IIF comments on the proposed revisions to the Phase 1 templates of the common data templates for G-SIBs
October 24, 2014 — The IIF submitted comments to the BIS International Data Hub on the proposed revisions to the Phase 1 templates of the common data templates for G-SIBs. The IIF comments focused on general issues relating to the timing and process of introducing revisions to finalized templates (i.e. giving more time for reporting banks to assess proposed revisions, conduct of pilot submissions, phased implementation, etc.). The IIF also commented on some of the major changes to the templates such as the introduction of separate templates for CCP and sovereign exposures.
New EY Industry Risk Management Survey
October 17, 2014 — Ernst & Young released its fifth annual risk management survey, completed in cooperation with the IIF, titled “Shifting focus: Risk culture at the forefront of banking”. The survey, which was conducted in early 2014, includes responses from 53 IIF member firms across 27 countries. The survey clearly indicates that the firms are changing the way they approach risk culture. While the industry is focusing increasingly on culture and conduct, challenges remain. Banks face obstacles in balancing the pressure to drive performance and maintaining an emphasis on risk culture, as well as embedding risk appetite firm-wide. Ultimately, the survey indicates that banks are building stronger risk governance structures by increasing accountability through performance reviews and compensation, and by utilizing disciplinary actions.
IIF response letter to the IASB on macro hedge accounting for dynamic risk management
October 17, 2014 — The IIF Senior accounting Group (SAG) submitted its comments on the discussion paper issued by the IASB on macro hedge accounting for dynamic risk management. The objective of the proposed Portfolio Revaluation Approach “PRA” is to improve on how dynamic interest rate risk management activities are portrayed in an entity’s financial statements. Although the Discussion Paper accurately identifies the accounting issues raised by the dynamic interest rate risk management of the banking book applied by many banks, the SAG strongly believes that the PRA, as proposed, would not achieve the stated objective, thereby creating undue volatility in the financial statements and preventing the full application of the newly released IFRS 9 framework on classification and measurement.
October 2014 Global Regulatory Update
October 15, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, liquidity, recovery and resolution, data requirements, accounting, corporate governance, disclosure, systemically important financial institutions, and upcoming events.
IIF-ISDA-GFMA submit the joint response letter to the Basel Committee consultation on Pillar 3 review
October 10, 2014 — The IIF Disclosure Working Group submitted comments regarding the review of the Pillar 3, the disclosure requirements mandated by the Basel Committee on Banking Supervision as part of Basel III, jointly with ISDA and GFMA. The consultation document set out an ambitious two-phase program entailing a major revision, reconfiguration and consolidation of Pillar 3 requirements. The associations valued the engagement of the BCBS with the industry and users to build a framework that will enhance and give greater long-term credibility to banks’ risk disclosures.
The Associations’ response, while endorsing the concept and goals of enhancing Pillar 3, raised a number of issues of detail. Some entailed proposed clarifications or reorientations of the proposed templates to make them more meaningful to users and less burdensome to produce for banks. In several instances where the Basel Committee proposed voluminous quarterly disclosures the associations (and many users) argued that annual disclosures would be more useful, less problematic to produce, and more reasonable in terms of not adding to information overload. As a general proposition, the comments argue for more attention to the principle of materiality and avoiding quantities of disclosures at quarterly intervals that might obscure important changes that would more appropriately be disclosed in interim reports.
Risk-Sensitivity: The Important Role of Internal Models
October 9, 2014 — This paper discusses the importance of risk sensitivity and the use of internal models in the regulatory capital framework. In particular, the paper analyzes how risk models and capital measures are used within a bank, in downstream applications beyond demonstrating capital adequacy at an institution-level, in how banks originate and manage exposures and use performance measures to reinforce the desired risk culture. For more information please contact Brad Carr: firstname.lastname@example.org
Achieving Bank Resolution in Practice: Are We Nearly There Yet?
September 18, 2014 — This paper, developed by the IIF Cross-Border Resolution Working Group, argues two things. One is that a mechanism now exists that can be applied to resolve all financial institutions, including the largest, without calling upon capital support from the government. The second is that the objections normally raised about the application of this mechanism – lack of international cooperation, lack of information, complexity – are all capable of being overcome and that, in most cases, solutions to these problems are at an advanced stage of development. Consequently, in the relatively near future, we will be able to say without reservation that no institution is “too big to fail” (“TBTF”). Indeed, even before completion of all the measures now in train, good coordination of resolution measures by the relevant authorities should be able to achieve the common goal of allowing a major institution to fail without excessive market disruption and without capital support from the government.
September 2014 Global Regulatory Update
September 4, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, liquidity, recovery and resolution, data requirements, disclosure, insurance, and upcoming events.
IIF Submits response letter to the IAIS consultation on new draft procedures
On September 2, the IIF Insurance Working group (IWG) submitted its response letter to the International Association of Insurance Supervisors (IAIS) consultation on Draft Procedures on Meeting Participation and the Development of Supervisory and Supporting Material and Draft Policy for Consultation of Stakeholders. This consultation, released on July 7, is a part of the IAIS strategic reform started in 2013.
In the response letter, the IIF IWG welcomes the IAIS reform to better incorporate stakeholder comments. The IWG members believe that many of the measures described in the consultation document will facilitate constructive dialogue between the IAIS and relevant stakeholders. While the IIF IWG response letter is supportive of the overall goals of efficiency and transparency that are driving this reform, it indicates several areas where clarity is needed for establishing concrete governance guidelines. The response letter also suggests that considering the complexity of the insurance regulatory issues being discussed, procedures of direct interaction between the IAIS and the insurance industry should be well defined and documented.
IIF Response to US Banking Agencies’ Regulatory Review
September 2, 2014 — The IIF submitted a letter responding to the US Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and Federal Deposit Insurance Corporation (FDIC) regarding a joint request for comment on “Regulatory Publication and Review under the Economic Growth and Regulatory Paperwork Reduction Act”. The goal of the IIF comment letter was not to address specific issues, but rather to urge the agencies to adopt a broad goal of enhancing international consistency as they review existing regulations and develop future regulations, particularly in the areas of capital and liquidity requirements, cross-border resolution, data definitions and standards, and disclosure. The comment letter emphasizes that discrepancies between U.S. regulations and international standards can create market inefficiency and make it harder for financial institutions to monitor and manage their risks. Movement toward international consistency and mutual recognition of different countries’ regulations, where appropriate, would not only reduce redundant or unnecessary regulation, but also lessen regulatory arbitrage. Reducing regulatory burdens by maximizing international consistency and mutual recognition would not only benefit supervisors, firms, and the public in terms of increased efficiency and clarity, but also enhance the quality of compliance.
Net Stable Funding Ratio – Equity supplemental comment letter to the Basel Working Group on Liquidity
August 29, 2014 — Because of concerns about the effects on equities markets of the currently proposed Net Stable Funding Ratio (NSFR), which is expected to be finalized later this year, the equities sub-group of the IIF Working Group on Liquidity prepared a letter to reiterate the importance to firms and markets of providing more balanced treatment of many equities transactions under the NSFR. This supplemental letter, issued jointly with GFMA, letter followed up comprehensive comments provided by the industry in April on all the issues raised by the NSFR. The supplemental letter is supported by an accompanying study by Oliver Wyman on the likely negative effects of the current NSFR proposal’s extremely conservative treatment of equities. The types of client-facing and hedging transactions addressed in the letter generally do not create the kinds of maturity mismatch issues that the NSFR is concerned about, but rather are low-risk to banks, so it should be possible to address the Basel Committee’s prudential concerns for the resilience of bank funding while avoiding the negative effects on the depth and liquidity of markets that the current NSFR would likely produce.
IIF and IBFed letters to the BCBS on IRRBB
August 6, 2014 — The IIF and IBFed sent a letter to Stefan Ingves, Chairman of the Basel Committee on Banking Supervision (BCBS), emphasizing the industry’s serious concerns about a possible standardized Pillar 1 methodology for interest rate risk in the banking book (IRRBB). The letter outlines the industry arguments discussed in detail in the June 26 paper submitted to the BCBS Task Force on IRRBB (TFIR). In summary, the industry believes that a standardized methodology is not appropriate given differences in the nature of IRRBB across jurisdictions and banks. The Basel Committee itself recognized these differences when it first reviewed policy options for IRRBB several years ago. Pushing for standardization would only force banks to manage IRRBB in the same way even if the underlying risks are different. This distortion in risk management could impact the pricing and products offered by banks and, in the worst case scenario, could result in more instead of less risks in the system (for example by transferring interest rate risk to customers that could give rise to default risk when interest rates significantly rise). The industry, therefore, supports a strengthened Pillar 2 approach for IRRBB.
