ENTERPRISE SOLUTIONS FEBRUARY 2016

BANKS Regulatory Insight

NEWSLETTER

Managing Editor Key Developments at a Glance Pierre -Etienne Chabanel The Basel Committee on Banking Supervision (BCBS) provided updates to their Basel III monitoring Managing Director, program including revisions to their Basel III monitoring workbook; new instructions and a workbook for Regulatory & Compliance Solutions CVA QIS; and a new FAQ on Basel III Monitoring. The Irving Fisher Committee of the Bank of Contact Us International Settlements (BIS) published a working paper entitled “Big data: The hunt for timely insights and decision certainty.” Americas +1.212.553.1653 The chair of the Financial Stability Board (FSB) specified the FSB’s 2016 work programmer to the G20. [email protected] Additionally, the FSB released a report on possible measures of non-cash collateral re-use by financial Europe market participants as banks. +44.20.7772.5454 [email protected] KEY DEVELOPMENTS PER REGION Asia-Pacific (Excluding Japan) > EUROPE: The European Banking Authority (EBA) published its final guidelines on cooperation +85.2.3551.3077 agreements between Deposit Guarantee Schemes (DGS). Separately, the EBA released the methodology [email protected] and macroeconomic scenarios for the 2016 EU-wide stress tests. The European Central Bank launched a Japan public consultation on assessing the eligibility of institutional protection schemes (IPSs). +81.3.5408.4100 The European Commission (EC) presented an Action Plan to strengthen the fight against terrorist [email protected] financing; Final Rules (CIR 2016/200) on leverage ratio disclosure; and a Final Decision (CID Sign Up 2014/908/EU) on third countries and territories whose supervisory and regulatory requirements are equivalent to certain EC rules. Subscribe at www.moodysanalytics.com/regulatoryinsight Switzerland’s FINMA provided guidelines and data collection forms for use in the Net Stabilized Funds to automatically receive your monthly copy. Reporting (NSFR) due to begin in the second quarter of 2016. The Netherland’s DNB provided

instructions for its semi-annual Basel III monitoring program called Basel QIS 2016 as it includes additional data requests to assess the effects of several new international policy proposals. > MIDDLE EAST AND AFRICA: The IMF published its Financial System and Stability Assessment (FSSA) and selected issues reports on Morocco. > AMERICAS: The U.S. Federal Reserve (FED) proposed to modify and update the recordkeeping and disclosure requirements for the Truth in Lending Act (Regulation Z). The FED additionally proposed revisions to the reporting requirements for US Intermediate Holding Companies of Foreign Banking Organizations (FBOs). Canada’s Office of the Superintendent of Financial Institutions (OFSI) issued guidelines on the Requirements for non-centrally cleared Derivatives. > ASIA PACIFIC: The Australian Prudential Regulation Authority (APRA) issued a consultation on margining risk and risk mitigation requirements for non-centrally cleared derivatives. The Hong Kong Monetary Authority (HMKA) released, as part of its Basel III implementation rules, a Countercyclical Capital Buffer (“CCyB”) Ratio Standard Disclosure Template. The Reserve Bank of India (RBI) published, as part of its Basel III Framework on Liquidity Standards, Liquidity Coverage Ratio (LCR) calculation instructions and reporting templates; Monitoring Tools; and LCR Disclosure Standards.

ENTERPRISE RISK SOLUTIONS

Table of Contents

International 3

Europe 6 European Union 6 Austria 17 Belgium 18 Italy 19 Netherlands 20 Switzerland 22 United Kingdom 22

Middle East and Africa 26 Morocco 26

Americas 27 United States of America 27 Canada 31

Asia Pacific 32 Australia 32 Hong Kong 33 India 34 Malaysia 35 New Zealand 35

Glossary 36

2 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

International

Key Developments Work Program for Mark Carney, Chair of the Financial Stability Board (FSB), sent a letter to G20 Ministers and Central 2016 Bank Governors, setting out the FSB’s priorities for 2016: - FSB » April 2016: FSB climate-related task force (CRRTF) will publish for consultation, its first-stage report, February 27, 2016 setting out the objectives and scope of its work. FSB will report on issues for authorities, planned next steps, and potential financial stability implications of emerging financial technology innovations. Type of Information: Report » End-June 2016: FSB member jurisdictions will report to the FSB their plans to meet their commitments to remove legal and regulatory barriers to the reporting of OTC derivatives to trade repositories and facilitate authorities’ access to data by mid-2018. » July 2016: The FSB will publish its peer review on implementation of the Framework for Oversight and Regulation of Shadow Banking. » By September 2–3, 2016, the Hangzhou Summit: The International Monetary Fund (IMF), FSB, and Bank for International Settlements (BIS) will deliver to Leaders a review of international experience and lessons with macro-prudential policy frameworks and tools. Additionally, the FSB will:

o deliver the second annual report on the implementation of reforms o publish a consultative document with its assessment of structural vulnerabilities associated with activities and policy recommendations to address them

o report its findings on the role of incentives in preventing misconduct, along with progress in addressing issues in fixed income, currency, and commodity markets

o report on progress on its correspondent banking action plan o publish high-level guidance on resolution issues relating to central counterparties (CCPs) (The Committee on Payments and Market Infrastructures-International Organization of Securities Commissions, or CPMI-IOSCO will issue for public consultation additional granular guidance on CCP resilience and recovery)

o deliver to Leaders a progress report on resolution reforms » End of 2016: The Task Force on climate-related risks (CRRTF) is expected to publish for consultation its recommendations for voluntary disclosure principles and leading practices. The FSB will issue for public consultation standards or guidance for CCP resolution planning, resolution strategies, and resolution tools. The Basel Committee on Banking Supervision (BCBS) will complete its work to address the excessive variability in risk-weighted assets, while aiming not to significantly increase the overall capital requirements. BCBS will also finalize the design and calibration of the leverage ratio in 2016, so that it can be implemented as a Pillar 1 measure by January 01, 2018. Furthermore, the FSB will make its annual update to the list of Global Systemically Important Insurers (G-SIIs), using the revised International Association of Insurance Supervisors (IAIS) methodology. The IAIS will also finalize in 2016, refinements to its assessment methodology for identifying global systemically important insurers and will issue, for public consultation, a first draft of its International Capital Standard. Links: Press Release, FSB Chair's Letter Keywords: G20, Roadmap

Updates on Basel III BCBS updated the workbook (version 3.2.3), instructions, and frequently asked questions (FAQ) on Basel III Monitoring monitoring. Updates were also made to the workbook for Credit Valuation Adjustment Quantitative Impact Study (QIS) (version 1.0.0) and its instructions. - BCBS BCBS is monitoring the impact of Basel III global regulatory framework for more resilient banks and banking February 24, 2016 systems, Basel III leverage ratio framework and disclosure requirements, Basel III Liquidity Coverage Ratio (LCR) Type of Information: and liquidity risk monitoring tools, and Basel III Net Stable Funding Ratio (NSFR) on a sample of banks. The Statement exercise is repeated semi-annually, with end-December and end-June reporting dates. Links: Workbook 3.2.3, Basel III Monitoring: Instructions, FAQ, CVA QIS Workbook, CVA QIS Instructions Keywords: Basel III Monitoring, QIS

3 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Principles for US and The International Swaps and Derivatives Association (ISDA) published a set of principles for achieving EU Trading Platform comparability determinations between US and EU trading platforms. Recognition The paper analyzes the regulatory frameworks in the US and EU, to determine whether EU trading platforms - ISDA should be deemed comparable with those in the United States. Underpinning the analysis is the principle that regulators should focus on broad outcomes and similarities, rather than conduct a granular rule-by-rule February 24, 2016 comparison of the two frameworks. Type of Information: Report In the EU, the revised Markets in Financial Instruments Directive and associated regulation (MIFID II/MIFIR) will introduce a requirement for certain derivatives to be traded on EU trading venues. In comparison, trade execution rules are already in place in the US, following the introduction of the swap execution facility (SEF) regime in October 2013. Under the current rules, US persons can only trade on platforms that have registered as SEFs, subject to the US Commodity Futures Trading Commission (CFTC) oversight. The paper argues that the CFTC should follow the principles outlined in a cross-border report published by the IOSCO and focus on similarities when making comparability determinations. If EU trading venues are determined to achieve the same objectives and protections as per the core principles for SEFs established by the US Congress, then the CFTC should allow those venues to be exempt from SEF registration and compliance with the SEF rules. Once deemed to be comparable, swap counterparties should be able to trade products subject to the US trading mandate on an EU trading venue, regardless of their US-person status. Links: Press Release, Principles for US/EU Trading Platform Recognition Keywords: MiFID, MiFIR. Mutual Recognition, SEF

Report on Possible The FSB published a report on possible measures of non-cash collateral re‑use and related data elements to Measures of Non-Cash help assess global trends and financial stability risks. Collateral Re-Use This report describes possible measures of non-cash collateral re-use and the related data elements that could - FSB potentially be included in the FSB’s global securities financing data standards. The relevant authorities would be February 23, 2016 asked to report national/regional aggregates of these measures to the FSB. The report is intended to provide a starting point for discussions with market participants and researchers concerning the derivation of meaningful Type of Information: measures of collateral re-use to be used to evaluate global trends and to assess risks to financial stability. Consultative Report Comments and responses on this paper should be submitted by April 22, 2016. Non-cash collateral is reused when a market participant, such as a bank receives securities as collateral in one transaction and subsequently sells, pledges, or transfers this collateral in a second transaction. Collateral may be received by a market participant as a result of a variety of transactions such as reverse repos and securities lending. If this collateral is eligible for re-use, the collateral taker can use it as collateral for other transactions. Collateral received may also be sold, creating a short position. Collateral re-use plays an important role in the functioning of financial markets, thus increasing the availability of collateral. This reduces transaction and liquidity/funding costs for many market participants, since a given pool of collateral assets can be re-used to support more than one transaction. Collateral re-use may also present risks to the financial system, for instance, by potentially increasing interconnectedness between market participants, and contributing to a build-up of excessive leverage of individual entities and in the financial system as a whole. It is therefore important for authorities to improve their understanding of collateral re-use practices and the potential impact of collateral re-use on financial stability. Links: Press Release, Consultative Report, Standards and Processes for SFT Data Aggregation Keywords: Non-Cash Collateral, Re-Use Eligibility, SFT

4 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Working Paper on Big BIS published a working paper on the use of big data for policy purposes for central banks. Data and the Hunt for Timely Insights and The paper highlights that a new data paradigm has emerged. Despite the human instinct to reject what cannot Decision Certainty be fully comprehended, the big data industry is extracting new causations among multiple pools of micro-data that previously looked unrelated. This is leading to new, timely indicators and insights and may generate new - BIS economic theories. This paper argues in favor of developing a conceptual framework and road map for central banks, using relevant pilot studies. The objective is to explore the conditions for making systematic use of these February 17, 2016 sources as part of the central banking policy toolkit. Central banks do not have to be ahead of the curve, but Type of Information: they should not miss this opportunity to: Research » Extract economic signals in almost real time » Learn from the new methodologies » Enhance their economic forecasts » Obtain more precise and timely evaluations of the impact of their policies Moreover, the central banks should encourage these new data sources to be transparent regarding their methodology, quality, and aggregation methods for publishing new types of economic indicators. Lastly, the paper emphasizes that the big data industry will challenge not only traditional statistics and economics, but also the way in which these are fed into the decision making process. Link: Working Paper on Big Data Keywords: Big Data, Economic Indicators, Policy Toolkit

