFRS 9
Greg Simpson, Head of Banking UK and banking experts Paul Hodgett and Pierre Latrobe discuss the implications of IFRS9, more specifically they share some of their experience on helping banks implement IFRS 9. As the standard starts on 1 January 2018, they will also comment on some of the areas that banks need to consider […]
New constraints threaten the future of internal model approaches
At the same time as regulators as a whole express their support for the harmonisation, transparency and comparability of banking models at the European level, a new consultative document published by the Basel Committee on 24 March 2016 partly calls into question the use of internal model approaches when evaluating credit risk. The release of […]
Four routes to better mobilisation of capital in Europe
Efficient supervision of capital markets is a priority of the Capital Markets Union (CMU) given its role in facilitating market integration and European cross-border transactions. But there are currently a number of supervisory barriers halting progress of European mobilisation of capital that now need to be addressed urgently. Following discussions at the CMU’s mid-term conference […]
Measuring banking risks is a difficult exercise, but striking a balance between simplistic and overly complex measurement techniques is the key to accurate risk measurement. This was the substance of the European Central Bank’s (ECB) Chair of the Supervisory Board, Danièle Nouy, in a speech at the Austrian Chamber of Commerce in Vienna, on 2nd […]
The banks’ business model – between function and transformation
The vast array of legal and supervisory requirements for determining a business model draws attention away from the inherent and indispensable need that a successful entrepreneur has for such a model. In the past, was an entrepreneur who had decided to run a bank ever asked about their business model? What is a business model? […]
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. […]
PSD2 supersedes PSD1 on 13 January 2018: comply with the minimum requirements or embrace the future?
PSD2 will supersede PSD1 on 13 January 2018, retaining key benefits from PSD1 such as increased competition with facilitated market entrance for regulated non-bank players, improved economies of scale, enhanced transparency, but also incorporating technological innovation, enhancements and protection into law. This will ensure that a competitive playing field continues to develop, without exposing individuals, […]
A growing interest in environmental, social and governance (ESG) issues is driving record inflows into the ESG-led investment sector. During 2020, sustainable funds available to European investors attracted net inflows of €233bn1, which saw assets under management hit the $1.1tn milestone, accounting for almost 10% of total European fund assets. A similar growth story in […]
The imperative of expanding the traditional MRM function
Financial institutions and non-bank financial technology companies (FinTechs) alike make extensive use of various machine learning models (MLOps) in core and non-core areas of their business. Banks, for example, rely on such models for a range of risk assessments, including predictive underwriting, credit risk management, suspicious and/or fraudulent activity management, fair lending compliance, derivative and […]
Can banks balance the opportunities and challenges of digitalisation?
The Covid-19 pandemic has amplified technology’s impact on the banking sector, helping to prove that technology now stands at the core of business sustainability for banks. In their constant search for convenience, digitally-savvy customers have pushed banks’ focus towards providing global business solutions more than ever. A new normal has emerged: an environment where banks’ […]
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 […]
Banking consolidation in Europe: What can we expect?
