Banking Regulation: The Week of April 16, 2018 in Focus

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*Olakunle Komolafe

This review highlights regulatory interventions by supervisory authorities from around the world.

1. Canada:

i) Office of the Superintendent of Financial Institutions – Final Total Loss Absorbing Capacity Guideline

OSFI issued final version of the Total Loss-Absorbing Capacity Guideline (TLAC). The TLAC sets out the framework OSFI will use to assess whether a domestic systemically important bank (D-SIB) maintains its minimum capacity to absorb losses pursuant to the Bank Act.

The purpose of the TLAC is to provide a non-viable D-SIB with sufficient loss-absorbing capacity to support its recapitalization. D-SIBs are expected to meet their TLAC requirements on or before November 1, 2021.

ii) Office of the Superintendent of Financial Institutions – Capital Adequacy Requirements and Total Loss-Absorbency Capacity

OSFI issued final version of amendments to its Capital Adequacy Requirements Guideline (CAR). The updated CAR implements amendments to Basel III earlier finalized by the Basel Committee on Banking Supervision (BCBS).

The BCBS’ Basel III amendments were in respect of holdings of instruments issued by global systemically important banks that would qualify towards the banks’ TLAC requirements and instruments ranking pari passu with those instruments.

iii) Canadian Securities Administrators – Proposed National Instrument 93-102 Derivatives: Registration and Proposed Companion Policy 93-102 Derivatives: Registration

The Canadian Securities Administrators published for comment Proposed National Instrument 93-102 Derivatives: Registration and Proposed Companion Policy 93-102 Derivatives: Registration (collectively ‘Proposed Instrument’).

The Proposed Instrument will establish a new regime for the registration of dealers (which include financial institutions) and advisers transacting in the over-the-counter derivatives markets in Canada.

The comment period expires on September 17, 2018.

iv) Breach of Security Safeguards Regulations

The Canadian government released final version of the federal data breach notification regulations.

The objective of the regulations is to provide greater certainty and specificity with respect to certain elements of the Personal Information Protection and Electronic Documents Act’s data breach reporting requirements.

2. United States:

i) Federal Deposit Insurance Corporation, the Federal Reserve System, and the Office of the Comptroller of the Currency – Transition of New Current Expected Credit Losses Accounting Standard into Regulatory Capital Framework

The federal banking agencies proposed a revision to their regulatory capital rules to address and provide an option to phase in the regulatory capital effects of the new accounting standard for credit losses, known as the Current Expected Credit Losses (CECL) methodology.

The proposal addresses the regulatory capital treatment of credit loss allowances under the CECL methodology and would allow banking organizations to phase in the day-one regulatory capital effects of CECL adoption over three years.

The proposal would revise the agencies’ regulatory capital rules and other rules to take into consideration differences between the new accounting standard and existing U.S. generally accepted accounting principles.

ii) United States Senate – Consumer Financial Protection Bureau Bulletin on Auto Lending Compliance and the Equal Credit Opportunity Act

The U.S. Senate repealed a bulletin issued by the Consumer Financial Protection Bureau (CFPB) relating to indirect auto lending compliance and the Equal Credit Opportunity Act.

The Senate directed the CFPB to follow a more transparent process when issuing subsequent auto finance guidance.

iii)The National Credit Union Administration Board – Stress-Testing Rule and Credit Unions’ Size

The National Credit Union Administration Board approved a final rule reducing regulatory burdens on federally insured credit unions with assets of $10 billion or greater by removing certain current capital planning and stress testing requirements.

The implications are as follows:
• Credit unions with assets of less than $15 billion will no longer be subject to stress-testing requirements
• Credit unions with assets greater than $15 billion will be required to conduct stress testing. In addition, credit unions with assets greater than $20 billion will be subject to a 5 percent minimum stress test capital ratio.

The Rule will become effective on June 1, 2018.

iv)The National Credit Union Administration Board – Advertising Rule and Credit Unions’ Options on Advertising

The National Credit Union Administration (NCUA) Board approved a final rule revising parts of the agency’s advertising rule to provide regulatory relief by allowing an additional advertising option, expanding exemptions, and eliminating one requirement.

The advertising rule had required federally insured credit unions to use one of three versions of the NCUA’s official statement in all advertising. The new rule adds a fourth version, allowing a credit union to state “insured by NCUA.”

To provide additional regulatory relief, the Board is expanding a current exemption from the advertising statement requirement regarding radio and television advertisements and eliminating the requirement to include the official advertising statement on statements of condition required to be published by law.

The final rule will become effective 30 days after publication in the Federal Register.

3. United Kingdom:

European Banking Authority – Guidelines regarding Exposures to be associated with High Risk

The European Banking Authority launched a consultation on its Guidelines regarding the types of exposures to be associated with high risk under Article 128 (3) of the Capital Requirements Regulation (CRR).

The Guidelines specify which types of exposures, other than those mentioned in Article 128 (2) CRR, are to be associated with particularly high risk and under which circumstances. The Guidelines also clarify the notion of investments in venture capital firms and private equity.

The consultation runs until July 17, 2018.

4. Finland:

European Supervisory Authorities Guidelines on Prevention of Abuse of Fund Transfers in Money Laundering and Terrorist Financing – Implementing Regulations

European Union (EU) Regulation 2015/847 on information accompanying transfers of funds (Funds Transfer Regulation) entered into force on June 26, 2015. On September 22, 2017, the European Supervisory Authorities (ESAs) published joint guidelines under Article 25 of EU Regulation 2015/847 on the measures payment service providers should take in accordance with the Regulation.

The Financial Supervisory Authority of Finland indicated the ESA guidelines will be implemented nationally by FIN-FSA regulations and guidelines 5/2018.

The regulations and guidelines will enter into force on May 1, 2018.

5. United Arab Emirates:

Dubai Financial Services Authority – Proposed Changes to Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Regime – Phase 2

The Dubai Financial Services Authority (DFSA) issued for consultation proposed changes to the DFSA’s Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Regime.

Deadline for providing comments on the consultation paper is May 20, 2018.

6. Switzerland:

Financial Stability Board – Toolkit to Manage Misconduct Risk

The Financial Stability Board (FSB) published Strengthening Governance Frameworks to Mitigate Misconduct Risk, which provides a toolkit that firms and supervisors can use to tackle the causes and consequences of misconduct.

The toolkit provides a set of options based on the shared experience and diversity of perspective of FSB members in dealing with misconduct issues.

On a related note, the Bureau of Consumer Financial Protection last Friday assessed a $1 billion penalty against Wells Fargo Bank, N.A. with the Office of the Comptroller of the Currency separately imposing a $500 million fine.

*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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