Banking: Recent Regulatory Developments

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*Olakunle Komolafe

…a review of recent regulatory developments across the globe.

REGULATORY CHANGES

i) Canada: Advisory Committee on Open Banking

The Government of Canada launched Advisory Committee on Open Banking (Committee). The Committee, according to the Government, is the first step in a review of potential merits of open banking, as announced in Budget 2018.

A consultation paper will be released later to help guide the Advisory Committee’s engagement with Canadians. Following consultations, the Committee is expected to deliver a report assessing the potential merits of open banking for Canada.

ii) Canada: Corporate Governance Guideline

The Office of the Superintendent of Financial Institutions (OSFI) issued the final version of its Corporate Governance Guideline (Guideline).

The Guideline introduces changes including:
a) providing boards with greater discretion over how they meet the principles of the Guideline, taking into account their institutions’ size, complexity and risk profile;
b) clarifying the delineation between board and senior management responsibilities; and
c) consolidating and rationalizing all OSFI requirements for boards in one guideline.

iii) Canada: New Financial Sector Crown in British Columbia

The British Columbia government announced it would establish a new Crown agency to strengthen oversight of financial services sector in the province.

According to the Government, an enabling legislation will be introduced in the spring of 2019 to update the structure of the Financial Institutions Commission to make it an independent Crown agency.

The new agency will maintain responsibility for regulation of mortgage brokers, insurance and trust companies, pensions and credit unions.

iv) United States: High Volatility Commercial Real Estate: Notice of Proposed Rulemaking

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation issued for comment a proposed rule that would revise the capital rules.

The proposed revision is to align the definition of high volatility commercial real estate exposure with the new statutory definition of a high volatility commercial real estate acquisition, development, or construction loan.

v) Switzerland: Frequently Asked Questions on the Liquidity Risk Treatment of Settled-to-Market Derivatives

The Basel Committee issued responses to Frequently Asked Questions (FAQs) related to the treatment of settled-to-market (STM) derivatives under the Liquidity Coverage Ratio and Net Stable Funding Ratio.

The FAQ responses seek to clarify that the liquidity risks associated with STM derivatives are the same as those for more conventional collateralized-to-market derivatives, and should therefore be treated in an equivalent manner.

vi) Switzerland: Revised Stress Testing Principles

The Basel Committee on Banking Supervision indicated it would publish next month a revised version of its Principles on Stress Testing, following the consultation paper published in December 2017.

vii) Nigeria: Guidelines on the Management of Investment Account Holders for Non-Interest Financial Institutions in Nigeria

The Central Bank of Nigeria introduced for comment the Guidelines on the Management of Investment Account Holders for Non-Interest Financial Institutions in Nigeria (Guidelines).

The objective of the Guidelines is to provide the minimum standard Non Interest Financial Institutions must meet before they can recognize Profit Sharing Investment Account Holders deposits as risk absorbent and deduct same from the computation of risk weighted assets towards the calculation of capital adequacy ratio.

viii) Nigeria: Guidance Notes on Regulatory Capital for Non Interest Financial Institutions in Nigeria

The Central Bank of Nigeria introduced for comment Guidance Notes on Regulatory Capital for Non Interest Financial Institutions in Nigeria.

ix) Nigeria: Guidance Notes on Disclosure Requirements to Promote Transparency and Market Discipline for Non Interest Financial Institutions in Nigeria

The Central Bank of Nigeria introduced for comment Guidance Notes on Disclosure Requirements to Promote Transparency and Market Discipline for Non Interest Financial Institutions in Nigeria.

The draft Guidance Notes seeks to achieve transparency and promote market discipline by allowing market participants, particularly investment account holders, to access relevant, reliable and timely information on risk exposure and risk management policies and procedures of a Non Interest Financial Institution in Nigeria.

x) Singapore: Guidance for Effective AML/CFT Transaction Monitoring Controls

The Monetary Authority of Singapore introduced Guidance for Effective AML/CFT Transaction Monitoring Controls to supervised financial institutions. The guidance sets out supervisory expectations of sound practices for the effective conduct of transaction monitoring.

xi) Singapore: E-payments User Protection Guidelines

The Monetary Authority of Singapore issued E-payments User Protection Guidelines. The Guidelines set out the regulator’s expectations of any financial institution that issues or operates a protected account.

A protected account is any payment account that is:
(a) held in the name of one or more persons, all of whom are either individuals or sole proprietors;
(b) capable of having a balance of more than $500 at any one time, or is a credit facility; and
(c) capable of being used for electronic payment transactions.

xii) Bermuda: Financial Sanctions Guidance

Bermuda Financial Sanctions Implementation Unit released the Financial Sanctions Guidance (Guidance). The Guidance outlines obligations of stakeholders under Bermuda’s financial sanctions regime, including the approach for licensing and compliance issues.

xiii) Isle of Man: Consultation on the Introduction of Civil Penalties for Some Contraventions of the Beneficial Ownership Act 2017

The Isle of Man Financial Services Authority issued a consultation paper CP18-05/T17. The paper is seeking views on the introduction of civil penalties for some contraventions of the Beneficial Ownership Act 2017.

REGULATORY SANCTIONS

i) United States: Bank of Nova Scotia to Pay $800,000 Penalty for Spoofing in the Precious Metals Futures Markets

The Commodity Futures Trading Commission penalized Bank of Nova Scotia for violating U.S. Commodity Exchange Act’s prohibition against spoofing.

Traders on the bank’s precious metals trading desk were reported to have engaged in multiple acts of spoofing in gold and silver futures contracts traded on the Chicago Mercantile Exchange.

ii) United States: Credit Suisse to Pay $10 Million to Settle Charges Related to Handling of Retail Customer Orders

The Securities and Exchange Commission announced that Credit Suisse Securities (USA) LLC has agreed to settle charges regarding material misrepresentations and omissions made in connection with its now-closed Retail Execution Services business’ handling of certain customer orders.

The settlements require Credit Suisse to pay $5 million to the SEC and another $5 million to the the Office of the New York Attorney General.

iii) United States: Mizuho Bank Ltd. fined for Engaging in Spoofing

The Commodity Futures Trading Commission fined Mizuho Bank, Ltd. (Mizuho) for engaging in multiple acts of spoofing in a variety of futures contracts on the Chicago Mercantile Exchange and the Chicago Board of Trade.

Mizuho is to pay a $250,000 civil monetary penalty, and cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing.

iv) Lithuania: UAB Pervesk Penalized

The Board of the Bank of Lithuania fined UAB Pervesk €0.7 million over the company’s failure to properly assess the risk level of its customers in breach of requirements of the Law on the Prevention of Money Laundering and Terrorist Financing.

The company has been mandated to eliminate all the deficiencies by the end of 2019, while its right to provide services to its high risk clients has been restricted.

v) India: Karur Vysya Bank Limited Fined

The Reserve Bank of India (RBI) imposed a monetary penalty of ₹ 50 million on Karur Vysya Bank Limited for non-compliance with RBI’s directions on Income Recognition and Asset Classification norms, reporting of frauds, and discipline at the time of opening of current accounts.

*Olakunle Komolafe is a financial sector law and policy expert. He 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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