Most recent regulatory interventions in the banking space

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…a compilation of banking regulatory developments across the globe. By Olakunle Komolafe

September 5, 2017:

1. Switzerland: Financial Standard Board – Key Attributes of Effective Resolution Regimes for Financial Institutions

The Financial Standard Board (FSB), an international body which monitors and makes recommendations about the global financial system, announced addition of Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) to its list of Key Standards for Sound Financial Systems.

The Key Attributes, which was adopted in 2011, sets out core elements the FSB considers to be necessary for an effective resolution regime. Noted by the FSB as ‘the international standard for resolution regimes,’ it forms part of a set of policy measures to address systemically important financial institutions which the Group of Twenty (G20) had endorsed in November 2011.

2. Malaysia: Central Bank of Malaysia – Reissuance of Capital Adequacy Frameworks

The Central Bank of Malaysia reissued the Capital Adequacy Framework (Capital Components) and the Capital Adequacy Framework for Islamic Banks (Capital Components). The reissued frameworks incorporate loss absorption mechanism via write-offs for Additional Tier 1 and Tier 2 Islamic capital instruments that are structured using equity-based Shariah contracts such as Wakalah, Musyarakah or Mudarabah. Both frameworks were reissued as of August 4, 2017.

September 6, 2017:

1. United States: New Accounting Standard on Credit Losses – Frequently Asked Questions

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the National Credit Union Administration jointly published additional frequently asked questions to assist financial institutions and examiners with a new ‘Accounting Standard on Financial Instruments – Credit Losses.’

The new accounting standard introduces expected credit losses methodology for estimating allowances for credit losses. The effective date of the standard depends on each financial institution’s characteristics. For U.S. Securities and Exchange Commission filers, for instance, the standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

2. United States: Federal Deposit Insurance Corporation – Revised Guidelines for Appeals of Material Supervisory Determinations

The Federal Deposit Insurance Corporation (FDIC) adopted revised Guidelines for Appeals of Material Supervisory Determinations (Guidelines), which govern appeals by FDIC-supervised institutions to Division Directors and the Supervision Appeals Review Committee. The revised Guidelines expand the circumstances under which banks may appeal a material supervisory determination and enhance consistency with the appeals processes of other federal banking agencies.

The revised Guidelines:
• permit the appeal of the level of compliance with an existing formal enforcement action, the decision to initiate an informal enforcement action, and matters requiring board attention;
• provide that a formal enforcement-related action or decision does not affect an appeal that is pending under the Guidelines;
• make additional opportunities for appeal available under the Guidelines in certain circumstances; and
• provide for the publication of annual reports on Division Directors’ decisions with respect to material supervisory determinations.

3. Bermuda: Bermuda Monetary Authority – Draft Beneficial Ownership Amendments Act 2017, the Exchange Control Amendment Act 2017 and the Exchange Control Amendment Regulations 2017

The Bermuda Monetary Authority (BMA) issued draft Beneficial Ownership Amendments Act 2017, the Exchange Control Amendment Act 2017 and the Exchange Control Amendment Regulations 2017 (collectively, legislative package) for consultation.

The legislative package would enable Bermuda to meet the Financial Action Task Force and the Organisation for Economic Co-operation and Development’s standards for transparency with respect to registered entities. It is also intended to support Bermuda’s fulfilment of obligations pursuant to a 2016 agreement between Bermuda and the United Kingdom for exchange of beneficial ownership data and the development of a central registry. Comments on the legislative package are to be sent to the BMA no later than September 17, 2017.

September 7, 2017:

1. Nigeria: Central Bank of Nigeria – Draft Regulatory Framework for Unstructured Supplementary Service Data for the Nigerian Financial System

The Central Bank of Nigeria (CBN) issued for comment draft Regulatory Framework for Unstructured Supplementary Service Data (USSD) for the Nigerian financial system. According to the CBN, in view of the likely vulnerabilities in USSD technology, ‘concerns have been raised on likely exposure of CBN approved financial entities to possible breaching of USSD-based financial services.’ The draft framework, therefore, seeks to establish rules and risk mitigation considerations when implementing USSD for financial services offering in Nigeria.

Comments on the draft framework are to be sent to the CBN no later than September 21, 2017.

2. Finland: Financial Supervisory Authority – Regulations and Guidelines on Calculation of Maximum Loan-to-Value Ratio

The Financial Supervisory Authority (FIN-FSA) amended its regulations and guidelines on calculation of maximum loan-to-value (LTV). The amendments were due to the effect of regulation governing the calculation of value of deficiency collateral, which was observed to have tightened calculation of value of third party pledges posted by private customers in a manner that was not previously considered.

The FIN-FSA also amended the regulation governing the calculation of value of deficiency collateral to provide that the value of deficiency collateral would be the total fair value of the underlying object posted as deficiency collateral. In determining the value of the deficiency collateral employed in calculating the maximum LTV ratio, according to the regulator, any loans which weigh on the underlying object posted as deficiency collateral and which also reduce the fair value of the object would be considered.

The regulations and guidelines will come into force on October 1, 2017.

3. United States: The Board of Governors of the Federal Reserve System – Strategies for Improving the U.S. Payment System

The Board of Governors of the Federal Reserve System (Federal Reserve) published ‘Strategies for Improving the U.S. Payment System: Federal Reserve Next Steps in the Payments Improvement Journey.’ According to the Federal Reserve, the paper identifies updated tactics the regulator would pursue to help improve the speed, safety and efficiency of the U.S. payment system.

Olakunle Komolafe holds an LL.M. from Harvard Law School, United States of America and another LL.M. in Energy, Natural Resources and Environmental Law from the University of Calgary, Canada.

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