Your SlideShare is downloading. ×
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Basel 3 February 2012
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Basel 3 February 2012

181

Published on

Basel iii Compliance Professionals Association (BiiiCPA) …

Basel iii Compliance Professionals Association (BiiiCPA)
http://www.basel-iii-association.com

The Basel iii Compliance Professionals Association (BiiiCPA) is the largest association of Basel iii Professionals in the world. It is a business unit of the Basel ii Compliance Professionals Association (BCPA), which is also the largest association of Basel ii Professionals in the world.

Receive (at no cost) the New Member Orientation newsletters:
http://www.basel-iii-association.com/New_Member_Orientation_Newsletters.html

Subscribe to Receive (at no cost) Basel II / Basel III Related News, Alerts, Opportunities, Updates, our Monthly Newsletter and Limited Time Offers for our Basel II / Basel III Training and Certification Programs:
http://forms.aweber.com/form/42/1586130642.htm

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
181
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. 1Basel iii Compliance ProfessionalsAssociation (BiiiCPA)1200G Street NW Suite800Washington, DC 20005-6705USA Tel:202-449-9750Web: www.basel-iii-association.comBasel III News,February 2012Dear Member,Most of the major banks try hard to understand and implement the newBasel iii framework. The same time, banks and financial conglomeratestry hard to influencepoliticiansand changesome of the strict rules.Are thesebanks right orwrong?It is hard to say. All regulatoryframeworkshave unintended consequences…Fitch Ratings, the credit ratingsagency, hasreleaseda statement whichexplainsthat the USFederal Reservesadoption of the BaselIII capitalrequirementscan harm the credit marketsby restricting theactivitiesofbanksthat make loans.Mr Dimon, thechief executiveand chairman of JPMorganChase(anddefinitelynot a fan of thenew Basel iii framework) hassaid that banksallaround the worldwereconcentrating on increasingtheir exposurestoassetsthat have advantageousrisk weighting, while limitingexposure toassetsthat havedisadvantageousriskweighting. Whereistheproblem?Ahuge one… regulatorsare causing thebanking system to amassenormousconcentrationsof assetsthat haveadvantageousrisk weightingAn important concentrationrisk that hasa simplecause: Baselii/ iii.Thecurrent crisisin Europeis an exampleof wrongBasel 2principlesandcapital regulations.According toBasel 2, sovereignriskisnot that animportant risk… somany times, banksdid not havetoset asideanycapital at all for thegovernment bondstheyheld.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 2. 2Banks in Europe alsotry toavoid some of themost challengingBaseliiiimplementation rules.France and Germanyare alsopushingfor a delay.But the last week of January, MichelBarnier, the EuropeanCommissioner in chargeof financial regulation, said that hewouldstickstrictlyto a timetablealready agreed for implementingstricter Basel IIIbank capital requirements.Basel iii is a good framework. Good but not great.Basel III liquidity standard and strategy for assessingimplementation of standardsEndorsedby Group of Governorsand Headsof Supervision8January 2012TheGroup of Governorsand Headsof Supervision (GHOS), theoversightbodyof theBasel Committeeon BankingSupervision, met on 8January2012.Themain itemsof discussionwerethe Basel CommitteesproposalsontheLiquidityCoverage Ratio (LCR) and itsstrategy for assessingimplementationof theBasel regulatory frameworkmore broadly.TheGHOSendorsed the Committees comprehensiveapproach tomonitoring and reviewingimplementationof the Baselregulatoryframework.GHOS Chairman and Governor of the Bank of England Mervyn Kingnoted that "the focus on implementation represents a significant newdirection for theBasel Committee.Thelevel of scrutinyand transparencyapplied to the manner in whichcountriesimplement therulesthe Committeehasdeveloped and agreedwill help ensure full, timely and consistent implementation of theinternational minimum requirements".Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 3. 