regulatory update: eu and uk liquidity regime interim · pdf fileeu and uk liquidity regime...
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Regulatory update:
EU and UK liquidity regime
Interim LCR, AMM and much more!(EU Leverage Ratio, Funding Plan Templates and
Supervisory Benchmark Portfolio…)
Tuesday 28th July 2015
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3RD IN 2015 regulatory webinar series29TH since series started!
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Welcome and introductionRebecca Bond, Group Marketing Director
PresentationJames Phillips, Global Director Regulatory Strategy
Introducing …Edward Cole, Regulatory Strategy Manager
Real-time polling questions
Questions & Answers
Online questionnaire upon exit
Webinar agenda – < 60 min
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Register online to receive these by email – approximately monthly
This month’s 13-page report will be sent along with the follow-up material for this webinar …..
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Regulatory programme - 2015
13th February EBA EU and PRA UK liquidity regime: LIQREP (1)
15th April EBA EU and PRA UK liquidity regime: LIQREP (2)
16th June
“2nd ANNUAL REGULATORY UPDATE” EVENT
REPORTER User Group
TODAYEBA EU and PRA UK liquidity regime: LIQREP (3)
Interim LCR, AMM and much more!
4th AugustThe recast Deposit Guarantee Schemes Directive (DGSD)
- developing the Single Customer View (SCV)
1st September PRA branch reporting requirements
13th October Basel IV – revised standard approach
n.b. Look under www.lombardrisk.com/past-events for earlier webinars
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Over 300 delegates!
http://www.lombardrisk.com/products/regulatory-compliance/reporter/2nd-annual-regulatory-update-conference
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Introducing:
Edward ColeRegulatory Strategy
ManagerEd Cole joins the regulatory strategy team.Previously Ed was a business analyst and on-boarding manager at Deutsche Boerse, providing regulatory reporting solutions to EMIR & REMIT requirements, and ongoing change in global compliance, including Mifid II.
He has 15+ years’ investment banking experience in the trading, sales and analysis of fixed income products, particularly inflation bonds and derivatives, project leadership of a bespoke electronic trading platform for derivative products, and the start-up of an alternative, intelligence led pricing model, for the insurance of satellites.
Email: [email protected] / [email protected]
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Regulatory update:
The recast Deposit Guarantee
Schemes Directive (DGSD)
- developing the Single
Customer View (SCV)
4th August 2015
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What is the Single Customer View?
When will it come into effect?
Who will be effected by it?
How will the directive be implemented?
Summary
Agenda
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Quick review
A key element of the Deposit Guarantee Schemes Directive
(DGSD) is the requirement on deposit takers to develop a Single
Customer View (SCV), to allow scheme administrators to make
faster pay-outs
The update to the SCV has already begun but the transition to
final delivery continues through to December 2016
It is relevant to UK banks, building societies and credit unions,
UK branches of European Economic Area (EEA) credit
institutions, third-country firms with PRA deposit-taking
permission, dormant account holders and dormant account fund
operators
Reporting will require fully electronic direct transmission with
enhanced customer security, shorter timeframes (reports and
pay-outs), more rules and requirements
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Introducing Lombard Risk
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A leading player in global risk management
and compliance solutions
Founded in 1989
Trusted providers for 25+ years
@300 strong in 11 office locations
Global presence
300+ banks, hedge funds, commodity trading
and fund management clients in 25 countries
Solutions for global financial services institutions
No.1 provider of regulatory compliance solutions in both the United Kingdom and United States - with global coverage
A market leader in collateral management, clearing and optimisation solutions
Expertise in OTC derivatives reform: Dodd-Frank Act Title VII and global equivalents … EMIR
Ticker: LRM
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Integrated
solution suite: Regulatory
reporting,
collateral
management, clearing
and optimisation;
management
information and
transaction reporting
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Speaker:
James PhillipsGlobal Director
Regulatory Strategy
James Phillips has responsibility for Lombard Risk’s regulatory solution strategy.
He is an industry expert on regulatory issues monitoring them on a global, regional and country/regulator basis through frequent interaction with regulatory groups and financial institutions. As a result he fully understands financial services institutions’ operational procedures relating to internal and external monitoring and reporting demands.