Third Working Draft ISDA published the third working draft for Financial products Markup Language (FpML) version 5.9. for Financial Products Markup Language Last year, in December, the Securities and Exchange Commission (SEC) had proposed FpML Second Working Draft as one of two technical alternatives (next to Financial Information eXchange Markup Language, or FIXML) - ISDA for swap data repositories (SDRs) to make data available to SEC. Changes within the third working version of FpML address better coverage of reporting requirements of U.S. (SEC/CFTC) and EU (ESMA) securities February 11, 2016 regulators. Compared to the FpML 5.9 Second Working Draft (build 2), the key changes cover: Type of Information: Statement » ESMA MiFID II Technical Standards, wherein fields were added to support post-trade events, along with the added support for algorithms » SEC Security Based Swap Repository (SBSR) Unique Identification Code » CFTC Clearing, specifically “Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps” » Added partyTradeInformation to valuationReportRetracted to support retraction of the trade in dual-sided reporting scenarios. Using the lightweight partyTradeInformation (added to Withdrawal in 5.5REC3 build 10) allows to clarify which party has the ESMA obligation » Redesign to regulatory reporting (for feedback) Links: News Release, SEC's Proposed Rule Keywords: FpML, Trade Repository, SDR

Clarification of The Committee on Payments and Market Infrastructures (CPMI) and IOSCO issued a statement on the clearing Expectation on of deliverable foreign exchange instruments by central counterparties (CCPs). Clearing of Deliverable Foreign Exchange The statement clarifies the expectations of CPMI and IOSCO, as set out in the Principles for Financial Market Instruments Infrastructures (PFMI), with respect to the CCP clearing of deliverable foreign exchange instruments and the associated models for effecting their settlement. The clearing of deliverable foreign exchange instruments - CPMI/IOSCO involves the simultaneous settlement of obligations in more than one currency. February 05, 2016 The PFMI contains new and more demanding international standards for payment, clearing and settlement Type of Information: systems, including central counterparties. The principles apply to all systemically important payment systems, Statement central securities depositories, securities settlement systems, central counterparties, and trade repositories (collectively the financial market infrastructures or FMI). Links: Press Release, Statement, PFMI Keywords: CCP, Clearing, Foreign Exchange

5 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Revisions to General BCBS revised the general guide to account opening, which was first published in 2003. Guide to Account Opening This guide for account opening is issued as an annex to the Guidelines on Sound Management of Risks Related to Money Laundering and Financing of Terrorism, which were first published in January 2014. These guidelines - BCBS revised, updated, and merged two previous publications of the Basel Committee that were issued in 2001 and 2004. February 04, 2016 Type of Information: The customer information collected and verified at the account opening stage is crucial to the bank for fulfilling Guideline its Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) obligations, both at the inception of the customer relationship and thereafter. Additionally, this information is also useful in protecting against potential abuses, such as fraud or identity theft. The policies and procedures that all banks need to establish for account opening must reflect AML/CFT obligations. The revised version of the general guide to account opening and customer identification considers the significant enhancements to the Financial Action Task Force (FATF) recommendations and related guidance. It builds on the FATF recommendations and on the following two supplementary FATF publications, which were issued in October 2014: » Guidance for a risk-based approach for the banking sector » Guidance on transparency and beneficial ownership The content of the remainder of the guidelines is not intended to strengthen, weaken, or otherwise modify the FATF standards, but it aims to support banks in implementing the FATF standards and guidance, which requires the adoption of specific policies and procedures, particularly on account opening. Links: Press Release, AML/CFT Guidelines, FATF Recommendations, Risk-Based Approach for Banking Sector, Guidance on Beneficial Ownership Keywords: Account Opening, AML/CFT, FATF

Europe

European Union

Key Developments Updates to Single The updates for this month include 15 answers dated February 05, 2016 and three answers dated February 26, Rulebook Q&A: 2016. Published as Final Q&A in February 2016 The overall objective of the Questions and Answers (Q&A) tool is to ensure consistent and effective application of the new regulatory framework across the Single Market. Institutions, supervisors, and other stakeholders can - EBA use the Single Rulebook Q&A tool for submitting questions on Capital Requirements Directive (CRD) IV, Capital Requirements Regulation (CRR), and the related technical standards developed by the European Banking February 26 , 2016 Authority (EBA) and adopted by the European Commission (EC). Type of Information: Q&A Link: Q&A Keywords: CRD IV, CRR, Single Rulebook

6 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Methodology and The EBA released the methodology and macroeconomic scenarios for the 2016 EU-wide stress test. The EU- Macroeconomic wide stress test will be conducted on a sample of 51 EU banks covering 70% of the banking sector in the EU and Scenarios for the 2016 will be run at the highest level of consolidation. The process for running the exercise will involve close EU-Wide Stress Test cooperation between the EBA and the competent authorities (including the Single Supervisory Mechanism or SSM), the ECB, ESRB and the EC. - EBA The stress test is designed to provide supervisors, banks, and other market participants with a common February 24, 2016 analytical framework to consistently compare and assess the resilience of EU banks to economic shocks. No Type of Information: single capital thresholds have been defined for this exercise. This is because the results will inform the 2016 Statement round of Supervisory Review and Evaluation Process (SREP), under which decisions are made on appropriate capital resources. The EBA expects to publish the results of the exercise in early third quarter of 2016. The common methodology assesses solvency and covers all main risk types including and , , sovereign risk, funding risk, and operational and conduct risks. The 2016 EU-wide stress test is run on banks' models and the results are then challenged by supervisors in the relevant competent authorities. To ensure consistency, the methodology contains key constraints such as a static balance sheet assumption, which precludes any mitigating actions by banks, and a series of caps and floors, for example on risk weighted assets (RWAs) and net trading income. In 2016, no pass-fail threshold has been included, as the objective is to use the stress test as a supervisory tool, whose results will be discussed with individual banks in the SREP process, where mitigating actions may also be considered. The adverse scenario, which is designed by the European Board (ESRB), reflects the four systemic risks that are currently assessed as representing the most material threats to the stability of the EU banking sector: » An abrupt reversal of compressed global risk premia, amplified by low secondary market liquidity » Weak profitability prospects for banks and insurers in a low nominal growth environment, amid incomplete balance sheet adjustments » Rising of debt sustainability concerns in the public and non-financial private sectors, amid low nominal growth » Prospective stress in a rapidly growing shadow banking sector, amplified by spillover and liquidity risk As a combined result of the foreign demand shocks, financial shocks, and domestic demand shocks in the EU, the scenario implies a deviation of EU GDP from its baseline level by 3.1% in 2016, 6.3% in 2017, and 7.1% in 2018. The adverse scenario also includes a shock in the residential and commercial real estate prices, as well to foreign exchange rates in Central and Eastern Europe. Cumulative GDP growth in the advanced economies, including Japan and U.S., would be between 2.5% and 4.6% lower than under the baseline scenario in 2018. Among the main emerging economies, the total GDP would stand between 4.5% and 9.7% below the baseline projections in 2018, with a stronger impact for Brazil, Russia, and Turkey. The EBA conducted a comprehensive review of the internal process, which led to an error in the calculation of the “fully loaded common equity tier 1 (CET1) ratio,” originally published in the interactive tool during the 2015 EU-wide transparency exercise. The EBA has subsequently put in place an enhanced internal control process and will ensure all data is signed off by institutions before its publication. Link: Press Release Keyword: EU-Wide Stress Test, Stress Testing

7 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Update to the Risk The EBA published the periodical update to its risk dashboard for the EU banking sector. Dashboard for the Banking Sector in the The dashboard summarizes the main risks and vulnerabilities in the banking sector on the basis of the evolution European Union of a set of risk indicators across the EU. The dashboard is based on a large sample of banks (154 institutions on a consolidated basis) and the Statistical Annex provides further data on EU banks. The ratios published in the - EBA dashboard are computed according to the methodological guide on risk indicators and detailed risk analysis tools. February 23, 2016 Type of Information: Report The EBA risk dashboard is part of the regular risk assessment conducted by the EBA and complements the annual risk assessment report. The methodological guide covers a wider set of indicators than those included in the risk dashboard. It is a tool developed to provide clear indications to all interested users on the way risk indicators are computed. Based on the data in this risk dashboard, banks’ capital position for the third quarter of 2015 has improved further. The ratio of common equity tier 1 (CET1) is 13.0%, 20bps higher than in the second quarter of 2015. The country dispersion remains wide but none of the countries has a CET1 ratio below 10%. Additionally, asset quality has improved further while the ratio of non-performing loans has decreased by 10 basis points to 5.9%. Nevertheless, the nonperforming loan (NPL) ratio remains high and poses a significant concern for supervisors. Moreover, the decline of the NPL ratio remains uneven and the dispersion across countries is material. Overall, the data shows that profitability is still low and the average return on equity (not seasonally adjusted) decreased to 6.4% in the third quarter of 2015, 40bps below that in the second quarter. Furthermore, the country dispersion is wide for return on equity. The cost to income ratio stopped its improvement in the third quarter and increased again to 59.9% (59.2% in the former quarter). The net interest margin remained stable at 1.6% in the third quarter of 2015. Additionally, the debt to equity ratio has been declining during the last quarters to 15.4 in the third quarter of 2015. The asset encumbrance ratio was 26.6% (25.7% in the second quarter) and showed a wide dispersion among countries, reflecting the funding mix as well as the level of central bank funding. Links: Press Release, Risk Indicators and Detailed Risk Analysis Tools Keywords: Risk Dashboard, Risk Indicator, Systemic Risk

Working Paper on ESRB published a working paper examining the cyclical behavior of country-level macro-financial variables Macro-Financial under the Economic and Monetary Union (EMU). Stability Under the Economic and This paper critically examines the policy reform agenda required to improve macro-financial stability. It also Monetary Union highlights that the monetary union strengthened the covariation pattern between the output cycle and the financial cycle, while macro-financial policies at national and area-wide levels were insufficiently counter- - ESRB cyclical during the 2003–2007 boom period. February 23, 2016 Link: Working Paper Keywords: EMU, Macro-Prudential Policy, Systemic Risk Type of Information: Research

Working Paper on ESRB published a working paper providing policy proposals for the macro-prudential supervision. Policy Proposals for Macro-Prudential The authors highlight that financial supervision focuses on the aggregate (macro-prudential) as well as the Supervision individual (micro-prudential) aspects and propose a holistic approach for the financial system, beyond banking. They point out that an agreed framework for measuring and addressing financial imbalances is lacking. Building - ESRB on the model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries. The authors also February 23, 2016 make concrete policy proposals for the design of macro-prudential instruments to simplify the current Type of Information: framework and make it more consistent. Research Link: Working Paper Keywords: Leverage Ratio, Macro-Prudential Policy, Systemic Risk

8 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Consultation on The ECB launched a public consultation on assessing the eligibility of institutional protection schemes (IPSs). Assessing the The document aims to ensure coherence, effectiveness, and transparency of the supervisory policy that will be Eligibility of applied when assessing IPSs. Institutional Protection Schemes The ECB is responsible for the effective and consistent functioning of banking supervision in the euro area and needs to ensure the consistency of supervisory outcomes. As IPSs typically consist of both banks directly - ECB supervised by the ECB and banks directly supervised by national competent authorities, it is important to ensure that all institutions belonging to IPSs are treated in the same way. The assessment criteria included in February 19, 2016 this consultation document will be extended to the supervision of less significant institutions (LSI) under the Type of Information: responsibility of the national competent authorities. The draft ECB guide, which was prepared considering Regulation potential new applications, does not challenge the past recognition of existing IPSs. However, the ECB, in close cooperation with the national competent authorities, will regularly monitor the IPSs that include one or more Regulatory Status: Proposed Rule significant institutions to ensure that the CRR conditions are fulfilled on an ongoing basis. An IPS is defined in the CRR as a contractual or statutory liability arrangement of a group of banks, which protects the member institutions and in particular ensures their liquidity and solvency. Currently, IPSs are recognized in three euro area member countries: Austria, Germany and Spain. About 50% of all credit institutions in the euro area are members of an IPS, representing nearly 10% of the total assets of the euro area banking system. The recognition of an IPS leads to some of the prudential requirements applied to individual banks being relaxed for the IPS member institutions, which is comparable to the way the entities of a consolidated banking group are treated. Such treatment is justifiable only if the requirements set out in the legislation are met, such as the ability of the IPS to support its members in difficulty. The consultation sets out the approach to be followed by the ECB when assessing whether those requirements have been met. The ECB will take the final decision on whether to grant permission on a case-by-case basis, using the criteria contained in the draft ECB guide on the approach for recognition of IPSs for prudential purposes. Comments Due Date: April 15, 2016 Effective Date: N/A First Reporting Date: N/A