Industry Response to the Second IAIS BCR Consultation
On Friday August 8, 2014, the IIF jointly with the Geneva Association (GA) submitted comments regarding the second IAIS Basic Capital Requirements (BCR) Consultation. This consultation was released by the IAIS on July 9, 2014 as a last opportunity for the public to provide input regarding the proposed structure and design of the BCR. In the comment letter, the Joint IIF/GA BCR Task Force welcomes the increased clarity provided in the consultation document, especially regarding the scope, design and calibration of the BCR. Upon endorsement by the FSB in November 2014, the BCR will serve as the foundation of the Higher Loss Absorbency (HLA), for which the IAIS plans to release an initial consultation document in December 2014.
August 2014 Global Regulatory Update
August 6, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, liquidity, recovery and resolution, data requirements, accounting, disclosure, insurance, and upcoming events.
Joint Associations’ additional comments on the FRTB QIS instructions
July 31, 2014 — The joint Associations (ISDA, IIF, GFMA) submitted a letter to the BCBS Trading Book Group (TBG) discussing additional comments on the draft FRTB QIS instructions. In particular, the Associations identified a flaw in the prescribed delta risk aggregation formula under the sensitivity-based approach (SBA). Considering the importance of the SBA calculation in the market risk capital framework and the daily calculation of the SBA capital charge over constantly changing portfolios once the FRTB framework is implemented, the Associations strongly advocate that this issue needs to be addressed. The joint Associations’ letter to the TBG outlines some potential solutions that can mitigate the occurrence of negative variance in the aggregation formula of delta risk capital charges across buckets.
New York State Department of Financial Services proposes Codes, Rules and Regulations on virtual currencies
July 24, 2014 — On July 17, 2014 the New York State Department of Financial Services issued proposals that require firms to obtain a license to operate any Virtual Currency Business Activity. The proposals also outline a formal application process for both firms and those accountable (Directors, Principal Officers, Principal Stockholders and Principal Beneficiaries) within such firms. A detailed application process and application fees are also set out in the consultation as is prospective actions of the superintendent (approval, denial, suspension and revocation of the license, for example). In addition to requiring both internal compliance policies (including anti-fraud, anti-money laundering, cyber security, privacy and information security) and an individual acting in the capacity of a Compliance Officer, the proposed rules address a variety of regulatory themes:
Joint Associations’ Comment Letters on the FRTB QIS Instructions
July 17, 2014 — The IIF, together with ISDA and GFMA, submitted comment letters on the instructions of the Fundamental Review of the Trading Book (FRTB) full portfolio Quantitative Impact Study (QIS). The first letter outlines preliminary and high level comments from the industry, and was aimed to feed into the meeting of the Basel Trading Book Group in early July. The second letter discusses the detailed comments of the industry.
In particular, the letters emphasize that there remain several areas where industry requests for clarification have yet to be addressed, including the Trading Book/Banking Book Boundary, P&L Attribution and Non-Modellable Risk Factors. Moving ahead without clarity and precision in the instructions is bound to lead to banks making significant and different assumptions. In addition, some elements of the QIS would require infrastructure development and testing that is not feasible within the prescribed timeline without institutions using simplifications and shortcuts.
The letter therefore proposes a phased approach in order to improve the accuracy of the results, encourage participation from more banks, and allow greater transparency in the results and the impact of specific changes.
European Banking Authority (EBA) Issues Opinion on virtual currencies
The EBA has produced an analytical report on Virtual Currencies and the potential risks that they create (PDF at www.eba.europa.eu). The EBA has identified more than seventy risks of various types that VCs could originate: risks to users; risks to non-user market participants; risks to financial integrity, such as money laundering and other financial crime; risks to existing payment systems in conventional FCs, and risks to regulatory authorities.
Proposed Amendments to IAS 1
July 14, 2014 — The IIF Senior Accounting Group (SAG) sent a comment letter to the International Accounting Standards Board (IASB) on its Exposure Draft ED/2014/1 (ED), Disclosure Initiative – Proposed amendments to IAS 1, on July 14, 2014. The SAG acknowledged that the proposal was a good first step to help to improve the quality of disclosure, in particular by encouraging preparers and auditors to feel freer to make judgments about issues such as materiality. The SAG took the opportunity to urge the IASB to take leadership in defining generic terms such as materiality and relevance and in encouraging cross referencing between different bodies of disclosure, without expanding the scope of audit. More generally, the SAG asked the IASB to prioritize international consistency to help to build consistent, transparent and meaningful financial reporting.
For more information, please contact Veronique Mathaud (email@example.com).
FASB - Proposed Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting: Chapter 8, Notes to Financial Statements
July 14, 2014 — The IIF Senior Accounting Group (SAG) sent a comment letter to the US Financial Accounting Standards Board (FASB) on the Exposure Draft File Ref. No.2014-200 (ED), Proposed Statement of Financial Accounting Concepts – Conceptual Framework for Financial Reporting: Chapter 8, Notes to Financial Statements on July 14, 2014. The SAG supported the proposal and acknowledged the improvement compared to the initial discussion paper, especially on forward-looking statements. The SAG advocated a clear limitation on the scope of what is counted within the financial statements, avoiding expansion of the scope of audit and keeping focus of the notes on explaining the financial statements. The SAG welcomed the emphasis given to relevance of disclosure to users and stressed that decisions on requirements for disclosing information should be focused on the need for understanding financial statements instead of basing such decisions on what information is or should be audited. Finally, the SAG found that the proposal was helpful but that much more would have to be done to reduce the volume of disclosure and to increase the usefulness of the financial reporting as a whole.
For more information, please contact Veronique Mathaud (firstname.lastname@example.org).
July 2014 Global Regulatory Update
July 9, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, recovery and resolution, data requirements, accounting, disclosure, insurance, and non-bank non-insurance financial institutions as well as upcoming events.
Joint Association’s Letter on the Adoption of the LEI
July 9, 2014 — A number of industry associations, including the IIF, wrote a letter to encourage the Financial Stability Board (FSB) to promote the global adoption and use by regulators, supervisors, and standards setters of the Legal Entity Identifier (LEI). The FSB’s past statements on the need for a unique identifier have been an important catalyst for the LEI’s development. With the establishment of the Global LEI Foundation (GLEIF) and the appointment of the GLEIF Board, the associations hope the FSB will take this opportunity to communicate to its member institutions and others that it is now time for a broad and global adoption of the LEI.
IIF and IBFed papers on IRRBB and CSRBB
June 26, 2014 — The IIF and IBFed submitted two papers to the BCBS Task Force on Interest Rate Risk in the Banking Book (TFIR) – one on IRRBB and the other on CSRBB. The aim of the two papers is to build on an earlier letter and elaborate on the industry positions on possible regulatory measures for IRRBB and CSRBB, with the hope of contributing constructively to the work of the TFIR. In particular, the IRRBB paper discusses why a one-size-fits-all approach will not work for IRRBB, thus the need for a Pillar 2 approach, and recommends general principles that may be considered in designing a regulatory framework. The CSRBB paper, on the other hand, illustrates why a capital charge for CSRBB will only result in double counting of capital charges, and provides some issues to consider in designing a Pillar 2 approach.
The papers’ main messages will be raised by industry participants at the July 7th meeting with the TFIR.
IIF WGOR identifies challenges in implementing the ‘Three Lines of Defense’ model from an ORM perspective
June 24, 2014 — In March 2014, the IIF Working Group on Operational Risk (WGOR) submitted a paper to the BCBS WGOR outlining its feedback on the “Three Lines of Defense” (3LOD) model. The paper, which was discussed when the two groups met on March 5, 2014, mainly advocated for less prescriptiveness from regulators on how banks implement the model and alluded to some practical challenges.
Feedback from the BCBS WGOR indicated that it would be helpful if the IIF WGOR could identify specific practical challenges in implementing the model. Consequently, Work Stream 4 (WS4) of the IIF WGOR circulated an informal questionnaire to its members. Based on the responses received, as well as discussions and comments from the wider IIF WGOR, a second paper was developed to outline some of the identified common specific challenges. This paper will be discussed with the BCBS WGOR on June 30.
Joint Associations’ comment letter on the FSB Data Gaps Initiative’s Draft Guidelines for Phase 2 and Next Steps for Phase 3
June 17, 2014 — The Institute of International Finance (IIF), The Clearing House Association L.L.C. (TCH), and the Global Financial Markets Association (GFMA) submitted a letter to the FSB commenting on the draft Guidelines for reporting Institution-to-Institution data on funding dependencies. The joint Associations also sought clarification on the timing and sequencing of the Phase 2 templates and Phase 3 Quantitative Impact Analysis (QIA) as outlined in the FSB’s Data Gaps Initiative statement dated May 6, 2014.
June 2014 Global Regulatory Update
June 11, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, liquidity, data requirements, accounting, disclosure, insurance, and systemically important financial institutions, as well as upcoming events.
