Regulatory update: Final, final implementing technical standards

Transcription

1 Regulatory update: Final, final implementing technical standards Wednesday 5 th March 2014 Lombard Risk - Managing collateralised trading Enabling regulatory compliance

2 Webinar agenda < 60 min Introduction Rebecca Bond, Group Marketing Director Key speaker: James Phillips, Director Regulatory Strategy Final, final implementing technical standards Questions & Answers Online questionnaire Lombard Risk - Managing collateralised trading Enabling regulatory compliance

3 FREE International Regulatory Information Update service Two streams of online business briefings: 2012 / 2013 / Regulatory updates 2. Collateral management series TODAY: 5 th March Final, final ITS and So, you think it s all over after COREP? 26 th March FINREP TBA Asset encumbrance, Additional liquidity monitoring metrics (ALMM)

4 Lombard Risk - Managing collateralised trading Enabling regulatory compliance Let s get started. with a short introduction

5 Lombard Risk - Managing collateralised trading Enabling regulatory compliance Lombard Risk today: a leading player in global risk management Ticker: LRM and compliance solutions Online Founded in 1989 Trusted providers for more than 24 years 300+ banks, hedge funds, commodity trading and fund management clients in 25 countries Solutions for global financial services institutions Regulatory risk, and No.1 provider of Regulatory Compliance solutions in both the United Kingdom and United States - with global coverage A market leader in Collateral Management solutions Expertise in OTC derivatives reform: Dodd-Frank Act Title VII and global equivalents EMIR

6 Lombard Risk - Managing collateralised trading Enabling regulatory compliance Global 270 strong in 10 global offices

7 Integrated solution: Regulatory risk and compliance, collateral management, liquidity analysis, management information, transaction reporting

8 Speaker: James Phillips Director, Regulatory Strategy James Philips 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. Lombard Risk - Managing collateralised trading Enabling regulatory compliance

9 Today s presentation: What s the status and how did we get here? Are the ITS final? So what is yet to come? Local Competent Authority implementation End state requirements What, when, who; Scope of application Some clarifications And after COREP?

10 What s the status and how did we get here?

11 What s the status and how did we get here? Four tracks: European legislative development Regulation and Directive European legislative development ITS UK and other local consultation and policy Local Competent Authority implementation

12 What s the status and how did we get here? European legislative development Regulation and Directive Capital Requirements Regulation & Capital Requirements Directive August and November 2013 CRD and CRR. 26 th June 2013

13 What s the status and how did we get here? European legislative development Regulation and Directive Capital Requirements Regulation & Capital Requirements Directive 26 th June 2013 August and November 2013 CRD and CRR. Definitions of Eligible Capital Definitions of Leverage Adjustments to dates when EBA are mandated to do things, & changes re: Issuances Non-state aid capital instruments Dates re parent financial holding company Large Exposures limits Re Applicable percentages for deduction from Common Equity Tier 1, Additional Tier 1 and Tier 2 items - changes to the date to taper to 100% Article 493(3) brings forward deadline for transition period

14 What s the status and how did we get here? European legislative development Regulation and Directive Capital Requirements Regulation & Capital Requirements Directive August and November 2013 CRD and CRR. Regulation (EU) No 575/2013 should read as follows: 26 th June th November 2013

15 What s the status and how did we get here? European legislative development Regulation and Directive CRR and CRDIV in more detail Capital Requirements Regulation Single Rule Book - the legislation is the Rule Book Capital and Risk Liquidity Leverage Lending to smaller firms Transparency rules Red items new ideas negotiated into the agreement by EU Parliament

16 What s the status and how did we get here? European legislative development Regulation and Directive CRR and CRDIV in more detail Capital Requirements Regulation Single Rule Book - the legislation is the Rule Book Capital and Risk Liquidity Leverage Lending to smaller firms Transparency rules Capital Requirements Directive Remuneration Bonuses Flexibility & buffers Benchmarking Transparency rules Red items new ideas negotiated into the agreement by EU Parliament

17 What s the status and how did we get here? European legislative development ITS 26 th July 2013 EBA Implementing Technical Standards 17 th September XBRL Taxonomy 19 th September Forbearance and Non- Performing Exposures 21 st October Asset Encumbrance 30 th October XBRL Taxonomy 2 nd December 2013 ITS v1 ITS v2 ITS v3 ITS v4

18 Are the ITS final? So what is yet to come?

19 Are the ITS final? So what is yet to come? Are the ITS final? Q When is 'final" not 'final'? Not final!

20 Are the ITS final? So what is yet to come? Are the ITS final? Q When is 'final" not 'final'? A: Draft Implementing Standards issued by European Commission Directorate General Internal Markets and Services here: k/regcapital/legislation_in_force_en.htm# implementing Not final!