The low level of banking consolidation in Europe compared to other countries is raising concerns among the supervisory community in Europe. It is a trend further reinforced after the financial crisis of 2007/2008 that produced a noticeable slowdown in consolidation operations in the EU. So what has been the impact, and what can we expect […]
The Single Supervisory Mechanism: Post-pandemic actions and expectations
On 30 July, the European Central Bank unveiled the 2021 supervisory stress test results, which demonstrated that the region’s banking system is resilient in an unfavourable environment. The Common Equity Tier 1 (CET1) ratio has fallen 5.2% to 9.9% under the 3-year adverse scenario, while under the baseline scenario the CET1 ratio will reach 15.8% […]
The continued popularity of funds with an environmental, social and governance (ESG) focus has put global ESG assets on track to exceed $53tn by 2025, up from nearly $38tn at the end of 20201. As growth continues, expectations for effective compliance policies and controls in place are expected to become more rigorous as political and […]
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 […]
Embarking on an ambitious common climate framework
As part of the European Green Deal, the European Union intends to encourage green investments and prioritise the revision of the Non-Financial Reporting Directive (NFRD). The European or Green Taxonomy, which sets out a precise classification of sustainable activities with the strategic objective of redirecting capital flows towards those activities from 2022, is a result […]
Benchmark study of approaches to estimate probability of default in the context of climate risk
Recently, initiatives to tackle climate-related and environmental risks in the financial services industry have begun across the world. These initiatives followed the adoption of the United Nations Paris Agreement on climate change, the 2030 agenda for Sustainable Development and the European Green Deal. Stress testing and scenario analysis are a common framework proposed by different […]
Local and international trends have transformed the way banks operate, affecting their capital positions and profitability. In particular, ongoing digitalisation programmes and technological innovation continue to add pressure on traditional banking models, including the supply chain. While management’s focus on capital preservation, profitability and growth for shareholders remains, risks from an operational perspective have intensified. […]
Five steps to transforming banking operating models
With the current ultra-low interest rate environment and market volatility having a negative impact on banks’ returns and, ultimately, their capital positions, operating models must quickly adapt and become more cost-efficient to maintain profitability. This drive for cost-efficiency has become more apparent as innovation in technology and ongoing digitalisation have further upended traditional banking systems […]
The digitalisation of banking processes and the introduction of AI-led technology impact the central and strategic role of information systems within the banking system. The growing use of information and communication technology (ICT) exposes all financial institutions to an increasing level of digital risk that could weaken their operational resilience, in particular, due to more […]
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 […]
Over the past decade, the financial services industry has been disrupted by the arrival of new players whose rise to prominence has pushed traditional banks – previously faced with little competition – to transform themselves. In this context, technology and innovation, particularly 5G, will allow the most skilful and agile banking organisations to take advantage […]
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 […]
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 […]
Developing a toolkit for responsible investment decisions
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 1: Assessing the impact of sustainable finance on insurance entitiesPart 2: How the insurance sector is meeting ESG challenges Clarity of information provided to various stakeholders is a growing issue for financial organisations. Despite the efforts […]
Reliable information key to the insurance sector’s ability to apply Green Taxonomy
The objective of the European Union’s Taxonomy regulation, in force since 1 January 2022, is twofold for the insurance and reinsurance sector. First, to measure the share of investments devoted to financing economic activities eligible for the taxonomy, known as the Investment Ratio. Second, to measure the share of gross premiums written in eligible non-life […]
Why ESG-linked features impact financial assets classification under IFRS?
In our last article on sustainability-linked financing, we highlighted the accounting issues related to these contracts that are currently being debated between stakeholders. The most critical issue is the classification of loans or bonds that reference the borrower or issuer’s environmental, social and governance (ESG) key performance indicators (KPIs) on the balance sheet of lenders […]
After two years marked by the Covid-19 crisis, the first half of 2022 offered the prospect of a return to a certain economic normality. However, the outbreak of war in Ukraine combined with a deteriorating economic environment have reshuffled the cards and once again brought banks into a zone of turbulence and uncertainty. So how […]
COP27: stepping up implementation and the role of finance
A lot of attention at COP27 was focused on the likelihood of keeping global warming to 1.5 °C, in line with the goals of the 2015 Paris Climate Agreement. The consensus was that we are in real danger of falling off track. Few nations revised their nationally determined contributions to reduce their carbon footprint compared […]
As environmental, social and governance concerns are becoming more and more prevalent, sustainable finance is now under the spotlight. The financial sector has a key role to play in achieving the ESG transition. One of the levies developed by the financial industry is to propose new kinds of financing that promote ESG practices and projects […]
Green taxonomy trends facing the real estate sector
The European Union (EU) has taken the first step in directing capital investments toward so-called sustainable activities with the introduction of the Green Taxonomy on 1 January 2022. For the real estate sector, the objective is to measure the share of eligible activities contributing to the first two climate objectives – the mitigation of climate […]
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 […]
In force since 1 January 2022, the European Union’s Taxonomy regulation aims to support the market for green finance. More specifically, greater transparency in the market will help prevent greenwashing by providing information to investors about the environmental performance of assets and economic activities of financial and non-financial information. For the banking sector, the target […]
Eurofi financial summit addresses EU’s ecological and digital transition
As a setting for exchange between European Union (EU) economic and financial regulators and senior financial sector executives from the industry, one of the world’s largest financial services conferences, Eurofi, took place in Paris in February. Established in 2000, the Eurofi meetings occur bi-annually* alongside the Economic and Financial Affairs Council configuration (ECOFIN) meetings. The […]
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 […]
France steps up sustainable transformation with mission-led business law
France’s innovative and incentivising Action Plan for Business Growth and Transformation (PACTE) law lays the legal foundations for corporate social responsibility. With more than 400 companies established as “sociétés à mission” – mission-led businesses – by the end of 2021, this new scheme is an undeniable success. The number of mission-led companies has doubled in […]
The digital euro: the future of central banking in Europe?