3TheCommitteewill monitor,onanongoingbasis,thestatusofmembersadoption of the globally-agreed Basel rules.It will review the complianceof members domestic rulesor regulationswith the international minimum standardsin order toidentifydifferencesthat could raiseprudential or level playing field concerns.TheCommitteewill alsoreview the measurement of risk-weightedassetstoensure consistencyin practiceacrossbanksand jurisdictions.Against thisbackground, each Basel Committeemember country hascommitted to undergoa detailed peer review of itsimplementationof allcomponentsof theBasel regulatory framework.In additiontoBaselIII, the Committeewill assessimplementation ofBaselII and BaselII.5(ie theJuly2009enhancementson market risk andresecuritisations).TheGHOSalsoendorsedthe Committees agreement to publishtheresultsof the assessments.TheBasel Committeewill discussand define theprotocol governingthepublication of the results.TheGHOSalsoagreed that the initialpeer reviewsshould assessimplementationin the European Union, Japanand the United States.Thesereviewswill commencein the first quarter of 2012.Mr Stefan Ingves,Chairman of the Basel Committee and Governor of theSwedishRiksbank, noted that "the Committeesrigorouspeer reviewprocessis a clear signal that effectiveimplementationof theBaselstandardsis a top priority.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 4. 4Raisingthe resilienceof the global bankingsystem, restoringandmaintainingmarket confidencein regulatory ratios,and providinga levelplaying field will onlybe achieved through full, timely and consistentimplementation".With respect to the LiquidityCoverageRatio, GHOS membersreiteratedthecentral principlethat a bank is expectedto have a stablefundingstructureand astock of high-qualityliquid assetsthat should beavailabletomeet itsliquidityneedsin timesof stress.Oncethe LCR hasbeen implemented, its100% threshold will be aminimum requirement in normal times.Butduringaperiodofstress,bankswouldbeexpectedtousetheir poolofliquidassets, therebytemporarily fallingbelow theminimumrequirement.TheBasel Committeehasbeen askedtoprovidefurther elaborationonthisprinciplebyclarifyingtheLCR rulestext tostateexplicitlythat liquidassetsaccumulatedin normal timesare intendedtobe used in timesofstress.It will alsoprovide additional guidanceon the circumstancesthat wouldjustify the use of thepool.TheBasel Committeewill alsoexaminehow central banks interact withbanksduringperiodsof stress,with a view to ensuring that the workingsof the LCR donot hinder or conflict withcentral bank policies.TheGHOSalsoreaffirmed itscommitment tointroducetheLCR asaminimum standard in 2015.Membersfullysupportedthe Committees proposed focus, courseofactionand timelinetofinalisekeyaspectsof the LCR by addressingBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 5. 5specific concernsregardingthepool of high-qualityliquid assetsaswellassome adjustmentsto the calibrationof net cashoutflows.Themodificationscurrentlyunder investigationapplyonly toa few keyaspectsand will not materiallychangetheframeworksunderlyingapproach.TheGHOS directed the Committeeto finaliseand subsequentlypublishitsrecommendationsin thesethree areasby the end of 2012.GovernorKing said, "The aim of the LiquidityCoverageRatiois toensure that banks, in normal times, have a sound fundingstructure andhold sufficient liquid assetssuch that central banks areasked to performonlyaslendersof last resort and not aslendersof first resort.While theLiquidityCoverageRatiomay represent a significant challengefor some banks, thebenefitsof a strong liquidityregime outweightheassociated implementation costs."Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 6. 6SIFIs: isthere a need for a specific regulation on systematicallyimportant financial institutions?Remarksof Stefan Ingves,Chairmanof theBasel Committeeon BankingSupervisionand Governor of SverigesRiksbank, prepared for roundtablediscussion at theEuropean IdeasNetwork Seminar on Long-termgrowth:organizingthe stabilityand attractivenessof European FinancialMarkets,Berlin (Deutsche Bank), 19-20January 2012.Goodmorningandthank you forinvitingmetosharesomethoughtswithyou on the questionof whethera specific treatment is warrantedforsystemicallyimportant financial institutions,or "SIFIs".In the few minutesI have tointroducethis topic, I will set out the basisfor the Basel Committees responsetothisquestion, whichis anunqualified "yes".I will saya few wordsabout the Committeesview and the actionswehavetaken on SIFIsthat have been stronglyinfluencedby recentexperience.I will then review how our responsewill helptoaddressthetoo-big-to-failissue.Our work on thisissueis ongoing and I will then saya few wordsabouttheCommitteescurrent efforts.I willconcludebysharingwithyou my thoughtson thedirectionoffutureworkrelated to global systemically important banks - or G-SIBs.Experiencesfrom thebanking system - focuson G-SIBsTheBasel Committeesmotivation for policy measuresfor G-SIBs thatsupplement the Basel III frameworkis based on the "negativeBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 7. 