Working Group on Operational Risk assesses adequacy of existing level of operational risk capital
June 11, 2014 — The IIF Working Group on Operational Risk (WGOR) conducted a data collection exercise from December 2013 to February 2014. The exercise is aimed to assess the adequacy of existing level of operational risk capital relative to operational losses. It is also aimed to supplement recent similar studies conducted by the Operational Risk Exchange (ORX), the Italian Database for Operational Risk (DIPO) and the German Savings Banks Association (DSGV). The key findings of the exercise are:
- Viewed together with the other similar studies, the results do not indicate an insufficient level of existing capital to cover operational risk losses.
- The results of the business line analysis suggest that while there could be room for adjusting betas for some business lines, the overall calibration of operational risk capital requirement does not seem insufficient.
- The relationship between firm size and operational risk should be explored further using a more robust sample.
2014 Asia/Pacific Chief Risk Officers Forum
May 21, 2014 — The 2014 Asia Pacific Chief Risk Officer Forum, hosted by Mitsubishi UFJ Financial Group, was held in Tokyo, Japan from May 21-22.
The Chief Risk Officer Forum provides members with the opportunity to identify and discuss key risk management issues of relevance to banks in the region, analyze regional and global regulatory trends, share knowledge and expertise on risk management issues (including training opportunities) and to conduct a regional dialogue with banking regulators. In sum, we seek to facilitate members’ efforts to continue strengthening risk management capabilities and to develop pragmatic approaches to implementing new regulatory developments in the Asia Pacific region.
May 2014 Global Regulatory Update
May 8, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, liquidity, recovery and resolution, data requirements, accounting, disclosure, and insurance, as well as upcoming events.
2014 MENA Chief Risk Officer Forum
May 7, 2014 — The 2014 MENA Chief Risk Officer Forum, hosted by National Bank of Fujairah, was held May 7-8 in Dubai, UAE.
The Chief Risk Officer Forum provides members with the opportunity to identify and discuss key risk management issues of relevance to banks in the region, analyze regional and global regulatory trends, share knowledge and expertise on risk management issues (including training opportunities) and to conduct a regional dialogue with banking regulators. The program sought to facilitate members’ efforts to continue strengthening risk management capabilities and to develop pragmatic approaches to implementing new regulatory developments in the MENA region.
IIF Response to IAIS Approaches to Group Corporate Governance
April 24, 2014 — The IIF submitted our response to the IAIS Issues Paper: Approaches to Corporate Governance; Impacts on Control Functions. In summary our main views regarding the issues raised in the Issues Paper are listed as below. (1) Boards and senior management are accountable and remain responsible for a group’s approaches toward corporate governance and risk. (2) Neither centralized nor decentralized business models are more sophisticated or effective than the other. Regulation or supervisory practice should avoid establishing a preferred (and prescriptive) approach. (3) We strongly recommend that supervisors do not adopt a “one size fits all” approach. As mentioned in the Issues Paper a hybrid structure between the spectrum of pure centralization and decentralization is best suited for most groups. (4) Regulation and supervision of a group’s risk governance structure should be principle and outcome based, proportionate to the group’s business and operating model (including board and senior management, legal structure/status, applicable regulations and laws, its products, services and customer base), flexible and transparent.
Industry Comments on Revisions to Colleges of Supervisors Principles
April 22, 2014 — The IIF recently submitted on a response to the Basel Committee on Banking Supervision’s (BCBS) consultative document on “Revised good practice principles for supervisory colleges “. In summary, our letter identifies the following six key points that we believe should be addressed in the revisions to the good practice principles on supervisory colleges.
Joint Associations’ response to the two alternative approaches for market risk
April 16, 2014 — On March 10, the Basel Committee’s Trading Book Group (TBG) released for comments two proposed standardized approaches: (1) an adjusted cash flow approach (ACFA), which is a revision to the proposed standardized approach in the second Fundamental Review of the Trading Book (FRTB) consultation released last year; and (2) a sensitivity-based approach, which aligns with the industry recommendation. The joint Associations’ (ISDA/GFMA/IIF) response reiterated the industry’s support for the SBA because it leverages the existing validated risk metrics widely used by banks. The ACFA, on the other hand, is not computationally supported by existing infrastructure since cash flow data are not captured at the trade level. As a result, ACFA would require extensive resources for banks to adhere to currently proposed regulatory timelines while achieving little in terms of enhancing the risk sensitivity of output metrics.
Joint Associations’ response to the Net Stable Funding Ratio
April 11, 2014 — The IIF, the International Capital Market Association (“ICMA”), the International Swaps and Derivatives Association (“ISDA”), the Global Financial Markets Association (“GFMA”), and the Clearing House (“TCH”) submitted a joint comment letter on the Basel Committee’s consultative document on the Net Stable Funding Ratio, the long-term liquidity ratio of Basel III. The proposed NSFR is revised from the 2010 version, and shows considerable progress, with generally more appropriate treatment of retail and SME business; improved deposit criteria; and the more recognition of the monetization value of certain assets. However, the associations had important reservations about several aspects of the proposals despite endorsing the NSFR goals of promoting funding stability. Major recommendations included better recognition of linked securities funding transactions and other transactions where banks incur little or no liquidity risk; appropriate recognition of netting and collateral for derivatives; and improvement of several Required Stable Funding factors. The associations expressed concern about the likely effects of the NSFR on markets, especially those for public debt securities and equities. For more details, please refer to the joint submission document.
THE CLEARING HOUSE -- Oliver Wyman: Do Bond Spreads Show Evidence of Too Big To Fail Effects?
April 10, 2014 — A study conducted by Oliver Wyman finds clear evidence that by 2013 any funding cost differences among banks that existed in prior years have disappeared, and that any remaining differences could be due to factors other than TBTF perceptions. These findings strongly suggest that recent regulatory reforms have dramatically changed market perceptions of risk and funding costs today.
IIF Response on Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions
April 7, 2014 — IIF submitted a response letter to the FSB-IOSCO Consultative Document “Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions – Proposed High-Level Framework and Specific Methodologies” of January 8, 2014. This letter has been produced under the guidance of the IIF’s Non-Bank Non-Insurer Working Group. In offering these comments, the IIF believes it is important to reiterate the industry’s support for targeted and proportionate measures designed to strengthen regulation and thus make the global financial system more stable.
April 2014 Global Regulatory Update
April 1, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, recovery and resolution, data requirements, accounting and disclosure, insurance, and supervision, as well as upcoming events.
US and European Financial Services Trade Associations Statement on TTIP
March 25, 2014 — The undersigned financial services trade associations, based in the US and Europe, today issued the following statement in support of a Transatlantic Trade and Investment Partnership (TTIP) that includes financial services regulatory coordination, in advance of the March 26 EU-US Summit attended by US President Barack Obama, European Council President Herman Van Rompuy and European Commission President José Manuel Barroso:
Joint Associations' response to the second Consultative Document on Revisions to the Basel securitisation framework
March 24, 2014 — The Joint Associations, comprised by the IIF, Commercial Real Estate Finance Council (CREFC), the Commercial Real Estate Finance Council Europe (CREFC Europe), the Global Financial Markets Association (GFMA), the International Association of Credit Portfolio Managers (IACPM), the International Swaps and Derivatives Association, the Securitisation Forum of Japan (SFJ) and the Structured Finance Industry Group (SFIG) submitted on March 24 a comment letter on the proposals set out in the second consultative document “Revisions to the Basel Securitisation Framework” published by the Basel Committee on Banking Supervision (BCBS or Committee) on 21 December 2013 (Consultative Document or CD). The paper sets out recommendation for specific changes to certain of the modelling assumptions and parameters used in formulating and calibrating the approaches, as well as changes to the operating conditions for certain approaches and to the risk weight floor and capital cap provisions. These changes, if adopted, will serve the goals of the revisions by helping to create a simpler, more transparent framework, while better aligning securitisation risk weights with empirical data, competing products and underlying risks.
Joint Associations' response and technical recommendations on the FAQs on Basel III Leverage Ratio
March 17, 2014 — The Joint Associations, comprised by Institute of International Finance (IIF), Global Financial Markets Association (GFMA), American Bankers Association, Financial Services Roundtable, Futures Industry Association, the International Swaps and Derivatives Association, and The Clearing House, filed a response letter and technical recommendations on the FAQs on Leverage Ratio on March 17. The comment letter support the Committee’s efforts to impose a leverage ratio as a supplementary backstop measure to the risk-based measure and we appreciate this opportunity to provide feedback on the final leverage ratio framework in the form of frequently asked questions (FAQs). The Joint Associations highlight the importance for the BCBS to clarify how the rules should be interpreted at this stage especially to ensure that they are transposed correctly and consistently in national and regional implementation measures, without unintentional adverse impacts on the markets.
