Monthly Update: FS Regulatory Developments

Monthly Update: FS Regulatory Developments

Financial services developments in the EMA Region, April 2017

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With more surprising political developments this month, most notably the UK’s PM May calling a snap election for 8 June with Brexit at the heart of the debate, and the French two-horse race to the finish with calls for a ‘Frexit’, the rest of Europe and the world looks on with interest. At a recent Eurofi seminar the debate was firmly focussed on the impact and challenges Brexit will have on the EU27, and if others follow, how that will affect the regulatory landscape of the future? We know that changes aren’t imminent, but firms need to be preparing for what risks and opportunities may lie ahead, while balancing the need to manage current developments.

Meanwhile, the Financial Stability Board has kicked off the review of post- financial crisis regulation and the Joint Committee of the European Supervisory Authorities (ESAs) have issued a report on risks and vulnerabilities in the EU financial system. It highlights three main risks and suggests policy actions:

  1. Low profitability of financial institutions in a low yield environment. Forward-looking supervisory approaches and proactive reduction of banks’ non-performing loans are needed.
  2. Increasing interconnectedness of bank and non-bank entities. The ESAs call for enhanced supervisory monitoring of concentration risks, cross border exposures and regulatory arbitrage.
  3. Potential contagion from China and other emerging markets. This risk should be included in stress tests and optimistic assumptions of firms should be scrutinised.

Key developments this month include the impact EIOPA’s new methodology to derive the Ultimate Forward Rate (UFR) from January 2018 will have on insurance firms. In Investment Management, we ask firms to think about what they want by way of a truly pan-EU funds market. Cross sector, we look at the effect of post-implementation regulation including summarising the FSB consultation on the framework for post-implementation evaluation of the effects of the G20 financial regulatory reforms.

In Banking, we comment on the Basel Committee’s consultation on the regulatory treatment of accounting provisions, and how ‘step-in risks’ could be highly burdensome for some banks to deal with. We also examine the results of their latest assessment of G-SIB compliance with the Principles for effective risk data aggregation and risk reporting.

The European Banking Authority (EBA) has outlined plans to update the common European framework for the supervisory review and evaluation process (SREP), and jumping from a Pillar 2 update to Pillar 3, the Basel Committee has now completed the second stage of its revised disclosure requirements.

The new UK annual stress test’s exploratory scenario - which will focus on how banks could both meet regulatory requirements and build sustainable business models in a continually challenging economic environment - may be of interest to colleagues across EMA.

We are always looking for ways to improve, so please do send your feedback to me or a member of the team.

Financial Services

Financial Services

As financial services continue to recover from the crisis and strengthen risk management, the focus remains on regulations and cost reduction.

Regulatory

Regulatory

The strategic and operational challenges facing financial institutions have never been greater.

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