The ISDA Quarterly or IQ, which examines the issues driving the adoption of technology and explores initiatives to establish standards that will help facilitate full-scale automation across industry, has been published. This year has several urgent to-do items and unmissable deadlines, with the next 12 months being crucial for benchmark reform, Brexit, and the roll out of initial margin requirements. Another key area with ongoing developments is the implementation of the final Basel III reforms as standards on market risk, counterparty credit risk, and credit valuation adjustment are expected to be transposed and implemented in many Basel jurisdictions.
ISDA is also working to ensure legal standards keep pace with the 21st century. This includes the development of a taxonomy and clause library related to the ISDA Master Agreement, along with a project that will increase standardization and make it easier to capture key legal data and share that information consistently across the institution. In ISDA Create, ISDA and Linklaters have developed a tool that will allow that documentation to be negotiated and executed online. The platform is up and running for initial margin while other documents will be added over time. ISDA Create is a new platform that allows firms to produce, deliver, and negotiate derivatives documentation completely online. The system captures, processes, and stores data from these documents, providing users with a complete digital record.
This year, ISDA will publish amendments to the 2006 ISDA Definitions that will incorporate fallbacks into new derivatives referencing certain interbank offered rates (IBORs). A protocol will also be launched to enable firms to embed the new fallbacks into legacy trades as well. Both will take effect approximately three months after publication, significantly reducing the systemic risk posed by continued exposure to LIBOR and other key IBORs. From a derivatives perspective, reaching long-term equivalence and recognition of central counterparties and trading venues during this period will be vital to avoid potential market disruption after the transition. This is also a crucial time for the rollout of the initial margin requirements, with thousands of new counterparty relationships coming into scope of the rules from September. Last year saw an extension of the phase-in schedule for the smallest firms until 2021, which will help reduce a potential compliance bottleneck—but the September 2020 phase-in is still expected to pose a huge challenge for the industry.
IQ presents a bird's eye view of the outstanding issues related to the implementation of Basel III standards. It is believed that the next phase of Basel III looks set to be more challenging, as regulators, legislators, and market participants grapple with more technical, granular changes to the capital framework. In some cases, such as credit valuation adjustment, or CVA, capital requirements, the Basel Committee has recognized the need to consult on targeted revisions. In other cases, concerns will need to be addressed at the national level when the standards are transposed into law.
Keywords: International, Banking, Insurance, Securities, ISDA Quarterly, Benchmark Reforms, Brexit, ISDA Create, Common Domain Model, OTC Derivatives, Fintech, Basel III, FRTB, CVA, SA-CCR, ISDA
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BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).
US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.
PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.
FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).
EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.
ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.