regulatory update: lcr, amm, sa-ccr and sa-ccp and ... … · regulatory update: lcr, amm, sa-ccr...
TRANSCRIPT
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Regulatory update:
LCR, AMM, SA-CCR and SA-CCP
And: dealing with the cost of
regulatory reporting…
Thursday, 18th February 2016
Lombard Risk | Enabling regulatory compliance
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Regulatory programme – 2015/201615th December
2015EMEA Regulatory Update: Regulatory Reporting in 2016 and beyond
TODAY EMEA Regulatory Update: LCR, AMM, FINREP, SSM, SA-CCR and CCP
23rd February
2016
US Regulatory update: Key changes from the US Federal Reserve Liquidity
Monitoring Reports (FR2052a/b)
8th April
2016
EMEA Regulatory Update: LCR,AMM Basel updates: Leverage and Exposures –
challenges of data management
4th May
2016
EMEA Regulatory Update: Mortgage Exposure, Anacredit, Basel IV updates
(SA-CR: SA-OpR)
1st June
2016EMEA Regulatory: EBA operational updates, Basel IV: FRTB, challenges of big data.
n.b. Look under www.lombardrisk.com/past-events for earlier webinars
Lombard Risk - | Enabling regulatory compliance
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Introducing Lombard Risk
Lombard Risk - Enabling regulatory compliance
www.lombardrisk.com
A leading player in global risk management
and compliance solutions
Founded in 1989
Trusted providers for 25+ years
@300 strong in 10 office locations
Global presence
300+ banks, hedge funds, commodity trading
and fund management clients in 25 countries
Solutions for global financial services institutions
No.1 provider of regulatory compliance solutions in both the United Kingdom and United States - with global coverage
A market leader in collateral management, clearing and optimisation solutions
Expertise in OTC derivatives reform: Dodd-Frank Act Title VII and global equivalents … EMIR
Ticker: LRM
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Speaker:
James PhillipsGlobal Director
Regulatory Strategy
James Phillips has responsibility for Lombard Risk’s regulatory solution strategy.
He is an industry expert on regulatory issues monitoring them on a global, regional and country/regulator basis through frequent interaction with regulatory groups and financial institutions. As a result he fully understands financial services institutions’ operational procedures relating to internal and external monitoring and reporting demands.
Email: [email protected] / [email protected]
Lombard Risk - | Enabling regulatory compliance
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In context:
Lombard Risk - | Enabling regulatory compliance
This webinar series has two elements each time:
Regulatory Change
Operational Change
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Agenda
Lombard Risk - | Enabling regulatory compliance
So, two parts:1. Shorter & medium term upcoming regulatory items
ShorterInterim LCR; Additional Monitoring Metrics
Medium[FINREP; SSM]; capital requirements SA-CCR and SA-CCP
2. Operational changesDealing with the cost of regulatory reporting
Regulatory topics for remainder of this series and what else is in Pets’ Corner
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Shorter & medium term key
upcoming regulations
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LCR, AMM
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Period from 1st Oct, CRDIV credit institutions …investment firms not in scope of new LCR continue with LC…have to report each of:
• LC (as it is, existing XBML via Gabriel to EBA)• Interim LCR (XML/Excel direct to PRA) and • FSA047/048 (as it is, XML via Gabriel to PRA)
Lombard Risk - Enabling regulatory compliance
Interim LCR reporting
Date Asset above £3billion Asset below £3billion
Before
1st October 2015
Current LC returns in XBRL
(C51.00 – C54.00)
Current LC returns in XBRL
(C51.00 – C54.00)
During interim period Current LC returns in XBRL
New LCR returns in XML Excel
Current LC returns in XBRL
Report key metrics of C76.00
LCR ITS becomes Mandatory New LCR returns in XBRL
(C72.00 – C76.00)
New LCR returns in XBRL
(C72.00 – C76.00)
Interim LCR, AMM
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©Lombard Risk Compliance Limited 2015
UK PRA Interim LCR From 1st October 2015 until LCR ITS is formally implemented in EU PRA provides two templates
interim LCR and simplified LCR
Report in designated XML format Report monthly with a 30 day deadline First as-at date: 31 October 2015; First submission date: 30 November 2015
EU CRDIV LCR (Pillar 1 requirement) LCR reporting via XBRL after 6 months from date ITS published in EU O.J.
