June 06, 2019

RBI issued a statement that sets out various developmental and regulatory policy measures for strengthening regulation and supervision and for broadening and deepening the financial markets. These include measures related to leverage ratio for banks, licensing of small finance banks, and liquidity management framework. Additionally, the statement also sets out developmental and regulatory policy measures for improving payment and settlement systems.

  • 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)
  • Leverage Ratio for Banks—In terms of the leverage ratio framework of RBI, banks have been monitored against an indicative leverage ratio of 4.5%. These guidelines have served the purpose of disclosures and as the basis for parallel run by banks. BCBS had finalized, in December 2017, that banks must meet a minimum 3% leverage ratio requirement at all times. Both the capital measure and the exposure measure are to be calculated on a quarter-end basis. However, banks may, subject to the supervisory approval, use more frequent calculations (for example, daily or monthly average) as long as they do so consistently. Keeping in mind financial stability and with a view to moving further toward harmonization with Basel III standards, RBI has decided that the minimum leverage ratio should be 4% for domestic systemically important banks (D-SIBs) and 3.5% for other banks. The instructions in this regard shall be issued soon.

    On-Tap Licensing of Small Finance Banks—It has been proposed to issue the draft guidelines for on-tap licensing of small finance banks by the end of August 2019. It has also been decided that more time is needed to review the performance of Payments Banks before considering the licensing of this category of banks to be put on tap.

    Internal Working Group to Review Liquidity Management Framework—Liquidity management framework of RBI was last reviewed in 2014. While the current liquidity management framework has worked well, it has become somewhat complex. An assessment of liquidity position by different market participants has varied markedly and is not always in synchronization with the actual systemic liquidity position in the economy. Accordingly, RBI has been decided to constitute an Internal Working Group to comprehensively review the existing liquidity management framework and suggest measures, among others, to simplify the current liquidity management framework and clearly communicate the objectives, quantitative measures, and toolkit of liquidity management by RBI. The Group is expected to submit its report by mid-July 2019.

     

    Keywords: Asia Pacific, India, Banking, Securities, Leverage Ratio, Small Finance Banks, Regulation and Supervision, Liquidity Management, Basel III, BCBS, RBI

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