FSB publishes toolkit to mitigate misconduct risk

News

Mag 02 2018

The Financial Stability Board (FSB) released a toolkit that firms and supervisors can use to mitigate misconduct risk. The FSB’s work in this area follows widespread misconduct in the financial sector including the manipulation of wholesale markets and retail misselling. Such misconduct in the financial sector on a broad scale creates mistrust, weakening the ability of the markets to allocate capital to the real economy, which in turn may give rise to systemic risks.

Mitigating misconduct risk requires a multifaceted approach. The report identifies 19 tools that firms and supervisors could use to address the three main issues identified by the FSB as part of its earlier work on misconduct, namely:

  • Mitigating cultural drivers of misconduct – including tools to effectively develop and communicate strategies for reducing misconduct in firms and for authorities to effectively supervise such approaches.
  • Strengthening individual responsibility and accountability – including tools that seek to identify key responsibilities and functions in a firm, and assign them to individuals to promote accountability and increase transparency.
  • Addressing the “rolling bad apples” phenomenon – including tools to improve interview processes and onboarding of new employees and for regular updates to background checks to avoid hiring individuals with a history of misconduct.

The toolkit provides a set of options based on the shared experience and diversity of perspective of FSB members in dealing with misconduct issues.

Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors (PDF)

Banca d’Italia: rapporto sulla stabilità finanziaria 2018

News

Mag 02 2018

Banca d’Italia ha pubblicato il primo rapporto sulla stabilità finanziaria 2018, che include anche l’andamento del mercato assicurativo. In sintesi, i rischi per la stabilità finanziaria appaiono mitigati dalla crescita robusta dell’economia globale e dal rafforzamento del settore bancario nell’area Euro.

I rischi connessi con l’uscita del Regno Unito dalla Unione Europea si sono attenuati a seguito dell’intesa su un periodo
di transizione, anche se rimangono incertezze sulla ratifica dell’accordo e sul futuro assetto per l’accesso a infrastrutture e mercati finanziari.

In Italia l’impatto sul costo medio dei titoli di Stato di un eventuale rialzo dei tassi di interesse sarebbe attenuato dalla loro lunga vita residua. L’alto livello del debito pubblico rende tuttavia l’economia italiana vulnerabile a forti tensioni
sui mercati finanziari e a revisioni al ribasso delle prospettive di crescita.

La situazione finanziaria delle famiglie italiane è solida. L’indebitamento è contenuto; la crescita del reddito disponibile e i bassi tassi di interesse ne favoriscono la sostenibilità. La ripresa economica sostiene la redditività delle imprese e ne attenua la vulnerabilità. Permangono però aree di fragilità tra le piccole e medie imprese e nel settore delle costruzioni, caratterizzato da un indebitamento elevato e da livelli di attività ancora contenuti.

La qualità del credito bancario continua invece a migliorare. I flussi di nuovi prestiti deteriorati sono sui livelli precedenti la crisi finanziaria. Il peso dei crediti deteriorati nei bilanci degli intermediari è in forte riduzione, soprattutto per le banche che
hanno effettuato ingenti operazioni di cessione.

Il completamento di alcuni aumenti di capitale ha ridotto il divario in termini di patrimonializzazione rispetto alla media degli altri paesi europei. La redditività delle banche sta aumentando, ma rimane molto bassa per numerosi intermediari di piccola e media dimensione. La necessità di ampliare i ricavi e di ridurre i costi operativi è accentuata dall’imminente introduzione del
requisito MREL, che potrebbe determinare incrementi rilevanti del costo della raccolta.

Gli indici di solvibilità delle assicurazioni italiane sono aumentati. L’impatto del periodo di bassi tassi di interesse sulle compagnie italiane è stato meno pronunciato che in altri paesi. Prosegue la diversificazione degli investimenti
finanziari, ma le compagnie restano esposte ai rischi connessi con l’eventuale acuirsi di tensioni sui mercati del debito sovrano.