Email: [email protected] / [email protected]
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Agenda
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Liquidity reporting: what's coming up and why
Legislative framework and timeframe
Implementation of LCR
Implementation of AMM
PRA expectations
THREE TIMES THE FUN
Consider also the other moving pieces
Other horizons to beware of…
Project work & ongoing preparation for all this?
Holiday edition!
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Liquidity reporting: what's coming
up and why
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Liquidity Coverage Ratio Implementation (1)
01 January 2014 2015 2016 2017 2018 2019
Basel LCR NA 60% 70% 80% 90% 100%
Australia: NA 100% 100% 100% 100% 100%
Canada LCR NA 100% 100% 100% 100% 100%
China LCR** 60% 70% 80% 90% 100% 100%
EU LCR NA 60%* 70% 80% 100% 100%
HK LCR NA LCR: 60%
LMR: 25%
LCR: 70%
LMR: 25%
LCR: 80%
LMR: 25%
LCR: 90%
LMR: 25%
LCR: 100%
LMR: 25%
India NA 60% 70% 80% 90% 100%
Singapore LCR***
NA LCR:60%
SGD: 100%
LCR:70/50%
SGD: 100%
LCR:80/50%
SGD: 100%
LCR:90/50%
SGD: 100%
LCR:100/50%
SGD: 100%
UK LCR NA 80%* 80% 90% 100% 100%
US LCR NA 80% 90% 100% 100% 100%
*In EU, LCR comes into force at 1/10/2015** In China, banks need to achieve the minimum requirement ratio by end of each year*** A bank incorporated and headquartered in Singapore shall comply Basel LCR for all currency while maintain SDG LCR 100% from 1/1/2015; other LCR firms need to maintain SDG LCR 100% and all currency LCR 50% from 1/1/2016
Examples of wrinkles
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Liquidity Coverage Ratio Implementation (2)
Country Effective date First reporting as-at date
Reporting Frequency
Full implementation date
Reporting forms Scope of application
Basel 1/1/2015 31/01/2015 Monthly 1/1/2019 NA Internationally-active banks
Australia 1/1/2015 31/01/2015 Monthly 1/1/2015 ARF 210.1A/B Domestic banks, foreign subsidiary banks and foreign branches
Canada 1/1/2015 31/01/2015 Monthly 1/1/2015 LCR return (OFSI) banks, bank holding companies, trust and loan companies and cooperative
retail associations
China 01/03/2014 31/03/2014 Monthly 31/12/2018 G2501 foreign banks, joint-venture banks Commercial banks with asset value no less than 200billion Yuan (about £20
billion
EU 1/10/2015 31/12/2015 Monthly 1/1/2018 New EBA LCR template
EU CRD IV banks and investments firms
HK 1/1/2015 31/01/2015 Monthly 1/1/2019 K1- MA(BS)1E All HKMA authorized institutions irrespective of their place of
incorporation
India 1/1/2015 31/01/2015 Monthly 1/1/2019 BLR 1-5 Local banks and foreign branches
Singapore 1/1/2015
1/1/2016
31/01/2015 Monthly All currency: 1/1/2019
SGD: 1/1/2015
MAS Notice 649 Locally incorporated banks, foreignbanks including branches, finance companies and merchant banks
UK 1/10/2015 31/12/2015 Monthly 1/1/2018 New EBA LCR template
UK bank and PRA designated investment firms; 3rd country firms,
EEA branches
US Full LCR 1/1/2015
Modified LCR
1/1/2016
TBD Monthly 1/1/2017 FR 2052 a** Banks, Bank holding companies and savings and loan holding companies with asset greater than $50 billion
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Legislative framework & timeframe
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…Rule books
and technical
implementati
on of these…
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Removal of single rule book (pardon?!)
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UK and other Local National Competent Authorities
Capital Requirements Regulation/Directive: in EU OJ
EBA’s Implementing Technical Standards: in EU OJ from time to time
New Prudential Source Book and associated Handbook updates
Handbook
Instruments & Statements
Implementing Technical Standards
Capital Requirements Regulations
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Implementation of LCR
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“COMMISSION DELEGATED REGULATION (EU) 2015/61”It is “in regard to Regulation (EU) No 575/2013” (CRR)… “and in particular Article 460 thereof”
LCR – what’s in it
Another 70 pages
Earlier 266 pages
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LCR – what’s in itConfers power to adopt a delegated Act; subject to
non-objection by the European Parliament or
of the Council
TITLE IILIQUIDITY
REPORTING
Liquidity Coverage Requirement: inflows over outflows over 30
days (in general)
TITLE IIIREPORTING ON STABLE FUNDING – note not referenced –
this continues unchanged for the moment
(a) 60 % of the liquidity coverage requirement in 2015;(b) 70 % as from 1 January 2016;(c) 80 % as from 1 January 2017;
(d) 100 % as from 1 January 2018.