Central Bank Digital Currencies (CBDCs) continue to receive increasing attention not only from the ECB but all over the world. So far, 10 countries  have already deployed CBDC programmes with another 15 countries  currently conducting pilot programmes. In total, 105 countries are considering using CBDC programmes, representing over 95% of global GDP and […]
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 […]
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 […]
Can Africa’s banking sector maintain its growth momentum?
With more than half of the world’s fastest-growing economies located in Africa1, the continent’s economic outlook is a positive one. Average annual GDP growth since 2000 is over 5%, placing Africa as the second-fastest growing economy behind Latin America. Real GDP growth, estimated at 3.4% for 2019, is projected to accelerate to 4.1% in 2021. […]
How the insurance sector is meeting ESG challenges
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 1: Assessing the impact of sustainable finance on insurance entitiesPart 3: Developing a toolkit for responsible investment decisions When taking environmental, social, and long-term asset portfolio issues into consideration, insurance companies must assess the specific risks […]
Interview with Nadia Filali, Head of Blockchain Programs at Caisse des Dépôts et Consignations: Is collaboration the key to developing a strong blockchain eco-system?
Nadia Filali is director of blockchain programmes and founder of LaBChain at the French public group Caisse des Dépôts et Consignations. Here Mazars partner Jean Latorzeff and senior managers Emilie Legroux and Christophe Bonnefoy talk to Nadia about the pioneering role Caisse des Dépôts is taking in the development of blockchain technology. Why and how […]
Fintech is prominent in today’s business lexicon, having migrated from the back office to a prominent position in both consumer and commercial finance. Its core functionality on mobile devices and wide application in artificial intelligence (AI) spans blockchain, smart contracts, banking, insurance, regulation and cybersecurity. And Amazon Web Services (AWS), a major cloud player, is […]
Is there light at the end of the Trading Book’s tunnel?
Seven years after the first Basel Committee on Banking Supervision’s (BCBS) consultative paper on the Fundamental Review of the Trading Book (FRTB) and three years after the publication of the revised Market Risk Framework, is the 14 January 2019 release of the final Minimum Capital Requirements for market risk the end of this particular regulatory […]
Brexit Watch #2 : Impact of No Deal and Other Regulatory Issues
In the second installation to our Brexit Watch, the delay of the House of Commons vote and subsequent negotiations increases uncertainty, with multiple possible scenarios set to emerge. Brexit preparation has been one of the largest undertakings for regulatory bodies on both sides of the channel. Despite continued unpredictability surrounding outcomes, new directives and amendments […]
Cryptoassets: Accounting for an emerging asset class
The sweeping growth and prolific collection of technologies that make up cryptoassets today have made it incredibly challenging for regulators worldwide to standardize and issue authoritative guidance. Professional accounting standard-setting bodies, like the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are certainly no exception. What started out as just bitcoin […]
Brexit Watch #1 : Impact of No Deal and Other Regulatory Issues
As negotiations on the UK’s exit from Europe continue, albeit slowly, regulatory bodies in the UK and Europe are beginning to issue regulatory changes to cope with all eventualities, including the UK leaving Europe without a deal. As a result, a number of new directives and amendments to regulations have been issued over the summer […]
While 2018 has witnessed some turmoil in the crypto-currency markets, interest in this new asset class – and also in investment funds which allow easy access to crypto-currencies – remains high. On 26 June 2018 CBOE Global Markets filed an application with the US Security and Exchange Commission (SEC) seeking approval for a Bitcoin Exchange […]
Tax legislation generally includes promises to simplify the process of computing taxes. But in the process of transforming legislation into law, those good intentions often are overshadowed by new complexities. The Tax Cuts and Jobs Act of 2017 is no exception, especially for U.S. multinational corporations. Although most corporations herald their much lower 21% tax […]