La crescita sostenuta del risparmio gestito contiene invece i rischi per la stabilità finanziaria, a causa del buon allineamento tra la liquidità dell’attivo e del passivo dei fondi comuni e della ridotta dimensione di quelli caratterizzati da un’elevata leva finanziaria

Rapporto Stabilità Finanziaria 1 – 2018 (PDF)

BIS: report on Fintech credit market

News

Mag 02 2018

The Bank of International Settlement (BIS) published today a report on FinTech credit, that is, credit activity facilitated by electronic platforms such as peer-to-peer lenders. The report aims at shed light on the significant uncertainty as to how FinTech credit markets will develop and how they will affect the nature of credit provision and the traditional banking
sector.

The study draws on public sources and ongoing work in member institutions to analyse the functioning of FinTech credit markets, including the size, growth and nature of activities. It also assesses the potential microfinancial benefits and risks of these activities, andconsiders the possible implications for financial stability in the event that FinTech credit should
grow to account for a significant share of overall credit.

Conduct and prudential regulatory policies in selected countries are also outlined. The report provides several key messages. The nature of FinTech credit activity varies significantly across and within countries, due to heterogeneity in the business models of FinTech credit platforms. Although FinTech credit markets have expanded at a fast pace over recent years, they currently remain small in size relative to credit extended by traditional intermediaries.

A bigger share of FinTech-facilitated credit in the financial system could have both financial stability benefits and risks in the future, including access to alternative funding sources in the economy and efficiency pressures on incumbent banks, but also the potential for weaker lending standards and more procyclical credit provision in the economy.

The emergence of FinTech credit markets poses challenges for policymakers in monitoring and regulating such activity. Having good-quality data will be key as these markets develop.

Fintech Credit: Market structure, business models and financial stability implications (PDF)

The new opportunity: RegTech
a cura di Deloitte Italia

Articolo

Mag 02 2018
The new opportunity: RegTech a cura di Deloitte Italia

A new context brings new challenges

.The increasing levels of regulation and more challenging regulatory expectations are having significant operational impacts on firms requiring people, process and technology based solutions.

In respect of new legislation and regulation this can create challenges around understanding, implementing and embedding the new requirements whereas for existing legislation there can be challenges around understanding and managing the risks.

In addition, as EBA suggests in its recent paper on FinTech topic, the evolving nature of technological innovation will require a new regulatory and supervisory approach that should have such characteristics as:

  • Risk Based, expanding the regulatory perimeter to include activities and risks regardless the new FinTech business
  • Flexible and principles-based, maintaining a forward-looking approach as new technologies change quickly and continuously
  • Holistic in Nature, increasing the focus to policy issues that are not traditionally associated with financial sector supervision, such as cybersecurity, data use and privacy (stronger coordination with non-financial regulators)
  • Cross-Border, ensuring international cooperation

This, however, needs to be part of an overall, cross-sectoral approach, drawing from the other EU financial authorities from the securities, insurance, and other financial areas (including ESMA and EIOPA), with the strongly international coordination led by the Financial Stability Board (FSB).

Organizations need to solve complex compliance challenges in light of this changing landscape, such as linking compliance to strategy, managing regulators and compliance operations, and navigating the compliance technology ecosystem. In particular, a snapshot of the main challenges in these different areas is listed below:

Regulators

  • Responding to new regulations
  • Higher regulatory scrutiny
  • Influencing regulators to enable innovation
  • Brand and reputation risks of non-compliance

Strategy

  • Creating a compelling business case for change
  • Driving strategic decision making from compliance data
  • Need for an enterprise governance program

Operations

  • Reducing compliance costs
  • Transparency and compliance reporting
  • Managing inefficiencies in paper-driven processes

Technology

  • Applying new technologies to existing platforms
  • Managing disparate tech solutions and vendors
  • Understanding the new technology ecosystem
  • Lack of technology awareness
  • Managing and analyzing compliance data

