IIIIBB Institute of International Bankers Global Survey 2004 Regulatory and Market Developments Banking - Securities - Insurance Covering 37 Countries and the EU September 2004 Institute of International Bankers Global Survey 2004 OVERVIEW The Institute of International Bankers represents internationally headquartered banking/financial institutions from over 40 countries that engage in banking, securities, insurance and other financial activities in the United States. The combined banking and non-banking assets of the U.S. operations of over 200 international banks total nearly $4 trillion. This seventeenth annual Global Survey of Regulatory and Market Developments in Banking, Securities and Insurance is part of the Institute’s efforts to contribute to the understanding of the trends toward globalization of financial markets and convergence of regulatory systems around the world. This year’s Global Survey covers developments during the period from July 1, 2003 to June 30, 2004 in 37 countries and the European Union (EU) and is published with the cooperation of banking associations and financial services supervisory authorities from those countries and the EU. Among the most significant developments during the period under review was the June 2004 publication of the new version of the Basel capital accord (Basel II) by the Basel Committee on Banking Supervision. Implementation of the new Accord will be in two stages, with the standardized and foundation approaches scheduled to be in place by the end of 2006 and the advanced approaches by the end of 2007. In the United States, where Basel II will be mandatory for only about the 9 largest banking companies, with another 10-20 banks expected to adopt it on a voluntary basis, U.S. federal banking agencies are embarking on a fourth Quantitative Impact Study. Plans for implementation of Basel II have been met with some concerns that Basel II’s operational risk management objectives are better suited to a supervisory approach than to a quantitative measurement approach. The European Commission’s proposed Directive for European Union-wide implementation of the Accord will be negotiated by the Member States in Council and by the European Parliament. Meanwhile, another noteworthy development was the extension of the Lamfalussy process to banking and insurance. The Committee of European Banking Supervisors (CEBS) was set up in January 2004 to facilitate supervisory convergence in the EU and deliver consistent implementation across Member States. As discussed in many of the individual country chapters, the period under review saw continued efforts to combat money laundering and the financing of terrorism, including through the adoption of the revised 40 recommendations of the Financial Action Task Force (FATF). The Australian Government, for example, accepted the revised FATF recommendations in December 2003 and is also putting in place new measures to expand customer due diligence requirements for financial institutions and extend anti-money laundering obligations to non-financial businesses and professionals. Similarly, Bahrain is overhauling its anti-money laundering regulations, which have been revised in light of the revised FATF recommendations. In the U.S., the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, has stated that money laundering through foreign shell banks continues to be a key area of concern, despite the adoption of extensive certification requirements for correspondent banking relationships that might possibly involve shell banks. Although the USA PATRIOT Act has put in place documentation requirements to ensure that U.S. banks and broker-dealers know the identity of owners of privately-held banks and other intermediaries that might possibly be shell banks, the enhanced scrutiny of possible shell bank activities continues to be a prominent regulatory focus. Finally, there has been heightened scrutiny in Congress and among bank supervisors and law i Institute of International Bankers Global Survey 2004 enforcement agencies regarding money laundering and terrorist financing as a result of the revelations regarding the very unfavorable practices at Riggs Bank that were not corrected for a number of years, particularly in the private banking area. A number of country chapters also highlight further developments and initiatives in regard to corporate governance, accounting and investor protection issues. In March 2004, for example, the European Parliament and Member States adopted the Directive for harmonization of transparency requirements of publicly listed companies. One of the key elements of the Commission’s original proposal, published in March 2003, was mandatory quarterly reporting for all listed companies. However, Member States were divided on the value