IIF Response to the SEC Strategic Plan
March 10, 2014 — The Institute of International Finance (IIF) submitted a response letter to the SEC in connection with its draft Strategic Plan. It is the IIF’s hope that our observations will contribute to a final plan that will ensure sound achievement of the Commission’s goals. Our general comment is that, despite the points of attention already paid to international matters in the current draft, the priority of and focus on the international dimension need to be enhanced and emphasized.
March 2014 Global Regulatory Update
March 4, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, recovery and resolution, data requirements, accounting and disclosure, and insurance, as well as upcoming events.
February 26, 2014 — The IIF SAG submitted a letter to the FSB to reiterate the IIF’s long-standing position that international accounting consistency is highly desirable. Despite the multiple efforts of the IASB and the US Financial Accounting Standards Board (FASB), they have been unsuccessful in achieving convergence of standards on issues important to the financial-services industry. Therefore, the IIF SAG believes there is now an even greater need for a strong commitment by the standard setters and other institutions involved in developing accounting requirements to avoid additional divergence whenever possible. Even if full convergence on a particular standard is not feasible at the moment, every standard–setting decision should take into account the ongoing goal of improving overall consistency over time and avoid driving further wedges between the standards if at all possible. For more information, please contact Veronique Mathaud (email@example.com).
Trade Groups Send Letter to Chairman Camp Opposing Lending Tax in Tax Reform Proposal
February 26, 2014 — Today, the American Bankers Association, the Consumer Bankers Association, the Financial Services Forum, Financial Services Roundtable, the Independent Community Bankers of America, the Institute of International Finance, the Mortgage Bankers Association, the Property Casualty Insurers Association of America, the Securities Industry and Financial Markets Association, The Clearing House Association, and the U.S. Chamber of Commerce Center for Capital Markets Competitiveness sent a letter to House Ways and Means Committee Chairman Dave Camp (R-MI) opposing the new lending tax on financial institutions included in Camp’s tax reform discussion draft.
IIF Supports FSB Commitment to Complete G20 Reform Agenda
February 25, 2014 — The Institute of International Finance today released the following statement from IIF President and CEO Tim Adams regarding Financial Stability Board Chairman Mark Carney’s letter to G20 Finance Ministers and Central Bank Governors on implementation of the G20’s global reform agenda:
“IIF reiterates its support for the core elements of the G20’s regulatory reform agenda. It welcomes the strong commitment by the FSB to completing the remaining portions of the agenda in 2014.”
“As noted in Gov. Carney’s letter to the G20, the industry has implemented many elements of the reform agenda several years ahead of the official deadline. Now, as policy makers finish the job, they need to make sure it is completed in a globally consistent way.”
IIF CBRWG: FDIC SPOE Letter - Final Draft
February 18, 2014 — The IIF submitted its comments on the FDIC’s recent Notice of its proposed single-point-of-entry strategy for the resolution of systemically important financial institutions. The IIF’s letter welcomed the FDIC’s contribution to the development of a well-understood resolution framework. As is noted in the letter, the clear affirmation of the single-point-of-entry strategy will help minimize market uncertainty before and during a Title II resolution proceeding and will strengthen the confidence of foreign authorities in the fair outcome of a US-led resolution. The US financial system, and likely global markets, will benefit from such clarity. The IIF also responded directly to many of the specific topics identified for comment in the Notice, including issues involving the possible disparate treatment of creditors, the use of the Orderly Liquidation Fund, and the importance of cross-border cooperation.
Forthcoming IFRS 9
February 14, 2014 — The IIF Senior Accounting Group (SAG) sent a letter to the International Accounting Standards Board (IASB) asking it to consider making available to interested parties, whether by posting to its website or otherwise, a draft of the forthcoming International Financial Reporting Standard, IFRS 9, Financial Instruments, in order to allow the SAG and other to comment on the near-final draft if it thinks that the final draft poses significant questions about the overall intent of the proposal. For more information, please contact Veronique Mathaud (firstname.lastname@example.org).
IIF and IBFed letter to the Basel Task Force on Interest Rate Risk in the Banking Book
February 12, 2014 — The IIF and IBFed sent a letter to the Basel Task Force on Interest Rate Risk in the Banking Book (TFIR) as a follow-up to a meeting in January. The letter discusses the messages that the industry would like the TFIR to consider as it explores policy options for interest rate risk in the banking book (IRRBB). Among others, the industry expresses support for regulatory efforts to further enhance the management and supervision as well as the understanding of IRRBB, a Pillar 2/Pillar 3 approach to IRRBB, and a prudential approach that reinforces sound risk management and appropriately adapts to the different aspects of the IRRBB.
February 2014 Global Regulatory Update
February 7, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in regulatory capital, recovery and resolution, data requirements, accounting and disclosure, supervision, and insurance, as well as upcoming events.
Industry Response to the First IAIS BCR Consultation
On February 3, 2014, IIF jointly with the Geneva Association (GA) submitted comments regarding the first IAIS Basic Capital Requirements (BCR) Consultation. This consultation was released by the IAIS on December 16, 2013 to seek feedback on the proposed options for the development of the BCR.
IIF-GFMA Response to the FSB’s Proposed Guidance on Supervisory Assessments of Risk Culture
January 31, 2014 — On Friday January 31, the IIF and the Global Financial Markets Association (GFMA) submitted joint comments to the Financial Stability Board (FSB) regarding the FSB’s consultation on Guidance on Supervisory Interaction with Financial Institutions on Risk Culture (released on November 18, 2013) and its related addendum on Questions for Public Consultation (released on December 23, 2013). The IIF and GFMA welcomed FSB’s efforts to incorporate risk culture in its supervisory assessments. The industry is in agreement that strong risk culture is essential for effective risk management. However, concerns were raised that since risk culture is primarily behavioral and still in its nascent stage, standardization of risk culture practices could hinder the overall dynamism that is required for effective risk culture practices to emerge.
Industry Response to the Second Consultative Document on the Fundamental Review of the Trading Book
January 31, 2014 — The IIF, ISDA and GFMA responded to the second consultative document on the fundamental review of the trading book (FRTB). The response reiterated the industry’s support to the general objective of strengthening the capital framework for the trading book. However, it expressed concerns about the current timeline of the FRTB and asked that it be reexamined to allow for an iterative process of policy-making combined with QIS exercises and resulting calibration and recalibration, as well as to allow firms sufficient time to implement the necessary changes in systems and processes. From a technical perspective, the proposed standardized approach and the liquidity horizon component of the IMA were identified to pose the most concern for the industry, followed by the proposed treatment of credit and the model-independent approval process. Issues regarding the trading book/banking book boundary, disclosures, floors, treatment of securitizations and CVA were also raised.
Follow-up letter to the Basel Working Group on SIB Supervision on the issue of Risk Data Aggregation
January 31, 2014 — Further to its November 11, 2013 letter, the IIF sent a follow-up letter to the Basel Working Group on SIB Supervision (WGSS). The follow-up letter reflects on the question of which underlying requirements were most “essential” for the accomplishment of the BCBS Principles for Effective Risk Data Aggregation and Risk Reporting. This was in response to observation by the WGSS that responses to the Basel survey were not as complete as hoped on the question of what is “essential.”
Preliminary IIF Comments to the Basel Committee Working Group on Disclosure
January 17, 2014 — The IIF Disclosure Working Group, now chaired by Alex Brougham of UBS, submitted a letter to the Basel Committee Working Group on Disclosure on January 17, 2014 responding to questions about ways to revise Pillar 3 (Market Discipline) of the Basel Accord, raised by the Basel Working Group in outreach meetings in late 2013. The letter makes extensive suggestions on structure, format, and content to revise Pillar 3 in ways that will be most efficient and least duplicative of other disclosures, for benefit of issuers and users of disclosures alike. The DWG expects to continue the dialogue with the corresponding Basel group during 2015 in connection with publication of a formal consultation paper by the Basel Committee.
IIF SAG Comments on IASB Discussion Paper - A Review of the Conceptual Framework for Financial Reporting (July 2013)
January 15, 2014 — The IIF Senior Accounting Group (SAG) commented on the International Accounting Standards Board (IASB) Discussion Paper – A Review of the Conceptual Framework for Financial Reporting (July 2013). The SAG recognizes the importance for the IASB of having a robust and cohesive conceptual framework. The letter urges the Board to clarify the purposes of the Conceptual Framework, and to strike an appropriate balance by acknowledging the primacy of decisions taken at the standards level. The letter urges that concepts that should not be reopened through the conceptual framework that have been debated recently, especially on projects that were halted because current standards were found to work well or there was no consensus on proposed new concepts. Finally the letter highlights the need to define the concept of financial performance in order to maintain the role of profit or loss reporting and to make Other Comprehensive Income more transparent and comprehensible for users. Given the debate on the prior omission of the concept of “prudence” from standards, the letter takes the view that neutrality without bias to conservatism or otherwise should be understood to be the driver of accounting, regardless of whether standards include the specific word “prudence”.