21 Are the ITS final? So what is yet to come? So what is yet to come? al_market/bank/regcapital/ legislation_in_force_en.ht m#implementing Still need: Irish & Croatian final Enough!

22 What else published since DG 8/1/14? Review of current EBA output: 28/02/14 EBA consults on draft technical standards on the margin periods for risk used for the treatment of clearing members' exposures to clients 28/02/14 EBA publishes consumer trends report 20/02/14 ESMA-EBA: Euribor makes significant progress with reforms 19/02/14 The EBA publishes final draft technical standards on classes of instruments used for variable remuneration 17/02/14 EBA launches discussion on the impact on the volatility of own funds of the accounting and prudential changes in the treatment of defined benefit pension plans 14/02/14 EBA publishes risk dashboard of EU banking sector 06/02/14 EBA, ESMA and EIOPA publish final Report on mechanistic references to credit ratings in the ESAs' guidelines and recommendations 05/02/14 EBA, ESMA and EIOPA consult on draft technical standards on the mapping of ECAIs credit assessments 31/01/14 EBA announces key features of the 2014 EU-wide Stress Test 29/01/14 EBA issues Recommendation on the use of the Legal Entity Identifier (LEI) for supervisory purposes 29/01/14 EBA publishes final draft technical standards on own funds requirements for investment firms 24/01/14 European Supervisory Authorities voice their concerns on Maystadt report (concerns re Philip M "Should IFRS standards be more European?" report) 13/01/14 Board of Appeal of the European Supervisory Authorities dismisses appeal made by a refused CRAapplicant against ESMA 20/12/13 EBA publishes final draft technical standards on market risk and CVA risk Etc

23 What else published since DG 8/1/14? Review of current FCA/PRA output: 28/2/14 PS14/3: Final rules for consumer credit firms 28/02/14 CP14/3: Consumer Credit: Further amendments to DEPP and EG 31/1/14 PS14/1: Distribution of retail investments: referrals to discretionary investment managers and adviser complaints reporting 31/1/14 PS14/2: Incoming Statutory Regime for Primary Information Providers - including feedback on CP13/8 and final rules 30/1/14 CP14/2: Proposed amendments to the Listing Rules in relation to sponsor competence and other amendments to the Listing Rules and Prospectus Rules 30/1/14 CP14/1: Financial Services Compensation Scheme management expenses levy limit 2014/15 PRA: Strengthening capital standards: implementing CRD IV, feedback and final rules - PS 7/13 and: 17/2/14 Gabriel Technical Pack (specifies Direct Submission Gateway requirements)

24 Local Competent Authority (CA) implementation XBRL update Impact on IRR

25 What s the status and how did we get here? UK and other Local consultation CP5/13: Strengthening Capital Standards: Implementing CRD IV 2 nd August 2013 CP8/13: Occasional Consultation Paper 3 rd October 2013 CP13/6 - Capital requirements for investment firms 31 st July 2013 CP13/9 Quarterly Consultation 2 6 th September 2013 What this means for firms 11 th September 2013 and updated variously since firms/markets/internati onal-markets/eu/crdiv/what-this-meansfor-firms CP13/12 - CRD IV for investment firms 10 th October 2013

26 What s the status and how did we get here? UK and other Local and now policy released December 2013 PS7/13: Strengthening Capital Standards: Implementing CRD IV, feedback and final rules PS13/10 CRD IV for Investment Firms a/documents/publications/policy/20 13/strengtheningcapitalps713.pdf cuments/policystatements/ps13-10.pdf

27 What s the status and how did we get here? UK and other local consultation and policy The Capital Requirements Regulation in the EU OJ The EBA s Implementing Technical Standards when in the EU OJ IFPRU: New Prudential Source Book for in-scope investment firms Updated SYSC and associated handbook updates Handbook Instruments & Statements Implementing Technical Standards Capital Requirements Regulations