New opportunities to leverage RegTech

RegTech solutions, powered by emerging technologies, help deliver richer and faster insights, drive efficiencies in compliance processes through automation, reduce costs, and offer foresight into emerging risk issues. These emerging technologies, such as advanced analytics, RPA, cognitive computing, and cloud, is enabling the creation of RegTech solutions to help address some of the compliance, regulatory, and risk management needs. At the same time, new opportunities are growing for financial services institutions (FSIs) to leverage RegTech for compliance:

Technology-enabled process efficiencies

  • Robotic process automation (RPA) | Leveraging rules-based systems to automate repeatable, logic-based business processes, such as checking internal compliance controls for organizations
  • Intelligent automation | Using cognitive technologies to build self-learning systems for automating intuitive tasks, such as compliance investigations processing, data extraction, and quality control

Data sharing and aggregation

  • Regulatory data sharing | Managing compliance requirements by allowing organizations to share proprietary data with business partners and alliances over a secure network
  • Regulatory data aggregation | Accessing alternate datasets, comprised of structured and unstructured information, aggregated from multiple sources, to make identity verification and compliance more accurate and efficient

Data-driven insights generation

  • Real-time data monitoring and anomaly detection | Monitoring structured and unstructured compliance data in real-time for various purposes, such as identifying possibilities of non-compliance and detecting threat of money laundering
  • AI/advanced analytics-enabled prediction of risks | Analyzing entity data and behavior for predicting regulatory and compliance risks. Allows organizations to mitigate risks proactively and address their compliance requirements

Platform development

  • Compliance over cloud | Offering easy-to-adopt, flexible compliance solutions on cloud-hosted platforms to enable businesses to address compliance issues at lower costs
  • Blockchain-based platforms for compliance | Creating immutable, agreed-upon, aggregated, and efficient compliance records for processes, such as AML/KYC and transaction reporting
  • On-demand compliance expertise | Providing easy access to specialized skills for assisting FSIs with their regulatory and compliance requirements

Where does RegTech lead?

RegTech has a very bright future, with a huge amount to opportunity for those developing this type of technology to automate and enable new way of business.

As you stand at the crossroads of this new paradigm in the RegTech age, have a look at the following real cases of RegTech implementations:

Data insights for customer protection | software that analyzes “big data” on customers (huge volumes of data) and allows company to perform smart analysis and clustering (e.g. identify the Positive and Negative Target Markets, understand the real customer needs, analyze the usual customer behaviors, monitor the correct selling  process reducing the miss-selling cases, produce consumable reports for board of directors, etc.)

Digital Identity for customer on-boarding| software that allows both the automatic, quick, secure registration of the customers’ identity information, during the complex on-boarding process (also enabling the digitalization of the entire operation – no face to face required). Moreover, this software creates a digital identity of the customer and enables the automatically sharing of a full range of information across the entire market (in a secure, encrypted, tracked way)

Deep dive transaction monitoring | software that, using complex cognitive algorithms, allows several different scenario analysis on customer data in order to help the identification of trends and from a regulatory perspective help to recognize outliers, right down to the individual customer transaction level

Intelligent help desk | software that allows the automatic management, through Artificial Intelligence engines, of trouble ticketing in some category of services (e.g. electronic banking, loans, investment, payments, …)

Contracts analysis automation | software that analyzes the completeness and accuracy of contract filling, ensuring their compliance with regulations in a fast and effective way. This software, with a minimum set of standard rules, is able to check and identify automatically the missing / incorrect parts of the contract

Predictive process transformation & regulatory reporting | software that organizes huge volume of data / information and allows deep processes check-up in order to identify process inefficiencies and operating risks. Moreover, the software allows bespoke reporting to be created in a way that is flexible enough to meet regulatory requirements of today and configurable to meet the regulatory requirements of tomorrow.