The FinTech model is reaching a new level of maturity. The first stage saw them disrupt the traditional banking business models using technology to impact the customer experience and relationship. The second wave offers FinTechs the opportunity to expand their service offering and develop their independence, provided that they understand their relationship with the regulatory […]
Following a majority vote against Theresa May’s Brexit deal on 15 January 2019, and with only 3 weeks until the proposed deadline of 29 March, financial services authorities in the UK and EU have been urgently preparing for an increasingly likely no-deal Brexit, announcing further transitional instruments and offering guidance to firms within the sector. […]
US Tax Reform: Tax Cuts and Jobs Act Imposes New Limitations on Deductibility of Trade or Business Interest
The Tax Cuts and Jobs Act (the “TCJA”), signed into law in December 2017, and applicable to taxable years beginning after December 31, 2017, contains several provisions that will have a significant impact on specific types of entities and investments. One of the most radical departures from current law involves new limitations on the deductibility […]
Overview of the US Stress Test Scenarios Vs. the European Scenarios
On February 1, 2018, just one day after the European Banking Authority (EBA) officially kicked off its EU-wide stress test exercise, the Federal Reserve Board (FRB) released the applicable scenarios for its own US stress test. 2018 US Stress Test Scenarios Overview The annual stress test exercise is required by a provision of the Comprehensive […]
At the end of February 2018, all the major European banks published information on the impact of the implementation of the new standard IFRS 9. IFRS 9 introduces numerous changes (classification, impairment, hedging, etc.). Their impacts at the transition date vary widely from one bank to another. They are negative in most cases, but for […]
Tackling the issue of NPLs: a European perspective
Because of the 2008 financial and economic crisis, banks have accumulated billions of non-performing loans (NPLs) on their balance sheets. Even 10 years after this major economic event, the situation is not yet back to normal in some countries. In the European Union, and in the Eurozone particularly, NPLs are a real concern as they […]
New regulatory requirements for insurance companies – focus on Germany
Because of its importance in society, the insurance industry has always faced a considerable amount of regulatory requirements at the national (BaFin) and international (EIOPA) level. Although this is generally something to be welcomed, this also presents a range of different challenges – not least because the regulations have indirect effects and unintended side effects. […]
While whistleblowing laws and initiatives might differ from country to country, whistleblowers in the financial industry are now well recognized and have gained international attention. Here we analyse the steps taken in the USA to strengthen whistleblowing procedures and practices. Recent allegations of impropriety on several levels have rekindled whistleblowers as a mechanism for identifying […]
Is one single payment standard the way forward for the banking sector?
The financial sector is bursting with disruptive Fintech start-ups at present who are shaking up the banking and insurance sector with innovations varying from online mortgage banks to online payment services. With innovation occurring at such a rapid pace, how are banks responding? To some extent, the arrival of the revised Payment Services Directive (PSD2) […]
Today’s world is witnessing an explosion of data, including personal data: your civil status, what you do and don’t like, your holidays, your favourite leisure activities. The exploitation of all this data is multiplying through the use of innovative IT tools. [pukka_pullquote width=”300″ txt_color=”#ffffff” bg_color=”#2d2d2d” size=”24″ align=”left”]”A pessimist sees the difficulty in every opportunity; an […]
Assessing the impact of sustainable finance on insurance entities
This article is part of the series covering the impact of sustainable finance on the insurance sector. Read further:Part 2: How the insurance sector is meeting ESG challengesPart 3: Developing a toolkit for responsible investment decisions Amid a global pandemic and a rising threat of climate change, today’s society expects financial organisations to uphold strong […]
Rebuilding Credit Card Profitability post COVID-19
The current pandemic is having far reaching consequences across all aspects of society. Compared to other industries the impact on the credit card industry is relatively mild and from a customer perspective the value of on-demand liquidity is now clearer than ever. However, there will be significant impacts on industry profitability. Reduced international travel will […]
Can regulatory systems come to terms with Facebook’s stablecoin?