Link: Press Release Keywords: CRR, IPS, LSI

Regulation on Lists of The EC published, in the Official Journal of the European Union, the final rule (Decision 2016/230) amending the Third Countries and Implementing Decision 2014/908/EU. This final rule is regarding the lists of third countries and territories Territories Whose whose supervisory and regulatory requirements are considered equivalent for the purposes of the treatment of Supervisory and exposures, according to the CRR (EU Regulation 575/2013). Regulatory Requirements are Article 1 of Decision 2016/230 stipulates the following amendments to Decision 2014/908/EU: Considered Equivalent » Text set out in Annex I to Decision 2016/230 replaces Annex II of the previous Decision for the Treatment of Exposures » Text set out in Annex II replaces Annex III of the previous Decision - EC » Text set out in Annex III replaces Annex V of the previous Decision February 18, 2016 Comments Due Date: N/A Type of Information: Effective Date: March 9, 2016 Regulation First Reporting Date: N/A

Regulatory Status: Final Links: Amendments to 2014/908/EU, Implementing Decision 2014/908/EU Rule Keywords: CID 2016/230, CRR, CRR Equivalence

9 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Commission The Commission Implementing Regulation, CIR, (EU); 2016/200) laying down ITS for disclosure of the leverage Implementing ratio for institutions has been published in the Official Journal of the European Union. Regulation on Implementing This regulation addresses (Article 1) disclosure of the leverage ratio and application of Article 499(2) of the Technical Standards Capital Requirements Regulation (CRR). Institutions shall disclose the relevant information regarding the for Disclosure of the leverage ratio and the application of Article 499(2) of CRR, as referred to in point (a) of Article 451(1) of that Leverage Ratio for regulation by completing and publishing rows 22 and EU-23 of the template entitled “LRCom,” which is set out Institutions in Annex I in accordance with the instructions provided in Annex II. - EC Furthermore, institutions shall disclose (as specified in Article 3) a breakdown of the leverage ratio total exposure measure, as referred to in point (b) of Article 451(1) of Regulation (EU) No 575/2013, by completing February 16, 2016 and publishing both of the following: Type of Information: Rows 1 to EU-19b of the “LRCom” template set out in Annex I, in accordance with the instructions Regulation » provided in Annex II Regulatory Status: Final Rule » Rows EU-1 to EU-12 of the “LRSpl” template set out in Annex I, in accordance with the instructions provided in Annex II By way of derogation from paragraph 1(b), where institutions are required, by virtue of the second subparagraph of Article 13(1) of Regulation (EU) No 575/2013, to disclose information on a sub-consolidated basis, they shall not be required to complete and publish the LRSpl template of Annex I on a sub-consolidated basis. Additionally, institutions shall disclose (as specified in Article 4) the reconciliation of the leverage ratio total exposure measure to the relevant information in published financial statements, as referred to in point (b) of Article 451(1) of Regulation (EU) No 575/2013, by completing and publishing the LRSum template. Where institutions do not publish financial statements at the level of application referred to in paragraph 6 of Part 1 of Annex II, they shall not be required to complete and publish the LRSum template set out in Annex I. Comments Due Date: N/A Effective Date: February 17, 2016 First Reporting Date: N/A

Links: CIR 2016/200, Article 499, Article 451 Keywords: CIR, CRR, Leverage Ratio Disclosure

10 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Guidelines on The EBA published its final guidelines on cooperation agreements between deposit guarantee schemes (DGSs). Cooperation The guidelines include a multilateral cooperation framework agreement and minimum prescriptions to promote Agreements Between the rapid and consistent conclusion of cooperation agreements between DGSs, as provided under the new Deposit Guarantee Deposit Guarantee Schemes Directive (DGSD). Schemes The new DGSD enhances the resilience of DGSs and improves depositor protection, including in cross-border - EBA bank failures. Depositors will be compensated quicker, and in case of failure of a branch of an EU bank established in a different member state, will benefit from the assistance of their local DGS, which will provide February 15 , 2016 them with the payout, on behalf of the DGS in the member state where the bank is established. Type of Information: Guideline To promote a consistent approach and to facilitate entry into cooperation agreements between DGSs across the EU, the guidelines specify the objectives and minimum content of such cooperation agreements. These DGS guidelines specify the minimum content in relation to the three key areas to be included in cooperation agreements: » Modalities for repaying depositors by the local DGS at branches of banks established in other member states » Modalities for the transfer of contributions from one DGS to another in case a credit institution ceases to be a member of a DGS and joins another DGS » Modalities for mutual lending between DGSs Additionally, these guidelines provide further guidance on the sequence and timing of events when the local DGS performs a payout of depositors on behalf of the DGS in another member state. This ensures that depositors in EU branches of institutions headquartered in other member states are treated similarly to depositors in the home member state. The minimum standard and increased consistency brought about by these guidelines will also facilitate the mediation role of the EBA. As laid down in the DGSD, the EBA will be able to perform binding mediation if designated authorities or DGSs cannot reach an agreement, or if there is a dispute about the interpretation of an agreement. Links: Press Release, Guidelines on Cooperation Agreements Keywords: Cross-Border Cooperation, DGS

Final Draft EBA published final draft implementing technical standards (ITS) on the mapping of External Credit Assessment Implementing Institution’s (ECAIS) credit assessments for securitization positions. Technical Standards on the Mapping of The ITS specify the correspondence or ”mapping” between credit ratings and credit quality steps that shall External Credit determine the allocation of appropriate risk-weights to credit ratings issued by ECAIs on where Assessment the standardized approach or the internal ratings based approach for securitizations are used. Institution’s Credit In the short-term, these ITS maintain the current mapping in place for all ECAIs. The mapping is supported by Assessment for the outcome of an impact analysis as well as by qualitative considerations. The EBA is also considering Securitization developing a securitization-specific systematic mapping methodology mainly based on the historical Positions performance of securitization ratings. However, as per the EBA some caution is needed, for the time being, due - EBA to a number of factors, including the representativeness of the data used and the ongoing review of the regulatory framework for capital requirements on securitizations at both the international and the EU levels. February 15, 2016 The EBA intends to review the standards at a later stage, with a view of relying on a higher degree of quantitative information. Type of Information: Regulation Keeping in mind the challenges that a mapping based on the historical performance of securitization ratings Regulatory Status: Final would pose, these ITS do not exempt investors from their obligation to perform appropriate due diligence with Rule regard to securitization positions. When investing in a securitization position, investors should always take into account historical performance of similar tranches and consider the rating performance of the different asset classes, some of which contributed to very high levels of defaults, contrary to rating agencies statistical expectations. Additionally, the ITS include a proposal to review the mapping of securitization ratings, especially where default of securitization positions are observed and to regularly monitor the performance of issued securitization ratings by assessing the appropriateness of the mapping for any particular ECAI. Comments Due Date: N/A Effective Date: EU OJ date + 20 days First Reporting Date: N/A

Links: Press Release, Final Draft ITS Keywords: CRA, Credit Ratings, Securitization

11 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Common Approach for The EC published a common approach regarding requirements for central clearing counterparties (CCPs), which Requirements for was announced by the EC Commissioner Jonathan Hill and Commodity Futures Trading Commission (CFTC) Central Clearing Chairman Timothy Massad. Counterparties The United States and EU are home to the largest derivatives markets in the world. Hence, a common approach - EC to the regulation and supervision of global derivatives markets is critical to supporting cross-border trade and investment and maintaining financial stability. The common approach will ensure that European CCPs will be February 10 , 2016 able to do business in the U.S. more easily and the U.S. CCPs can continue to provide services to EU companies. Type of Information: Statement To implement the agreement, the EC intends to adopt an equivalence decision with respect to CFTC requirements, which will allow ESMA to recognize U.S. CCPs as soon as is practicable. Once recognized, U.S. CCPs may continue to provide services in the EU while complying primarily with their own local requirements. The CFTC staff will propose a determination of comparability with respect to the EU requirements, which will permit EU CCPs to provide services in the U.S. while complying primarily with their own local requirements. The CFTC will also streamline the registration process for EU CCPs wishing to register with them. The common approach follows detailed analysis of differences between the CFTC and EU regulatory requirements, undertaken over a number of years. Both the CFTC and EU requirements are based on international principles. The CFTC staff and the EC Services will work together, along with counterparts across the global regulatory community, to further develop these principles and harmonize the standards to which internationally active CCPs are held. For implementing the common approach: » The CFTC will need to finalize a substituted compliance regime for EU CCPs. » The EC will need to adopt an equivalence decision for the CFTC's regime. Prior to this, the EU Member State authorities must vote on the proposal through the European Securities Committee. CCPs are financial market infrastructures that enhance market and financial stability by guaranteeing the obligations of each counterparty to a transaction. Recognizing the importance of CCPs in mitigating risks in the financial system, G20 leaders committed in 2009 to make the use of CCPs mandatory for standardized derivatives contracts. Both the CFTC and the EU have now adopted rules to this effect, increasing the use of CCPs across EU and U.S. markets. As many derivatives are traded cross-border, EU and U.S. market participants need access to CCPs that can serve both markets. This is why the common approach is important as it enables EU CCPs to operate in US markets and US CCPs to operate in EU markets on a level playing field. This has been achieved by the EC and the CFTC proposing to recognize each other's requirements for CCPs, where they are comparable. This will ensure that both EU and U.S. CCPs operate to the same high standards at a comparable level of cost to their participants. It also alleviates the regulatory burden for U.S. and EU CCPs, allowing compliance with only one set of rules. This encourages cross-border activity, avoiding fragmentation of markets and liquidity. Links: Press Release, Common Approach for Transatlantic CCPs Keywords: CCP, Mutual Recognition

