Monthly Regulatory Tracker—February 2012 
Published: Mar-29-12
 

The “Regulatory Reform” newsletter is the latest, monthly initiative aimed at updating the Risk Management community with the most recent regulatory changes impacting Banks & Capital Markets firms. We update our comprehensive regulatory database every month by tracking more than 30 regulatory and industry bodies covering North America, EALA and APAC. Every month, we will highlight approximately 10 regulations shortlisted on the basis of geography of coverage and anticipated business impacts. Our summaries will highlight the risks covered and business processes affected by the regulatory reforms. This newsletter is planned to supplement the existing monthly newsletter “Regulatory Insights” which provides a deeper analysis of business implications & Accenture’s point of view on a single or much smaller set of regulatory changes.

Edition Highlights:

  • Trading and Consumer Protection are focus areas covered by multiple regulations in this edition. Strong Compliance and Operational risk frameworks are needed for compliance in these areas.
      
  • ESMA’s draft technical standards to implement European Market Infrastructures Regulation (EMIR) spell out the obligations of financial & non-financial counterparties in case of OTC derivatives, mandate risk mitigation and disclosure requirements from Central Counterparties and Trade Repositories.
      
  • The CFTC’s adaptation of the Volcker rule jointly proposed the OCC, the FED, the FDIC and the SEC in November 2011. Subject to certain exemptions, this rule prohibits banking entities from proprietary trading or retaining any ownership interest in hedge fund or private equity fund.
      
  • Proposed regulation of the IRS on Foreign Account Tax Compliance Act (FATCA) requires processes for U.S. account identification, information reporting and withholding of tax for foreign financial institutions.

Current coverage period: Through 29th February, 2012
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(Low) (Medium) (High)

CURRENT REGULATIONS:

Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC)
(): Identity Theft Red Flags Rules
Publication Date: 27 February 2012
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Consumer Protection
The proposed rules and guidelines issued by the CFTC and the SEC ("the commissions", collectively) implement the provisions enacted by Title X of the Dodd-Frank Act. Under this, the entities that are brought under the regulatory ambit of the commissions are required to address identity theft. First, financial institutions and creditors are required to implement a written identity theft and prevention program that is capable of detecting, preventing, and mitigating identity theft with certain existing accounts or when new accounts are opened. Second, any credit and debit card issuers are required to assess the validity of notifications of change of address under certain circumstances.

International Organization Of Securities Commissions (IOSCO)(): Suitability Requirements with respect to the Distribution of Complex Financial Products
Publication Date:
21 February 2012
Risks Covered: Compliance Risk, Strategic Risk, Reputation Risk
Business Processes Impacted: Consumer Protection
The consultation report of IOSCO was triggered by concerns around large scale mis-selling of complex financial products to retail and non-retail customers by financial intermediaries. With a view to protecting customers in relation to distribution of complex financial products, major coverage in the report includes suitability of complex financial products and disclosure obligations of financial intermediaries.

Commodity Futures Trading Commission (CFTC)(): Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties
Publication Date:
17 February 2012
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Trading, Clearing & Settlement - Exchange Traded & OTC, Netting & Collateral Management
The Final rules adopted by the CFTC is to implement Section 4s(h) of the Commodity Exchange Act pursuant to Section 731 of Title VII of the Dodd-Frank Act. These rules establish business conduct standards to be adhered to by swap dealers and major swap participants in dealing with their counterparties. Major coverage includes a) prohibition of fraud, manipulation and abusive practices, b) verification of counterparty eligibility, and c) disclosure of material risks, material incentives and conflicts of interest.

European Securities and Markets Authority (ESMA)(): Draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories
Publication Date:
16 February 2012
Risks Covered: Compliance Risk
Business Processes Impacted: Clearing & Settlement - Exchange Traded & OTC, Netting & Collateral Management, Trading
The discussion paper by ESMA covers the Regulatory Technical Standards and Implementing Technical Standards in relation to European Market Infrastructures Regulation (EMIR). Major coverage is divided into three sections that follow the structure of EMIR. Clearing obligation in case of OTC derivatives, risk mitigation techniques for contracts that are not cleared by a Central Counterparty (CCP) and exemptions to certain requirements are addressed in section 1. Sections 2 & 3 focus on requirements of CCP and Trade Repositories respectively.

Consumer Financial Protection Bureau (CFPB)(): Rule to supervise larger participants in consumer debt collection and consumer reporting markets
Publication Date:
16 February 2012
Risks Covered: Compliance Risk, Credit Risk
Business Processes Impacted: Audit, Legal & Compliance, Lending & Investment
The proposed rule of the CFPB seeks to include debt collectors and consumer reporting agencies under its nonbank supervision program. Major coverage includes a) definition of larger participants, b) covered markets and tests for determining larger participants in those markets, and c) consumer reporting. The CFPB intends its rulemaking in future to cover additional markets for consumer financial products and services.