7externalities" that thesefirms createand whichcurrent regulatorypoliciesdonot fullyaddress.Theseadverse sideeffectscan become amplified by the global reach ofthesefirms- aproblem in anyoneG-SIB could triggerproblemsfor otherfinancial institutionsaround the worldand evendisrupt theglobaleconomy (eg Lehman Brothers).Theimpact caused by thefailure of large, complex, interconnected, globalfinancial institutionscansend shocksthroughthefinancial systemwhich, in turn, can harm the real economy.This scenario played out in the recent crisisduring which authoritieshadlimitedoptionsother than the provision of public support asa meansforavoidingthetransmission of such shocks.Such rescueshave had obviousimplicationsfor fiscal budgetsandtaxpayers. In addition, themoral hazard arisingfrom public sectorinterventionsand implicit government guaranteescan alsohave longerterm adverseconsequences.Theseincludeinappropriaterisk-taking, reducedmarketdiscipline,competitivedistortions,andincreasedprobability ofdistressinthefuture.The Basel Committees responseWhat hasthe Committeedone in responsetothe G-SIB issue?As a starting point, werecognised that there is nosinglesolution fordealingwiththe negative externalitiesposedby G-SIBs.BaselIII willhelpimprovetheresilienceofbanksandbankingsystemsina number of ways.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 8. 8Theseincludebetter qualityand higher levelsof capital;improvingriskcoverage;introducinga leverageratiotoserveasa backstop totherisk-basedframework;introducingcapital buffersaswell asa globalstandard for liquidityrisk.Thesemeasuresare significant but arenot sufficient toaddressthenegative externalitiesposedby G-SIBs nor are they adequateto protectthesystem from thewiderspillover risksof G-SIBs.TospecificallyaddresstheG-SIBs issue, the Committees approachistoreducetheprobabilityof a G-SIBs failureand the impact of a potentialfailure by increasingits lossabsorbency in the form of a common equitycapital surcharge.Basedon a methodologyfor assessing systemic importanceof G-SIBs, thisadditionallossabsorbencywillcomplement themeasuresadoptedbytheFinancialStabilityBoard (FSB) toestablishrobust nationalresolutionand recovery regimesand toimprove cross-borderharmonisationand coordination.But even with improved resolution capacity, the failure of the largest andmost complex international banks will continue to pose disproportionaterisksto the global economy.Our empiricalanalysisindicatesthat thecostsof requiringadditionallossabsorbencyfor G-SIBsareoutweighedby the associatedbenefits ofreducingthe probability of a systemic financial crisis.We have alsointroduced transitional arrangementstoimplement thecapital surchargethat help ensure that the banking sector can meet thehigher capital standardsthrough reasonableearningsretentionandcapital raising, whilestill supporting lendingto the economy.TheCommittees analysispointstoadditional lossabsorbency generallyin therangeof around 1% to 8% of risk-weightedassets. Our agreedBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 9. 9calibrationfrom 1% to2.5% isin thelowerhalf of thisestimatedrange.Asa meansto discouragebanksfrom becoming even more systemicallyimportant, there is a potential surchargeof 3.5%.Looking aheadTheCommittees approach to dealing withG-SIBswasendorsedby theG20Leadersat their November 2011summit.At that time, an initial list of 29 banksthat weredeemed globallysystemicallyimportant waspublished.This isnot a fixed listand it will be updatedannuallyand published eachNovember.Transparencyis a very high priorityand weexpect market disciplinetoplayan important role.Assuch, themethodologyand the data usedtoassesssystemicimportancewill be publicly availablesothat marketsand institutionscanreplicatethe Committees determination.Therequirementswill be phased in startingJanuary 2016withfullimplementation by January2019.Thebasis for adoptingspecific requirementsto addressexternalitiesposed by G-SIBs isnot exclusivefor theglobal banking system.Measuresshould be developed for all institutionswhosedisorderlydistressor failure, becauseof their size, complexityand systemicinterconnectednesswouldcausesignificant disruption to thewiderfinancial system and economic activity.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 10. 