12 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Extension of the The EC proposed a one-year extension to the entry into application of the revised Markets in Financial Application Date for Instruments Directive (MiFID II) and the new deadline is January 03, 2018. the Markets in Financial Instruments The application date has been extended as regulators and market participants face exceptional technical Directive Package implementation challenges, owing to the complex technical infrastructure that needs to be set up for the MiFID II package to work effectively. ESMA has to collect data from about 300 trading venues on about 15 million - EC financial instruments. To achieve this, ESMA must work closely with national competent authorities and the trading venues. However, ESMA informed EC that neither competent authorities nor market participants would February 10 , 2016 have the necessary systems ready by the date MiFID II package was initially scheduled to become operational. Type of Information: In light of these exceptional circumstances and to avoid legal uncertainty and potential market disruption, an Statement extension was deemed necessary. This extension will not have an impact on the timeline for adoption of the “level II” implementing measures under MiFID II/ Markets in Financial Instruments Regulation (MiFIR). The EC will proceed with their adoption, irrespective of the new date of entry into application of MiFID II. This will provide legal certainty for the new provisions. A period of 30 months between the adoption and the entry of application of MiFID II had already been foreseen, on account of the very high level of complexity of the package. The extension of the deadline is strictly limited to what is necessary to allow the technical implementation work to be finalized. MiFID, covering securities markets, investment firms, and intermediaries, was created in response to the financial crisis to help forge a more competitive and integrated EU financial market. However, recent events and market developments have demonstrated weaknesses in some of its underlying principles and highlighted areas in need of reinforcement or revision. MiFID II aims to address these weaknesses by reinforcing and replacing the current European rules on securities markets. In particular: » It ensures that trading takes place on regulated platforms » It introduces rules on high-frequency trading » It improves the transparency and oversight of financial markets—including derivatives markets—and addresses the issue of price volatility in commodity derivatives markets » It improves conditions for competition in the trading and clearing of financial instruments » Building on the rules already in place, the revised MiFID rules strengthen the protection of investors by introducing robust organizational and conduct requirements These rules will make financial markets more efficient, resilient, and transparent, thus creating a more stable environment for securities markets, investment intermediaries, and trading venues in the EU. Links: Press Release, MiFID II Updates Keyword: MiFID II

13 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Opinion on Proposed The EBA issued an opinion to the EC expressing its dissent over some of the proposed amendments to the EBA Amendments to the final draft regulatory technical standards (RTS) on the criteria for setting the minimum requirement for own Technical Standards funds and eligible liabilities (MREL) and encouraging the prompt adoption of the standard. on Criteria for Setting Minimum Earlier, on July 03, 2015, the EBA had submitted its final draft RTS to the EC, which included references to the Requirement for Own conditions for accessing resolution, specific provisions for setting MREL for systemic institutions, and an option Funds and Eligible to set a limited compliance transition period. Then, on December 17, 2015, the EC proposed a number of Liabilities amendments to the RTS, which included amending the reference to the burden-sharing requirements by stakeholders and creditors of the institution of significant importance. Although the EBA agrees with the - EBA Commission's argument that the RTS cannot set a harmonized level of MREL, it dissents from some of these amendments as it believes legal clarity and certainty is needed when setting MREL for a systemic institution February 09 , 2016 which may need to access resolution funds. Type of Information: Statement Additionally, EC proposed to remove several specific provisions related to the criteria for setting MREL for systemic institutions, to the consultation between competent and resolution authorities on specific matters and the upper limit on the transitional compliance period. The EBA dissents from these amendments as it believes they would reduce the effectiveness of the RTS in promoting smooth cooperation and convergence when setting MRELs. Hence, the EBA calls the EC to promptly adopt these important RTS in this Opinion documentation. The final draft RTS on criteria for setting MREL have been developed according to Article 45(2) of the Bank Recovery and Resolution Directive (BRRD) and were submitted to the EC for endorsement on July 03, 2015. The EC, on December 18, 2015, informed the EBA that it intended to amend the final draft RTS submitted by the EBA in accordance with the procedure set out in the fifth subparagraphs of Article 15(1) of Regulation (EU) No 1093/2010. The EBA's competence to deliver an opinion is based on the fifth subparagraph of Article 15(1) of Regulation (EU) No 1093/2010. In accordance with Article 14(5) of the Rules of Procedure of the Board of Supervisors, the Board of Supervisors adopted this Opinion. Links: Press Release, Opinion, RTS on MREL Keywords: BRRD, MREL, Resolution Funds

Supervision of Credit ESMA published the annual report and work program, which have been prepared in accordance with the Credit Rating Agencies and Rating Agency (CRA) Regulation (Article 21 of Regulation 1060/2009, as amended) and the EMIR (Article 85 of Trade Repositories: Regulation 648/2012). This document highlights the direct supervisory activities of ESMA during 2015 with 2015 Annual Report respect to CRAs and trade repositories and outlines ESMA’s main priorities in these areas for 2016. and 2016 Work Plan ESMA adopts a risk-based approach to the supervision of CRAs and trade repositories, in accordance with its - ESMA overall objectives of promoting financial stability and orderly markets and enhancing investor protection. This risk-based approach requires the analysis of information from a variety of sources and the application of February 05 , 2016 multiple supervisory tools, including day-to-day supervision, cycle of engagement meetings with supervised Type of Information: Report entities, on-site inspections, and dedicated investigations. ESMA created a single supervision department in November 2015, with the intention of utilizing best practices identified from the supervision of both types of entities, to further enhance its supervisory effectiveness in the future. Links: Press Release, Annual Report and Work Program Keywords: Annual Report, CRA, Trade Repository

14 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Roadmap for EBA published an opinion specifying the general principles and timelines for implementation of the regulatory Implementation of the review of the internal ratings-based (IRB) approach. Through this opinion, the Authority intends to provide Regulatory Review of guidance and clarity to both, the competent authorities and the institutions on the planned review and its Internal Models implementation. - EBA The opinion is supported by a report summarizing the feedback received from the public consultation on the EBA discussion paper on the future of the IRB approach. The report and the opinion are a part of EBA’s work to February 04, 2016 identify the main regulatory actions necessary to address the key drivers of variability in the implementation of Type of Information: IRB models. The opinion proposes changes to the regulatory framework to address the concern regarding lack Statement of comparability, across institutions, of the capital requirements determined under the IRB approach. The EBA reiterates its stance in favor of the continued use of the IRB approach and introduces certain changes. The changes are aimed at harmonizing definitions and supervisory practices in the definition of default, the estimation of risk parameters, and the treatment of defaulted assets, credit risk mitigation techniques and disclosure in four phases. These changes should be supplemented by amendments to the underlying framework to reduce undue variability in the implementation of the IRB models. Furthermore, the EBA calls for a flexible approach in the implementation of the regulatory review, to ensure an efficient use of resources in institutions and supervisory authorities. In this opinion, EBA requires all changes related to the regulatory review to be finalized by the end of 2020. It also notes that the necessary bank- specific changes are best determined together with the relevant competent authority. With this approach, the EBA has struck a balance between the industry's concerns regarding the operational burden of implementing the changes and a sufficiently ambitious timeline to address the concerns regarding the variability observed in capital requirements. Additionally, the proposed timeline will allow banks to be certain about any potential changes in the IRB framework that the BCBS might introduce. Links: Press Release, Opinion, Regulatory Review of IRB Approach Keywords: IRB, Roadmap

Action Plan to Fight EC published the action plan to strengthen the fight against the financing of terrorism. The Action Plan lists a Against Terrorist number of concrete measures that will be put into practice by the EC immediately. The actions presented in the Financing plan must be performed by the end of 2017. - EC A strong need exists for a coordinated European response to combating terrorism, after the recent terrorist attacks in the EU and beyond. Thus, the European Agenda for Security had identified a number of areas to February 02, 2016 improve the fight against terrorist financing. This action plan will deliver a strong and swift response to the Type of Information: current challenges, building on existing EU rules and complementing them, where necessary. Statement In December 2015, EC proposed a directive on combating terrorism, which criminalizes terrorist financing and the funding of recruitment, training, and travel for terrorism purposes. Further ways are being proposed to tackle the abuse of the financial system for terrorist financing purposes. The adoption of the Fourth Anti-Money Laundering Package in May 2015 has been another significant step toward improving the effectiveness of EU's efforts to combat money laundering from criminal activities and to counter the financing of terrorist activities. EC is calling on member states to commit to implementation of this package by the end of 2016. Additionally, a number of targeted amendments to the Fourth Anti-Money Laundering Directive will be proposed by the end of the second quarter of 2016, in the following areas: » Ensuring a high level of safeguards for financial flows from high risk third countries » Enhancing the powers of EU Financial Intelligence Units and facilitating their cooperation » Centralized national bank and payment account registers or central data retrieval systems in all member states » Tackling terrorist financing risks linked to virtual currencies » Tackling risks linked to anonymous prepaid instruments (for example, prepaid cards) Other measures will include improving the efficiency of the EU's transposition of United Nations’ asset freezing measures; criminalizing money laundering; limiting risks linked to cash payments through a legislative proposal on illicit cash movements; and assessing additional measures to track terrorism financing (for example, to cover intra-EU payments that are not captured by the EU-U.S. Terrorism Financing Tracking Program, or TFTP). Links: Press Release, Action Plan, AML Factsheet, Legislative Proposals on Financial Crime, Q&A on Action Plan, European Agenda on Security Keywords: Action Plan, AML/CFT, TFTP

15 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Comments on the ESMA published its comment letters to the IASB and to European Financial Reporting Advisory Group on the IASB’s Exposure Draft IASB’s Exposure Draft Applying International Financial Reporting Standards (IFRS) 9 Financial Instruments with IFRS 4 Insurance Contracts. - ESMA ESMA accepts that both the overlay approach and the temporary exemption from applying IFRS 9 are needed February 01, 2016 to address different concerns raised by the insurance industry about the misalignment of the effective date of Type of Information: IFRS 9 and the new Insurance Contracts Standard. While the existence of two complementary approaches Statement further reduces comparability among entities, each of them might be better suited for a different subset of entities issuing insurance contracts in the scope of IFRS 4, depending on their business activities and group structures. ESMA believes that these approaches should be temporary and their scope limited to their objective, namely to address misalignment in the effective dates between IFRS 9 and the new Insurance Contracts Standard. Regarding the scope of the temporary exemption, ESMA agrees with the assessment of the predominance criterion at the reporting entity level. However, ESMA suggests that this criterion be widened to capture all types of liabilities an insurer is expected to carry for its insurance activities, linked to issuance of insurance contracts within the scope of IFRS 4. Links: News Release, Comment Letter to IASB, Comment Letter to EFRAG Keywords: IFRS 4, IFRS 9

16 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Austria

Key Developments Staff Report and The IMF published its staff report and selected issues report in the context of the 2015 Article IV consultation Selected Issues with Austria. Report for the 2015 Article IV The report highlights that the local authorities have made significant progress in revamping the regulatory and Consultation supervisory framework for the banking sector. Key elements of the EU Banking Union have been put in place, including the Single Supervisory Mechanism (SSM) framework, the Bank Recovery and Resolution Directive - IMF (BRRD), and a pre-funded deposit guarantee scheme. On the macro-prudential front, the Austrian Financial Market Stability Board was created in 2014 and, upon its recommendation, the Financial Market Authority February 12, 2016 recently introduced a systemic risk buffer of up to 2% of RWA to be phased in over 2016–19. This adds to earlier Type of Information: macro-prudential measures focusing on stronger local funding of Austrian banks’ subsidiaries abroad and less Report foreign-currency loans (Annex 1). However, the macro-prudential toolkit still lacks sector-specific instruments, such as caps on loan-to-value (LTV), debt-to-income (DTI), and debt-service-to-income (DSTI) ratios for mortgage loans. The resolution of the banks nationalized during the crisis has progressed significantly. The apex institution of the cooperative Volksbanken association was transformed into a wind-down unit with bad assets of nearly EUR 6 billion (1.8% of GDP) and a part of the Kommunalkredit has been re-privatized. The remaining part of EUR 6.3 billion (1.9% of GDP) was merged with the government-owned “bad bank” KA Finanz of similar size. The sale of the CEE network of Hypo Alpe Adria to the U.S. equity fund Advent and the EBRD was completed in July 2015, and a government-owned wind-down entity (HETA) for the remaining assets had already been established in 2014. However, certain options to resolve HETA raise difficult trade-offs. In March 2015, the Financial Market Authority issued a moratorium until May 2016 on the debt service on EUR 13 billion of HETA debt, EUR 11 billion of which is guaranteed by the Austrian province of Carinthia. The moratorium is the first step of a resolution procedure based on the Austrian transposition law of the European BRRD. In parallel, the authorities intend to seek agreement on a debt buyback with at least two-thirds of the HETA creditors and impose the negotiated haircut on the rest through a retroactive collective action clause. Effectively, this would also imply the retroactive voidance of part of Carinthia’s guarantees underlying the debt. The staff also commended the authorities on progress in revamping the regulatory and supervisory framework and bank resolution and emphasized that the systemic capital surcharge is welcome, but banks’ capital adequacy will need to be continuously re-assessed. The authorities should swiftly press for alternative measures if banks’ capital-building plans falter. They should also stand ready to tighten capital requirements, including by modifying the size and phasing-in the systemic risk buffer, if early warning indicators or stress tests flag intensified future risks. Banks should be further encouraged to proactively mitigate risks from domestic Swiss franc mortgage loans, for instance, by promoting conversion to euro-denominated mortgages with gradual amortization, loan reduction through early repayment, or higher contributions to existing repayment vehicles. The macro-prudential toolkit should be further strengthened by introducing sector-specific caps on LTV and DTI/DSTI ratios, possibly regionally differentiated. While not binding at present, such caps would be useful if house prices pick up strongly in parts of the country. Regarding HETA, the authorities need to judiciously balance the obvious benefits of a quick resolution with the reputational and financial risks associated with a retroactive change of contracts. The latter could, for instance, call into question the credibility of guarantees issued by some subnational bodies and raise funding costs for some banks. The selected issues report (cr1651) recommends that to maintain fiscal sustainability over the longer run, Austria needs to implement a strategy based on structural expenditure consolidation. This should focus on making the pension and healthcare systems more efficient and sustainable. Annex I focuses on the impact of recent reforms on the pension system while Annex II focuses on the impact of recent reforms on the healthcare system. Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Macro-Prudential Policy, Pension and Healthcare Reforms