We still await that date…
Draft LCR ITS submitted to EC 23rd June 2015 Now 5th ITS waiting to be adopted by EC Earliest possible implementation date: 30th September 2016 if adopted in March 2016? In December I said: “Most likely be Sept 2016” (still don’t quote me…)
Interim LCR, AMM
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©Lombard Risk Compliance Limited 2015
UK PRA Interim LCR From 1st October 2015 until LCR ITS is formally implemented in EU PRA provides two templates
interim LCR and simplified LCR
Report in designated XML format Report monthly with a 30 day deadline First as-at date: 31 October 2015; First submission date: 30 November 2015
EU CRDIV LCR (Pillar 1 requirement since 1 Oct 2015)
LCR reporting via XBRL after 6 months from date ITS published in EU O.J. We still await that date…
Draft LCR ITS submitted to EC 23rd June 2015 Now 5th ITS waiting to be adopted by EC Earliest possible implementation date: 30th September 2016 if adopted in March 2016? In December I said: “Most likely be Sept 2016” (still don’t quote me…)
Interim LCR, AMM
Information that Taxonomy 2.4 is unlikely to come in until September 2016. Further to
that, information indicted in the market is that it may not be until February 2016 that the EU OJ will be updated with the adopted ITS for LCR. That would make the earliest possible LCR XBRL date as-at end August 2016, but Lombard Risk would still expect that end
September as-at date could be expected….
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©Lombard Risk Compliance Limited 2015
EBA Additional Monitoring Metrics European Commission and EBA confirmed implementation of AMM delayed to 1/1/2016…
….obviously ….the issue was: whether to implement C66.00 from 1/1/2016 ….the issue is, still: whether to implement C66.00, and from when?
EBA suggested EC to implement AMM as it stands and for EBA to implement C66.00 later….
And when confirmed, this should still apply: Monthly reporting; Submit within 30 calendar days for the first 6 months then within 15 calendar days
AMM situation
20th January: informally from FCA:
“AMM Reporting Requirements via information from the Bank of England - latest position is that the “ITS is expected to be published in the next few weeks (Feb potentially). It is still not
clear whether the Maturity Ladder will be included or not, or whether they will use it temporarily, whilst it is being revised…..”
And: “….have heard that reporting of ALMM is due to begin from May”
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Lombard Risk - | Enabling regulatory compliance
http://ec.europa.eu/finance/bank/docs/regcapital/acts/overview-crr-crdiv-its_en.pdf
December 2015
Queue:AMM 3rd
LCR 8th
The EC “state of play of ITS was updated on 3rd Feb 2016
EBA 2015 work plan: state of play
February 2016
Queue: AMM 1st
LCR 5th …16 Feb 2016: ITS re LR disclosure (item
#22) was suddenly published on O.J!Effective next day…
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“Basel IV, or not Basel IV, that is the question”
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25/01/2016
Lombard Risk - | Enabling regulatory compliance
31/12/2016: Revised Pillar 3 disclosure requirements
1/1/2019:Large exposures standard
Revised new Capital Floor (after finalising credit risk,
market risk & operational risk)
11/12/2014 BCBS 343 Revised securitisation framework
1/1/2018: Securitisation Framework
12/01/2014: BCBS 270 leverage ratio framework and disclosure
requirements
03/07/2013: BCBS 255G-SIB HLA requirement
2013 2014 2015 2016 2017 2018 2019
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12/01/2014: BCBS 272 LCR disclosure
22 June 2015: BCBS324 NSFR disclosure requirements
1/1/2016: G-SIB HLA requirements phase-in
BC
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1/1/2016: CCyB and Capital conservation buffer phase-in
1/1/2015 : Pillar 1 LCR requirement
1/1/2018 : Pillar 1 Leverage Ratio
requirement1/1/2017: SA-CCR replaces CEM
& SM in capital adequacy framework
1/1/2017:Capital requirements for bank exposures to CCPs
1/1/2017: Capital requirements for banks' equity investments in
funds
15/04/2014: BCBS 283 Large Exposures standard
10/04/2014: BCBS282 Capital requirements for bank
exposures to CCPs
31/03/2014: BCBS279: Final SA-CCR
13/12/2013: BCBS266 Capital requirements for equity
investment in funds
07/01/2013: BCBS 238: LCR and liquidity risk monitoring tools
End of 2016: Revised final SA for credit risk
31/12/2019: Market Risk (FRTB)
28/01/2015: BCBS309 Revised Pillar 3 disclosure requirements
31/10/2014: BCBS295 NSFR final rule
Revised final IRRBB
Revised final SA-Operational Risk (replace
non-model-based approaches)
14/01/2016: BCBS352 Revised capital requirement of market
risk (FRTB)
Revised approach for credit risk,
operational risk, IRRBB & capital
floor etc.