ANNEX IIIItems subject to supplementary
reporting of liquid assets
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2015.011.01.0001.01.ENG
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LCR – what’s in it
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Lombard Risk Impact Analysis of
the reporting changes – useful
summaries
UK impact analysisEurope impact
analysis
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Changes are extensive:
New data, new validations, new XBRL…New templates, new numbers: LC carries on too…
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2014 LC templates } New LCR templates
Code Name No. of Cells Code Name No. of Cells
C 51.00 LIQUID ASSETS 261 C 72.00 LIQUID ASSETS 105
C 52.00 OUTFLOWS 950 C 73.00 OUTFLOWS 404
C 53.00 INFLOWS 512 C 74.00 INFLOWS 464
C 54.00 COLLATERAL SWAPS 24 C 75.00 COLLATERAL SWAPS 829
C 76.00 CALCULATIONS 38
Total 1747 Total 1840
LCR and LC comparison
“The completion of technical standards by the EBA as well as answers to questions raised in the context of the single rulebook Q&A mechanism have contributed to a
more complete and seamless application of the single rulebook. This has lead in turn to more precise or changed reporting instructions and definitions. In addition,
further changes to reporting requirements were triggered by the identification,during the preparation for the application of reporting requirements, of typos,
erroneous references and formatting inconsistencies”
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Compare Liquid Assets reporting (C 51.00 to C 72.00)
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LCR and LC comparison
c120 data rows
c60 data rows
Source: CRR Annex XII templates
Source: CRR Annex XXIV -LCR templates_for
publication.xlsx
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Compare Outflows reporting (C 52.00 to C 73.00)
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LCR and LC comparisonSource: CRR Annex XII
templates
Source: CRR Annex XXIV -LCR templates_for
publication.xlsx
c185 data rows
c145 data rows
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Compare Inflows reporting (C 53.00 to C 74.00)
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LCR and LC comparisonSource: CRR Annex XII
templates
Source: CRR Annex XXIV -LCR templates_for
publication.xlsx
c138 data rows
C65 data rows
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Compare Collateral Swaps (C 54.00 to C 75.00)
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LCR and LC comparisonSource: CRR Annex XII
templates
Source: CRR Annex XXIV -LCR templates_for
publication.xlsx
c80 data rows
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New Calculations table (C 76.00)
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LCR and LC comparisonSource: CRR Annex XXIV -
LCR templates_for publication.xlsx
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Project-wise, is your EU LCR work done, or not?
A Done, we have this all under control and are in parallel ready for the live reporting
B On track to be done so that we can run LCR from October
C We are not in a terribly good place, I mean what are summer holidays for, if not regulatory projects….?
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7%
76%
16%
a b c
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(Technical) Implementation of LCR
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Technical implementation – 4 scoops of XBRL
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XBRL Taxonomy - role
Concrete technical representation of the data point model
(and thus of the BTS, and thus of the CRR)
Remember: templates are only for human-readability; the XBRL taxonomy provides digital representation of that
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What is the XBRL Taxonomy?
Derivation from the originating Legal Framework:
Capital Requirements Regulation
Binding Technical Standards
Data Point Model
XBRL Taxonomy
Technical implementation – 4 scoops of XBRL
We used to think this was painful. I can go on record that we now think EBA have done a pretty good job for what is a very complicated legalised
call for data
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Implementation of AMM
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On 17th July 2015, the EBA announced that the implementation of AMM will be postponed by at
least three months (i.e. 1st October 2015). The final application date will depend on the timeline of
adoption of the ITS by the European Commission.