17 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Belgium

Key Developments Report on Prudential The Belgian regulator NBB published its 2015 report on prudential regulation and supervision in Dutch and Regulation and French languages. The English version of this report should be available by April 12, 2016. Supervision, Along with Translation of Links: Prudential Regulation and Supervision, Unofficial Translation: Banking Law Banking Law Keywords: Banking Law, Prudential Regulation - NBB February 19, 2016 Type of Information: Statement

18 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Italy

Key Developments Detailed Assessment The IMF published its report on the detailed assessment and observance of Anti-Money Laundering / Countering Report and Report on the Financing of Terrorism (AML/CFT) standards in Italy. Observance of Standards and Codes The detailed assessment report summarizes the AML/CFT measures in place in Italy at the date of the on-site on Anti-Money visit (January 14 to 30, 2015). It analyzes the level of compliance with the 40 recommendations of the Financial Laundering and Action Task Force (FATF) and the level of effectiveness of Italy’s AML/CFT system. It also provides Combating the recommendations on how the system could be strengthened. The evaluation was based on the 2012 FATF Financing of Terrorism recommendations and was prepared using the 2013 methodology. Some key findings: - IMF » Italy has a mature and sophisticated AML/CFT regime with a correspondingly well-developed legal and institutional framework. It is nonetheless confronted with a significant risk of money laundering stemming February 10, 2016 principally from tax crimes and activities most often associated with organized crime such as corruption, Type of Information: Report drug trafficking, and loan sharking. » All the main authorities have a good understanding of the money laundering and terrorist financing risks, and generally good policy cooperation and coordination. Italy is now developing a nationally coordinated AML/CFT strategy informed by its 2014 national risk assessment. » Financial sector supervisors have been using a risk-based approach to varying degrees, but their supervisory tools could be improved. Cooperation among domestic supervisory authorities, and with home country supervisors, notably needs to be enhanced with regard to agents acting on behalf of remittance companies that have benefited from the EU passporting arrangements. The technical compliance annex provides detailed analysis of the level of compliance with the 40 FATF recommendations in their numerological order. It does not include descriptive text on the country situation or risks, and is limited to the analysis of technical criteria for each recommendation. It should be read in conjunction with the detailed assessment report. Within the Bank of Italy (BoI), supervision of AML/CFT is the responsibility of the recently formed Consumer Protection and Anti-Money Laundering Unit within the Bank Supervision Department. The unit, which was formed approximately one year ago, has 43 staff members, along with access to other Bank Supervision Department staff resources in undertaking its AML/CFT supervisory responsibilities. The BoI has started to develop and apply experimentally a new risk-based methodology, which is being tested and has not been officially adopted. This methodology was used as a basis for identifying some financial institutions for targeted supervisory meetings and inspections conducted during 2014 and in January 2015, and is expected to be fully introduced over the next year. This analysis is therefore based on the system that was in place at BoI during the on-site visit and which has been the basis of AML/CFT supervision over the past few years. The BoI uses both off-site surveillance and on-site inspection modalities in undertaking its AML/CFT supervisory functions. The BoI’s Risk Assessment System (RAS), which is used for its overall supervisory activities, incorporates AML/CFT risk as a component of reputational and , which is one of nine risk factors used to assess a bank’s overall risk profile: (1) strategic risk, (2) credit risk, (3) market risk, (4) liquidity risk, (5) , (6) operational and reputational risk, (7) internal governance and controls, (8) profitability, and (9) capital adequacy. The Guide to Supervisory Activities (Circular 269/2008) indicates that each of these nine factors is rated on a scale of 1 (the best score) to 6 (the worst score). The score is determined after assessing both quantitative and qualitative factors, but the full range of scores can only be used with respect to qualitative factors where relevant information has been obtained through an on-site inspection. Links: Detailed Assessment, AML/CFT Standards: FATF Recommendations, ROSC Keywords: AML/CFT, Detailed Assessment, ROSC

19 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Netherlands

Key Developments Staff Report and IMF published its staff report and selected issues report in the context of the 2015 Article IV consultation with Selected Issues Report the Netherlands. for the 2015 Article IV Consultation The report highlights that the Dutch banking system is gradually emerging from its restructuring. Dutch banks are well-prepared for Basel III and continue to adjust to tightening capital and liquidity requirements. Retail - IMF deposits increased, as depositors moved assets from insurance savings accounts to banks’ and helped reduce banks’ reliance on wholesale funding. February 11, 2016 Type of Information: Report Additionally, banks have made steady progress toward meeting the new capital and liquidity requirements under Basel III and securing loss-absorbing capital. In early 2015, the banking sector needed to raise about EUR 2.6 billion in core capital to comply with the Basel III rules, and EUR 12 billion in hybrid debt instruments to comply with national supervisory requirements—mainly for higher risk-weighted requirements and the Dutch- specific leverage ratio at 4%. Banks were successful in issuing qualifying instruments in 2015. The three systemic banks are also gradually preparing for specific risk buffers and the minimum capital necessary to absorb losses through bail-in rules. The staff report also reveals that housing policies and housing finance are being addressed in tandem with the tax reform. The authorities are reducing the maximum LTV ratio for mortgage loans by one percentage point per year until it reaches 100% in 2018, with no further plans beyond that date. The 2014 Article IV consultation urged a further and faster reduction beyond 2018. In May 2015, the Financial Stability Committee recommended reducing the LTV by one percentage point a year through 2028 when it would reach 90%. However, more could be done in the area of housing-related policies. The Netherlands’ LTV limit is high even at 100% and the recent recommendation of the FSC to continue the annual reduction in LTV limits between 2019 and 2028 to reach 90% should be adopted. The Selected Issues report addresses Tax (Netherlands) and Occupational Pensions Reforms (in Australia, Netherlands, Sweden, and Switzerland). Links: Staff Report, Selected Issues Report Keywords: Basel III, LTV, Occupational Pensions Reform

20 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Basel III Monitoring As part of the semi-annual Basel III monitoring exercise, in early 2016, DNB will incorporate additional data Exercise requests (known as Basel QIS 2016) to assess the effects of several (new) international policy proposals. DNB has provided all the necessary information for this exercise, including instruction documents, background - DNB material, and FAQ. Basel QIS 2016 is expected to gather data related to the following new international policy February 05, 2016 proposals: Type of Information: » Revised internal models approach for trading book Statement » Large exposures » Revised standardized approach for banking book » Sovereign exposures » Step-in risk » Loss-absorbing capacity in resolution » Revisions to internal rating based approach » Clearing of derivative transactions by Banks’ clients. » Data required for the overall calibration of the Basel III framework The relevant deadlines for the exercise follow: » February 04, 2016: DNB provides draft reporting templates to participating banks » March: DNB provides final reporting templates to participating banks » April 08: Ultimate deadline for data submission (other components) to DNB via e-Line » April 11–April 21: First round of data checking by DNB (banks may have to make corrections and resubmissions) » May 09–May 19: Second round of data checking by DNB (banks may have to make corrections and resubmissions) » April 15: DNB provides draft reporting templates to participating banks » May: DNB provides final reporting templates to participating banks » June 08 Ultimate deadline for data submission (other components) to DNB via e-Line » June 09–June 21: First round of data checking by DNB » July 04–July 14: Second round of data checking by DNB The version number for the templates to be used for this exercise is 3.2.1 and this version is subject to potential updates and a later version might be required for the final submission. The templates must be uploaded via an institution’s e-Line DNB login account, post which the submissions will be subject to an automated error checking. In case of errors and/or warnings, institutions must address the identified issues and resubmit. Institutions will continue to be informed about these errors through e-mails, until all identified issues have been resolved. Therefore, to facilitate timely resolution of any remaining errors and/or warnings, institutions are advised to submit early versions of the reporting templates some days before the ultimate submission deadlines mentioned above. Links: Monitoring Basel III, Relevant News Releases and Documents Keywords: Basel III, BIS QIS 2016

21 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Switzerland

Key Developments Data Collection Forms The Swiss Financial Market Supervisory Authority (FINMA) has published updated guidelines and calculation and Instructions for methods to facilitate reporting for net stable funding ratio (NSFR). The NSFR general reporting, which all Net Stable Funding supervised institutions must submit, will run from second quarter of 2016 to the end of 2017. Ratio Reporting Data collection forms, which are to be used exclusively for NSFR reporting, can be downloaded from the SNB - FINMA website. However, these forms do not contain formulae to calculate the NSFR, thus FINMA has provided updated guidelines and calculation methods in spreadsheet format to facilitate reporting. February 02, 2016 Comments Due Date: N/A Type of Information: Regulation Effective Date: Q2 2016 First Reporting Date: N/A Regulatory Status: Final Rule Links: Press Release, Reporting Template, Instructions (to original language material) Keywords: Basel III, NSFR, Reporting

United Kingdom

Key Developments Statement on The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have notified the European Compliance with EBA Banking Authority (EBA) that the regulators will comply with all aspects of the EBA Guidelines on Sound Guidelines on Sound Remuneration Policies, except for the provision that the limit on awarding variable remuneration to 100% of Remuneration Policies fixed remuneration, or 200% with shareholder approval (the bonus cap), must be applied to all firms subject to the Capital Requirements Directive (CRD). - PRA/FCA The PRA and FCA take a proportionate, risk-based approach to applying the bonus cap based on the wording February 29, 2016 under Article 92(2) CRD. The PRA and FCA believe that the “extent” of application in a proportionate manner Type of Information: may include not applying a remuneration principle in its entirety based on the size, internal organization, and Statement the nature, scope and complexity of the activities of the firm in question. The PRA and FCA consider that the CRD proportionality principle applies equally to all numerical requirements, including the bonus cap, deferral, payment in instruments, and ex-post risk adjustment. All large and systemically important CRD-regulated firms must continue to apply the bonus cap. In parallel, the PRA and FCA will retain the current approach of requiring smaller firms to determine an appropriate ratio between fixed and variable remuneration for their business whilst not applying the bonus cap. Since the introduction of the bonus cap, a number of firms have markedly increased fixed pay as a percentage of total pay, while total pay remained stable during the same period. The PRA and FCA believe that the shift to fixed remuneration makes it more difficult for firms to adjust variable remuneration to reflect their financial health, and limits deferral arrangements that put remuneration at risk should financial or conduct risks subsequently come to light. The blanket extension of the bonus cap to all firms regulated under CRD would, in the PRA and FCA’s view, exacerbate these impacts, and fails to recognize the different incentives and consequences for risk-taking across all CRD-regulated firms by disregarding the size, internal organization, nature, scope, and complexity of their activities. All CRD-regulated firms must comply with all other aspects of the guidelines and all existing domestic requirements. The PRA and FCA are considering whether any rule changes are required to implement the guidelines and, if necessary, will consult in due course. Link: News Release Keywords: Bonus Cap, CRD IV, Remuneration Policy