1/1/2019: G-SIB HLA requirements fully effective
1/1/2019: CCyB and Capital conservation buffer fully
implemented
1/1/2018 : Pillar 1 NSFR & disclosure requirement
The Basel IV “CRD V” Framework Milestones
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The Basel IV “CRD V” Framework Elements
Lombard Risk - | Enabling regulatory compliance
Key Developments of risk-based Capital Requirements Revised for counterparty credit risk (SA-CCR)
Basel III Capital requirements for CCPs (Replacing current interim requirements)
Revised SA & IMA market risk (FRTB)
Revised SA for credit risk (SA-CR)
Revised SA for operational risk
Basel III Leverage ratio
Basel III Large Exposures
Other developments: need to be aware Final Pillar 1 Liquidity Coverage Ratio and disclosure requirements
Final Pillar 1 Net Stable Funding Ratio and disclosure requirements
Revised Pillar 3 disclosure requirements
Basel III Capital requirements for banks' equity investments in funds
Basel III Securitisation Framework
Revised Interest rate risk in the banking book (IRRBB)
Basel III Capital floor (Replacing current framework)
Not finalised yet
Not finalised yet
Replacing current Basel II framework
Jan 2017
Later…
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SA-CCR (Counterparty Credit Risk)
Lombard Risk - | Enabling regulatory compliance
BCBS says:
Impact analysis available:EBA & PRA: pretty quiet…
A comprehensive, non-modelled approach for measuring counterparty credit risk associated
with OTC derivatives, exchange-traded derivatives (ETDs), and long settlement
transactions. The new standardised approach (SA-CCR) replaces both the Current Exposure Method (CEM) and the Standardised Method (SM) in the capital adequacy framework. In addition, the IMM shortcut method will be
eliminated from the framework once the SA-CCR takes effect”.
http://www.bis.org/publ/bcbs279.htm
We say:
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SA-CCR
Lombard Risk - | Enabling regulatory compliance
SA-CCR impact (approach):Capital requirements for counterparty credit riskIncreased risk sensitivity
therefore SA–CCR requires more data and applies more complex computation
Data input required increases significantlyExample: addition of more analysis of asset classes, supervisory delta, correlation and volatility, Margin Period of Risk, margin threshold and minimum transfer amount
More sophisticated calculation algorithmFor instance: Potential Future Exposure add-on calculation now varies by asset class and both Replacement Cost and PFE are differentiated for margined and un-margined transactions
So, new measure: More risk sensitive than the two approaches it replaces
Impact of the SA–CCR hinges on netting set. SA–CCR will produce lower capital requirements than the CEMSavings more evident for balanced derivatives portfolios and more punitive for highly directional netting sets
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SA-CCR
Lombard Risk - | Enabling regulatory compliance
SA-CCR impact (data)Capital requirements for counterparty credit riskFor the calculation of the Replacement Cost (RC)1) Indicator which will specify the transactions that fall in each netting set2) Notional amount of derivatives3) Value of net collateral held after the application of haircut4) Positive threshold before each counterparty must send the bank collateral5) Minimum transfer amount applicable to each counterparty6) Net Independent Collateral Amount for each counterparty
For the calculation of Potential Future Exposure (PFE)1) Product Type (GLC)2) The trade notional amount3) The trade currency, the domestic currency and the exchange rate (if the trade is not in domestic currency)4) Maturity of the contract5) The Margin period of risk appropriate for the margin agreement regarding each margined transaction6) Start date of the interest rate or credit contract7) End date of the interest rate or credit contract8) For options, the latest contractual exercise date as referenced by the contract9) For options, the strike price of the option as well as the price of the underlying instrument10) For CDO tranches, the attachment point as well as the detachment point of the CDO tranche
NNYYYY
NNNNYYYYYY
New
Req
uir
emen
t?