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Implementation of AMM
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Impact of LCR:
New UK
liquidity regime
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http://www.bankofengland.co.uk/pra/Documents/publications/ps/2015/ps1115.pdf
http://www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss2415.pdf
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EU Delegated Act (10th Oct 2014)• Credit institutions; applicable 1/10/15
PRA Consultation Paper CP27/2014 (28th Nov 2014)• “CRD IV: Liquidity” (revoke rules, restate PRA approach)• Main proposals:
• Revoke BIPRU 12• Apply higher minimum LCR• Carry forward existing add-ons• Amend existing FSA047-054 reporting requirements• Impose requirements on UK-designated investment firms• Consider approach for third country firms
PRA Policy Statement (PS11/15)– …over the page!
New UK liquidity regime - background
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PRA Policy Statement (PS11/15) and Supervisory Statement (SS24/15) @ 8/6/15, effective 1/10/15• Contain the final rules for EU LCR in UK• Carries forward main proposals from the CP, some changes:
Mainly:• Amends (softens) proposed approach for 3rd county branches• Amend existing FSA047-054 reporting (carry on max 1 year)
EBA released final draft ITS for LCR (14/6/15)• Updated the previous draft templates (small changes)• Details re the correct calculation of the ratio• First reference date later of end December and 6 months
after publication in the EU OJ….• Confirmation: credit institutions still subject to LC until….
New UK liquidity regime - background
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PRA new liquidity regime will apply to:• UK banks & Building Societies• UK incorporated investment firms regulated by the PRA
• (so-called PRA UK-designated investment firms)
• Third-country-firms (non-EU firms)• EEA credit institutions with a branch in the UK• It does NOT cover FCA-regulated investment firms
New UK liquidity regime - scope
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BIPRU 12• PRA revokes BIPRU 12 liquidity standards• Firm specific ILG withdrawn when LCR starts 1/10/15• Whole Firm Liquidity Modification* or Simplified ILAS
waivers* or Intragroup liquidity modifications cease• * no equivalents under CRR but there is a permission for ILG mods (equivalent)
SO: All in scope firms, large and small, have to meet LCR at all times
and will be subject to the same set of liquidity standards
BUT: PRA will maintain principles of selected rules
• Overall Liquidity Adequacy Rule (OLAR)
• Liquidity risk management
• Stress testing
• Individual Liquidity Adequacy Assessment (ILAA)
• Asset Encumbrance (AE)
New UK liquidity regime - application
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New UK liquidity regime – overall impact
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1 NSF templates is not mentioned - draft rulebook states that foreign branches need to comply with Title II and Title III of Part 6 CRR
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THREE TIMES THE FUN!
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24/6/15: EBA released final draft of the LCR ITSCredit Institutions start new instructions/templates at the application date of amended ITS - yet to appear in EU OJ…
THREE TIMES THE FUN (!?)
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Which means what? (1)
PRA’s requirements for switch from old to new regime include use
of an interim tool before EU LCR XBRL standards are ready
There is no EBA interim process for reporting purposes. Meaning
until current European legislation which requires LC to be reported
by in-scope firms is replaced by live legislation requiring the LCR
reported, then nothing changes. So LC will still be required to be
reported by in scope firms during interim period
Supervisory process – be reminded – there is only ever ONE
process. From 1st October 2015 that is the Liquidity Coverage
REQUIREMENT i.e. liquidity coverage RATIO which meets the REQUIREMENT (EBA state 60% but
80% for UK firms)
THREE TIMES THE FUN (!?)
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Which means what? (2)
During interim period from 1st Oct for N months, CRDIV credit institutions (investment firms not in scope of new LCR but continue with the LC)…have to report each of:
LC (as it is, existing XBRL via Gabriel to EBA)
Interim LCR (XML/Excel direct to PRA) and
FSA047/048 (as it is, XML via Gabriel to PRA)
THREE TIMES THE FUN (!?)
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Interim LCR reporting
THREE TIMES THE FUN (Interim)
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Interim LCR reporting
Date Asset above £3billion Asset below £3billionBefore
1st October 2015
Current LC returns in XBRL
(C51.00 – C54.00)
Current LC returns in XBRL
(C51.00 – C54.00)
During interim period Current LC returns in XBRL
and
New LCR returns in XML
Excel
Current LC returns in XBRL
and
Report key metrics of C76.00
LCR becomes
Mandatory
New LCR returns in XBRL
(C72.00 – C76.00)
New LCR returns in XBRL
(C72.00 – C76.00)
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EC has only adopted one ITS (at 9th July ) since February 2015…AMM 18th on the listBenchmarking portfolios which is proposed to go live at Q4 2015 is 21st on this listLCR ITS is no. 25 Funding Plan is a guideline so not on the list
Conclusion?