22 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Policy Publications on The PRA published the following publications: Fees, Internal Governance of Third » PRA Rulebook: Fees part and response to CP40/15 (PS7/16) Country Branches, and » Internal governance of third country branches and response to CP3/16 (PS8/16) Regulatory Reports - PRA » Fees: PRA approach and application (SS3/16) February 26, 2016 » Internal governance of third country branches (SS4/16) Type of Information: » Guidelines for completing regulatory reports (SS34/15 UPDATE) Statement SS34/15 was updated following the occasional consultation paper CP3/16 to include guidelines for completing supervisory reports related to the Close Links and Change in Control Parts of the PRA Rulebook. The appendices to this supervisory statement set out links to the data items and the guidance on completing data items. Link: PRA Publications Keywords: PS7/16, PS8/16, Reporting, SS3/16, SS4/16, SS34/15

Staff Report and The IMF published is staff report and selected issues report in the context of the 2015 Article IV consultation Selected Issues Report with UK. for the 2015 Article IV Consultation The report reveals that the banking sector in the UK has become more resilient. In aggregate, the ratio of common equity Tier 1 (CET1) capital to risk-weighted assets (RWAs) for major UK banks reached 12.0% and - IMF the aggregate Basel III leverage ratio reached 4.7 % in September 2015. Furthermore, the liquidity positions of the UK banks have strengthened, with most major banks disclosing that they have already satisfied the full February 24, 2016 Basel III end-point liquidity coverage ratio (LCR) requirement of 100%. Type of Information: Report The banking sector’s resilience to shocks is now regularly assessed by stress tests. Beginning in 2016, the Bank of England (BoE) plans to conduct two banking sector stress tests per year, combining an annual cyclical scenario—the severity of which will vary with the financial cycle—with a biennial exploratory scenario designed to probe resilience to other risks in between the biennial European Banking Authority (EBA) stress tests. Going forward, the integration of systemically important nonbank financial institutions, such as CCPs, into the stress testing framework should be a priority. The three key elements of the UK regulatory framework are: » Ring-fencing. Effective January 2019, the major UK banks will be required to ring-fence their core retail operations, insulating them from risks arising in their investment banking arms. The PRA plans to complete its consultation process and publish final ring-fencing rules well before January 2019, to give banks sufficient time to implement them. » Resolution planning. UK is establishing a comprehensive set of arrangements to support bank resolution. The BOE conducts resolution planning for all UK banks, which will be required to remove any substantive barriers identified to implementing the BOE’s preferred resolution strategy. Discussions are also ongoing with other jurisdictions on the issue of clarifying modalities for cross-border resolution. » Total loss-absorbing capacity (TLAC). FSB recently finalized a TLAC standard for G-SIBs, which is designed to ensure that they have sufficient equity plus eligible liabilities to absorb losses and be recapitalized in resolution. Consistent with the EU’s BRRD, the BoE plans to impose a minimum requirement for own funds and eligible liabilities (MREL) on all UK banks that will apply as of January 2019 for G-SIBs and January 2020 for other banks. For UK G-SIBs, MREL will be set so as to implement the FSB’s TLAC standard. Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Basel III, Stress Testing

23 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Policy Statement on The PRA issued a policy statement providing feedback on responses to the consultation paper (CP39/15) on Approach to the PRA’s approach to identifying other systemically important institutions (O-SIIs). It also contains a Identifying Other statement of policy on the PRA’s approach to identifying O-SIIs and the PRA’s 2015 list of UK firms designated Systemically as O-SIIs. Important Institutions In its consultation, the PRA had set out the criteria and scoring methodology it proposed to use to identify O- - PRA SIIs. These criteria and methodology are derived from Article 131(3) of the CRD IV (2013/36/EU), which requires O-SIIs to be identified, and follow the relevant EBA guidelines. The consultation had also set out the February 19, 2016 PRA’s proposed approach to identifying and designating as O-SIIs those firms whose distress or failure would Type of Information: have a systemic impact on the UK or the EU economy or financial system due to size, importance (including Statement substitutability, or financial system infrastructure), complexity, cross-border activity, and interconnectedness. This policy statement (PS6/16) is relevant to all credit institutions and investment firms, along with the European Economic Area parent institutions, parent financial holding companies, and parent mixed financial holding companies within the domestic financial sector at their highest level of consolidation in the UK. This policy statement does not apply to the European Economic Area and third-country branches operating in the UK. Link: Press Release Keywords: CRD IV, O-SII, PS6/16

Strengthening The PRA and the FCA, in October 2015, consulted on a set of proposals for the provision of regulatory Accountability in references, by current or former employers, in respect of individuals applying for certain roles at deposit- Banking and takers, insurers, and PRA-designated investment firms. Insurance: Implementation of The proposals were set out in a joint publication (PRA CP36/15 and FCA CP31/15). Chapter 4 of the publication SM&CR and SIMR, (PRA CP36/15) also set out, in relation to the Senior Insurance Managers Regime (SIMR), the PRA’s proposals Along With on scope of responsibilities documents, and the associated governance map, for all key function holders Requirements on (KFHs) at Solvency II insurers and large non-Directive firms (collectively referred to as “insurers”). Regulatory References In November 2015, the regulators consulted in a joint publication (PRA CP41/15 and FCA CP15/37) on a set of - PRA proposals for the application of the SIMR to Swiss general insurers. Chapter 4 of the publication (PRA CP41/15) also set out the PRA’s proposals for some further “clarificatory” rule changes in relation to KFH February 15, 2016 notifications by insurers as well as proposals for consequential and minor amendments to the PRA Rulebook (and PRA Handbook) as a result of the introduction of the Senior Managers & Certification Regime (SM&CR) Type of Information: Regulation and the SIMR. Regulatory Status: Final This policy statement provides feedback to the above consultations and includes the corresponding rules that Rule have been made by the PRA. It also covers the rules made by the FCA in respect of Swiss general insurers. Comments Due Date: N/A Effective Date: March 07, 2016 First Reporting Date: N/A

Link: Notification (PS5/16) Keywords: KFH, SIMR, SM&CR

24 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Amendments to the The PRA published a consultation paper (CP6/16) setting out proposals for amendments to the housing part of Rule on Loan-to- the PRA Rulebook in respect of the second and subsequent charge mortgage contracts. This paper proposes to Income Ratios in amend the PRA’s rules to maintain the PRA’s current policy of excluding such second and subsequent charge Mortgage Lending mortgage contacts from the loan to income ratio (LTI limit), with the intention to consult subsequently on including these loans in the LTI flow limit, when loan-level data becomes available in 2017. - PRA From March 21, 2016, the second and subsequent charge mortgage contracts will fall under the definition of a February 15, 2016 regulated mortgage contract. This change is part of the United Kingdom’s implementation of the Mortgage Type of Information: Credit Directive (MCD), which applies equally to first and subsequent charge mortgages. The PRA’s rules, Regulation which implement a FPC recommendation, place a LTI flow limit on regulated mortgage contracts. Hence, the implementation of the MCD means that the LTI flow limit would automatically apply to the second and Regulatory Status: Proposed Rule subsequent charge mortgage contracts. The PRA will continue to work together with the FCA to keep size of the second and subsequent charge mortgage market under review. Additionally, the FPC has stated its intention to keep its recommendation under review. This paper is relevant to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA-designated investment firms, and overseas banks in relation to their UK branch activities. Comments Due Date: March 11, 2016 Effective Date: N/A First Reporting Date: N/A

Links: Press Release, CP6/16 Keywords: LTI, LTI Exemptions, MCD

Consultation on The Bank of England launched a consultation on establishing Shari’ah compliant liquidity facilities. The paper Establishing Shari’ah presents the preliminary findings of the feasibility study BOE commenced in the second half of 2015 and seeks Compliant Central stakeholders’ views on the options identified. Bank Liquidity Facilities The Bank is seeking stakeholders’ views on four potential models that could form the basis of future Shari’ah compliant central bank facilities: - BOE » Two possible deposit facility models—which could help firms that cannot engage in interest-bearing February 12, 2016 activity to more flexibly meet and manage their liquid asset buffer requirements Type of Information: Two possible liquidity insurance models—which could provide liquidity to a solvent and viable firm that is Regulation » unable to engage in interest-bearing activity, in the event of a liquidity stress Regulatory Status: Proposed Rule Although BOE is consulting on both types of models, the primary focus at this stage is to assess the feasibility of establishing Shari’ah compliant deposit facilities. The Bank understands that this is the area of greatest demand, given that a more limited range of liquid market instruments is available to Islamic banks compared with other banks. Comments Due Date: April 29, 2016 Effective Date: N/A First Reporting Date: N/A

Links: News Release, Consultation Paper Keywords: Islamic Banking, Liquidity Facility, Shari'ah Compliance

25 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Middle East and Africa

Morocco

Key Developments Reports on Financial The IMF published its Financial System and Stability Assessment (FSSA) and selected issues reports on System Stability Morocco. Assessment and Selected Issues The FSSA reveals that since the 2007 Financial Sector Assessment Program (FSAP) update, Morocco’s financial system has grown in size and complexity, with increased links between the banking and insurance sectors and - IMF a significant expansion into Sub-Saharan Africa. A new banking law introduced in December 2014 aims to strengthen consolidated supervision and improve bank resolution. The forthcoming central bank law further February 08, 2016 enhances central bank independence and expands its role to include, inter alia, contributions to financial Type of Information: Report stability and the oversight of financial market infrastructures. Banks are adequately capitalized and profitable, with stable funding. Banks provide mostly short- and medium-term customer loans, funded mainly by stable retail deposits, including from Moroccans living abroad. However, NPLs have risen recently due to weak activity in certain sectors. Although they are well- provisioned, vulnerabilities include difficulties faced by companies involved in construction and real estate development. While these strains are unlikely to affect financial stability at present, close monitoring of risky loans should be strengthened. A network analysis of direct bilateral exposures found that insurers are vulnerable to large bank failures, mainly due to their large holdings of bank equity, but contagion risks to banks from large insurers are limited. Hence, interconnectedness between large banks and insurers should be closely monitored. The stress test results suggest that, on average, the risk that severe distress in Sub-Saharan Africa subsidiaries would affect Moroccan banks via credit and funding channels is very limited. Hence, Moroccan parent bank’s exposures to their subsidiaries in Sub-Saharan Africa appears contained. The new banking law extends Bank Al-Maghreb’s (BAM) regulatory and supervisory power to financial conglomerates, microfinance institutions, and offshore banks. The law also aims at improving cross-border supervision and tightening rules for consolidated risk management. Supervisory colleges have just been set up for the three banks with significant exposures in Sub-Saharan Africa. The selected issues report discusses the fiscal multipliers in Morocco and the efficiency of public spending on education in Morocco. Links: FSSA, Selected Issues Report Keywords: FSSA, FSAP, Sub-Saharan Africa, Stress Testing