January 2014 Global Regulatory Update
January 7, 2014 — This month’s IIF Global Regulatory Update provides updates on current work streams in recovery and resolution, data requirements, accounting, regulatory capital, and insurance, as well as upcoming events.
Industry Response to the Third IAIS ComFrame Consultation
December 16, 2013 — The IIF submitted its comments on the third draft of Common Framework (ComFrame) for the Supervision of Internationally Active Insurance Groups (IAIGs) issued by the IAIS for public consultation on October 17, 2013.
Working Group on Capital Adequacy Holds Call with BCBS RCAP WG
December 16, 2013 — The IIF Working Group on Capital Adequacy (WGCA) held a conference call with the BCBS RCAP WG on retail and SME credit risk models. This summary includes the main messages in the call, the BCBS initial response, and next steps. The IIF WGCA will follow up on the proposals made to the RCAP WG, most likely in the first week of 2014. For any comments or questions, please contact Barbara Frohn (email@example.com).
December 2013 Global Regulatory Update
December 3, 2013 — This month’s IIF Global Regulatory Update provides updates on current work streams in recovery and resolution, shadow banking, liquidity, accounting, regulatory capital, and insurance, as well as upcoming events.
GFMA-IIF Joint Letter on Securities Lending and Repo
November 28, 2013 — The Global Financial Markets Association (GFMA) and the IIF jointly submitted a response to the Financial Stability Board’s consultation paper titled Annex 2: Proposed Regulatory Framework for Haircuts on Non-Centrally Cleared Securities Financing Transactions (issued in August 2013). The consultation, which was a subsection of the FSB’s Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos proposes a haircut framework. The framework comprises of: minimum qualitative standards for methodologies used by market participants to calculate haircuts; and numerical haircut floors that will apply to non-centrally cleared securities financing transactions in which “Unregulated Entities” receive financing from regulated financial intermediaries against collateral other than government securities.
Second IIF Asia Pacific CRO Forum for 2013
November 19, 2013 — The second IIF Asia Pacific Chief Risk Officer Forum of the year, hosted by BNP Paribas, was held in Hong Kong on November 18 and 19. The forum brought together risk officers from the Asia Pacific region to exchange ideas and valuable insights on issues related to risk management. The forum discussions included changes in risk management, enhanced disclosures, impacts of liquidity regulation, global and regional economic outlook, the current regulatory reform agenda, and implications of the current regulatory reforms and macroeconomic changes within the Asian context.
IIF SAG Comments on IFRS 9 Effective Date
November 13, 2013 — The IIF Senior Accounting Group (SAG) asked the International Accounting Standard Board (IASB) to consider providing a mandatory effective date of IFRS 9, Financial Instruments not less than three years after the date of issuance of the final version of IFRS 9. A similar request applies to Financial Accounting Standard Board (FASB) – Financial Instruments – Credit Losses (subtopic 825-15) and Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10) – (ASU).
November 2013 Global Regulatory Update
November 6, 2013 — This month’s IIF Global Regulatory Update provides updates on current work streams in insurance, GSIB data requirements, recovery, resolution, regulatory capital, liquidity, and governance, as well as upcoming events.
IIF Responds to FSB Proposal on Assessment Methodology
October 31, 2013 — The IIF submitted a comment letter on October 31 in response to the Financial Stability Board’s consultative document on the methodology for assessing compliance with the Key Attributes of Effective Resolution for Financial Institutions, issued on August 28, 2013. The letter expressed the IIF’s broad support for creating a uniform set of standards to be used in determining a jurisdiction’s compliance with the Key Attributes, but it strongly suggested as well that the methodology not broaden the substance of the Key Attributes and not be cited as authority for interpretations expanding or modifying the Key Attributes. In addition, the letter raised a number of observations specific to the text of the document, including points related to sector-specific matters, information sharing among jurisdictions, contractual cross-border recognition clauses, and the protection of client assets.
Joint Association letter to the FSB on Phases 2 and 3 of the Common Data Template for G-SIBs
October 21, 2013 — The Institute of International Finance (IIF), the Global Financial Markets Association (GFMA), The Clearing House Association L.L.C. (TCH), and the Federation of Finnish Financial Services (FFI) (together, “the Associations”) submitted a letter to the FSB Data Requirements Workstream (DRW) as a follow-up to the October 2-3 workshop on Phases 2 and 3 of the FSB Common Data Template (CDT) for G-SIBs. The letter provide comments and feedback on both the CDT approach and process and the technical details of the templates, which amplify or add to the comments made at the workshop. The letter starts with a reiteration of the major themes the industry raised at the workshop, followed by detailed discussions of our comments on the Phases 2 and 3 templates.
IIF Responds to FSB Proposal on Non-Bank Resolution
October 17, 2013 — The IIF submitted three comment letters on October 15 in response to the Financial Stability Board’s consultative document on the application of the Key Attributes of Effective Resolution Regimes to non-bank financial institutions. Responding to Appendix I, on the resolution of financial market infrastructures (FMI) and systemically important FMI participants, the IIF joined with the International Swaps and Derivatives Associations (ISDA), The Clearing House, and the Global Financial Markets Association (GFMA) in addressing key factors that arise in FMI resolution, such as the need for transparency and certainty and the importance of respecting the waterfall procedures and the arrangements of the FMI with its participants. The IIF also provided comments on Appendix II, on the resolution of insurers, noting that the recovery and resolution framework should be tailored to the characteristics of the industry, the specific risk profile of insurers and the limited circumstances in which systemic risk can be originated by insurers. Finally, in response to Appendix III, on client asset protection in resolution, the IIF recommended that any changes to the client-protection framework be done in a way that minimizes the potential adverse effects on competitions and that allows firms to offer appropriate financial services to their clients.
IIF Responds to FSB Proposal on Information Sharing
October 17, 2013 — The IIF submitted a comment letter on October 15 in response to the Financial Stability Board’s consultative document on information sharing for resolution purposes. The IIF welcomed the efforts by the FSB to design a system for exchanging information across borders, noting that information sharing will be essential for making cross-border bank resolution work. As suggested in the letter, the FSB should work to ensure consistency in standards and to find an appropriate balance between providing sufficient information and protecting the confidentiality of that information. The letter also noted the importance of the G20 staying engaged and committed in this field, since the confidentiality issues involved in this area are such that they may require that further legislation be adopted.
Associations Submit Response to CPSS-IOSCO on FMI Recovery
October 17, 2013 — On October 11, the IIF, the International Swaps and Derivatives Association, and The Clearing House submitted a joint letter to the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in response to the consultative report on recovery of financial market infrastructures (FMIs). The letter focused on the recovery mechanisms for central counterparties (CCPs). It noted that the overall recovery framework should consider a CCP’s default management process, be clearly defined and well understood by all clearing participants, and contain sufficient flexibility to ensure voluntary mechanisms are available prior to the application of mandatory tools. With respect to the tools that could be applied at the end of the CCP default waterfall, it suggested that assessment powers and variation margin gains haircutting are the most effect mechanisms to allocate losses related to a participant default.
IIF-GFMA Joint Comment Letter on Liquidity Coverage Ratio (LCR) Disclosure Standards
October 14, 2013 — On October 14, the IIF and GFMA submitted comments on the Basel Committee’s consultative document on Liquidity Coverage Ratio Disclosure Standards, issued on July 19, 2013. The proposed disclosure standards are intended to improve transparency of regulatory liquidity requirements, enhance market discipline, and educate market participants as the LCR is implemented. The comment letter notes with appreciation that the Basel Committee has made efforts to deal with the unique nature of liquidity disclosure. But it points out certain areas where improvements could made, in particular, questioning the requirement to disclose data based on averages of daily observations. Essentially, while daily data is available and prepared from time to time for supervisory observation and analysis, it is usually not in a form that can readily meet internal and regulatory standards for public disclosure. Furthermore, the comment letter notes that it would be beneficial to consider phasing in public liquidity disclosure, to allow enough time for supervisors, as well as the industry, to get more comfortable with the nature of disclosures that would be made and how they may be understood by the public.
IIF to Engage in Constructive Dialogue with IAIS on Plans for a Global Insurance Capital Standard
October 13, 2013 — IIF today released a statement ahead of the International Association of Insurance Supervisors’ Annual conference, after the IAIS announced they would develop a global insurance capital standard by 2016.