Final conclusions

In the short term, RegTech solutions will help FSI firms to automate the more mundane compliance tasks and reduce operational risks associated with meeting compliance and reporting obligations. In the longer term, they will likely empower compliance functions to make informed risk choices based on data provided insight about the compliance risks it faces and how it mitigates and manages those risks. Moreover, in any case, RegTech solutions will bring huge benefits in terms of processes efficiency and business improvement.

RegTech firms approach the solution from a technology solution-oriented point of view rather than a strategic one centered around key regulatory needs leading to suboptimal business outcomes.

For FSI organizations, the road to implement RegTech solutions starts understanding their business challenges, identifying the RegTech opportunities with the highest business value and designing a compelling future-state vision to develop the optimal implementation plan.

Alessandro Vidussi

Partner Strategy & Operation Deloitte Consulting – Innovation Representative FSI

AMAZON: threat or opportunity for the insurance and financial companies?
di Silvia Dell’Acqua e Barbara Galli

Articolo

Apr 17 2018
AMAZON: threat or opportunity for the insurance and financial companies? di Silvia Dell’Acqua e Barbara Galli

Some facts are objective: consumers need immediate and customized attention, as people have less and less disposable time, and Amazon is the point of reference when talking about customer experience: transparency and clear communication. Furthermore, Amazon is a “place” where a customer can rapidly find any product and any service. Nevertheless, people need banking services and life and P&C insurances.

Does this mean that Amazon can be a threat for the insurance and financial industry? Or is it an opportunity to form a strategic alliance? This article tries to give these questions an answer, both looking at what happened in the past and gathering some insights from the web: the latter analysis has been conducted by Barbara Galli, Director at Doxa and author of the book “Web Listening. Conoscere per agire”[1].

For what concerns the bank industry, Amazon already offers a credit card (co-branded with Jp Morgan) and a service, called “AmazonPay”, to pay on third party websites though the Amazon Account; in the US, a service called “Amazon monthly payment” is available to split the outgo into installments. In addition to that, Amazon is currently designing with Jp Morgan and Capital One Financial a financial product, similar to a cash account, in order to both reduce the transaction fees paid to credit card companies (e.g. Visa/MasterCard) and to collect information about the financial position and purchasing behaviors of its customers. Is Amazon trying to replace the banks?

First of all, we must recall that it would not be the first time for a corporation to try to acquire banking licenses: in the past, Walmart was stopped more than once by lawmakers and banking groups (1999 in Oklahoma and 2006 in Utah). Looking at the Amazon case, it seems that their strategy has more to do with enabling people to get theirs goods faster, smoothing the selling process, rather than to be a business to make money out of. Nevertheless, banks should worry as they are losing their cross selling opportunities. Amazon is not the only example where customers can skip the bank in the selling process: for instance, also IKEA is offering lending services, like many other retailers.

For what concerns the insurance industry, Amazon has already made some moves too. In 2016, the US-based retail giant has cooperated with Liberty Mutual, one of the largest diversified auto and home insurer in the US, enabling their consumers to navigate the insurance process by using their voice. This was possible thanks to Alexa, the voice service that allows customers to interact with devices in a more intuitive way: customers can access via vocal commands an insurance glossary, or can find a nearby agent to get a quote.

In 2017, Amazon has partnered with The Warranty Group to launch in the UK a P&C insurance policy, called Amazon Protect, to cover against accidental damages, malfunctions or thefts of goods bought on its ecommerce platform. Finally, in 2018, Amazon has entered the US employee healthcare market, collaborating with JP Morgan and Berkshire Hathaway to create a healthcare company with the aim of cutting costs and improving services for their US employees. It seems that Amazon wants to look overseas too, having already recruited insurance professionals in London to join a new team focused on the insurance market of the UK, Germany, France, Italy and Spain.

According to some rumors, dated beginning of 2018, Amazon was considering to use India as a test lab for expanding its insurance operations, investing in the insurtech Acko (provider of online insurance products). Such an operation would give Amazon the possibility of a huge expansion opportunity: nowadays only 3% of insurances are bought online, but this percentage is expected to skyrocket as India’s young population attains financial maturity – like it happened in China.