THREE TIMES THE FUN (how long?)
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EBA 2015 work plan state of play
http://ec.europa.eu/finance/bank/docs/regcapital/acts/overview-crr-crdiv-its_en.pdf
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We think the PRA interim LCR requirement will run for…
A 3 months, till end December (no you cannot answer this!)
B 4 or 5 months till Jan/Feb 2016
C Will slip by quarters, so end March 2016
D Frankly, later – could be June+ by the time AMM and LCR XBRL is all sorted out, and EU JO, and Greece, and fishing quotas etc etc
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5%
16%
49%
30%
0% 10% 20% 30% 40% 50% 60%
a
b
c
d
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Consider also the other moving
pieces….
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…and other
horizons to be
aware of
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LR found wanting, as it was (is):
Update here 15/6/15
Timeline: EBA still talking about first reference proposed as later of December 2015 (which is not going to happen) and 6 months after the adoption date…
Leverage Ratio Delegated Act
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http://www.eba.europa.eu/-/eba-issues-amended-technical-standards-on-leverage-ratio-disclosure-and-reporting
Small print againhttp://europa.eu/rapid/press-
release_MEMO-14-580_en.htm is very useful......
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New CALCULATION template Changes are Tracked
by EBA “Delta” on current LR Addition of one
template (Leverage Ratio Calculation)
Deletion of one (Consolidated infos..)
Leverage Ratio Delegated Act
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Changed templates…. Changes are tracked by EBA “Delta” on the current LR
Leverage Ratio Delegated Act
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Leverage Ratio changes….
A We have already dealt with these changes in parallel
B Will have very little impact on us, we will deal with at the time when the reporting changes
C Well to be honest we’d not noticed there were going to be changes to the Leverage Ratio reporting requirement
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21%
52%
27%
0% 10% 20% 30% 40% 50% 60%
a
b
c
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Consider also the other moving
pieces….
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…and other
horizons to be
aware of
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Funding plan templates
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Reporting of funding plans for 2014 and thereafter
For 2014 and 2015, institutions report funding plans with a reference date no later than 30th June 2015 and submit it to CAs by 30th September 2015
For subsequent years, institutions report their funding plans with a reference date of 31st December of the previous year and submit it to CAs by 31st March of the following year
XBRL submission
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Funding plan templates
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Scope of application:
• …..institutions that represent 75% of a banking
system’s total consolidated assets (UK c top 9 banks)Section 1 Balance Sheet Section 2 Funding Reliances Section 3 Perimeter
Table A: Assets
Table B: Liabilities
Table C: Forecast of liquidity ratios
Table 2A – Specific funding relianceTable 2A1 – Insured and uninsured deposits and uninsured deposit-like financial instrumentsTable 2A2 – Public sector sources of fundingTable 2A3 – Innovative funding structures
Table 2B – PricingTable 2B1 – Pricing: loan assetsTable 2B2 – Pricing: deposit liabilitiesTable 2C – Structural currency mismatchesTable 2C1 – First-largest material currencyTable 2C2 – Second-largest material currencyTable 2C3 – Third-largest material currency
Table 2C – Structural currency mismatchesTable 2C1 – First-largest material currencyTable 2C2 – Second-largest material currencyTable 2C3 – Third-largest material currency
List 3 (List of unique Legal Entity Identifiers of credit institutions and other relevant entities included in this funding plan)
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Consider also….
….the other moving pieces
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…and other horizons to
be aware of
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SBP requirements CRD & CRR (i.e. CRD IV) includes various
EA mandates for ITS & RTS to reduce uncertainty and differences in the calculation of capital requirements
RTS & ITS 2nd March 2015 re Article 78 CRD, EBA
published final draft RTS & ITS on benchmark portfolios
1st benchmarking exercise conducted under these R/ITS to be based on Q4 2015 observations.
“….shall report by 11th April 2016”
Supervisory Benchmark Portfolios
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:176:0338:0436:EN:PDF
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SBP objective:
Supervisory Benchmark Portfolios
EBA’s Credit Risk portfolios
1) Individual(Value at Risk (VaR), Stress Value at
Risk (SVaR) and Incremental Risk Charge (IRC))
2) Aggregated (lots of individuals..)