10These could include financial market infrastructures, insurancecompanies, other non-bank financial institutions and domesticsystemicallyimportant banks.TheCommitteeisnow in theprocessof determiningwhether there areelementsof the G-SIBsassessment methodologythat could be applied todomesticSIBs.Anumber of countries,notablySwitzerland, the United Kingdom andSwedenhave alreadytaken action toimplement higher capitalrequirementsfor banks that are deemed systemically important at thenational level.TheSwisstoo-big-to-fail package, whichwasapproved by the SwissParliament in September 2011, is due tocome intoforce on 1March2012.Thepackage, whichis particularlydemandingwithrespect tocapitalrequirements,consistsof the following:Acapital buffer of 8.5% of risk-weightedassets.This is in addition tothe BaselIII minimum requirement of 10.5%.Of this8.5%, at least 5.5% must be in theform of common equitywhileup to3% may beheld in the form of convertiblecapital (CoCos).TheCoCoswouldconvert whena bankscommon equityfallsbelow 7%.Thetwobig Swissbanks,Credit SwissandUBSwillhavetoholdatotalof10%common equitytier 1capital.This exceedsboth Basel III and the internationallyagreed capitalsurchargefor G-SIBs.Thepackage alsoincludesa so-called"progressivecomponent" equal to6% of RWA consistingentirelyof CoCos.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 11. 11Unlike the CoCos under the buffer, the Cocos under the progressivecomponent will convert when capital levels falls below 5% commonequity.In theUnited Kingdom, Sir John Vickers,chair of theIndependentCommission on Banking, recommendedin September 2011thatsystemicallyimportant retail banks definedasretail banks withRWAexceeding3% of GDP should haveprimary loss-absorbingcapacityof atleast 17-20% of RWA.At least 10% must be covered by equity capital while the remaining 7-10%may consist of long-term unsecured debt that regulators could require tobear lossesin resolution. Thesearethe socalledbail-in bonds.Theproposed changesrelated to lossabsorbencyare intended to be fullycompleted by the beginningof 2019.In Sweden, authorities(theSwedishFinancial SupervisoryAuthority, theMinistryof FinanceandtheRiksbank) announcedin November 2011thatcapital ratiosfor thefour major banks will be advocated toat least 10%common equityto RWA from 1January2013,and 12% from 1January2015.TherequirementsfollowtheBasel III definitionsand include, like BaselIII, a capital conservation buffer of 2.5%, but no countercyclicalbuffer.TheSwedishproposal goesfurther thanBasel III, both with regard tothelevelsand in termsof timingConclusionBaselIII will improvetheresilienceof banksand bankingsystemsbut byitselfisnot sufficient to fullyaddressthenegativeexternalitiesarisingfrom global systemically important banks.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 12. 12Theseadverse sideeffects,which includean increasedrisk of contagionandmoral hazard, haveseriousimplicationsfor fiscal budgetsandtaxpayers.In response, the Basel Committee hasdeveloped assessmentmethodologyto identify G-SIBs and hasadopted an additional lossabsorbencyrequirement for such banksthat must be met through highercommon equity.This is meant toreducetheprobabilityof a G-SIBs failure by increasingitslossabsorbencyin theform of a common equitycapitalBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 13. 13FSB - G20 MONITORING PROGRESSThe United States of AmericaInterestingpartsTheBasel III frameworkagreement and other BaselIII proposals, mustbefully implemented through US regulationsby the end of 2012.TheUnited Statesis committedto meetingthesedeadlines.U.S. agenciesexpect to releasea final rulein 2012, in order tomeet theimplementationtimeline of January 1,2013.Stresstestingformsone part of enhanced supervision under theDodd-FrankAct (DFA).TheDFA requiresone supervisorystresstest per year to be conductedbytheFederal Reserve on banks with more than $50billion in consolidatedassetsand/ orbanksdesignated for heightened supervisionand twostresstestsper year by largefirms.TheDFA requiresboth banksand supervisorsto discloseresults,althoughtheexact natureof that disclosure isstill subject torule making.On March22,2010,U.S. supervisorsissuedthefinal interagencyguidanceon funding and liquidityrisk management.Thepolicystatement emphasizestheimportanceof cashflowprojections,diversifiedfundingsources,stresstesting, acushion ofliquidassets,and a formal, welldeveloped contingencyfundingplan asprimarytoolsfor measuringand managing liquidityrisk.In the springof 2011, Federal Reserve completeda ComprehensiveCapitalAnalysis and Review (CCAR), a cross-institution study of thecapital plansof the 19largest U.S.bank holdingcompanies.