Global Financial Regulation 1

Transcription

1 Transaction Services 12 th of March 2013 Global Financial Regulation 1 Making the Complex Transparent Ruth Wandhöfer - Global Head of Regulatory & Market Strategy

2 Trends in Banking Regulation How governments and regulators are responding to the financial crisis Global Trends we see emerging Increased inward focus of governments and regulators: the tax payer needs to be protected Balkanization of the banking industry in the name of risk mitigation: more instances of trapped liquidity / limits to flows between branch and head office requests for international bank branches in foreign countries to subsidiarize request of some regulators to have insight in global resolution plan of international banks development of additional local requirements. Increasing legislation to boost national budgets and curb speculation to the detriment of financial markets: Financial Transaction Taxes in Europe; FATCA in the US Emerging individual interpretations, approaches and timelines of globally agreed regulatory measures: Basel III G-20 recommendations on OTC derivatives G-20 recommendations on Recovery & Resolution planning. This means Significant Complexity Need for improved knowledge of local developments and related impacts Continued industry advocacy to strive for harmonisation also something for corporates to be vocal about 1

3 Overview Basel III implementation 11 countries that have Basel III rules ready for 1/1/2013 implementation deadline - Switzerland - Singapore (subject to amendments) - Japan - India (implementation delayed for 04/13) - China - Saudi Arabia Which Basel III elements are to apply from 1/1/2013? Banks will have to meet the following minimum capital requirements expressed in risk-weighted assets: - Australia - Hong Kong (subject to amendments) - Canada - South Africa - Mexico Countries with delays in rule finalization - US implementation of 1/1/2013 delayed; timeline unclear - EU rules in negotiation; expected agreement April 2013; 6 month implementation period for Member States - Russia, Indonesia, Korea, Argentina, Brazil and Turkey also delayed 3.5% share capital, 4.5%Tier 1 capital and 8% total capital. Preparation for the new reporting and stress testing requirements needed to be largely complete by the end of Other measures to be implemented by the beginning of 2013 include new regulations for counterparty credit risk and minimum core tier 1 ratios, and new treatment of banks short-term liquidity. Risk of diverging national implementation of Basel III: Trigger point for capital buffers may differ; Reporting requirements may differ Further developments at BCBS level: Ongoing work around liquidity risk monitoring indicators (need for more data, and reporting) BCBS focus in 2013 is on providing a new calibration for operational risk capital (some formula are too closely linked to revenue, which led capital requirements to drop during downturns even when risk was increasing) The BCBS also aims to develop a new set of capital requirements by 2014

4 Macro measures to restructure the banking industry Post-Crisis Regulatory Agenda focuses on restructuring the banking sector: examples EU & US EU structural reform for banking Liikanen recommendations Legal Separation/Ring Fencing of Deposit Taking Banks from Trading/Prop Investment Bank Activities: All insured deposits need to be ring fenced, which will include corporate deposits in EU Ring Fencing required if significant share of bank s business or significant volume that it is an issue for wider financial stability Trading and investments business can be in same corporate group as Deposit Taking Bank European National Initiatives around Ring-Fencing: Given the lack of progress at EU level Member States are pursuing their own reforms. France: (Proposal 19 December 2012) for the ring-fencing of speculative activities, the prohibition of certain activities such as HFT and agricultural commodities speculation. Germany: (Proposal 6 Feb 2012) for the mandatory separation of prop trading; and certain other activities e.g. lending and guarantee business with hedge funds. UK: is pursuing its retail ring-fence (Vickers reforms). Government has pledged to have legislation in place by the end of this Parliament (May 2015) and for banks to be required to comply with all aspects from EU Proposal for a Banking Union: Common supervision by the ECB, Common Deposit Guarantee Scheme US Volcker Rule: Separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms; ban on prop trading US proposals for treatment of foreign banks (FBO) /foreign non-bank financial companies: Requirement for FBO with significant operations in the US to create an intermediate holding company (IHC) to hold all its US subsidiaries. Has the potential to erode global risk diversification benefits by trapping liquidity/capital ; opposite to objective of global resolution approach for financial institutions; could be a bad example for other jurisdictions 1

5 Ensuring Recovery & Resolution Planning Emerging challenges to global consensus and coordination G-20 recommendation to ensure Recovery & Resolution Planning of systemically important international banks: US required submission of RRPs in 2012 next steps still expected UK required submission of information from large internationally active banks in 2012 expectation that regulator will write a plan despite reality that host regulator is outside of UK/Europe; In parallel discussions are ongoing around subsidiarisation of foreign bank branches in the UK The European Commission proposed and EU wide Directive on RRP in 2012 (plan to adopt by end 2013): All institutions are to have an RRP General principle of no creditor worse off Proposal to give regulators powers to change legal or operational structures to ensure critical functions can be legally and economically separated; limiting exposures; imposing reporting requirements; limiting/ceasing existing or proposed activities; restricting/preventing the development of new business lines or products; and issuing additional convertible capital instruments. Common parameter for triggering resolution tools when an institution is insolvent or very close to insolvency A minimum set of resolution tools, with the possibility for national authorities to go further. The tools are: 1. sale of business; 2. bridge institution; 3. asset separation; 4. bail-in. For 3rd countries EU authorities are given necessary powers to support foreign resolution actions of a failed foreign bank IF the foreign action ensured fair and equal treatment for local depositors and creditors' and did not jeopardise stability in the Member State; resolution powers would apply to branches of a 3rd country institutions 2