EBA’s Market Risk portfolios
1) Low default (central governments, institutions, large
corporate2) High default (corporate, SMEs,
residential mortgages)
Draft RTS specify the procedures for sharing assessments between
competent authorities and with EBA….
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Supervisory Benchmark Portfolios
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Scope of application:• …..with NCA permission to use internal models for:
• capital requirements for credit risk (IRBA) • own funds for market risk (incl VaR, SVaR, IRC & Correlation Trading)• counterparty risk and CVA risk.
• UK scope:Internal Approach Number of Institutions
EU UK
Market Risk 63 17
Credit Risk 184 17…not the same 17!
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Supervisory Benchmark Portfolios
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Reporting requiredResults Benchmarking Portfolios - Credit Risk
Template
NumberShort Name Full Name
Size of Template
101 LDP counterparty details Details on exposures in Low Default Portfolios by counterparty 17 columns
102 LDP details Details on exposures in Low Default Portfolios 18 columns
103 HDP details Details on exposures in High Default Portfolio 24 columns
104 HYP Details Details for hypothetical transactions in Low Default Portfolios 16 columns
105.01 Internal models Definition of internal models 13 columns
105.02 Mapping internal models Mapping of internal models to portfolios 2 columns
Results Benchmarking Portfolios - Market RiskTemplate
NumberShort Name Full Name
Size of Template
106 IMV Initial Market Valuation 7 Columns
107.1 VaR & SVaR 1 VaR and SVaR non-CTP: details 18 cells
107.2 VaR & SVaR 2 VaR and SVaR non-CTP: base currency results 3 Columns
108 1Y P&L One year Profit & Loss VaR 2 Columns
109.1 IRC 1 Incremental risk charge: details of the model 4 cells
109.2 IRC 2 Incremental risk charge: details by portfolio 3 cells
109.3 IRC 3 Incremental risk charge: amount by portfolio / date 2 columns
110.1 CT 1 Correlation trading: details of the model 4 cells
110.2 CT 2 Correlation trading: details by portfolio 3 cells
110.3 CT 3 Correlation trading: amount by portfolio / date 2 columns
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Project work & ongoing preparation
for all this?
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Project work
Business issues:Glide path to new ratios and adjustment to business modelsAdjusting quality of and quantity capitalAdjusting quality and quantity of high quality liquid assetsChanging business operating model: more, and more frequent reportingSerious liquidity supervisory reporting
Operational issues:Many data challenges
New data types Existing data but at deeper granularity
No current reporting – project time to develop expected resultsDeeper reconciliation with management informationReporting peaks exacerbated with more reports due at the same timeAdditional people and equipment resources…
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Lombard Risk REPORTER
Lombard Risk REPORTER for regulatory compliance
Fully scalable, consolidated regulatory solution
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Implications of DFA for BBVAQuestions & Answers
Question submitted in advance:Will this new regime apply to FCA-regulated investment firms, or will they
continue to report under the current regime (FSA047-48, 50-54)?
FCA hasn’t released any LCR statement since LCR delegated act, but FCA stated in PS13/10 ‘we confirm our
approach to continue the UK’s liquidity regime (including ILAS) until binding minimum standards for liquidity
coverage requirements are implemented in the CRR in 2015. FCA will issue a further statement on our liquidity
approach in due course. Until then, BIPRU 12 requirements continue to apply to all IFPRU firms and some
Significant IFPRU / ILAS firms will continue to report CRD IV LCR (i.e. current LC templates) and NSFR COREP
templates”.
Early 2015: FCA stated FCA PS15/2 Recovery and Resolution Directive: “… in October 2014, the European
Commission adopted a Delegated Regulation on the liquidity coverage requirement (LCR). This Delegated
Regulation does not apply to investment firms which means that, initially, there is no CRR binding minimum liquidity
requirement on investment firms. Furthermore, there is to be a review of the applicability of the LCR to investment
firms, which we would not wish to pre-judge”
Conclusion is that FCA regulated investment firms will continue to report what they are current reporting (FSA047-
054 or/and existing LC return) from 1st October. No change from 2015 status quo.
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Implications of DFA for BBVA
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