IIF and ISDA respond to Basel Committee consultation on Balancing Risk Sensitivity, Simplicity and Comparability
October 11, 2013 — The IIF, together with ISDA, submitted a joint response to the BCBS consultative document Balancing Risk Sensitivity, Simplicity and Comparability. The associations commend the Basel Committee for providing the opportunity to discuss various alternatives to improve the current capital framework before concrete proposals are on the table. The associations dispute that the Leverage Ratio represents a simple and comparable standard, point out some repercussions of using standardized floors, and propose ways to improve the capital standards without undue loss of risk sensitivity as this could lead to misallocation of capital and mispricing. The associations recommend enhanced disclosure, benchmarks based on internal model data, and a focused review on how internal models could be changed to achieve a higher degree of convergence and harmonization, as possible ways forward.
IIF Submission to IASB and FASB on Securitized Assets
October 10, 2013 — The IIF Senior Accounting Group sent a letter to the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to ask them to consider modifying and clarifying the existing language in their guidance for classifying securitizations for financial reporting purposes (amortized cost, fair value through Other Comprehensive Income, or fair value through the income statement), assessing the Solely Payment of Principal and Interest (SPPI) characteristics of securitized assets, which is one of the tests for amortized cost classification. The letter does not suggest changing the securitized assets classification requirement set out in IFRS 9 Financial Instruments: Classification and Measurement, but aims to ensure that the look-through requirements can be applied in a pragmatic and workable manner. Some wording to that effect was proposed to be added in the application guidance of the eventual standard.
IIF releases staff note on promoting sound risk culture
October 10, 2013 — IIF staff have released an issues paper on promoting sound risk culture. The paper builds on the observations made by participants to a symposium on supervision and risk culture that the IIF held in July 2013.
The paper has three sections.
IIF and BAFT-IFSA submits Clarification Questions on Monitoring Tools for Intraday Liquidity Management
October 9, 2013 — On October 9, the Institute of International Finance, jointly with BAFT-IFSA (the Bankers’ Association for Finance and Trade (BAFT) and the International Financial Services Association (IFSA)) submitted a set of clarification questions regarding the Monitoring Tools for Intraday Liquidity Management, which was finalized by the Basel Committee and the Committee on Payment and Settlement Systems (CPSS) in April of this year. As banks prepare for implementation of the monitoring tools, it has been realized that some challenges arising primarily from the possibility of varying interpretations of the monitoring tools, could lead to inconsistent application of the tools. The clarification questions identifies areas where clarification or interpretive guidance by the Basel Committee and CPSS will be useful in ensuring a more efficient and effective application of the tools to adequately measure intraday liquidity.
IIF and other associations respond to Basel Committee consultation on Capital Requirements for Banks’ Equity Investments in Funds
October 4, 2013 — The IIF, together with the Global Financial Markets Association and International Banking Federation have responded to a Basel Committee consultation on Capital Requirements for Banks’ Equity Investments in Funds.
The response welcomes the decision to develop a revised capital regime and supports the BCBS’s decision to look at all types of funds. It suggests though that to be truly effective and beneficial, any approach adopted should: balance the need for a coherent framework for all types of funds with the need for sufficient differentiation between specific types of funds; incentivize financial institutions to collect sufficient information on the underlying funds; be coordinated with and avoid overlaps with requirements in existing regulation and with other regulatory initiatives; consider the impact on end-users of financial services and the wider economy; and above all, be targeted and proportionate to the risks.
October 2013 Global Regulatory Update
October 1, 2013 — This month’s IIF Global Regulatory Update provides updates on current work streams.
IIF Submits Comment Letter on FSB’s Principles for An Effective Risk Appetite Framework
September 30, 2013 — The Institute submitted a comment letter on September 30, in response to the Financial Stability Board’s consultative document on developing Principles for Effective Risk Appetite Frameworks (RAF) for banks. The Principles are, in certain areas, broadly aligned with the IIF’s thinking, reflected in the reports Implementing Robust Risk Appetite Frameworks to Strengthen Financial Institutions (2011) and Governance for Strengthened Risk Management. The IIF supports the need to foster strong risk culture, to develop top-down and bottom-up processes in setting up RAFs, and to effectively communicate risk appetite throughout a firm as the Principles advocate. However, the comment letter outlined a few areas for clarification and emphasis, such as the iterative nature of the RAF process and its alignment with the business planning process. The comment letter also raised concerns about the extensive role that has now been assigned to the internal audit in the RAF process.
Joint associations respond to the BCBS NIMM proposal
September 27, 2013 — The IIF, ISDA, and GFMA submitted a joint response to the BCBS consultative document The non-internal-model method for capitalizing counterparty credit risk exposures (the NIMM). The associations welcome the consultative document as a significant step in the right direction in addressing many of the long-standing concerns regarding the Current Exposure Method (CEM). As an alternative to CEM, it is clear that NIMM has the potential to perform better as a measure of exposure. However, there are certain products and circumstances where the associations are concerned that NIMM does not appropriately recognize the reality of some collateral and netting arrangements thus resulting in disproportionately high levels of exposure. The joint response provides details of the specific concerns and suggestions on how these could be addressed.
Joint associations respond to the BCBS proposal on the capital treatment of bank exposures to central counterparties
September 27, 2013 — The IIF, ISDA, and GFMA submitted a joint response to the BCBS consultative document Capital treatment of bank exposures to central counterparties. The associations commend the BCBS for conducting another consultation on this issue, and consider the consultation as a significant progress in developing an appropriate capital framework for cleared derivatives. However, based on initial analysis, the associations are concerned that the proposal may be inconsistent with the G20 objectives of promoting central clearing, does not provide incentives for central counterparties to invest in the improvement of their risk systems and methodologies, and discourages fundamental CCP risk practices, notably the contribution of default fund. The joint response provides some examples to illustrate these points.
IIF Comment Letter on Disclosure of Uncertainties about an Entity’s Going Concern Presumption
September 24, 2013 — The IIF Senior Accounting Group (SAG) sent a comment letter on September 24, 2013 to the Financial Accounting Standard Board (FASB) and the International Accounting Standard Board (IASB) on the FASB exposure draft on Presentation of Financial Statements (Topic 205) Disclosure of Uncertainties about an Entity’s Going Concern Presumption. The IIF SAG urged the FASB and the IASB to issue convergent disclosure requirements on going-concern issues. This exposure draft is the result of a request from the International Auditing and Assurance Standards Board (IAASB) to the FASB to specify new requirements for disclosure of going-concern presumptions. The IAASB also asked the IASB to improve its standard on going-concern disclosure. These initiatives reflect complaints that investors did not understand “going concern” opinions that had been given on firms that had difficulties during the crisis.
IIF’s Kevin Nixon in Markit Magazine on Leverage Ratio
In a commentary piece in Markit Magazine, IIF Managing Director Kevin Nixon discusses the use of a leverage ratio as a backstop component of a global capital regulatory framework, while focusing on the importance of ensuring capital regulation continues to utilize risk-weighting of assets. “A leverage ratio does not, in fact, cannot by definition, take into account the riskiness of the asset base,” Nixon wrote.
Joint Trades Basel Supplemental Leverage Ratio Comment Letter
September 20, 2013 — The IIF, ISDA, and AFME submitted a joint letter to the BCBS responding to the consultative document on the Revised Basel III Leverage Ratio Framework and Disclosure Requirements. In summary, the letter reiterated industry support for a backstop measure to the risk based framework in the form of a leverage ratio while stressing that the newly proposed definition increases the denominator of the leverage ratio up to the point of overstating economic exposure and making it into the binding capital measure for many banks. In the view of the industry such an outcome could create perverse incentives including, but not limited to, the holding of riskier assets. The letter recommends that exposure measures are amended to recognize the exposure reducing effects of cash collateral and netting, and recommends further to recalibrate Credit Conversion Factors for other off balance sheet assets, and to excluding certain transaction types.
IIF Comment Letter to the FASB and the IASB on Leases
September 13, 2013 — On September 13, 2013, The IIF Senior Accounting Group (SAG) commented on the joint FASB-IASB Exposure Draft ED/2013/6, Leases (May 2013). Under the proposed standards, a lessee is deemed to have acquired use of the underlying asset, and it pays for that right with a lease payment. An asset for its right to use the underlying asset (a right-of-use asset (RoU)), and a liability to pay rent would be recognized in the balance sheet. The IIF SAG does not support the proposals for two main reasons. First, it is convinced that the required efforts would be disproportionate compared to any real benefits for users. Users appear to oppose the proposals. Second, the treatment of the RoU for regulatory purposes is unknown. Regulators might either consider RoU assets or lease liabilities on a net basis which would maintain the current depiction of the economic substance and risk profile of operating leases or consider only the RoU asset as an asset, which would greatly affect the calculation of risk-weighted assets, especially if RoU assets are treated as intangibles. The IIF SAG believes that current lease accounting is well understood and it would be more cost effective to meet users’ needs by improving the disclosure on a consistent basis for both IFRS and U.S. GAAP.