Financial Action Task Force (FATF)(): International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation
Publication Date:
16 February 2012
Risks Covered: Reputation Risk, Operational Risk, Compliance Risk
Business Processes Impacted: AML, Consumer Protection, Data Privacy
The FATF’s revised standards aim at strengthening global safeguards and to protect the integrity of the financial system. Major changes are a) combating the financing of the proliferation of weapons of mass destruction, b) improved transparency, c) dealing with politically exposed persons, d) expanding the scope of money laundering by including tax crimes, e) enhanced risk based approach, f) more effective international cooperation, and g) more effective operational tools.

European Securities and Markets Authority (ESMA)(): Draft technical advice on possible Delegated Acts concerning the regulation on short selling and certain aspects of credit default swaps
Publication Date:
15 February 2012
Risks Covered: Compliance Risk, Market Risk
Business Processes Impacted: Trading, Pricing & Valuation
Through the consultation, ESMA seeks public comments on the technical advice that the European Commission required ESMA to provide on a number of possible delegated acts. In addition, the consultation covers advice on what constitutes a significant fall in the value of various financial instruments and a Regulatory Technical Standard on the methodology of calculation of fall in value of financial instruments.

Bank for International Settlements (BIS), International Organization Of Securities Commissions (IOSCO)(): Report on intra-group support measures
Publication Date:
14 February 2012
Risks Covered: Compliance Risk, Business Cycle Risk, Credit Concentration Risk
Business Processes Impacted: Recovery & Resolution planning, Risk Management & Stress Testing
The report is based on findings of a survey that examined the intra-group support measures available to banks, insurers and securities firms. The survey covered 31 financial institutions headquartered in 10 jurisdictions across 3 continents. Major coverage of the report a) definition of intra-group support measures, b) concerns relating to intra-group support, c) intra-group exposures, and d) key findings of the survey. This is a significant contribution at a time when a number of agencies worldwide are involved in development of policies in relation to recovery and resolution plans.

Commodity Futures Trading Commission (CFTC)(): Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Covered Funds
Publication Date:
14 February 2012
Risks Covered: Compliance Risk, Strategic Risk
Business Processes Impacted: Trading
The CFTC, as a part of its proposed rule, is adopting the rules jointly proposed by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission (collectively called 'the agencies') in November 2011. Similar to the rules of the agencies, the CFTC’s rule contains text specific to the entities that fall under the regulatory jurisdiction of the CFTC. Subject to certain exemptions, this rule prohibits banking entities from engaging in proprietary trading or from acquiring or retaining any ownership interest in, or sponsoring a hedge fund or a private equity fund.

Commodity Futures Trading Commission (CFTC)(): Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations
Publication Date:
9 February 2012
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Portfolio Advisory & Management, Trading
Through the final rule, the CFTC is amending its existing regulations in relation to Commodity Pool Operators (CPOs) and Commodity Trading Advisers (CTAs). Apart from this, the CFTC is adopting standards for new data collections for CPOs and CTAs that are consistent with the data collection required under the Dodd-Frank Act for entities registered with both the CFTC and the Securities and Exchange Commission.

Department of Treasury, Internal Revenue Service (IRS)(): Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities
Publication Date:
8 February 2012
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Payments, Audit, Legal & Compliance
The proposed regulation issued by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) seeks to implement Foreign Account Tax Compliance Act (FATCA) with a view to preventing evasion of tax by U.S. taxpayers using foreign accounts. Major coverage include a) process for U.S. account identification, b) information reporting, c) withholding requirements for foreign financial institutions and other foreign entities, and d) U.S. withholding agents.

FORTHCOMING REGULATIONS:

Securities and Exchange Commission (SEC):Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act—Upcoming Activity Estimated July—December 2012

Some of the significant rulemaking planned in the second half of 2012 are a) corporate governance & disclosure, b) credit ratings, c) Derivatives, and d) market oversight.

Commodity Futures Trading Commission (CFTC): Dodd-Frank Title VII Final Rules and Interpretive Orders the CFTC may consider in January—March 2012
The CFTC may consider the following: a) client clearing documentation, clearing member risk management and straight through processing, b) commodity options, c) Designated Contract Markets, d) end-user exception, e) entity definitions, f) external business conduct, g) internal business conduct, h) product definitions, i) definition of Swap Dealers and Major Swap Participants, j) reporting of historical swaps, and k) segregation of cleared swaps.

This blog is produced by Accenture as general information on the subject. It is not intended to provide advice on your specific circumstances. If you require advice or further details on any matters referred to, please contact Accenture. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information.
©2012 Accenture All Rights Reserved

 
 
 

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