CBI Director of Markets Supervision highlights key issues of culture, technology and cyber risk
Speaking at the Duff and Phelps Global Regulatory Outlook on 3 March 2016, Gareth Murphy spoke about the key areas highlighted in the report of culture, technology and cyber risk. On culture, Mr Murphy said that “it is no surprise that as rules on capital, liquidity, remuneration, resolution and so on are being laid down, the focus has shifted towards firms' culture and the need for greater personal accountability, especially at senior levels.” On data, Mr Murphy said that "Good quality regulatory data can help supervisors to prioritise workflow and areas of focus based on key metrics and statistical filters." Mr Murphy also said that one of the biggest challenges is determining the nature and scale of investment required to counter cyber risk. He said that tackling this threat requires people, systems, vigilance and an ongoing commitment from both financial authorities and regulated entities as the threat adapts and evolves.
The Central Bank of Ireland publishes its second Consumer Protection Bulletin
The second Consumer Protection Bulletin highlights key trends in personal credit products, and shows an overall decrease in the outstanding value of credit card and personal loan accounts. Some of the other key trends highlighted in the Bulletin are as follows: (i) the number of credit card accounts has declined by 16% since the second half of 2013; (ii) the number of credit card and personal loan accounts in arrears has decreased by 33% between the beginning of 2014 and the end of 2015; and (iii) the highest number of complaints have been in the areas of general account administration and processing for both credit card and personal loan accounts.
Central Bank’s inspection targets 325 non-compliant retail intermediary firms
The Central Bank’s Consumer Protection Outlook Reports in 2015 and 2016 highlighted firms that are not meeting regulatory obligations as an area of supervisory focus. The Central Bank has announced that its targeted inspection of intermediaries that were not compliant with minimum reporting requirements has resulted in the majority of firms either becoming compliant or revoking their authorisations. In summary: (i) 325 firms that were not meeting minimum regulatory reporting obligations were targeted; (ii) 134 firms have since sought voluntary revocation of their authorisations; and (iii) 171 firms are now meeting reporting obligations.
The ECB adopts Annual Report on supervisory activities
On 14 March 2016, the Governing Council of the ECB adopted the ECB Annual Report on its supervisory activities and authorised its transmission to the European Parliament, the Council, the Eurogroup, the European Commission and the national parliaments of the participating Member States. The Report outlines the work done during 2015 and outlines the following supervisory priorities for 2016:
business model and profitability risk
risk governance and data quality
The European Securities and Markets Authority (ESMA) issues Discussion Paper on rules under the Securities Financing Transaction Regulation (SFTR).
The Discussion Paper sets out proposals for implementing the reporting framework under the SFTR, the European Union's response to the global initiative to bring more transparency to shadow banking activities. The reporting framework provides for the inclusion of composition of collateral, whether the collateral is available for reuse, substitution of collateral and haircuts applied. The ESMA seeks responses from all stakeholders by 22 April 2016. ESMA will then use the responses to the discussion paper to develop detailed rules on which it will publish a follow-up consultation in the second half of 2016.
EBA launches public consultation on draft Guidelines on corrections to modified duration for debt instruments.
The consultation, which runs until 22 June 2016, seeks input on Guidelines which aim to establish what type of adjustments to the modified duration (MD) - as defined according to the formulas in the Capital Requirements Regulation (CRR) - have to be performed in order to appropriately reflect the effect of the prepayment risk. The CRR establishes two standardised methods to compute capital requirements for general interest rate risk. The first is the maturity-based calculation for general interest risk, while the other one is the duration-based calculation of general risk.
The draft Guidelines are relevant for institutions applying the duration-based calculation, and propose two approaches to correct the modified duration calculation. The first approach treats the instrument with embedded optionality as if it were a combination of a plain vanilla bond and an option whilst the second approach proposes to calculate directly the change in value of the whole instrument subject to prepayment risk. The Guidelines also propose to compute additional adjustments to reflect the negative convexity as well as transaction costs and any relevant behavioural factors that may affect the modified duration of the instrument.