Financial Regulatory Developments Focus - 22 April 2014

In this newsletter, we provide a snapshot of the principal European, US and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

REGULATORY CAPITAL

Incorrect Validation Rules In ITS On Supervisory Reporting

On 16 April 2014, the European Banking Authority ("EBA") announced that certain validation rules included in its Implementing Technical Standards ("ITS") on supervisory reporting were incorrect. The EBA published a list of the incorrect validation rules and requested that data submitted under the ITS should not be validated against those rules. An updated list of incorrect rules will be published before 30 June 2014 which is the remittance date for Q1 2014 data. The issue came to the EBA's attention following tests based on real data from reporting firms as well as answers submitted via the EBA's Q&A tool.

The EBA's announcement was made on the same day that the European Commission adopted the ITS on supervisory reporting. The EBA confirmed that the submission dates by banks' to competent authorities of data would be postponed to the end of June 2014. The implementation of the draft ITS on reporting of asset encumbrance has also been postponed and the remittance dates likewise adjusted. The new remittance date is 11 February 2015.

The EBA's announcements are available at: http://www.eba.europa.eu/-/eba-publishes-list-of-incorrect-its-validation-rules; and http://www.eba.europa.eu/-/eba-technical-standards-on-supervisory-reporting-endorsed-with-amended-calendar.

Basel Committee Final Standard of Measuring and Controlling Large Exposures

On 15 April 2014, the Basel Committee on Banking Standards (the "Basel Committee") published the final standard for measuring and controlling large exposures to constrain the maximum loss a bank could face in the event of a sudden failure of a counterparty or group of connected counterparties. The framework is scheduled to take effect from 1 January 2019 and will supersede the Basel Committee's 1991 standard on this topic. Standards or exposures to central counterparties are to be developed by 2016. The final standard includes the following revisions from the previous regime:

a bank may not become exposed by more than 25% of its Tier 1 capital (or 15% in the case of global systemically important banks); and a "large exposure", attracting a reporting "hysteria" is triggered by an exposure of 10% of the bank's...