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Lombard Risk - | Enabling regulatory compliance
BCBS says:
Impact analysis available:EBA & PRA: pretty quiet…
The Basel Committee completed its work on the capital treatment of bank exposures to central counterparties, following a collaborative effort between the BCBS, the Committee on Payment
and Settlement Systems (CPSS), and the International Organization of Securities
Commissions (IOSCO) to improve upon the interim capital requirements that were published
in July 2012. The final standard will take effect on 1 January 2017. The interim requirements will
continue to apply until that time.
SA-CCP (Central Counterparty)
http://www.bis.org/publ/bcbs282.htm
We say:
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SA-CCP
Lombard Risk - | Enabling regulatory compliance
SA-CCPCapital requirements for bank exposures to CCPs
July 2012: then interim standard (BCBS 227) re calculation of regulatory capital for banks’ exposures to Central Counterparties released by BCBSApril 2014: BCBS issued final standard (BCBS 282); replaces the interim standard from 1 January 2017Scope: final SA-CCP to apply to all Basel framework banks and investment firms, especially international active banksFinal standard: BCBS simplifies the interim framework, and complements existing frameworks implemented by other supervisory bodies
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SA-CCPCapital requirements for bank exposures to CCPs
The key revisions from interim framework include: New approach for capital requirements for bank exposures of Qualifying Central Counterparties (QCCPs)Explicit cap on capital charges applied to bank exposures to QCCPsUsing SA-CCR (i.e. not Current Exposure Method) to measure hypothetical capital requirement of CCPSpecification of treatment for multi-level client structuresForms basis of Section 9 of EU CRR (section re Own Funds requirements for exposures to a central counterparty).
To implement final SA-CCPs into EU law, EBA must replace or amended CRR Art.
SA-CCP
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Polling question #1
Lombard Risk - Managing collateralised trading | Enabling regulatory compliance
Polling question # 1
14%
27%57%
We dont think we are impacted so nothing to do... We know these are going to hit us and plans are underway
To be honest, not really thought about these yet....
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“Basel IV, or not Basel IV, that is the question”
Lombard Risk - | Enabling regulatory compliance
Very interesting view from the European Central Bank (6/1/16)
http
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ECB today published its 2016 priorities for supervising significant banks in euro area. Five areas build on assessment of key risks faced by banks in the current environment.
Business model and profitability risk ranks highest, followed by other key issues whose importance varies across the euro area countries.
The five supervisory priorities for 2016 are:
1) business model and profitability risk;2) credit risk;
3) capital adequacy;4) risk governance and data quality;
5) liquidity.
“A number of supervisory initiatives will be carried out for each priority. In some cases, full implementation may take more than one year. At individual bank level, supervisory activity may have to be adjusted to the specific risk profile of each credit institution.”
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And now to Pets’ Corner
Lombard Risk - Enabling regulatory compliance
Dealing with the cost of regulatory reporting
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Cost argument? Efficiency? Risk?
Lombard Risk - | Enabling regulatory compliance
Silos arising from Basel IIICapital processing for COREPFinancial processing for FINREPLiquidity processing for “LIQREP”Add AMM, smaller items e.g. FPT, SBP
Add Pillar 2 disclosures etc.Add SSM/FINREP, IFRS9 impact?