28 XBRL Taxonomy What is the XBRL taxonomy? Derivation from the originating Legal Framework: XBRL Taxonomy Data Point Model Binding Technical Standards Capital Requirements Regulation

29 XBRL taxonomy XBRL taxonomy - role Concrete technical representation of the data point model (and thus of the BTS, and thus of the CRR) Remember: templates are only for human-readability; the XBRL taxonomy provides digital representation of that

30 XBRL - Implementation To clarify how October 2013 EBA Taxonomy matches with the January 2014 templates: 1) EBA issued upgraded Taxonomy v2.0.1 (Dec 2013) Includes EBA XBRL Taxonomy and EBA s filing manual 2) Documentation issued by FCA (18/2/14) includes localised Filing Manual Confirmation, to be clear, that Taxonomy V2.0.1, is the go-live version

31 XBRL - FCA s implementation Approach Scheduling Submissions will be scheduled at the EBA XBRL taxonomy module This is a collection of ITS templates aka an Entry Point As per EBA taxonomy i.e. COREP COREP_LE COREP_LCR COREP_NSFR FINREP_CONPRU_IFRS One each for Independent and Consolidated Nine in total. Compression XBRL is verbose; GZIP compression is mandated (and supported of course by Lombard Risk REPORTER)

32 XBRL - Implementation FCA approach Same channel for FCA and PRA firms, via GABRIEL as now PRA and FCA firms will still report IRR not impacted by CRDIV All CRDIV firms will have a mix of CRD and IRR Only 2 channels to FCA: 1. direct communications and 2. web upload; there is no type in Both channels will only accept XBRL instance documents Mechanism: Similar to current XML direct communication or web upload Some new GABRIEL pages/sections Testing Announced 14 th February Under way see next screens

33 XBRL - FCA s implementation Log-in screen Input Username/Password supplied by Gabriel team and press log-in

34 XBRL - FCA s implementation Log-in screen Reporting schedule currently FSA reporting not COREP (which is to be found under the XBRL Submission tab)

35 XBRL - FCA s implementation Log-in screen Click on upload XBRL data link Navigate to XBRL submission on the left hand side of the screen

36 XBRL - FCA s implementation Log-in screen Select return to upload by selecting radial button. Further data (albeit limited) supplied by clicking on the + sign before each return name.

37 XBRL - FCA s implementation Log-in screen Once return select click on Select to upload button

38 XBRL - FCA s implementation Log-in screen To navigate back to the previous screen use the back button located in the screen, not the Browser back button.

39 XBRL - FCA s implementation Log-in screen Data as to reporting requirement e.g. data item, due date, reporting unit, reporting basis individual/consolidated and reporting period is prepopulated in this screen below. Browse to the location of the XBRL file to upload to the Gabriel system and select upload

40 XBRL - FCA s implementation Situation regarding validations 1) Current XBRL testing 2) For Go Live

41 Impact on IRR PRA data item Handbook treatment under CRD IV COREP templates FSA001 - Balance Sheet Retain fully for some FINREP FSA002 - Income statement Retain fully for some FINREP FSA003 Capital adequacy Delete COREP CA FSA004 Credit risk Delete COREP CR FSA005 Market risk Delete except for data on Capital Add-ons for Risks Not in VaR COREP MKR FSA006 Market risk Retain No equivalent FSA007 Operational risk Delete COREP OR FSA008 Large exposures Delete COREP LE FSA018 UK integrated group large exposures Amend (but guidance changes) No equivalent FSA028 non-eea subgroups Delete COREP GS FSA045 IRB data Retain (but guidance changes) COREP CR IRB FSA046 Securitisation Delete COREP SEC FSA058 Securitisation Delete COREP SEC FSA Liquidity regime Retain LC/SF not Pillar 1 Others not mentioned Retain

42 End state requirements What, when and who? Scope of application etc

43 End state - the CRR articles Article Own funds and Own funds requirements 99 Financial information 99 Losses from lending collateralised by immoveable property 101 Large exposures 394 Leverage ratio 430 Liquidity 415 Asset Encumbrance 100

44 End state - reporting arising Reporting impact under CRR Template summary (for 2014) Reporting COREP FINREP CR IP Losses LE LR LC SF AE Total Templates 29 templates (not including dimensions) 65 templates (not including dimensions) 1 template 6 templates 7 templates 4 templates 2 templates 9 templates 123 templates