September 2013 Global Regulatory Update
September 3, 2013 — This month’s IIF Global Regulatory Update provides updates on current work streams.
IIF comments to the IAIS consultation on Supervision of Cross-Border Operations Through Branches
August 15, 2013 — On August 15, 2012 the IIF submitted a letter providing comments on the IAIS draft issues paper on “Supervision of Cross-Border Operations Through Branches”. The Issues Paper provides an overview of current practices and challenges in supervising branches. In its comments, the IIF highlighted that the document still features an underlying bias against branches rather than being neutral, balanced and based on factual, empirical research. There are a number of important aspects related to branches that are not yet sufficiently considered in the consultation document. As an example, a branch structure allows for larger and better-diversified parent balance sheet. Further, the paper should note that a branch is subject to the same governance structure as its parent, creating the need for a close collaboration between the host and home supervisors and also the opportunity for more effective supervision through such collaboration. The IIF suggests that the IAIS should extend its empirical research and literature review in a balanced way before drawing any conclusions about the branch structure as opposed to other forms of legal entities.
IIF Comments on Substituted Compliance elements of SEC Rule Proposal on Cross-Border Security-Based Swap Activities
August 9, 2013 — The IIF has submitted a comment letter in response to a US Securities and Exchange Commission (SEC) Rule Proposal on Cross-Border Security-Based Swap Activities.
The IIF’s response strongly supports the underlying concept and broad outlines of the substituted compliance elements of the rule proposal (situations in which the SEC would consider permitting compliance with comparable regulatory requirements in a foreign jurisdiction to substitute for compliance with SEC regulatory requirements) and commends the SEC for its considered and balanced approach. The IIF points out that if adopted, this approach would be beneficial for financial stability in the United States and more widely, beneficial for end-users, financial market participants and institutions.
August 2013 Global Regulatory Update
August 6, 2013 — This month’s IIF Global Regulatory Update provides updates on current work streams.
Culture has moved to center stage as financial services firms continue to revamp risk management functions
July 30, 2013 — Five years after the global financial crisis, leading financial services firms have continued to take major steps to remake their risk governance frameworks and have made substantial progress in implementing risk-management changes, according to “Remaking financial services: risk management five years after the crisis,” a new report by EY in conjunction with the IIF. Among the key findings, a renewed emphasis on risk culture has moved to the top of the list as a chief focus for boards and senior management. A recording of EY’s webcast discussing the report is now available.
IIF Holds Third High-Level Symposium on Effective Supervision
July 22, 2013 — The IIF recently organized and hosted a Third High-Level Symposium on Effective Supervision at the Federal Reserve Bank of New York on July 15-16 and with an opening dinner hosted by Citigroup. The symposium followed earlier ones held in Toronto in 2011 and Madrid in 2012. It was attended by roughly 60 senior regulators, supervisors and industry leaders from around the world.
Leading Insurers Support FSB and IAIS's Objective to Preserve Resilience of Global Financial System, Emphasize Stabilizing Role of Insurance Industry
July 18, 2013 — The IIF supports the work of policymakers to contain systemic risk and foster stability of the global financial system. As (re-)insurers provide important benefits to the economy as shock absorbers and long-term investors, any policy measures for designated systemic firms need to be targeted to their business model and ensure a level playing field. The IIF and its insurance members have acknowledged the releases by the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS) announcing a list of nine Global Systemically Important Insurers (G-SIIs) as well as a policy framework to address systemic risk in insurance.
July 2013 Global Regulatory Update
July 3, 2013 — This month’s IIF Global Regulatory Update provides updates on current work streams.
IASB Comment Letter on Financial Instruments – Expected Credit Losses
July 3, 2013 — On July 3, 2013, the IIF’s Senior Accounting Group (SAG) submitted a comment letter to the International Accounting Standards Board (IASB) on its Exposure Draft- Financial Instruments- Expected Credit Losses (ED/2013/3) (the ED). The SAG, further to its response to the Financial Accounting Standards Board (FASB) on May 31, 2013 continued its analysis of both proposals. The Group believed that a two-stage approach, differentiating the measurement for the good book, is appropriate for impairment but acknowledged the difficulties to define the boundary between the two stages. The SAG urged the IASB to articulate better the list of indicators that could be used to assess the “significant credit deterioration” and to clarify the ability to use all available information to transfer from one stage to another. Finally, the Group reiterated that convergence on this topic remains a priority.
First Latam CRO Forum for 2013
July 2, 2013 — The IIF LATAM Chief Risk Officer Forum took place in Miami on June 13-14. The Forum brought together risk officers in the Latin America region to discuss topics that pertain to risk management in a changing global financial regulatory environment. The forum fostered discussions on the current progress in risk, credit and liquidity management practices across banks in various regions, and the potential impact of current global regulatory developments, including Basel III, for Latin American banks. The presentations can be found to the right of this posting, and are accessible by members.
Joint IIF/IBFed Response to the BCBS Large Exposures Proposals
June 28, 2013 — The IIF and IBFed submitted a letter to the BCBS in response to the consultative document on the Supervisory Framework for Measuring and Controlling Large Exposures. In summary, the letter supported the BCBS’s efforts to harmonize large exposures rules across jurisdictions. The letter recommended that this can be done most effectively if (1) the objective of the LE rule is focused only on capturing the likely loss that would arise from a single large counterparty default; (2) the proposed changes are not viewed in silos but instead are viewed holistically in order to devise a properly calibrated and relatively simple framework; (3) the use of approaches that do not contribute to effective risk management yet do significantly restrict bank activity are avoided, or at least limited; and (4) the LE rule does not duplicate existing regulations in an effort to address issues best dealt with by other regulations, in particular issues related to G-SIBs.
IIF Response to BCBS Consultation on Recognizing Cost of Credit Protection Purchased
June 21, 2013 — The BCBS issued proposals in March that would require banks to recognize the cost of credit protection purchased that have not yet been recognized in earnings as an exposure amount subject to 1250% risk weight. The aim of the proposals is to prevent arbitrage transactions that provide immediate capital relief but without upfront recognition of the cost of the transactions. The IIF response to the proposals underscores the industry concern that the proposed rule could lead to unintended consequences. It could unnecessarily penalize a large number of transactions that are truly intended to mitigate unexpected losses, and will further burden securitization. It could also add further complexity to the risk-based capital framework. Moreover, the significant flexibility given to national regulators in implementing the proposed rule is also a concern because it could lead to level playing field issues. This is inconsistent with the goal of the BCBS to narrow divergences in RWA calculation across banks and jurisdictions.
IIF Weekly Wrap - June 20, 2013
Kevin Nixon, IIF Managing Director for Regulatory Affairs, presents the IIF’s report on Promoting Greater International Regulatory Consistency, outlining the report’s sixteen specific recommendations for action in policy development, implementation, and cross-border supervision, and general recommendations on the role of the FSB.
June 2013 Global Regulatory Update
June 5, 2013 — This month’s IIF Global Regulatory Update features a recently released report on International Consistency, reviews recent CRO fora, and provides updates on current work streams.
IIF Calls For Renewed Efforts To Promote Greater International Regulatory Consistency
June 5, 2013 — The Institute of International Finance today released a report encouraging national and global policymakers to promote greater consistency between national regulations. The report reviews current consistency efforts underway and contains sixteen specific recommendations for action. The report, Promoting Greater International Regulatory Consistency, responds to mounting concern in both the financial services industry and regulatory community that the determination to achieve global cooperation and coordination is waning, with jurisdictions tempted towards exceptions and purely national approaches—despite considerable efforts since the financial crisis to agree on and implement international standards.
FASB Comment Letter on Financial instruments – Credit losses
May 31, 2013 — On May 31, 2013, the IIF’s Senior Accounting Group (SAG) submitted a comment letter to the U.S. Financial Accounting Standards Board (FASB) on its Exposure Draft-Financial Instruments- Credit Losses (subtopic 825-15) (the ED). The SAG reiterated that convergence on the critical point of impairment remains a priority for the group, recognizing the issues the two Boards face in coming to a common conclusion. It has become apparent that both the IASB and the FASB proposals are troubling to the industry because neither of the proposals entirely reflects current risk management or the economic view of risk and its translation into allowances. Although the Group was unable to state a consensus approach, the SAG defined high level principles for provisioning and gave some elements of commonality the group agree on. The group will continue its discussion in answering the IASB proposal.
First IIF MENA CRO Forum for 2013
May 31, 2013 — The IIF MENA Chief Risk Officer Forum took place on May 14 and 15 in Dubai, UAE. The Forum brought together risk officers in the MENA region to discuss topics that pertain to risk management in a changing global financial regulatory environment. The forum fostered discussions on the current progress in risk management practices across banks in various regions, macroeconomic trends in some economies in the region, and the potential impact of current global regulatory reforms on risk management for MENA banks. The presentations can be found to the right of this posting, and are accessible by members.
