JFSA Publishes Multiple Regulatory Updates in November 2021
The Financial Services Agency of Japan (JFSA) proposed amendments to the regulatory notice for leverage ratio requirements under the Basel framework, with the comment period on the proposals ending on November 29, 2021. JFSA also published the finalized regulatory notice to set out certain rules—based on Article 2, Paragraph (1) and (2) of the "Cabinet Office Order on Restrictions on Over-the-Counter-Derivatives Transactions"—in response to the cessation of LIBOR. The regulatory notice mainly sets out rules for the obligation of centralized clearing as well as rules for transactions subject to electronic trading platform regulations. The regulatory notice will take effect on December 06, 2021.
In addition, JFSA finalized amendments to the "comprehensive guidelines for supervision of major banks, etc." pertaining to the enforcement of the "Act partially amending the Banking Act, etc." Also published was the feedback received on the draft guidelines that were in public consultation from August 27, 2021 to September 27, 2021. The amendments came into effect on November 22, 2021. In another notification, JFSA and Bank of Japan (BOJ) published key results of a survey on the use of JPY LIBOR. To understand the state of the transition away from JPY LIBOR at Japanese financial institutions, JFSA and BOJ asked large financial institutions about their estimates regarding the number of contracts referencing JPY LIBOR and incorporation of fallback provisions at domestic branches on a non-consolidated basis. JFSA and BOJ also asked financial institutions about their challenges and policies for the transition with regard to legacy contracts as of end-September 2021. Yet another development involved the publication of the finalized principles for model risk management by JFSA; these principles include the following:
- Governance. The board of directors and senior management should establish a framework of comprehensive model risk management.
- Model Identification, model inventory, and model risk rating. Firms should identify models, record them in a model inventory, and assign a risk rating to each of the models.
- Model development. Firms should have in place a sound model development process. Firms should adequately develop model documents and carry out model testing.
- Model approval. Firms should have a robust process of model approval at various stages of a model lifecycle, for example, at the inception, material changes, and revalidation of a model.
- Ongoing monitoring. After a model goes into use, the model should undergo ongoing monitoring by the first line of defense to confirm that the model is performing as intended.
- Model validation. As an integral element of review and challenge by the second line of defense, models should be subject to independent validation. This includes initial validation prior to use, validation of material model changes, and revalidation after a model goes into use.
- Vendor products and use of external resources. Where firms use vendor products or external resources, the firms should have adequate controls in place over the use of those products and external resources.
- Internal audit. As the third line of defense, internal audit functions should assess the overall effectiveness of the model risk management framework.
Comment Due Date: November 29, 2021 (Leverage Ratio)
Effective Date: December 06, 2021 (LIBOR)/November 22, 2021 (Guidelines for Major Banks)
Keywords: Asia Pacific, Japan, Banking, Securities, Basel, Leverage Ratio, LIBOR, OTC Derivatives, Regulatory Capital, Guidance, Banking Act, LIBOR Transition, Model Risk Management, Benchmark Reforms, BOJ, JFSA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
CFPB Finalizes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.
BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023
The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
US Congress Report Examines Data Privacy and Cybersecurity Regulations
The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
EU to Conduct One-Off Scenario Analysis to Assess Transition Risk
The European authorities recently made multiple announcements that impact the banking sector.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.