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 14. 14TheCCAR involved a forward-looking, detailed evaluationof capitalplanningand stressscenario analysisat the19largebank holdingcompanies.As part of theCCAR, theFederal Reserveassessedthefirmsability, aftertakingintoaccount theproposed capital actions,tomaintainsufficientcapital levelstocontinuelendingin stressedeconomicenvironments,includingunder an adversescenariospecified by theFederalReserve.TheDodd-Frank Act requires the Federal Reserve to conduct annualstresstestsfor all systemically important companiesand publish asummary of the results.Additionally, theAct requiresthat thesesystemicallyimportant companiesand all other financial companies with $10billion or more in assets thatareregulatedby a primary Federal financial regulatory agencyconductsemi-annual or annual (respectively) internalstresstestsand publish asummaryof the resultsSupervisoryreviewsare ongoing, with a focus on requiring bankorganizationstohave sound capital planningpoliciesand processesfordeterminationsregardingdividend, aswell asthe redemption andrepurchaseof common stock and other tier 1capital instruments.Regulatorsare writingrulesgoverningstresstestsunder the DFA.Thedeadlineforimplementationof rulesgoverningstresstestsisJanuary17,2012.U.S. agenciesare incorporatingthe guidanceintothesupervisory process.U.S.supervisorscontinuetomonitor theliquidityrisk profiles of all banksvia the field examination staff.Theyalsocollect liquiditydata at largeand regional banks on a daily ormonthlybasis.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 15. 15On June15, 2011, U.S. banking supervisorspublished proposed guidanceon stresstesting applicableto all banking organizationswithmore $10billion in consolidatedassetsAddressing systemically important financial institutions (SIFIs)TheDodd-Frank Act modifies U.S. regulatory frameworkbycreatingtheFinancialStabilityOversight Council (FSOC), chairedbytheSecretaryofthe Treasury, withthe authorityto determine that a nonbank financialcompany shall be supervised by the Board of Governorsand subject toprudential standardsif theCouncil determinesthat material financialdistressat thenonbank financial company, or thenature, scope, size, scale, concentration, interconnectedness, or mix of theactivitiesof thenonbank financial company, could posea threat to thefinancial stability of the UnitedStates.TheFSOC issued a second notice of proposed rulemakingand proposedguidanceon October 11, 2011.Thebanking agencieshave actively participated in drafting andcommentingon thedocumentsincluded in theKeyAttributesofEffectiveResolution Regimesfor Financial Institutionsthat wasapproved by the FSB Plenaryin Oct. 2011.CMG meetingshavebeen held with major U.S. banking firmsand theirsignificant host regulators.TheU.S.firms submitted initial recovery planstoU.S.regulatorsonAugust 16, 2010.U.S.regulatorsreviewedtheplansand are workingwiththefirms to further refinethem.Information from the recovery planswill help toinform theU.S.regulatorsin developingand maintainingfirm-specific resolutionplans.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 16. 16TheDodd-Frank Act creatednew authoritytoresolve nonbank financialinstitutions,similar tothat which the FDIC has withregard toinsuredbanks,whosefailure could have serioussystemic effects.Additionally, legislation requiresresolutionplansfor all large bankholdingcompaniesand non-bank financial companies subject toheightened supervisionby the Federal Reserve.TitleII of the Dodd-FrankAct allowstheFDIC to be appointedasreceiver for nonbank financial firms, the failure of which could causesystemic risk totheU.S. economy.Under the Dodd-Frank Act framework, the FDIC can create a bridge firmin order to maximize value in an orderly liquidation processfor a financialgroup.While TitleII became effectiveupon signing, the FDIC draftedregulationsfor theimplementationof itsauthorityunder TitleII toprovideclarityon how the FDIC wouldimplement a resolutionunder theDodd-FrankAct.A first set of interim final rules was adopted in January 2011. A second setof rules was proposed in March 2011, and a final rule was approved in July2011.TheFRB and FDIC are finalizingissuanceof a rule implementing theresolutionplan provision in the legislationwhichis due18 monthsfrom enactment.On September 21, 2011, the FDIC adopted an interim rule requiringaninsureddepositoryinstitutionwith$50billion or more in total assetstosubmit to theFDIC a contingencyplan for the resolution of suchinstitution in the event of itsfailure. Commentsare due by November21,2011.