of quarterly reporting and in the final Directive companies whose home Member State does not require quarterly reporting will only be required to publish a management statement between the annual and half-yearly reports. This decision will be reviewed by the Commission five years after the implementation of the Directive. In other developments, the German government in April 2004 published an investor protection bill which translates the EU Market Abuse Directive into German rules on insider trading, ad-hoc disclosure, prohibition of manipulation of market prices and securities analysis. In addition, the bill would for the first time introduce a requirement in German law to report suspicions of insider or price-manipulating activities. In the U.K., there have been important regulatory initiatives in three areas affecting wholesale and institutional markets: analyst research and conflicts of interest, softing and bundling, and the listing review. And in Switzerland, new directives are due to enter into force on January 1, 2005 to improve the fairness and transparency of the allocation process for both the primary market (IPOs) and capital increases. A matter selected for special attention in this year’s Global Survey concerns how various countries around the world fund the activities of their bank supervisory authorities, i.e., through assessments paid by the regulated institutions or as part of the government/central bank’s budget (see table beginning on page 1). As in past years, the Survey includes an updated table on permissible securities, insurance and real estate activities of banking organizations in various countries. In addition, this year’s Survey includes updated tables on the approach countries are taking to implementation of Basel II, consolidated supervision, host country supervision of branches of non-domestic banking organizations, the applicability of host country endowment/dotational capital requirements to branches of non-domestic banking organizations, the applicability of asset pledge requirements to branches of non-domestic banking organizations, the availability of central bank “daylight overdraft” credit, the permissibility of merchant banking activities, and market risk capital requirements. ii Institute of International Bankers Global Survey 2004 In closing, let me express the Institute’s deep gratitude to the banking associations and financial services supervisory authorities that have contributed to this year’s Survey and without whose assistance this publication would not be possible. Lawrence R. Uhlick Executive Director and General Counsel _______________ For further information contact: Institute of International Bankers 299 Park Avenue New York, New York 10171 Tel: (212) 421-1611 Fax: (212) 421-1119 E-Mail: [email protected] iii Institute of International Bankers Global Survey 2004 TABLE OF CONTENTS TABLE: THE APPROACH COUNTRIES TAKE TO FUNDING THE ACTIVITIES OF THEIR BANK SUPERVISORY AUTHORITIES……………………………….1 TABLE: THE APPROACH COUNTRIES ARE EXPECTED TO TAKE TO IMPLEMENTATION OF BASEL II…………………….……………..……….…….. TABLE: THE APPROACH COUNTRIES TAKE TO CONSOLIDATED SUPERVISION OF THE OPERATIONS OF DOMESTIC AND NON-DOMESTIC FINANCIAL GROUPS ……………………………………………………..….……………….……. TABLE: APPLICABILITY OF HOST COUNTRY ENDOWMENT/DOTATIONAL CAPITAL REQUIREMENTS FOR BRANCHES OF NON-DOMESTIC BANKING ORGANIZATIONS……………………………………………………………….…… TABLE: APPLICABILITY OF ASSET PLEDGE REQUIREMENTS TO BRANCHES OF NON-DOMESTIC BANKING ORGANIZATIONS OPERATING IN A HOST COUNTRY………………………………………………………………………….… TABLE: AVAILABILITY OF CENTRAL BANK “DAYLIGHT OVERDRAFT” CREDIT….. TABLE: PERMISSIBILITY OF MERCHANT BANKING ACTIVITIES……………………... TABLE: HOST COUNTRY SUPERVISION OF BRANCHES OF NON-DOMESTIC BANKS………………………………………………………….. TABLE: MARKET RISK CAPITAL REQUIREMENTS……………………………….……... TABLE: PERMISSIBLE ACTIVITIES………………………………………………….…….. ARGENTINA…………………………………………………………………………………... Prepared with the cooperation of the ASOCIACION DE BANCOS DEL LA ARGENTINA AUSTRALIA…………………………………………………………………………………… Prepared with the cooperation of the AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY AUSTRIA…………………………………………………………………………………….… Prepared with the cooperation of the VERBAND OESTERREICHISCHER BANKEN UND BANKIERS BAHRAIN……………………………………………………………………………………… Prepared with the cooperation of the BANKERS SOCIETY OF BAHRAIN iv Institute of International Bankers Global Survey 2004 BELGIUM…………………………………………………………………………………...…. Prepared with the cooperation of the BELGIAN BANKERS’ ASSOCIATION BERMUDA…………………………………………………………………………………….. Prepared with the cooperation of the BERMUDA MONETARY AUTHORITY CANADA…………………………………………………………………………………….… Prepared with the cooperation of the CANADIAN BANKERS ASSOCIATION CHILE………………………………………………………………………………………….