The important question is: can Amazon really supersede the insurance companies? Advisory practices need to serve both preferences: those who like traditional face to face and those who like the digital market. Currently, most life insurance sales occur when an agent engages in discussion about very personal issues, making people think about their deaths, sometimes without promising any immediate reward – probably the empathy of a human being can be crucial in this type of transactions.

On the other hand, it is indubitably that the current customer experience in purchasing an insurance policy can be improved: sometimes customers suffer a lack of understanding of the policies (pricing, exclusions, guarantees) together with an inefficient processing and products that are mostly commoditized (for both life and P&C insurances). Insurers should personalize products and provide transparency, demonstrating excellence in on-demand distribution. Amazon can be the opportunity to form a strategic alliance, acting as an aggregator and generating synergies for cross selling, though the functions “customers who bought this also bought…” or “customers who viewed this also viewed…” (e.g. goods for babies and life insurance for the parents or furniture for a new house and a fire P&C policy); user reviews could instill a sense of trust among the customers.

One question remains open: would customers buy insurance policies from Amazon? Some insights to answer this question can be found in the web. A quick web listening exploration has been run on what has been discussed, setting queries on the topics mentioned above

  • Amazon pay
  • Amazon and the insurance market
  • Amazon, JP Morgan and bank accounts
  • Amazon and Liberty mutuals
  • Amazon and Acko
  • Amazon and the warranty Group

Furthermore, the general feeling of the Italian customers about this major player entering a new marker has been analysed. The topics treated are not “trending” yet: there are about 1620 posts published during the last year on the open web [2], almost all related to “Amazon pay” (1451); the number dramatically decreases when it comes to more specific issues as “Amazon, JP Morgan and bank accounts” (114) or “Amazon and the insurance market” (51), nearly no conversations on the other topics. As shown by the peaks of conversations registered, the curiosity and attention level is high when linked to major news and events (e.g. Amazon Pay introduced in Italy, Europe Assistance releases Amazon Pay and Prima Assicurazioni forms an alliance with Amazon Pay).

Among the top engaging posts, those of Quixa and Wired dominate the web: the former refers to the promo of receiving a 50 Euro coupon when purchasing/renewing a Quixa insurance policy paying by Amazon Pay (770 interactions, 15 shares); the latter, dated April 2017, announces that digital payments attract the multinational corporation Wired (140 interactions, 34 shares).

The level and topics of conversations gathered above do not allow yet for a proper sentiment analysis, but a survey run on the Italian online population gives a clear indication on their feeling about Amazon becoming an insurance player. Though the level of credibility of banks and insurance companies is still higher, the Italian surfers are open to consider Amazon as a valuable player: 32% are willing (surely + probably) to subscribe a car insurance with Amazon and the percentage increases to 40% when Amazon partners with a “traditional” player (insurance company / bank). Figures are not that distant (roughly 10 p.p. less) when the underlying considered is a Life/Health insurance. In both cases, the latter counts for roughly half of the total population willing to buy an insurance policy. [3]

To catch opportunities and anticipate trends, the insurance companies should keep one ear open by the mean of prompted surveys and web listening, identifying the most proper way to offer their proposition by a distinctive communication, in each territory, be it social or not. As to Amazon, looking at its brand image, one thing is sure: it meets trust, quality and service expectations, a good starting point to be leveraged [4]

 

Bibliography

[1] https://www.linkedin.com/feed/update/urn:li:activity:6376753915790192640

[2] data retrieved from the crawling platform Tracx ; dedicated queries; Doxa courtesy. Web listening from March 2017 to March 2018, open web (social properties excluded); Focus: Italy, conversations in Italian

[3] Sample representative of Italian Internet population; 1010 respondents; fieldwork: march 27th – April 4th 2018

[4] Sample representative of Italian Internet population; 1010 respondents; fieldwork: march 27th – April 4th 2018

ECB on the 9th surveillance programme in Spain

News

Apr 17 2018
The European Commission (EC) and the European Central Bank (ECB) reported on the ninth surveillance program in Spain at the beginning of last week . The staff reported a satisfactory and persistent economic growth in all economic sectors, particularly in the banking sector.

