FS regulatory, accounting and audit bulletin - 1st edition 2014

Being better informed

This month we report on a number of important regulatory developments that will reshape the financial services landscape, including the UK’s newly minted Banking Reform Act and the US Volcker Rule. The year started with the launch of the fourth iteration of the Capital Requirements Directive (CRD IV), the new prudential regime for over 8,300 EU banks and large investment management firms.

Other developments include:

  • On the shadow banking agenda, the EBA devoted time to global systemically important institutions (G-SIIs), setting out how EU regulators should identify them. Banks that are G-SIIs will face higher capital requirements from 2016 onwards. Insurers and asset managers should not rest too easy either – in 2014 global regulators will focus more closely on assessing whether they should also be considered as G-SIIs, and so subject to additional regulation.
  • Asset managers will be looking forward to fully implementing the Alternative Investment Fund Managers Directive (AIFMD) in July 2014. Firms are now focussing on submitting authorisation applications and implementing its requirements – not small tasks. Initially it appeared that the UK would require firms to be fully authorised and to have fully implemented by 21 July (unlike other EU regulators), but the position changed in December. Her Majesty’s Treasury has now confirmed that it will change the UK’s transitional provisions for AIFMD so that firms can submit applications up until 21 July 2014 and still be operating in compliance UK regulatory requirements (as opposed to being fully authorised by that date, which was the FCA’s prior position).

Our feature article focuses on global efforts to restructure the banking industry. US regulators issued the final version of the Volcker Rule on 10 December 2013 and in the UK, the Banking Reform Act received Royal Assent on 18 December 2013. We expect the EU’s further proposals to implement the Liikanen report shortly, which will give us a better picture of how banks will need to adapt their business models to meet the new rules. Having very different approaches from US, UK and EU regulators is likely to prove particularly challenging for the global banks over the next few years. Many are already starting to scrutinise their existing structures and business lines with a view to making changes early.

In 2013 both firms and regulators struggled to meet implementation deadlines, such as CRD IV – we expect to see this trend continue over the next several years. 2014 is the year that implementation gets seriously challenging. Global firms will confront more variations in local legal and regulatory regimes – and feel more enforcement pressure from regulators to be fully compliant.

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