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 17. 17Extending the regulatory perimeter to entities/activities thatpose risksto the financial systemTheFSOC hasauthority toexpand theU.S. regulatory perimeterbydesignatingthe largest, most interconnected nonbank firmsforheightened prudential standardsand supervisionby theFederal Reserve.TheFSOC hasproposed a rule regardingthe criteria and processfordesignatingnonbank financial firms.FSOC issued a second more detailedproposal on this framework,withinterpretiveguidanceon October 11, 2011for public comment.Hedge fundsOperatorsandmanagersof commoditypoolsare requiredtoregisterwiththeCFTC asCommodity Pool Operators,and thosewhomake tradingdecisionson a pool’s behalf must register withtheCFTC asCommodityTradingAdvisors.Certainexemptionsfrom registration apply, however, includingforoperatorsof poolsthat accept no more than 15 participantsor are“otherwiseregulated” asan SECregistered investment company, aswellasoperatorsof poolsthat have limitedfuturesactivityor that restrictparticipationtosophisticated persons.Pursuant to legislationpassed by Congress, CFTC and SEC staff havejointlyproposed regulationsfor public comment that establishtheformand content of the reportsthat dual-registeredinvestment adviserstoprivate fundsare required to file.Theregulationswill require investment adviserstomaintain recordsandmay require them tofile information relatedto: use of leverage;counterpartycredit risk exposure; tradingand investment positions;Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 18. 18valuation policies and practicesof the advised fund(s); typesof assetsheld; sidearrangementsor sideletters;tradingpractices;and anyother information deemed necessary.Reportsof dual registrantsare expected to be filed SEC and madeavailableto theCFTC.On January26,2011, theCFTC andSEC jointlyproposedrulesthat wouldrequirecertain private fund adviserstomaintainrecordsand certainprivate fund adviserstofile non-publicinformation designedtoassist theFinancial StabilityOversight Council in itsassessment of systemic riskinthe U.S. financial system.Under the proposal, each private fund adviser would file certain basicinformation annually, and certain largeprivateadvisers(i.e. thoseadvisersmanaginghedgefundsthat collectivelyhaveat least $1billion in assetsasof the closeof businesson any day during the reportingperiod for therequiredreport) wouldfile basicinformation each quarter alongwithadditional systemic risk relatedinformationconcerning certain of theirprivate funds.Thecomment period closed onApril 12, 2011, and the CFTC and SECplanto finalize the rules this fall.Recordkeepingand reporting requirementswill includedisclosureof:Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com(i)(ii)(iii)(iv)(v)assetsunder management;useof leverage;counterparty credit risk exposure;tradingand investment positions;andtradingpractices, aswell asother specified information.TheDodd-Frank Act providesfor a one-year transitionperiod from thedate of enactment beforethe privatefund adviser registrationandrecordkeeping/ disclosureobligationsgointoeffect.
  • 19. 19TheSEC will engagein rulemakingto implement certain provisions.TheDodd-Frank Act generallyrequiresall advisersto hedgefunds(andother private poolsof capital, includingprivateequityfunds) whoseassetsunder management exceed $100million toregister withtheSEC.TheAct authorizesthe SEC to impose recordkeepingand reportingrequirementson not only thoseadvisersrequiredtoregister, but alsocertainother privatefund advisers(i.e. adviserstoventure capital funds).Therecordkeepingand reportingrequirementsare designedto requireprivatefund adviserstoreport information on thefundstheymanagethatis sufficient to assesswhetheranyfund posesa threat to financial stability.SecuritisationIn April 2010,theSEC proposedrevisionstoitsrulesrelatingtoABS shelfeligibility.In July2010,USCongresspassed the Dodd-FrankAct, whichrequiresrulemakingto implement further changesrelatedtothe offeringofsecuritizedproductsin the United States.Section 943 of the Dodd-Frank Act requires issuers of ABS to disclose thehistory of the requeststhey received and repurchasesthey made related totheir outstandingABS.TheSEC approved final rulestoimplement Section 943on January20,2011.Thefinal rulesrequireABS issuerstofilewith theSEC, in tabular format;thehistory of therequeststheyreceivedand repurchasesthey maderelatingtotheir outstandingABS.