In this week’s newsletter, we provide a snapshot of the principal US, European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
Bank Prudential Regulation & Regulatory Capital
US Office of the Comptroller of the Currency Issues Risk Management Guidance
On August 4, 2015, the Office of the Comptroller of the Currency issued guidance outlining safety and reliability measures that national banks and federal savings associations offering tax refund-related products should follow. The term "tax refund-related products" includes credit products, deposit products, and settlement services to transmit tax-related funds. According to the OCC, tax refund-related products present particular safety and compliance risk because of: (i) their unique repayment and cost structures; and (ii) banks' reliance on third-party tax return preparers who interact with customers. Among other things, some of the suggested measures outlined by the OCC include ensuring that the board of directors maintains sound risk management policies, implementing effective internal controls and review for advertising and solicitation, providing appropriate disclosures to consumers and otherwise complying with applicable consumer protection laws and regulations, implementing adequate procedures to ensure that tax refund-related products provided by third parties comply with applicable guidance, ensuring that Bank Secrecy Act systems include tax refund-related products and maintaining adequate capital and liquidity levels.
The bulletin is available at: http://www.occ.gov/news-issuances/bulletins/2015/bulletin-2015-36.html.
European Commission Assesses Level of Prudential Rules under Capital Requirements Legislation
On August 5, 2015, the European Commission published a report on its assessment of the appropriateness of the rules governing the levels of application of the prudential requirements under the Capital Requirements Directive and the Capital Requirements Regulation, together CRD IV. In the EU, subject to certain exceptions, the supervision of a banking group which includes several banks or investment firms is undertaken at the level of the entire banking group (so called consolidated supervision) as well as at the individual level. The outcome of the assessment is that the Commission does not think that it is appropriate to propose amendments to the rules at this time as consideration needs to be given to the impact of the Single Supervisory Mechanism, implementation of the liquidity coverage requirement and the application of the Bank Recovery and Resolution Directive.
The report is available at: http://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-388-EN-F1-1.PDF.
European Banking Authority Consultation on Exclusion of Transactions with Non-EU Non-Financial Counterparties from Credit Valuation Adjustment Risk
On August 5, 2015, the European Banking Authority published a consultation paper including draft Regulatory Technical Standards on the procedures for excluding a firm's transactions with Non-Financial Counterparties established in non-EU countries from the own funds requirements for Credit Valuation Adjustment risk under the CRR. A firm's transaction with a NFC is excluded from the own funds requirements for CVA risk under the CRR, whether or not the NFC is established in the EU. This is the case as long as transactions do not exceed the clearing threshold specified in the European Market Infrastructure Regulation. As NFCs established in non-EU countries are not subject directly to EU regulation, the draft RTS clarify that firms are responsible for: (i) taking the necessary steps to identify all NFCs under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFCs if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds. The draft RTS align the treatment of NFCs established in a non-EU country with the treatment of NFCs established in the EU. Comments are due by November 5, 2015.
The consultation paper is available at: http://www.eba.europa.eu/documents/10180/1155417/EBA-CP-2015- 14+%28CP+on+RTS+on+CVA+exemption%29.pdf.
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