45 End Q1 End Q2 End Q3 End Q4 End Q1 End Q2 End Q3 End Q4 End Q1 End Q2 End Q3 End Q4 End Q1 End Q2 End Q3 End Q4 End state - thresholds Thresholds (ITS Article 4): Thresholds entry/exit criteria: Report from next date if thresholds exceeded for 2 cycles (in a row) (wording is overridden in certain Leverage Ratio Article text) Exit report from next date if below thresholds for 3 cycles (in a row) First two reference dates: report anyway if exceed Some (interesting) threshold scenarios illustrated: = Report = Not Report

46 End Q1 End Q2 End Q3 End Q4 End Q1 End Q2 End Q3 End Q4 End Q1 End Q2 End Q3 End Q4 End Q1 End Q2 End Q3 End Q4 End state - thresholds Thresholds (ITS Article 4): Thresholds entry/exit criteria: Report from next date if thresholds exceeded for 2 cycles (in a row) (wording is overridden in certain Leverage Ratio Article text) Exit report from next date if below thresholds for 3 cycles (in a row) First two reference dates: report anyway if exceed Some (interesting) threshold scenarios illustrated: = Report = Not Report

47 Polling question #1 Regarding thresholds A Our business is clearly IN or OUT in pretty much all cases B We have a highly variable threshold condition set, it s a pain C Not looked at this yet Answers on line HERE Lombard Risk - Managing collateralised trading Enabling regulatory compliance

48 End state - application dates Dates: Application dates: 1/1/14: CRR and therefore Single Rule Book application date 31/3/14: first quarterly as-at date 31/3/14: first LC as-at date, but monthly thereafter 1/7/14: FINREP date: 30/9/14 1 st as-at quarterly reporting date Note: FINREP Tables NPE (18) and FB (19), but with longer deadline 30/6/14 or 31/12/14: Asset Encumbrance AE Accounting reference dates: Monthly: Last day of each month Quarterly: 31 st March, 30 th June, 30 th September and 31 st December Semi-annual: 30 th June and 31 st December Annual: 31 st December

49 End state - submission dates Dates: 1 st submission dates: 30/4/14: 1 st submission for LC Friday 30/5/14 1 st for INDIVIDUAL quarterly (i.e. COREP, LE, SF and LR) 30/6/14: 1 st submission for CONSOLIDATED quarterly reports (30 calendar days monthly reporting 31 st March-31 st December 2014) 11/8/14: 1 st submission of quarterly AE 11/11/14: 1 st submission for FINREP (excl. NPE and FB) 31/12/14: 1 st submission for NPE and FB (and impacted data on other FINREP templates) Normal remittance dates (after the 1 st submission dates): Monthly: 15 th calendar day after the reporting reference date Quarterly: 12 th May, 11 th August, 11 th November and 11 th February Semi-annual: 11 th August and 11 th February Annual reporting: 11 th February

50 End state what business as usual will be Consideration to be given to your report factory Who is preparing what, when? Will management be available in order to achieve sign off? ALMM FINREP FINREP FINREP FINREP AE AE AE AE AE SF SF SF SF SF SF LC LC LC LC LC LC LC LC LC LC LCR LCR LCR LCR LCR LCR LR LR LR LR LR LR LE LE LE LE LE LE COREP COREP COREP COREP COREP COREP Q Q Q Q Q Q AE starts (for some) FINREP starts (for some) ALMM to start Shows reporting reference dates LC goes monthly, 30 calendar days to submit throughout 2014 LCR and NSFR reported and Pillar 1; 15 days to submit LCR

51 So what are we finally waiting for? 1) Final appearance in the EU Official Journal of the ITS and associated instructions etc not expected to be materially different (if at all) from the Directorate General publication of 8/1/14) European Commission Directorate General Internal Markets 8 th January 2014 And.