6 European Payments: SEPA SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their location. 32 Countries Euro currency only Payments within this geographical area (Payments to/from SEPA are not impacted) Single Legal Framework Mandatory use of BIC & IBAN. SEPA addresses non time-critical payments (D+1 from January SCT) Non-urgent payments - standardised Schemes on basis of information-rich ISO XML payment messages (European Payments Council) 17 Euro Zone members Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain 10 EU members (non-eur countries) Denmark, Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and the United Kingdom 3 EEA members Iceland, Liechtenstein and Norway 6 2 Non-EU/EEA Countries Monaco and Switzerland 10 Treaty of Rome Territories Martinique, Guadeloupe, French Guiana, Reunion, Gibraltar, Azores, Madeira, Canary Islands, Ceuta and Melilla and Åland Islands Andorra, Kosovo, Montenegro, San Marino and Vatican City are not in SEPA zone even though they adopted EUR as domestic currency

7 SEPA End Date Regulatory Developments 2012 and Beyond Long sought certainty for market participants Single end date for both SEPA CT and SEPA DD in euro Member States. For non-euro Member States the corresponding end date is 31 October Most euro Member States expected to work towards Feb 2014 timeline. No country has decided to migrate earlier By the end date SEPA CTs and DDs will have to be executed in accordance with a set of prescribed technical requirements set out in the Regulation Annex (reflecting SEPA rulebook elements). Niche schemes and waivers: still lack of comprehensive picture 1 February Reachability for SEPA credit transfers and SEPA DD in euro Member States 2. Cross-border SEPA CT and SEPA DD to be charged the same as domestic SEPA CT and SEPA DD 1. Migration end-date for SEPA CT and SEPA DD in non-euro Member States 2. Reachability for SEPA CR and SEPA DD in non-euro Member States Immediately 1 Feb Feb Oct Migration end-date for SEPA CT and SEPA DD in euro Member States 2. End-date for grandfathering existing DD mandates to SEPA DD Core 3. Use of ISO XML standard by PSPs when initiating and receiving SEPA transactions; corporate file initiation subject to XML usage Note: Member States have the option to defer to 1 Feb 2016 for corp. users. Conversion solutions are permissible. 1. Expire of transitional arrangements for so called niche products 2. Expiry of transitional arrangements for one-off direct debits used at merchants (e.g. Germany s ELV) 3. Removal of settlement-based national reporting for balance of payment statistics (such as Central Bank Reporting)

8 SEPA requirements explained Citi leads effort to prepare SEPA Industry Guidance Given the many ambiguous points in the Regulation the European Banking Federation (EBF) Payments Regulatory Expert Group, chaired by Citi, has drafted industry guidance, which can be found under the following link on the website of the European Payments Council: Key clarifications include: Bank readiness of ISO 2002 XML payment processing capability conversion is not permitted after 2014 Customers using files for payments should initiate/receive in ISO XML slight ambiguity in terms of what this really means. It was clarified with the Commission that banks can provide relevant conversion/mapping solutions to clients to facilitate connectivity to SEPA (see SEPA guidance). The big BIC issue: in a very late addition to the text the EU institutions politically felt that customers should not be required to provide the BIC for national transactions from 2014 and for cross-border transactions from BIC is a key necessity in terms of payment routing. At global level, BICs will remain a requirement. Corporates should continue focusing on both IBAN and BIC liability of bank for payment executed via IBAN only is limited / not covered by this Regulation. Lack of pan-european conversion tables. The potential prolonged co-existence of niche schemes will mean that local clearing systems will continue operating with legacy standards in this space complexity/cost. The lifting of the EUR 50,000 limit with regard to pricing parity under Regulation 924/2009 will apply from date of entry into force of this Regulation (31 March 2012). Positive for users. In terms of banks and customers located outside of SEPA, we clarified with the Commission that these can still benefit from SEPA payments if appropriate solutions are being used via SEPA compliant banks.

9 SEPA niche schemes and waivers What has to migrate and what remains until 2016? The SEPA Regulation has a few waivers and derogations, which means that not everything that looks like a credit transfer or direct debit in the Eurozone will migrate to SEPA in Obvious exception: German ELV (card initiated direct debit) Member State Niche Schemes (less than 10% of national traffic): EU was expected to publish exhaustive table by 1/2/2013; delays continue given Member States did not respect that deadline Niche schemes we know about so far: France: Interbank payment orders (TIP); electronic payment orders (Télérèglement); LCR Italy: RIBA; RID financiario; Importo fisso Spain: Anticipos de Crédito Austria: ATIB paper based transactions which can not be translated into national format Edifact V3 Paymul and ELV Other derogations: Consumers can provide BBAN until Feb 2016; bank to convert to IBAN for free Corporates can be required to be XML compliant Feb 2016, rather than 2014 Member States can require that users provide the BIC for domestic transactions until Feb 2016 Non-Eurozone Member State country PSPs and PSUs only need to comply with key operational articles of the Regulation including technical requirements by Oct 2016

10 The Path to SEPA transition Organisations need to assess internal and external factors which will help determine the impact and form migration planning. Assess SEPA impact to your organisation Align with your overall Cash Management Strategy Form a SEPA project team Develop a Migration Plan Transition Strategic Factors Key Project Activities Implementation Organisational Factors and Plans Form Project Team Ensure system and process readiness Timing and Organisational Readiness Understand existing payment and collections requirements Ensure BIC/IBAN Readiness SEPA Business Case Understand SEPA features and benefits Test SEPA evolution and migration progress/ end dates Establish clear picture of impact to organisation (including IBAN) Implement Supplier and Customer positions Develop activity and migration plan Migrate and monitor Bank Relationships Prepare Data and Systems 10

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