Regulatory Interventions in the Banking Space: October 17 – 23, 2017
…a compilation of most recent banking regulatory developments from around the world.
October 23, 2017:
1. United States: Federal Deposit Insurance Corporation, the Federal Reserve System, and the Office of the Comptroller of the Currency – Liquidity Coverage Ratio: Frequently Asked Questions
The Federal Deposit Insurance Corporation, the Federal Reserve System, and the Office of the Comptroller of the Currency (collectively, the agencies) issued a FAQ document to address questions received by the agencies regarding the applicability of the liquidity coverage ratio (LCR) rule in specific situations.
Applicable to depository institutions with $10 billion or more in total consolidated assets that are consolidated subsidiaries of internationally active banking organizations, the LCR rule implements a quantitative liquidity requirement consistent with the Basel Committee on Banking Supervision’s standard.
2. United States: Treasury Department – Consumer Financial Protection Bureau’s Arbitration Rule
The United States Treasury Department released a report on the Consumer Financial Protection Bureau’s (CFPB) arbitration rule. The report indicates the CFPB did not appropriately consider whether prohibiting arbitration clauses would advance consumer protection or serve the public interest.
As findings, the report notes that the:
a) CFPB’s rule will impose extraordinary costs – generating more than 3,000 additional class action lawsuits over the next five years, imposing more than $500 million in additional legal defense fees, and transferring $330 million to plaintiffs’ lawyers; and
b) CFPB’s data show that majority of class action lawsuits deliver no relief to the class – and that consumers very rarely claim relief available to them.
October 20, 2017:
1. Hong Kong: Hong Kong Monetary Authority – Banking (Capital) (Amendment) Rules 2017 and Banking (Liquidity) (Amendment) Rules 2017
The Hong Kong Monetary Authority announced its Banking (Capital) (Amendment) Rules 2017 and the Banking (Liquidity) (Amendment) Rules 2017 would take effect on January 1, 2018.
Introduced to implement recent international standards on banking regulation, the two sets of Rules seek to implement the Basel III-related capital and liquidity standards in accordance with international timelines.
The Rules cover the net stable funding ratio and leverage ratio requirements, and the regulatory treatment of an authorized institution’s securitization exposures and expected loss provisions under Hong Kong Financial Reporting Standard.
2. United States: Office of the Comptroller of the Currency – Risk Management Principles for New, Modified, or Expanded Bank Products and Services
The Office of the Comptroller of the Currency issued guidance to national banks, federal savings associations, and federal branches and agencies of foreign banks (collectively, banks) on principles the banks should follow to prudently manage risks associated with offering new, modified, or expanded products and services (collectively, new activities).
New activities are required to be developed and implemented consistently with sound risk management practices and must align with the banks’ overall business plans and strategies. These activities also must encourage fair access to financial services and fair treatment of consumers and comply with applicable regulatory requirements.
October 19, 2017:
1. Nigeria: Central Bank of Nigeria – Regulatory Framework for Bank Verification Number Operations & Watch-List for the Nigerian Financial System
The Central Bank of Nigeria (CBN) introduced Regulatory Framework for Bank Verification Number (BVN) Operations & Watch-List for the Nigerian Financial System (Framework). The Framework is in furtherance of the CBN’s mandate to develop and enhance the security of the electronic payment system in Nigeria.
Coming into effect immediately, the Framework objectives include to: i) clearly define the operations of the BVN in Nigeria; ii) provide a database of watch-listed individuals; and iii) deter fraud incidences in the Nigerian banking industry.
2. Singapore: Monetary Authority of Singapore – Consultation Paper on Proposed Amendments to Requirements in Credit Loss Provisioning
The Monetary Authority of Singapore (MAS) responded to stakeholders’ feedback on its consultation paper on proposed amendments to MAS Notices 612, 1005, 637 and 1111.
The amendments cover changes in the recognition and measurement of allowance for credit losses introduced in International Financial Reporting Standard (IFRS) 9 Financial Instruments and Singapore Financial Reporting Standard (SFRS) 109 Financial Instruments.
The consultation paper’s policy proposals are calibrated to meet MAS’ prudential objectives in areas where the expected credit loss model under IFRS 9 and SFRS 109 may not fully address its prudential concerns. The regulator has indicated it will publish finalized Notices 612, 1005, 637 and 1111 before the end of 2017.
October 18, 2017:
1. Switzerland: Basel Committee on Banking Supervision – Review of Canada’s Implementation of the Liquidity Coverage Ratio
The Basel Committee on Banking Supervision (BCBS) released a report of its Regulatory Consistency Assessment Programme (RCAP) assessment of the adoption of the Basel Liquidity Coverage Ratio (LCR) standard in Canada and its consistency with the minimum requirements of the Basel III framework.
The assessment focuses on the rules applied to Canadian banks that are internationally active and of significance to domestic financial stability. It reviews the consistency and completeness of the Canadian regulations with the Basel minimum requirements.
Overall, as of June 30, 2017, the LCR regulations in Canada were assessed as compliant with the Basel LCR standards. The definition of high quality liquid assets, liquidity outflows, liquidity inflows and disclosure requirements were also assessed as compliant.
In 2012, the BCBS established the RCAP to monitor and assess the adoption and implementation of its standards, while encouraging a predictable and transparent regulatory environment for internationally active banks.
2. United States: Consumer Financial Protection Bureau – Principles for Consumer-Authorized Financial Data Sharing and Aggregation
The Consumer Financial Protection Bureau introduced principles for protecting consumers as the market for services using consumer-authorized financial data develops. The principles apply whenever consumers authorize third-party companies to access their financial data to provide certain financial products and services.
The principles are intended to help foster the development of innovative financial products and services, increase competition in financial markets, and empower consumers to take greater control of their financial lives.
They relate to data access, data scope and usability, control of the data and informed consent, payment authorizations, data security, transparency on data access rights, data accuracy, accountability for access and use, and disputes and resolutions for unauthorized access.
October 17, 2017:
Canada: Office of the Superintendent of Financial Institutions – Residential Mortgage Underwriting Practices and Procedures Guideline
The Office of the Superintendent of Financial Institutions published revised guideline on Residential Mortgage Underwriting Practices and Procedures. Coming into effect on January 1, 2018, it applies to all federally regulated financial institutions.
The revised guideline introduces the following changes:
a) A new minimum qualifying rate, or “stress test,” for uninsured mortgages: the new minimum qualifying rate for uninsured mortgages is the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
b) Dynamic Loan-to-Value (LTV): lenders are required to enhance their LTV measurement and limits so they will be dynamic and responsive to risk. They must establish and adhere to appropriate LTV ratio limits which reflect current risk and are updated as housing markets and the economic environment evolve.
c) Restrictions on co-lending and mortgage bundling arrangements: certain lending arrangements that are designed, or appear designed, to circumvent LTV limits are now restricted.
A lender is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy.
Olakunle Komolafe holds an LL.M. from Harvard Law School, United States of America and another LL.M. in Energy, Natural Resources and Environmental Law from the University of Calgary, Canada.