52 So what are we finally waiting for? 2) Update as to the final set of validations to be used for initial submissions CAs are waiting (as at yesterday 4/3/14) for EBA agreement 3) Finalisation of all clarifications from EBA Q&A need to be mindful of impact on first submissions Date Questions Under review Rejected Answered 04/12/ (69%) 69 (15%) 76 (16%) 10/02/ (62%) 147 (22%) 104 (16%) 21/02/ (52%) 158 (23%) 178 (26%) 04/03/ (51%) 162 (23%) 183 (26%) 4) Updates to the ITS and associated Taxonomy but these not expected impact first submissions These expected to finalise validations

53 Some clarifications

54 Some clarifications COREP exceptions everything quarterly and individual and consolidated, except: CR SEC Details (semi annual) OPR Details (semi annual and subject to thresholds) IP Losses (semi annual) GS (semi annual and only for consolidated) LC and SF are required to be reported in 2014 To be clear both are reported individual and consolidated on each submission date That means first LC as at 31/3/14, due 30/4/14, is individual AND consolidated

55 Some clarifications Asset Encumbrance is not part of FINREP; scope is all firms (which FINREP is not) First FINREP submission date is 11th November 2014, not 15th First submission date for FB/NPE data (as new parts of FINREP): is 31 st December 2014 FRS101 vs FRS102 FRS101: you will need to seek advice regarding FINREP scope FRS102:.this is UK GAAP, so likely out of scope for FINREP

56 And after COREP?

57 Additional liquidity Monitoring Metrics Liquidity 2015 (adding back the Ratios.) So what s left to go? Why? Pictorial representation of the ITS ITS will continue to expand Asset Encumbrance Known timetable Current i.e. COREP LE LC SF LR FINREP Forbearance Non-Performing Exposures (FINREP Tables 18/19) TBC Timetable

58 Impact on current liquidity reporting Passporting/Cooperation (Liquidity supervision) Current regime e.g. PS09/16 FSA X LC and SF reported LCR reported, and Pillar 1. ALMM and potentially more NSFR reported and P1

59 Impact on current liquidity reporting Review of current liquidity consultation (from EBA) 21/2/13: DP definition of LCR liquid assets 23/5/13: CP on Additional Liquidity Monitoring Metrics (sought behavioural reporting )(rejected) 23/5/13: Draft CP on RTS in additional collateral outflows 22/10/13: CP on ITS currencies with narrow central bank eligibility 22/10/13: CP on ITS on currencies with liquid asset shortfalls 22/10/13: CP on RTS on derogations 20/12/13: BS 413: Report Definition of High Quality Liquid Assets 20/12/13: BS 415: Report on impact of LCR (art 509(1)) ECB: will be undertaking Asset Quality Review across EZ Key ECB/SSM supervisory focus.

60 Likely challenges for implementation Business issues: Glide path to new ratios and adjustment to business models Adjusting quality of and quantity capital Adjusting quality and quantity of high quality liquid assets Changing business operating model: more, and more frequent reporting Serious liquidity supervisory reporting Operational issues: Many data challenges New data types Existing data but at deeper granularity No current reporting project time to develop expected results Deeper reconciliation with management information Reporting peaks exacerbated with more reports due at the same time Additional people and equipment resources

61 Polling question #1 Regarding the resource requirement for Business As Usual production of EBA reporting alongside existing reporting: A B C D We ve not really considered this yet We don t need more resources We are certain we will need more resources We are certain we will need a LOT more resources Answers on line HERE Lombard Risk - Managing collateralised trading Enabling regulatory compliance

62 Basel IV Simplicity - Front Stop (not back stop) leverage ratio Less reliance (any reliance?) on internal models Quality of Tier 2 capital Minimum requirements for stress testing Much more (even more) emphasis on liquidity Enhanced requirements to aid comparability (happening already in EU) Also: Banking (and indeed non-bank) structural reform Operational Risk come back! Large Exposures regime Risk data aggregation Extra-territoriality Bail-in liabilities OTC reform Banking Union/Single Supervisory Mechanism/ECB reporting Emphasis on governance, accountability Conduct not Capital

63 Questions Implications & Answers of DFA for BBVA Question submitted in advance: When will the ITS and XBRL taxonomy stabilise? Have the targets stopped moving yet? Questions raised during the webinar? Open for additional questions now. Lombard Risk - Managing collateralised trading Enabling regulatory compliance

64 What s Implications next? 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 on on-line polls You will receive an invitation to future webinars in the Regulatory Update series Thank you for joining us today we hope you enjoyed and benefited from it. Please complete the short post-event survey online. If you have any questions please do not hesitate to contact us on: info@lombardrisk.com Lombard Risk - Managing collateralised trading Enabling regulatory compliance

65 Thank you Lombard Risk - Managing collateralised trading Enabling regulatory compliance