This sector benefits from an increased, comfortable level of liquidity and enjoys continuous profitability, with some financial institutions being also able to increase the amount of debt securities issued. Core and non-core capital instruments contributed to keep capital buffers at a safe level, and helped in reducing the aggregate amount of NPL in banks’ balance sheets.Namely, the NPL ratio for Spanish banks (including cross-borders activity) moved down to the EU average. Financial institutions further improved their business models, and increased their capability of supplying new loans to the economy.

Threats are represented by the high level of private and public debt, as well as by the high unemployment rate. Since the country is currently enjoying an expansion pahse, European authorities suggests the Spanish government to profit from this favourable situation to pursue fiscal consolidation and also to reduce the level of debt among all sectors.

It will be important that Spain puts in place policy efforts to ensure a durable growth path and achieve higher productivity growth. This includes steps to continue reducing unemployment, make the labour market more inclusive, improve the business environment and enhance the innovation capacity of the economy.

Statement by the staff of the European Commission and the European Central Bank following the ninth post-programme surveillance visit to Spain (HTML)

Basel committee complements the SA-CCR approach for counterparty risk

News

Apr 17 2018

The Basel Committee’s final standard on The standardised approach for measuring counterparty credit risk exposures (SA-CCR) includes a comprehensive, non-modelled approach for measuring counterparty credit risk associated with OTC derivatives, exchange-traded derivatives, and long settlement transactions. The Committee’s objective was to develop a risk sensitive methodology able to better discriminate between margined and unmargined trades, and providing more meaningful recognition of netting benefits.

The SA-CCR limits the need for discretion by national authorities, minimizes the use of banks’ internal estimates, and avoids undue complexity by drawing upon prudential approaches already available in the capital framework. It has been calibrated to reflect the level of volatilities observed over the recent stress period, while also giving regard to incentives for centralised clearing of derivative transactions.

The SA-CCR retains the same general structure as that used in the Current Exposure Method (CEM), consisting of two key regulatory components: replacement cost and potential future exposure. An alpha factor is applied to the sum of these components in arriving at the exposure at default (EAD). The EAD is multiplied by the risk weight of a given counterparty in accordance with either the Standardised or Internal Ratings-Based approaches for credit risk to calculate the corresponding capital requirement.

A first consultive document was published in June 2013, followed by a joint quantitative impact study (JQIS) aimed at assessing the capital impact of the methodology. After giving due consideration to the feedback received from respondents to the consultative paper and the results of the JQIS, the Committee made a number of the adjustments to the proposed methodology prior to finalising the SA-CCR. These include:

  • increased specificity regarding the application of the approach to complex instruments;
  • the introduction of a supervisory measure of duration for interest rate and credit derivative exposures;
  • removal of the one-year trade maturity floor for unmargined trades and the addition of a formula to scale down the maturity factor for any such trades with remaining maturities less than one year;
  • the inclusion of a supervisory option pricing formula to estimate the supervisory delta for options;
  • a cap on the measured exposure for margined transactions to mitigate distortions arising from high threshold values in some margining agreements; and
  • adjustments to the calibration of the approach with respect to foreign exchange, credit and some commodity derivatives.

The standardised approach for measuring counterparty credit risk exposures (PDF)

IOSCO: Harmonisation of critical OTC derivatives data elements

News

Apr 17 2018

The International Organization of Securities Commisions (IOSCO) issued a report providing technical guidances to regulatory authorities, in order to assess definitions and formats of a set of OTC derivatives which are reported to trade repositories.