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 20. 20Thetablewill providecomparable disclosuressothat investorsmayidentify originatorswith clearunderwritingdeficiencies.TheSEC alsoadoptedfinal rulesto implement Section 945 of theDodd-FrankAct, which requiresABSissuerstoreview assetsunderlyingtheABS and todisclosethe nature of thereview.In July2011, theSEC issueda followup re-proposal totheApril 2010proposalonABS shelf eligibility.As part of this re-proposal,the SEC solicitedcommentson provisionsrequiringissuersof privateABS torepresentthat theywill make thesameinformation availableto investorsthat wouldbe provided if the securitieswerepubliclyregistered.TheJuly 2011re-proposalalsosolicitedcommentson whether theApril2010proposal appropriately implemented Section 942(b) of theDodd-FranckAct withregard to thedisclosureof asset-levelor loan-level dataforABS, if suchdata are necessaryfor investorstoindependentlyperformduediligence.In August 2011the SEC adoptedfinal rulestoimplement Section 942ofthe Dodd FrankAct to eliminatetheautomaticsuspensionof ExchangeAct reportingobligationsforABS issuersaslong assecurities are held bynon-affiliatesof the issuer.Also pursuant to Section 942, the SEC adoptedrulesto allowfor thesuspensionof reportingobligationsforABS issuersfor a semi annualperiod if there are nolonger anyABS of the classsold in a registeredtransactionheld bynon-affiliatesof the issuer.In April 2010,IOSCO issueditsDisclosurePrinciplesforPublic Offeringsand ListingsofAsset-backed Securities.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 21. 21TheSEC adopted new rules relatedtoABS in January andAugust 2011.Implementation isongoing.Section 941(b) of theDodd-FrankAct requiresfederal bankingagenciesandtheSEC tojointlyprescriberegulationsthat require securitizersofABS, by default, tomaintain5% of the credit riskin assetstransferred,soldor conveyed through theissuanceofABS.To implement this,theSEC and other FederalagenciesproposedrulesinMarch2011relatingto credit risk retention requirements.Theproposedruleswouldpermit asponsortoretainaneconomicinterestequal toat least 5% of the credit risk of theassetscollateralizinganABSissuance.Theproposedruleswouldalsopermit asponsortochoosefromamenuofretentionoptions, withdisclosurerequirementsspecificallytailoredtoeach form of risk retention.The New York Department of Insurance considered legislation to reviseoversight of financial guaranty insurers, which would have served as thebasisfor additionalstate activityin this area.This legislativeresponsewasin additionto increasedmonitoring andsupervision of financial guarantyinsurersthat is ongoing.TheNew York Department of Insurancehas taken proactivestepstoensure that other relevant stateinsurancedepartment regulators remaincurrent and up-to-dateon the solvencyof financial guaranty insurersthrough quarterly updatesand interstateregulatory communication.However,the market has contractedsuch that there isonlyone activewriterof financial guarantyinsurancefocusingprimarily on municipalbond insurancecoverage(andnot structuredproducts) and consequentlytherehasnot been a need for legislativerevisionsat thistime.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 22. 22Stateinsuranceregulatorsare closelymonitoring, and collaboratingonsupervision of financial guarantyinsurers.Given thecurrent scrutinyand the significant market contraction intomore traditional bond insurancecoverage, there isnoadditionallegislativeor regulatorychangesanticipatedat this time.Credit rating agenciesTheCredit RatingAgency Reform Act of 2006(RatingAgencyAct)provided the SEC with exclusiveauthoritytoimplement a registrationand oversight program for NationallyRecognizedStatisticalRatingOrganizations(NRSROs).In June 2007, the SEC approved rulesimplementinga registration andoversight program for NRSROs, whichbecame effectivethat samemonth.Therules establishedregistration, recordkeeping, financial reportingandoversight rulesfor credit rating agenciesthat applyto be registeredwiththeSEC.Theserulesare consistent with theprinciplesset forth in the IOSCOStatement of PrinciplesRegardingtheActivitiesof Credit RatingAgencies and theIOSCO Code of Conduct Fundamentalsfor CreditRatingAgencies.Sinceadopting theimplementingrulesin 2007, the SEC hasadoptedadditional amendmentsto itsNRSRO rules.TheDodd-Frank Act containsa number of provisionsdesignedtostrengthentheSEC’sregulatory oversight of NRSROs.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 23. 