Facebook’s ambition to create a transferable global digital coin between users on the social media giant’s messaging platforms WhatsApp and Messenger has been controversial from the outset. Perhaps not surprisingly, the backlash from regulators around the world was substantial from day one. The world’s leading economies were less than enthusiastic of the possibility of a […]
In the early 1990s, stress tests became a popular internal tool for international banks to examine risks and gain a better understanding of threats to the institutions’ balance sheet. From there, the Basel Accord was amended in the mid- ’90s and required banks and investment firms to conduct stress tests. However, these were more internal […]
New measures by the European Central Bank aim to improve gender diversity
American entrepreneur, Malcolm Forbes, once described diversity as “the art of thinking independently together”. Today, diversity is beginning to emerge as a quintessential workforce norm and institutions have started to acknowledge the differences in their staff compositions that are deeply ingrained in the fabric of their organisational culture. With many challenges remaining, the independent think […]
Are banks underestimating the risks of Covid Emergency Loans?
During the last few weeks, the volume of loans issued by banks has snowballed as governments release programmes to bail out businesses affected by Covid-19. As a result of these higher volumes, the exceptional increase in underwriting activity raises several issues for banks. Most notably, banks, like all commercial institutions, are also having to cope […]
How banks can demonstrate responsible banking during the pandemic
What is the purpose of a bank? Does it have a responsibility to society at large, over and above its duties to its shareholders, customers and employees? The purpose of banks – to make a profit or be socially useful? What is the purpose of a bank? Does it have a responsibility to society at […]
HKMA Support Measures and the Impact to the Banking Industry
Pierre Latrobe at Mazars discusses recent HKMA initiatives taken in response to Covid-19 and their implications for Hong Kong banks, highlighting credit risk as a growing threat. The Hong Kong economy has been confronted by several downside factors over the last two years. The first hit was the initiation of the US trade war with […]
Covid-19 disruption to the banking sector is widespread, including changes to working patterns, changes in customer behaviour, changes to partner-supplier dynamics and direct impacts on profit and loss accounts. The phase of immediate action to ensure business continuity is now largely complete. As infection curves flatten, restrictions are gradually eased and light starts to emerge […]
Brexit Watch #4 : A snapshot of how the financial services regulators are reacting
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 […]
Covid-19: Major risk considerations for the banking sector
As we continue to feel the effects of the global pandemic, the banking sector, like many other sectors, now faces unprecedented uncertainty about the economic outlook ahead. While banks go into this pandemic in a stronger position than the global financial crisis of 2008, the current environment presents particular challenges and disruption to standard accounting […]
Study highlights significant variations in HKFRS 9 reporting practices
One year on since the HKFRS 9 standard on financial instruments came into force in Hong Kong and two years since the First Time Application (FTA), trends and insights into impacts of the standard are beginning to evolve. As a reminder, the standard introduced numerous changes with regard to the classification, impairment recognition and the […]
In recent years, disruption to the banking sector has seen an increasing number of partnerships between banks and FinTechs, as banks look to acquire the digital expertise now required for 21st century banking and FinTechs look to tap into the finance knowledge and consumer reach that traditional banks enjoy. More recently, this quest for technological […]
How to predict the results of P&L attribution tests in the FRTB framework?
Under the terms of the Fundamental Review of the Trading Book (FRTB), a bank wishing to apply the Internal Modal Approach (IMA) to calculate its capital charge associated with market risk must carry out: backtesting on the Trading Book (TB) and for each trading desk (TD), two profit and loss attribution (PLA) tests for each […]
Should we be concerned by Facebook’s launch into cryptocurrencies?
Whether the launch of Facebook’s Libra will threaten global monetary and financial stability is a question that has been on all regulators’ and politicians’ minds since Facebook announced its cryptocurrency project on June 18, 2019. Donald Trump himself tweeted that, as a virtual currency, Libra “will have little standing or dependability” and that Facebook should […]
The need for a consistent agenda between regulators, supervisors and legislators
With 2019 marking a move for the European Banking Authority (EBA) to Paris in April, regulatory priorities will see the EBA preparing the work of transposing the last Basel III agreements. Following a quantitative and qualitative study, the Commission will be awaiting its opinion in or after June 2019. Further, in the context of EBA mandates […]
EBA’s Stress Test 2020 Methodology – What’s new for the banks?
The methodology for an exercise to assess the resilience of EU banks to adverse market conditions and test the state of their capital allocations has been released by the European Banking Authority (EBA). The exercise – part of EU-wide stress testing – will apply to broadly 70% of the European banking sector. Some 52 banks […]