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Automation – what to automate?
Lombard Risk - | Enabling regulatory compliance
Technology: enabler to extract benefit from changes?Credit: EY Fed Regulatory Reporting Survey 2015
>50% time preparing (target 80%); no time for analysis
Only 56% partially automated
Operational fragmentation e.g. CapAd/risk vs Stats/Financial
Finding, keeping, constant retaining of reg staff…
Operational situation
Emerging: Analytics other than variance peer, ratios, bench..
Continuous Process Improvements
Automation of attestation
Automation of recon, variance, validations, exceptions
Emerging as the must-achieve To Be
Systems and Data as blocking issues
80% claim “medium quality” data, manual fixes
1st problem recognised as: System limitations
Only 8% claim “high quality” data
2nd problem recognised as: Data integrity
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Automate what is automatable: adjustments, variance, validation…
Always On, web/distributed access
Reduce repeated or parallel operational processes, repurpose
Focus on data quality and expanding time on analysis
Deal with system legacy issues - they are not going away
Humans only when essential, or for added-value analysis purposes
Define a straight through, exception-based environment
Achieve scalability; Basel IV has to fit, along with the rest of the future!
Benefits:
•Scalable
•Reduced costs
•Reduced regulatory risk
•Reduced operational risk
•Reduced key person
dependencies
• Increased visibility
•Optimised re-use
•Continuous process
improvement
You can’t keep adding people!
Automation – what to automate?
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Polling question #1
Lombard Risk - Managing collateralised trading | Enabling regulatory compliance
Polling question # 2
0% 10% 20% 30% 40% 50% 60% 70% 80%
Yes of course - there has to be a better way of dealing with both thedefinition of these requirements and the outcome
There is no hope - either way the % of overhead we spend onregulatory reporting will continue to rise (ok not indefinitely..)
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Polling question #1
Lombard Risk - Managing collateralised trading | Enabling regulatory compliance
Brexit?
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Polling question #1
Lombard Risk - Managing collateralised trading | Enabling regulatory compliance
Polling question # 3
47%
45%
9%
Agree Strongly Really not sure either way Disagree strongly
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Implications of DFA for BBVAGetting ready…:
Lombard Risk - | Enabling regulatory compliance
2015 2016 2017
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LiveParallel
Installation
Data Requirements (Lombard Risk can
advice)
Basel IV Impact Analysis
Inst
alla
tio
nEB
A/P
RA
BSB
C
Pre-releaseInstallation
Reporting definitions (not just COREP)
Rules?
Lombard Risk Annual Event
BCBS 279 Final text
BCBS 282Final text
SA-CCR/SA-CCPImpact Analysis
?? Lombard Risk Annual Event
If you are then listening to us talking about Jan 2017
Basel IV impacts, you’d have left it too late!!
Reporting Date?
Maybe?
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Topics for rest of this series
Lombard Risk - | Enabling regulatory compliance
Regulatory topics for remainder of this series (March-June) and what else is in Pets’ Corner
(now) LCC, AMM, [FINREP/SSM]; SA-CCR and CCPCosts of being regulated
LCR, AMM (again, given expected finalisation on AMM; Basel changes for Leverage and Large Exposures
Challenges of data management
Mortgage Exposure; Anacredit, Basel re SA-CR and SA-OpRTransaction reporting and dealing with volumes
EBA operational updates (topical updates); Basel IV FRTBBig Data, data lakes, European Reporting Framework….
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Implications of DFA for BBVA
The material supporting today’s event will be made available to DELEGATES ONLY and is confidential material - please respect that. - PowerPoint presentation- Results of on-line polls- International Regulatory Updates- Impact Analysis
Recording upon request
Next regulatory update:LCR, AMM, Basel updates: Leverage and Exposures –Challenges of data management. 8th April 2016
What’s next?
Lombard Risk - | Enabling regulatory compliance
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