23On May18, 2011, theSEC voted to proposenew rules and amendmentsthat would implement certain provisionsof theDodd-FrankAct andenhancethe SEC’s existingrulesgoverningcredit ratingsand NRSROs.TheRatingAgencyAct wasenactedin order “to improve ratingsqualityfor the protection of investorsand in thepublic interestby fosteringaccountability, transparency, and competitionin the credit ratingindustry.”Tothat end, the RatingAgencyAct and the SEC’simplementingregulationsprohibit certain conflictsof interest for NRSROs and requireNRSROs todiscloseand managecertainothers.NRSROs are alsorequired todisclosetheir methodologiesandunderlying assumptionsrelatedto credit ratingsthey issuein additiontocertainperformancestatistics.Under the new rules and rule amendments proposed by the SEC on May18, 2011to implement certain provisionsof the Dodd-Frank Act, NRSROswouldbe required to, among other things:- Report on internal controls.- Protect against certain additional conflictsof interest.- Establishprofessional standardsfor credit analysts.- Publiclyprovide – along withthepublication of the credit rating –disclosureabout the credit rating and themethodology used todetermineit.- Enhancetheir publicdisclosuresabout the performanceof theircredit ratings.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 24. 24Risk managementTheDodd-Frank Act requires the Federal Reserve to conduct annualstresstestsfor all systemically important companiesand publish asummary of the results.Additionally, theAct requiresthat thesesystemicallyimportant companiesand all other financial companieswith $10billion or more in assetsthatareregulatedby a primary Federal financial regulatory agencyconductsemi-annual or annual (respectively) internal stresstestsandpublish asummaryof the results.TheFederal Reserve hascreated an enhanced quantitativesurveillanceprogram that will usesupervisoryinformation, firm specificdataanalysis, and market based indicatorstoidentify developingstrainsandimbalancesthat may affect thelargest and most complex firms.Periodic scenario analysis across large firms will enhance understandingof the potential impact of adverse changes in the operating environmenton individual firmsand on the system asa whole.This work will be performed by a multi-disciplinarygroup comprisedofeconomicand market researchers, supervisors,market operationsspecialists,and accountingand legal experts.TheFederal Reserve is currentlydeveloping rulestoimplement theprovision in coordinationand consultationwiththeother relevantagencies.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 25. 25TheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) is thelargest associationof Basel iii Professionalsin theworld. It is a businessunit of theBasel ii ComplianceProfessionalsAssociation (BCPA), whichis alsothe largest associationof Baselii Professionalsin the world.Basel III SpeakersBureauTheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) hasestablished the Basel III Speakers Bureau for firmsand organizationsthat want toaccessthe Basel iii expertise of Certified BaseliiiProfessionals(CBiiiPros).TheBiiiCPAwill be the liaisonbetweenour certified professionalsandtheseorganizations,at nocost. We stronglybelievethat this can be agreat opportunityfor both, our certified professionalsand theorganizers.Tolearnmore:www.basel-iii-association.com /Basel_iii_Speakers_Bureau.htmlCertified Basel iii Professional (CBiiiPro)Distance Learning and Online Certification Program.TheCost: US$297What is included in this price:A. The official presentationsweuse in our instructor-led classes(1426slides)You can find the coursesynopsis at:www.basel-iii-association.com/ Course_Synopsis_Certified_Basel_III_Professional.htmlBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 26. 26B. Up to3 OnlineExamsThere is onlyone exam you need topass, in order tobecomea CertifiedBasel iii Professional (CBiiiPro).If you fail, you must studyagain theofficial presentations,but you donotneedtospendmoneytotryagain. Upto3examsareincludedintheprice.Tolearnmore you may visit:www.basel-iii-association.com/ Questions_About_The_Certification_And_The_Exams_1.pdfwww.basel-iii-association.com/ Certification_Steps_CBiiiPro.pdfC. PersonalizedCertificateprinted in full color.Processing, printingand posting toyour office or home.Tobecome a CertifiedBaseliii Professional (CBiiiPro) you must followthestepsdescribedat:www.basel-iii-association.com/ Basel_III_Distance_Learning_Online_Certification.htmlBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  • 27. 27Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com

×