FASB Comment Letter on Financial instruments - Classification and measurement
May 15, 2013 — On May 15, 2013, the IIF’s Senior Accounting Group (SAG) submitted a comment letter to the U.S. Financial Accounting Standards Board (FASB) on its Exposure Draft-Financial Instruments- Overall (subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities (the ED). The SAG concluded that the ED would constitute an important step forward toward convergence of accounting standards, depending on the final outcome of the proposals. Following the parallel comment letter on the same topic to the IASB, the SAG urged the Board to clarify and improve the treatment of the attributes of financial assets that would be allowed to be measured at Amortized Cost or at Fair Value through Other Comprehensive Income, and the business-model requirements of the proposal. The letter stressed that modifications were needed to ensure that the requirements would be operational, reflect a firm’s actual business models, and result in decision-useful information for investors. The group also asked the Boards to analyze the costs and benefits of the “solely payment of principal and interest” (SPPI) test compared to the existing bifurcation criteria and to consider going back to the bifurcation criteria if the SPPI test cannot be clarified and made operational in a satisfactory way.
First IIF Asia Pacific CRO Forum for 2013
May 23, 2013 — On May 6-7, the IIF held the first Asia-Pacific Chief Risk Officers Forum for 2013 in Kuala Lumpur, Malaysia, hosted by Maybank. The Forum brought together risk officers in the Asia-Pacific region to discuss topics that pertain to risk management in a changing global financial regulatory environment. The forum fostered discussions on the current progress in risk management practices across banks in various regions, macroeconomic trends in some economies in the region, and the potential impact of current global regulatory reforms on risk management for Asia-Pacific banks. The presentations featured topics on proposed regulations on the OTC derivatives market , risk governance and risk culture in the Asian context, operational risk management, stress testing for natural disasters, and SME credit risk framework. The presentations can be found to the right of this posting, and are accessible by members.
April 2013 Global Regulatory Update
May 6, 2013 — This month’s IIF Global Regulatory Update features updates on current work streams, reviews recent meetings, and discusses new projects.
IIF Submission of FBO Comment Letter
April 30, 2013 — The IIF recently submitted comments on the Federal Reserve’s proposed rule for enhanced supervision and early remediation requirements for foreign banking organizations. In the letter, the IIF expressed its concerns with the proposed rule as it relates to the development of sound and consistent global financial regulation. In particular, the implementation of the proposed rule would likely a trigger a domino effect toward regulatory fragmentation and balkanization of global finance, which would have significant implications for global financial stability and the global economy. The IIF recommends that the Board revisit the proposed rule and adapt it so that it more closely aligned with the G20’s global commitments to enhanced global supervision and consistent, coordinated cross-border resolution.
IIF Weekly Wrap - April 26, 2013
Kevin Nixon, IIF Managing Director for Regulatory Affairs, discusses the increasing trend towards fragmentation—a concern raised in the IIF’s recent policy letter to the G-20 on “The Risk of Fragmentation in a Global Economy”—and the costs of layering of redundant regulations, recommending the IIF co-signed letter on “Margin Requirements for Non-Centrally Cleared Derivatives.” Kevin also previews the IIF’s upcoming report on “Promoting Greater International Regulatory Consistency,” to be released in the coming weeks, and invites members to participate in the work of the IIF’s regulatory committees and working groups.
Joint Associations’ Letter on Margin Requirements for Non-Centrally Cleared Derivatives
April 12, 2013 — The IIF, ISDA, AFME, and SIFMA submitted a letter to the BCBS, IOSCO, FSB, CPSS and CGFS reiterating industry concerns on the proposed margin requirements for non-centrally cleared derivatives. It reformulates the arguments already presented in our earlier letters on the issue, but also explicitly asked for the withdrawal or suspension of any IM requirements until their consequences have been fully analyzed and clarified.
IIF Responds to IASB Classification and Measurement Draft
April 3, 2013 — On April 3, 2013, the IIF’s Senior Accounting Group (SAG) submitted a comment letter to the International Accounting Standards Board (IASB) on its Exposure Draft 2012/4 Financial Instruments: Classification and Measurement; Limited Amendments to IFRS (the ED). The SAG concluded that the ED would resolve important issues on the boundary between instruments to be carried at Amortized Cost and as opposed to Fair Value through Profit and Loss that have arisen under the existing IFRS 9. It would also constitute an important step forward toward convergence of accounting standards, depending on the final outcome of the IASB’s proposal and a parallel proposal of the US Financial Accounting Standards Board (on which the SAG will comment in a few weeks).
March 2013 Global Regulatory Update
April 2, 2013 — This month’s IIF Global Regulatory Update features updates on current work streams and highlights upcoming events.
IIF responds to IOSCO on Client Asset Protection
March 25, 2013 — The IIF recently submitted comments in response to the IOSCO consultative report, Recommendations Regarding the Protection of Client Assets. In its comments, the IIF made clear the industry shares the concern of IOSCO for the protection of client assets and stressed the importance of supervision of intermediaries holding client assets. The IIF also noted that the responsibility for client asset protection should be shared among intermediaries, governments and clients and that there should be a balance between strengthening the protection of client assets and allowing intermediaries to develop innovative and safe means for handling client assets. Finally, the IIF recommended that IOSCO continue to consult with the industry as it pursues work on some of the areas of client asset protection not covered in the report.
IIF responds to the BCBS-IOSCO second consultation on Margin Requirements for Non-Centrally Cleared Derivatives
March 15, 2013 — The IIF sent a letter to BCBS and IOSCO in response to their second consultative document on Margin Requirements for Non-Centrally Cleared Derivatives. The letter reiterated views expressed in previous IIF letters on the topic, and expressed appreciation of the important steps taken by the BCBS and IOSCO in addressing possible liquidity impact of the proposed rules. However, additional revisions are needed to address the potential liquidity impact, to clarify the practical implementation issues of the proposed rules, and to ensure that the rules will result in a level playing field.
IIF responds to the BCBS consultation on Revisions to the Basel Securitization Framework
March 15, 2013 — The IIF sent a letter to BCBS in response to its consultative document on Revisions to the Basel Securitization Framework. The letter expressed the view that revisions to the securitization framework should reflect in a reasonable way the actual risk of the transactions. In addition, the letter noted that while it is important to address the shortcomings of the current Basel securitization framework, this should be done within the context of the structural progress market participants in securitization have made since the crisis, as well as other bodies of regulations that have made the financial system safer.
February 2013 Global Regulatory Update
March 4, 2013 — This month’s IIF Global Regulatory Update features updates on current work streams and highlights upcoming events.
IIF and IBFed letter to the BCBS Large Exposures Group
February 5, 2013 — The IIF and IBFed led industry participants in a meeting with the BCBS Large Exposures Group (LEG) on January 15 in Basel. The purpose of the meeting was to discuss industry practices in managing single-name concentration risk. The discussions at the meeting would serve as input to the LEG’s work on developing harmonized standards for large exposures rules across jurisdictions. As a follow-up step to the meeting, the IIF and IBFed wrote a letter to the LEG outlining the key messages that the industry would like the LEG to consider in developing the standards.
January 2013 Global Regulatory Update
January 31, 2013 — This month’s IIF Global Regulatory Update reviews recent IIF regulatory events as well as comment letters on derivatives, hedge accounting, shadow banking, and other current issues.
IIF provides input to the IASB Survey on disclosure
January 16, 2013 — The SAG answered an IASB survey on disclosure concepts intended to prepare for a “discussion forum” on Disclosures in Financial Reporting, stressing that the IASB should take a broad conceptual approach, focused on what disclosures are likely to look like five years hence, and highlighting the following points:
- A clear and coherent roadmap to assist users to understand annual reports should be defined;
- Standard setters should work with regulators and users to define and limit the purposes of annual reports;
- While accounting, prudential, and securities disclosures may remain siloed, each body of requirements should be defined with reference to and in awareness of the others;
- Impairment, classification and measurement, and leasing remain critical to investors in financial firms and to regulation; divergences should be minimized;
- Requiring additional disclosures is not the solution for reconciling any divergence that occurs between the major accounting standards;
- Specific, mandatory requirements should be minimized to encourage appropriate exercise of judgment and reflection of management’s view of the firm.
IIF Responds to FSB on Shadow Banking
January 11, 2013 — The IIF has sent a comment letter to the Financial Stability Board (FSB) responding to three consultative documents on shadow banking: “Strengthening Oversight and Regulation of Shadow Banking: An Integrated Overview of Policy Recommendations”, “Strengthening Oversight and Regulation of Shadow Banking: A Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities” and “Strengthening Oversight and Regulation of Shadow Banking: A Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos”.