Specifically, the report provides the guidelines for harmonizing data elements concerning these transactions, that is, of settlement dates, counterparties, collaterals and so on. The report is presented as “jurisdiction-agnostic”, in the sense that it aims at taking account of any relevant international regulatory standard but it does not provide thorough definitions of the methodologies to apply to data in order to reach a sufficient harmonization level.

Harmonised critical data elements can facilitate global aggregation of  data, so that the international authorities can use them to build a cross-border overview of the aggregate OTC market, and favour international amendments contrating the propagation of systemic-type risks. Details can be found in the original report:

Harmonisation of critical OTC derivatives data elements (PDF)

Christine Lagarde and the benefits of crypto-assets

News

Apr 17 2018

The International Monetary Fund (IMF) managing director Christine Lagarde approached the topic of crypto assets for the second time within a few weeks. One month ago, she expressed the possible drawbacks of crypto currencies market, focusing on the potential use for money laundering and the financing of terrorism (link below). Today, the intention was to disclose the bright side of crypto assets market, disentangling all benefits that these brand new financial products might bring about.

First of all, the number of cryptocurrencies available is doomed to decrease, thus we must focus on the crypto-assets which will mostly fit customers’demand and thus survive this market’s “natural” selection process. Secondly, she suggests policy makers to “keep an open mind” and to address their efforts towards a regulatory framework ” that minimizes risks while allowing the creative process to bear fruit”.

Before crypto-assets can earn a relevant place among the big changes in financial activities of this last century, they must earn the confidence of the public, and this confidence comes along with the support of authorities and consumers themselves. In this sense, international cooperation is fundamental , as crypto-assets know no boundaries: the consensus among regulatory authorities becomes then mandatory.

Furtherly, although the need of brokers and intermediaries will remain, crypto assets can promote a more diversified financial structure, and a more balanced relationship between centralized and decentralized service providers. This could enhance the capability of the financial systems to resist large shocks. We must however not forget that crypto assets might magnify the risks in trading leveraged products. In case the crypto-market ingests mainstream financial products, this threat will manifest in a faster transmission of financial shocks to all market segments.

“There should be systemic risk assessment and timely policy responses, as well as measures to protect consumers, investors, and market integrity” she continues, although the regulatory agenda must not discourage innovation, but instead learn from it. This includes also the possibility of letting central banks develop their own crypto-currencies, and use Distributer Ledger Technolgy (DLT) to increase the efficiency of financial markets. This last proposal has already been made by the Australian Securities Exchange, to manage clearing and settlement of transactions.

An Even-handed Approach to Crypto-Assets (HTML)

Addressing the Dark Side of the Crypto World (HTML)

Basel Committee: revisions to minimum capital requirements for market risk

News

Apr 12 2018

The Basel Committee on Banking Supervision today issued  a revision to the minimum capital requirements for market risks which is available for public consultation. Improvements to the capital requirements for trading activities are a key component of the Committee’s duty of reforming global regulatory standards in view of the latest global financial crisis.

The proposed changes include:

  • changes to the measurement of the standardised approach to enhance its risk sensitivity (including changes to FX risk);
  • recalibration of standardised approach risk weights applicable to general interest rate risk, FX risk and equity risk;
  • revisions to the assessment process to determine whether a bank’s internal risk management models appropriately reflect the risks of individual trading desks;
  • identification of risk factors eligible for internal modelling are better clearified;
  • exposures subject to market risk capital requirements are thoroughly redefined.

The consultative document also proposes a recalibration of the Basel II standardized approach for banks with less material risk exposure. These proposals follow the decision by the Group of Governors and Heads of Supervision to extend the implementation date of the market risk standard to 1 January 2022, to give banks additional time to develop systems infrastructure and for the Committee to address certain aspects of the framework.

The Committee plans to finalise any revisions to the market risk standard as soon as possible to allow enough time for national implementation and for banks to develop the necessary infrastructure. The proposed revisions are designed to support smooth implementation of the standard.

Revisions to the minimum capital requirements for market risks (PDF)