26 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Americas

United States of America

Key Developments Proposal to Approve The Federal Reserve System (FED) proposed to approve a three-year extension, without revision, of the report the Three-Year on risk-based capital guidelines for market risk (Form number: FR 4201). Extension, Without Revision, to the The reporting, recordkeeping, and disclosure requirements are found in sections 12 CFR 217.203–217.210 and Report on Risk-Based 217.212. These requirements enhance risk sensitivity and introduce requirements for public disclosure of Capital Guidelines for certain qualitative and quantitative information about a financial institution’s market risk. There are no Market Risk required reporting forms associated with this information collection. - FED The recordkeeping requirements of the FR 4201 require banking organizations to maintain documentation regarding certain policies and procedures, trading and hedging strategies, and internal models. These February 23, 2016 documents would remain on the premises of the banking organizations and accordingly would not generally Type of Information: be subject to a Freedom of Information Act request. The disclosure requirements of the FR 4201 do not raise Regulation any confidentiality issues because they require banking organizations to make certain information public. Regulatory Status: The reporting frequency varies—some requirements are to be fulfilled at least quarterly while some at least Proposed Rule annually. The estimated number of respondents is 28 and reporting institutions include state member banks, bank holding companies, certain savings and loan holding companies, and intermediate holding companies (IHCs). Comment Due Date: April 25, 2016 Effective Date: November 30, 2016 for IHCs First Reporting Date: N/A

Link: Proposed Rule Keywords: Disclosure, FR4201, Market Risk

27 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Revision of Report on The FED proposed to modify and update Regulation Z to account for the preexisting regulatory requirements Recordkeeping and that were not included separately in prior notices and to account for the requirements of new rules issued Disclosure during the past three years. Requirements Associated with the The FED proposed to modify Regulation Z to account for new required rules issued by the Consumer Financial Truth in Lending Act Protection Bureau to implement the Dodd-Frank Act. These include: - FED » Combined closed-end mortgage disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act February 19, 2016 » A requirement that creditors must run a credit check on loan originators Type of Information: Regulation » Requirements that creditors verify documents used to determine ‘‘qualified mortgage’’ status Regulatory Status: Proposed Rule » Mortgage payoff statement requirements » Revised and additional adjustable rate mortgage disclosures » Periodic statements for closed-end residential mortgages » Revised and additional disclosures for high-cost mortgages under the Home Ownership Equity Protection Act The FED also proposed to clarify and add several information collection elements for regulatory requirements that were earlier accounted for as part of a more general category of information collections. These include: » A requirement that creditors of open-end (not home-secured) credit have policies to comply with requirements for the timely settlement of estate debts » A requirement that creditors of open-end (not home-secured) credit have policies to comply with requirements to account for a consumer’s ability to repay a the debt » Separate disclosures for open-end (not home-secured) and open-end (home-secured) credit » Reverse mortgage disclosures Other proposed changes to the regulation are non-substantive and intended for clarity. The potential respondents for this rule include state member banks and their subsidiaries, subsidiaries of bank holding companies (BHCs), U.S. branches and agencies of foreign banks (other than federal branches, federal agencies, and insured state branches of foreign banks), and commercial lending companies owned or controlled by foreign banks. Comments Due Date: April 19, 2016 Effective Date: N/A First Reporting Date: N/A

Link: Proposed Rule Keywords: Regulation Z, Reporting, TILA

28 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Adoption of Cross- The U.S. Security and Exchange Commission (SEC) adopted rule (17 CFR Part 240) requiring a non-U.S. Border Security-Based company that uses personnel located in a U.S. branch or office to arrange, negotiate, or execute a security- Swap Rules Regarding based swap (SBS) transaction in connection with its dealing activity to include that transaction in determining Activity in the United whether it is required to register as a SBS dealer. States The rules, adopted under the Dodd-Frank Act, would help ensure that both U.S. and foreign dealers are subject - SEC to Title VII of the Act when they engage in security-based swap dealing activity in the U.S. The final rules remain largely unchanged from the SEC's 2015 proposal and: February 10, 2016 Type of Information: » Become effective 60 days after publication in the Federal Register, but compliance is not required until Statement the latest of either 12 months following publication in the Federal Register or the SBS Entity Counting Date, which was specified in the SBS Entity Registration Adopting Release. » Require a non-U.S. person using personnel located in a U.S. branch or office to arrange, negotiate, or execute a transaction to include such transaction in its de minimis threshold calculations, even if the transaction was executed anonymously and cleared. » Require that non-U.S. persons include in their dealer de minimis threshold calculations transactions that they arrange, negotiate, or execute using personnel located in a U.S. branch or office. This does not apply to international organizations that are excluded from the definition of U.S. person in Exchange Act rule 3a71-3(a)(4)(iii) from the requirement. » Do not address other elements of the U.S. activity proposing release, including the application of business conduct standards or Regulation SBSR to certain transactions, and clearing and trade execution requirements more generally. The SEC anticipates addressing U.S. activity in connection with these requirements in subsequent releases. The final SEC rule will be effective from April 19, 2016. Link: Press Release, SBS Rules Keywords: Cross-Border Rules, Dodd-Frank Act, SBS

Revisions to The Office of the Comptroller of the Currency, Treasury (OCC) proposed (OMB Control No.: 1557–0319) Company-Run Annual revisions to the annual company-run stress test reporting template and documentation for covered Stress Test Reporting institutions with consolidated assets of USD 50 billion or more, under the Dodd-Frank Act. Template and Documentation for The OCC recognizes that many covered institutions with total consolidated assets of USD 50 billion or more Covered Institutions are required to submit reports using Comprehensive Capital Analysis and Review (CCAR) reporting form FR Y– with Consolidated 14A. Although the Board has recently modified the FR 14-A, OCC has kept its reporting requirements Assets of USD 50 consistent with the Board’s FR Y–14A to minimize the burden on covered institutions. To provide further Billion or More clarity on the definitions of the additional scenario variables, the OCC has also revised the Scenario Schedule, which collects information on scenario variables beyond those provided by the OCC. - OCC The revisions to the DFAST–14A consist of clarifying instructions; adding and removing schedules; adding, February 05, 2016 deleting, and modifying existing data items; and altering the as-of dates. These revisions: Type of Information: » Increase consistency between the DFAST–14A with the FR Y–14A, Call Report, FFIEC 101, and FFIEC 102 Regulation Regulatory Status: » Remove the requirement to calculate tier 1 common capital and the tier 1 common ratio Proposed Rule » Shift the as-of dates by one quarter, in accordance with the modifications to the stress test rules » Modify and expand the supporting documentation requirements » Increase the historical information collected in the scenario schedule to facilitate comparisons of the data Additionally, the Board is collecting information for the Summary Schedule via XML scheme technology and the OCC will use a similar format to enhance consistency and reduce regulatory burden. Comment Due Date: March 07, 2016 Effective Date: N/A First Reporting Date: N/A

Links: Proposed Rule, DFAST Scenarios, DFAST Details Keywords: Dodd-Frank Act, DFAST-14A, FR Y-14A, Stress Testing

29 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Supporting Statement The FED is proposing to revise, without extension, several mandatory reports for the U.S. intermediate holding and Proposed companies (IHCs) of Foreign Banking Organizations (FBOs) established under Regulation YY: FR Y-9C, FR Y- Revisions to Several 9LP and FR Y-9ES (parent only reports FR Y-9SP and FR Y-9CS not changed); FR Y-11 and FR Y-11S; FR Y-12 Reporting Forms for and FR Y-12A; FR Y-14A/Q/M; Regulation Y-13 (Capital Plans); FR 2314 and FR 2314S; FR Y-6; FR Y-15; FR U.S. Intermediate 4200; FR 4201. The proposed implementation dates for these forms vary and are either September 30, 2016; Holding Companies of December 31, 2016; or January 01, 2017. Foreign Banking Organizations The FED proposes to collect financial information for IHCs of FBOs for the above-mentioned regulatory report Established Under forms to implement the enhanced prudential standards, for FBOs adopted pursuant to Subparts L, M, N, and O of Regulation YY to indicate and to certify to the Federal Reserve Board their compliance with those Regulation YY requirements. The total annual burden for these series of reports would increase due to IHCs being added to - FED the respondent panel. February 05, 2016 On December 14, 2012, the FED invited comment on the proposed Regulation YY, which would have required an FBO with USD 10 billion in non-branch assets to establish an IHC, impose enhanced prudential standards Type of Information: Regulation on the IHC, and require the IHC to submit any reporting forms in the same manner and to the same extent as a bank holding company. The FED received over 60 comments for this proposal, with the comment period Regulatory Status: ending on April 30, 2013. Then, on February 18, 2014, the FED adopted a final rule implementing enhanced Proposed Rule prudential standards for FBOs (Regulation YY), with certain revisions in response to comments. The FED indicated in the preamble to Regulation YY that it would address the reporting requirements for IHCs at a later date. Now, the FED proposes that the IHC will be a newly added respondent to the list of forms within this proposal. The forms proposed for each IHC will provide a U.S. consolidated financial picture of the IHC’s assets, its legal entities, both foreign and domestic, as well as intercompany transactions between legal entities, and will provide its U.S. capital financials in support of the FED’s capital assessment and stress testing program. Comment Due Date: April 05, 2016 Effective Date: N/A First Reporting Date: N/A

Links: Proposed Rule, Supporting Statement for Reporting Requirements, Enhanced Prudential Standards: Final Rule, FR Y-9C Form: Updated Cover Page, FR Y-9C Instructions: Updated Cover Page Keywords: IHC, Regulation YY, Reporting, Stress Testing

30 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Canada

Key Developments Margin Requirements The Office of the Superintendent of Financial Institutions (OSFI) published the final guideline for margin for Non-Centrally requirements for non-centrally cleared derivatives. Cleared Derivatives This guideline is based on the Basel Committee on Banking Supervision (BCBS), and the International - OSFI Organization of Securities Commissions (IOSCO) (BCBS-IOSCO) framework and establishes minimum standards for margin requirements for non-centrally cleared derivative transactions undertaken by federally February 29, 2016 regulated financial institutions (FRFIs). FRFIs include banks, foreign bank branches, bank holding companies, Type of Information: trust and loan companies, cooperative credit associations, cooperative retail associations, life insurance Regulation companies, property and casualty insurance companies, and insurance holding companies. Regulatory Status: Final A “covered entity” is defined as a financial entity belonging to a consolidated group whose aggregate month- Rule end average notional amount of non-centrally cleared derivatives for March, April, and May of 2016, and any year thereafter, exceeds USD 12 billion. For determining whether a group's non-centrally cleared derivatives notional exceeds USD 12 billion, the following rules apply: » Inter-affiliate trades should not be counted. » All other non-centrally cleared derivatives must be counted. Once a counterparty becomes a covered entity, covered FRFIs must exchange any applicable margin with that counterparty in accordance with this guideline starting September 01 of the year in which it became a covered entity. The requirement to exchange variation margin will be phased-in from September 01, 2016 to February 28, 2017. Any covered FRFI belonging to a group whose aggregate month-end average notional amount of non- centrally cleared derivatives for March, April, and May of 2016 exceeds USD 5 trillion will be subject to the requirements when transacting with a covered entity (provided that it also meets that condition). On a permanent basis (that is, from March 01, 2017), all other covered FRFIs will be subject to the requirements when transacting with another covered entity. The requirement to exchange two-way initial margin with a threshold of up to USD 75 million will be phased- in as follows: from September 01, 2016 to August 31, 2017, any covered FRFI belonging to a group whose aggregate month-end average notional amount of non-centrally cleared derivatives for March, April, and May of 2016 exceeds USD 5 trillion will be subject to the requirements when transacting with a covered entity (provided that it also meets that condition). Comment Due Date: N/A Effective Date: September 01, 2016 First Reporting Date: N/A

