FS regulatory, accounting and audit bulletin - 2nd edition 2014

Being better informed

In recent months international and EU regulators issued significant proposals to advance long-running G20 initiatives.
We’ve added two catchy new acronyms to the ever-increasing alphabet soup of global financial regulation. First, the FSB and IOSCO brought out their consultation on the methodology for determining “non-bank and non-insurer global systemically important financial institutions” – aka NBNI G-SIFIs. They think this list could include a very wide range of market participants – including key market infrastructure, investment funds, asset managers, market intermediaries and finance companies. Firms in each of these sectors are likely to argue that they aren’t systemically significant, for a wide variety of reasons, so the debate is far from over. And we don’t yet have clarity on what such a designation will mean in practice. For G-SIFI banks, it means holding more regulatory capital, engaging in detailed recovery and resolution planning and providing more regulatory reporting.

Then the EC brought us “SFTs” in its proposed Regulation on reporting and transparency of securities financing transactions, which captures securities lending and repurchase agreements. The Regulation calls for increased reporting to both investors and regulators on SFTs but does not really tackle any root issues in this market.

That proposal was accompanied by the EC’s proposed Regulation on structural measures improving the resilience of EU credit institutions. This measure is the EU’s attempt at reforming the banking system, similar to the Banking Reform Act in the UK and Volcker Rule in the US.

Both of these proposals face a long legislative road ahead. With EP elections in May and a new EC later in the year, we suspect these Regulations will not be agreed until summer 2015 at the very earliest. And the new EP may very well have different views on what banking reform should look like. We’ll need to keep an eye on these as they progress through the negotiation process - a clearer picture of legislators’ reactions to these proposals should emerge before year end.

Finally political agreement was reached on MiFID II, a key milestone. We would expect MiFID II to come into force in summer 2014. It will introduce new requirements on distributing products, market data reporting, corporate governance and third country firms’ access to the EU market. Our feature next month will focus on the details of how MiFID II will impact your firm and the likely timelines for Level 2 and national measures underpinning it.

EIOPA published its timeline for publishing Solvency II standards and guidelines ahead of the 1 January 2016 implementation date. Firms will be disappointed to see many publications back-loaded to 2015, leaving little time to prepare for the details that underpin Solvency II, but at least we have a clear timetable now to enable insurers to firm up their implementation plans.

The FCA finally completed the AIFMD picture for firms by publishing its AIFM Remuneration Code and accompanying guidance.

Finally, the Basel Committee published a number of updates to its LCR, NSFR and leverage ratio. Our feature this month looks at how these changes will impact banks.

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