Ireland

Details

  • Service: Advisory, Regulatory Advisory Services, Regulatory Advisory Services
  • Industry: Financial Services, Banking & Finance
  • Type: Business and industry issue, KPMG information
  • Date: 18/07/2014

Banking Regulation Update July 2014 

This publication summarises the key recent domestic and European regulatory developments for banks.

Regulatory developments continue to evolve and banks need to be as proactive as ever in monitoring and managing these upstream regulatory changes.

 

The end of June was a significant milestone for regulatory reporting as it marked the deadline for the submission of the full suite of new regulatory reports. Despite the helpful extension of the reporting deadline, from the end of April for the liquidity reports and from the end of May for the COREP reports, the task of submitting all of the new liquidity reports and of migrating from old to new COREP was challenging. KPMG worked with several clients to facilitate timely submission.

 

Since the last banking update, progress has been made in developing the EU banking union framework. In particular the banking supervision infrastructure at the ECB is taking shape and it is becoming increasingly clear that supervision is going to become far more prescriptive, for example with the ECB’s development of a Supervisory Manual, and also that regulatory scrutiny is only going to increase.

 

On the domestic front CRD IV has taken legal effect in Ireland, the Central Bank has published guidance on the authorisation of branches of third country credit institutions and the Central Bank continues its policy of a “credible threat of enforcement”.

 

European Regulatory Developments

European Commission

On the legislative front, the European Commission published the text for both the Bank Recovery and Resolution Directive (BRRD) and the Deposit Guarantee Scheme (DGS) Directive. The directives require transposition, by 1 January 2015 and 2 July 2015, respectively. The BRRD will require banks to prepare recovery and resolution plans for submission to the local regulator. The Central Bank will have some discretion in terms of the banks in scope for this exercise. The BRRD will also be supplemented by a Single Resolution Mechanism (SRM).

 

The two main elements of the SRM are the establishment of a single resolution board and a single resolution fund for the banking union. The Commission has published the KPMG Ireland – Regulatory Advisory Services July 2014 draft text of the Regulation, which is expected to be adopted by September. The Commission has also taken the initial steps to staff the single resolution board. In May, 26 Member States signed the Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund (SRF), an essential part of the SRM.

 

The UK has not signed this agreement. A consultation paper has been issued on the proposed financing arrangements for the new resolution mechanism. The feedback will inform the work of the Commission on the delegated act under the BRRD and the proposal for a Council implementing act under the SRM, which the Commission intends to adopt simultaneously in September 2014.

 

Aside from work on the resolution framework, the Commission is preparing the delegated act for the Liquidity Coverage Ratio (LCR) which should be finalised before the end of the summer. This act will specify the date when the LCR becomes a prudential ratio and will give greater clarity on eligible liquid assets, as well as other aspects of liquidity in the CRR. In the meantime the Central Bank has issued “Guidelines on LCR calculation for the Interim Observation Period” which set out the Central Bank’s approach to the calculation of the LCR until the delegated act takes binding legal effect.

 

European Central Bank

Regulatory developments continue to evolve and banks need to be as proactive as ever in monitoring and managing these upstream regulatory changes.

 

In May the ECB finalised the Single Supervisory Mechanism (SSM) Framework Regulation. With this in place, the final form of the supervisory structure within the ECB is beginning to take shape. Recent speeches by key ECB officials indicate that the ECB will seek more and more data from banks and will engage in more on-site inspections. The ECB’s Supervisory Manual will become the regulators handbook throughout the euro-zone and will define the future supervisory culture. The ECB intends to publish a “Guide to supervisory practices and methodologies in the SSM” to inform industry about this new supervisory approach.

 

The ECB comprehensive assessment exercise continues and in line with that assessment the EBA published the stress test methodology at the start of May, with the first stress test results expected later in the summer. The ECB have confirmed that banks will have 6-9 months to fill any capital shortfalls identified.

 

EBA

The steady stream of regulatory output from the EBA continues, with a number of recent draft technical standards, regulatory guidelines and consultations being published. They include finalisation of guidelines on standardised reporting of funding plans and disclosure of encumbered assets as well as consultations on draft technical standards on leverage disclosure and the countercyclical buffer disclosures.

 

The EBA updated the validation rules for supervisory reporting and also enhanced its Single Rulebook Q+A which was a valuable, if somewhat, underutilised resource for banks submitting the new supervisory reports at the end of June. It is likely that reporting guidance will be enhanced following the initial submissions and any widespread reporting problems that emerge will be addressed. KPMG is working with clients to help them systematically track EBA guidelines and technical standards and assess the impact on current regulatory or reporting obligations.

 

Clients are expressing concern about the volume of regulatory reporting they are subject to. The new reporting templates, along with the new FINREP submission due in November combined with potential demands for new SSM reporting, will increase the already heavy reporting burden on banks and will increase operational risk. Banks need to start developing mitigation plans to address this risk now. KPMG is happy to discuss how to develop an effective mitigation strategy for institutions facing these challenges in 2014.

 

Domestic Regulatory Developments

CRD IV

CRD IV was finally transposed in Ireland on 31 March 2014 with the enactment of the European Union (Capital Requirements) Regulations S.I. 158 2014. This enabled the Central Bank to issue the final Implementation Notice in May.

 

Branches of Third Country Credit Institutions

In August 2013, the Central Bank Act 1971 was amended to allow branches of third country credit institutions to be established in Ireland, subject to the Central Bank being satisfied that the supervisory standards and the deposit guarantee mechanism in existence in the home state correspond with that of Ireland. The Central Bank has just issued guidance on completing and submitting applications for authorisation. The process is similar to the process when applying for full authorisation. The applicant must conduct a preliminary meeting with the Central Bank and then submit its proposal for review, prior to submitting the official application.

 

Report on the Observance of Standards and Codes

The IMF, in its Report on the Observance of Standards and Codes (ROSC) issued in May of this year, assessed banking supervision in Ireland against the Basel Core Principles. The report concludes that observance with these standards is, on the whole, satisfactory. The report also made some recommendations, including advising the Central Bank to review its supervisory engagement and its mix of onsite and offsite supervision for Medium Low and Low Impact banks. The report also recommended that the analysis of regulatory returns should be strengthened and a greater focus should be put on testing and sampling of risk management processes.

 

Enforcement Action

The Central Bank continues to take enforcement action against credit institutions for breaches of prudential requirements. In two recent cases, it fined credit institutions for breaches of large exposure requirements and capital adequacy requirements. In both cases the reasons for the breaches were identified as being deficiencies in underlying systems and controls. KPMG has extensive experience of embedding appropriate systems and control mechanisms within organisations to enable oversight of risk and compliance.

 

If you wish to discuss any aspect of this publication or any regulatory concerns or queries you may have, please contact a member of the Regulatory Advisory Services team.

 

Download as PDF

Banking regulation update July 2014

 

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Banking Regulation Update July 2014 (PDF, 492KB)

 

Regulatory Advisory Services contacts

Paul O'Connor 

Paul O'Connor

Head of Regulatory Advisory Services

Director

paul.oconnor@kpmg.ie

+353 1 700 4038

Banking

Senior decision makers in the banking sector face continued challenges. The global financial crisis has profoundly changed the shape of international banking and the skills required to protect and grow shareholder value are highly complex. 

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