Featured Product

    Mark Carney of BoE Speaks on Addressing Systemic Risks for Non-Banks

    The BoE Governor Mark Carney spoke at the Institute of International Finance (IIF) Spring Membership Meeting in Tokyo. He highlighted that capital flow volatility is rising because of the fundamental asymmetry in the international monetary financial system and the rapid rise of market-based finance. The IIF, with its diverse and global membership, can make a major contribution in addressing these issues. He also outlined the ongoing regulatory work to address systemic risks for non-banks.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

     

    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • Mr. Carney noted that over half of investment funds have a structural mismatch between the frequency with which they offer redemptions and the time it would take them to liquidate their assets. Under stress they may need to fire-sell assets, magnifying market adjustments and triggering further redemptions. Two-third of investment funds with structural mismatches are domiciled in the U.S. and Europe; therefore, as is the case for banks, ensuring that leverage and liquidity risks are managed in funds investing abroad is both a national asset and a global public good. System-wide stress simulations are currently being developed, including at the BoE, to assess these risks. Authorities are beginning to consider macro-prudential policy tools to guard against the build-up of systemic risks in non-banks.

    Furthermore, regulators have far less sight of risks within funds compared to the core banking system, particularly synthetic leverage arising from funds’ use of derivatives. The upcoming FSB-IOSCO evaluation of implementation and effectiveness of recommendations to address liquidity mismatch in funds will be crucial to improve the understanding of best practices, including the merits of adjustments to redemption periods to be more consistent with investments. Mr. Carney noted that better surveillance, a more resilient core of the financial system, and a macro-prudential approach to market-based finance will all help increase sustainable capital flows, but they will be most effective if they are underpinned by an adequate global financial safety net.

    Pooling resources at the IMF is much more efficient than individual countries self-insuring against Capital Flows-at-Risk, distributing the costs across all 189-member countries. The design of the global financial safety net is also important. Positive steps have been taken in recent years by introducing precautionary liquidity facilities to allow countries to borrow to prevent crises and mitigate their impact. This should also reduce stigma of drawing on the facilities. However, so far, only a few countries have taken them up. The BoE Governor concluded that "we are all responsible for addressing the fault lines in the global financial system and its safety net." Doing so will reduce the volatility of capital flows, increase the sustainability of cross-border investment, and meet the great challenges of this age.

     

    Related Links

    Keywords: Europe, UK, Banking, Securities, Systemic Risk, Stress Testing, Capital Flow Volatility, Market Based Finance, Liquidity Risk, Macro-Prudential Approach, BoE

    Featured Experts
    Related Articles
    News

    BCBS Consults on Principles for Operational Risk and Resilience

    BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.

    August 06, 2020 WebPage Regulatory News
    News

    FSI Note Discusses Challenges Associated with COVID Relief Measures

    The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.

    August 06, 2020 WebPage Regulatory News
    News

    HKMA Announces Repayment Deferment Under Payment Holiday Scheme

    HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.

    August 05, 2020 WebPage Regulatory News
    News

    ESRB Paper Presents Alternative Approach to EBA Stress Test Proposal

    The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.

    August 05, 2020 WebPage Regulatory News
    News

    MAS Announces Key Initiatives to Support Adoption of SORA

    MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.

    August 05, 2020 WebPage Regulatory News
    News

    BoE Updates Template and Definitions for Form ER

    BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.

    August 05, 2020 WebPage Regulatory News
    News

    PRA to Extend Temporary High Balance Coverage Amid COVID Crisis

    PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.

    August 04, 2020 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure and Reporting of MREL and TLAC

    EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.

    August 03, 2020 WebPage Regulatory News
    News

    EBA Releases Erratum for Phase 2 Package on Reporting Framework 2.10

    EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.

    August 03, 2020 WebPage Regulatory News
    News

    EC Sets Out Updated Technical Information for Solvency II Calculations

    EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.

    August 03, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5635