Links: Notification, Final Guideline Keywords: Initial Margin, Non-Centrally Cleared Derivatives, Variation Margin

31 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Asia Pacific

Australia

Key Developments Consultation on The Australian Prudential Regulation Authority (APRA) released a consultation package for APRA-regulated Margining and Risk institutions, including draft Prudential Standard CPS 226 on margining and risk mitigation for non-centrally Mitigation cleared derivatives. CPS 226 proposes to require APRA-regulated institutions that transact in non-centrally Requirements for cleared derivatives to: Non-Centrally Cleared Derivatives » Meet new risk mitigation requirements that are intended to increase the transparency of bilateral positions between counterparties, promote legal certainty over the terms of non-centrally cleared derivative - APRA transactions, and facilitate the timely resolution of disputes February 25, 2016 » Exchange margin (that is, collateral) to mitigate counterparty credit risk associated with their derivative Type of Information: activities, when the level of this activity exceeds minimum qualifying levels Regulation APRA is proposing to apply these margin and risk mitigation requirements to authorized deposit-taking Regulatory Status: institutions, general insurers, life insurers, and registrable superannuation entity (RSE) licensees of RSEs that Proposed Rule transact in non-centrally cleared derivatives. APRA’s proposals generally follow the internationally agreed standards, although it has modified them in some areas to avoid placing undue cost on regulated entities with relatively small levels of non-centrally cleared derivative activity. While the risk mitigation standards apply to all APRA-regulated institutions (excluding private health insurers), APRA expects only a small number of institutions will exceed the proposed minimum qualifying levels and, therefore, will be subject to the new margin requirements. Comments Due Date: May 20, 2016 Effective Date: N/A First Reporting Date: N/A

Links: Media Release, Discussion Paper and CPS 226 Keywords: Initial Margin, Non-Centrally Cleared Derivatives, Variation Margin

32 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Hong Kong

Key Developments Disclosure Template The Hong Kong Monetary Authority (HKMA) published the standard disclosure template for countercyclical for Countercyclical capital buffer (CCyB). This template is to be used by locally incorporated authorized institutions in making their Capital Buffer Ratio CCyB disclosures as part of the Basel III implementation. Standard Sections 24B and 45B of the banking disclosure rules specify the information that locally incorporated - HKMA authorized institutions are required to provide in their interim and annual financial disclosures in respect of their CCyB ratio. To enhance the consistency and comparability of CCyB ratio disclosures, the HKMA specifies that February 22, 2016 authorized institutions should adopt this disclosure template, along with the Annexes 1 and 2 (the Type of Information: accompanying explanatory note), for the purpose of complying with sections 24B and 45B of the banking Regulation disclosure rules. An authorized institution must make these disclosures from the date of the publication of its first set of financial statements (interim or annual) relating to a balance sheet date on or after March 31, 2016. Regulatory Status: Proposed Rule An authorized institution is, where relevant, expected to explain the methodology it uses to geographically allocate its private sector exposures. This includes information on the extent to which the exposures are allocated to jurisdictions on the “ultimate risk” basis. Information about the key drivers for the changes in exposure amounts and the applicable CCyB ratios should also be provided in the narrative. This will help the information users to understand the CCyB ratio calculations provided by the authorized institutions. In determining the geographic location of obligors on an ultimate risk basis, an authorized institution should refer to the guidance provided in section 3 of the HKMA’s Supervisory Policy Manual module CA-B-3 CCyB — Geographic Allocation of Private Sector Credit Exposures. Comments Due Date: March 18, 2016 Effective Date: March 31, 2016 First Reporting Date: N/A

Links: CCyB Template (www.hkma.gov.hk/eng/key-functions/banking-stability/basel- 3/ccyb_ratio_standard_disclosure_template.shtml), CCyB Implementation (www.hkma.gov.hk/eng/key-functions/banking-stability/ccyb.shtml) Keywords: Basel III, CCyB, Disclosure

33 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

India

Key Developments Updates to the Basel The Reserve Bank of India (RBI) released a circular on Basel III framework on liquidity standards (LCR, Liquidity III Framework on Risk Monitoring Tools, and LCR Disclosure Standards) with reference to the circulars Liquidity Standards DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 09, 2014 and DBR.BP.BC.No.52/21.04.098/2014-15 dated November 28, 2014. Currently, the assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for the - RBI purpose of computing the LCR of banks, inter alia, include: February 11, 2016 » Government securities in excess of the minimum Statutory Liquidity Ratio (SLR) requirement and within Type of Information: the mandatory SLR requirement Regulation » Government securities to the extent allowed by RBI under Marginal Standing Facility (or MSF; presently Regulatory Status: Final 2% of the bank’s Net Demand and Time Liabilities NDTL) and under Facility to Avail Liquidity for LCR ( or Rule FALLCR; presently 5% of the bank’s NDTL) As per the new circular, in addition to the above-mentioned assets, banks will be permitted to reckon government securities held by them up to another 3% of their Net Demand and Time Liabilities (NDTL) under FALLCR within the mandatory SLR requirement as level 1 HQLA for the purpose of computing their LCR. Hence, the total carve-out from SLR available to banks would be 10% of their NDTL. For this purpose, banks should continue to value such reckoned government securities within the mandatory SLR requirement at an amount no greater than their current market value (irrespective of the category of holding the security). Comments Due Date: N/A Effective Date: February 11, 2016 First Reporting Date: N/A

Links: Circular (www.rbidocs.rbi.org.in/rdocs/notification/PDFs/320CN110216B72B784B277141B9A4B12DFC635DAB21.PDF), Notification 2014-15 (www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9369&Mode=0), Notification 2013-14 (www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8934&Mode=0) Keywords: Basel III, HQLA, LCR

34 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Malaysia

Key Developments Financial Reporting for Bank Negara Malaysia (BNM) published a policy document on financial reporting for Islamic banking Islamic Banking institutions. Institutions The document clarifies and sets minimum expectations for application of the Malaysian Financial Reporting - BNM Standards (MFRS) to a licensed person. The Malaysian Financial Reporting Standards (MFRS), which serve as a basis for financial reporting in Malaysia, have been fully converged with the IFRS. This policy document sets out: February 05, 2016 Type of Information: » The specific requirements on the application of the MFRS Regulation » Information to be disclosed in the financial statements, including those arising from the Shariah contracts Regulatory Status: Final applied in Islamic banking transactions Rule » Application requirements for approval of a dividend payment » Requirements on submission and publication of the financial statements The document also contains the following appendices: » Illustration of presentation of investment account (Appendix 1) » Guidance on accounting policy of Shariah contracts (Appendix 2) » Guidance on classification of Shariah contracts (Appendix 3) » Illustration of disclosure requirements by Shariah contract (Appendix 4) A licensed person shall notify the bank of its intention to apply MFRS 9 Financial Instruments (MFRS 9) for financial years beginning before January 01, 2018, at least six months before the early application. Comments Due Date: N/A Effective Date: February 05, 2016 First Reporting Date: N/A

Link: Policy Document Keywords: Islamic Banking, MFRS, Reporting

New Zealand

Key Developments Staff Report and The IMF published its staff report and selected issues report in the context of the 2015 Article IV consultation Selected Issues Report with New Zealand. for the 2015 Article IV Consultation The staff report highlights that the financial system has improved its capital and liquidity buffer since the global financial crisis but challenges persist. With regard to capitalization, all banks exceed Basel III capital - IMF requirements with strong profitability. Stress tests indicate that even under very adverse scenarios, bank’s CET1 capital remains above the minimum requirement. Nonetheless, a reduction in collateral values and loss- February 08, 2016 absorbing capital could prompt banks to rebuild buffers, leading to reduced credit provision to the economy. To Type of Information: Report improve the resilience of the sector and reduce vulnerabilities stemming from the reliance on offshore funding, it is important to continue strengthening capital buffers and moving toward more stable sources of funding. Staff welcomes the planned review of financial sector capital levels in 2016. Additionally, strengthening financial regulation and supervision remains a focus to preserve financial stability and foster financial sector development and financial inclusion. The Reserve Bank of New Zealand (RBNZ) continues to make progress on a number of regulatory initiatives, including carrying out a stocktake of banking regulations and consulting on the regulation of financial market infrastructures. The New Zealand authorities look forward to a high-quality Financial Sector Assessment Program (FSAP) to be undertaken later in 2016 and have already begun preparations for this. Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, Basel III, FSAP, Stress Testing

35 FEBRUARY 2016 ENTERPRISE RISK SOLUTIONS

Glossary AML/CFT Anti-Money Laundering and Countering the Financing IFRS International Financial Reporting Standards of Terrorism IHC Intermediate Holding Company APRA Australian Prudential Regulation Authority IMF International Monetary Fund BCBS Basel Committee on Banking Supervision IOSCO International Organization of Securities Commissions BIS Bank for International Settlements IPS Institutional Protection Schemes BNM Bank Negara Malaysia IRB Internal Ratings-Based BOE Bank of England ISDA International Swaps and Derivatives Association BoI Bank of Italy LCR Liquidity Coverage Ratio BRRD Bank Recovery and Resolution Directive LSI Less Significant Institutions CCyB Countercyclical Capital Buffer LTI Loan to Income CCP Central Counterparty LTV Loan-to-Value CFTC U.S. Commodity Futures Trading Commission MCD Mortgage Credit Directive CIR Commission Implementing Regulation MFRS Malaysian Financial Reporting Standards CPMI Committee on Payments and Market Infrastructures MiFID Markets in Financial Instruments Directive CRA Credit Rating Agency MiFIR Markets in Financial Instruments Regulation CRD IV EU Capital Requirements Directive IV MREL Minimum Requirement for Own Funds and CRR Capital Requirements Regulation EU Eligible Liabilities DFAST Dodd-Frank Act Stress Testing NBB National Bank of Belgium DGS Deposit Guarantee Scheme NSFR Net Stable Funding Ratio DNB De Nederlandsche Bank, Central Bank of Netherlands OCC Office of the Comptroller of the Currency EBA European Banking Authority OSFI Office of the Superintendent of Institutions EC European Commission O-SIIs Other Systemically Important Institutions ECB European Central Bank PRA Prudential Regulation Authority EMU Economic and Monetary Union Q&A Questions and Answers ESMA European Securities and Monetary Authority QIS Quantitative Impact Study ESRB European Systemic Risk Board RBI Reserve Bank of India EU European Union RBNZ Reserve Bank of New Zealand FATF Financial Action Task Force ROSC Report on Observance of Standards and Codes IMF FCA Financial Conduct Authority SBS Security-Based Swap FED Board of Governors of the Federal Reserve System SDR Swap Data Reporting FINMA Swiss Financial Market Supervisory Authority SEC U.S. Securities and Exchange Commission FPC Financial Policy Committee SEF Swap Execution Facility FpML Financial products Markup Language SFT Securities Financing Transaction FSAP Financial Sector Assessment Program IMF SIMR Senior Insurance Managers Regime FSB Financial Stability Board SM&CR Senior Managers & Certification Regime FSSA Financial System and Stability Assessment SMR Senior Managers Regime G20 Group of Twenty Countries SNB Swiss National Bank HKMA Hong Kong Monetary Authority TFTP Terrorism Financing Tracking Programme HQLA High-Quality Liquid Assets TILA Truth in Lending Act IASB International Accounting Standards Board

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