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Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
Enhanced Prudential Standards for FBOs, Final Rule
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Enhanced Prudential Standards for FBOs, Final Rule

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This slide deck was designed to accompany a video webcast that included an interactive discussion by a moderator and three panelists. …

This slide deck was designed to accompany a video webcast that included an interactive discussion by a moderator and three panelists.

Enhanced Prudential Standards for FBOs, Final Rule
Origination date: 12 March 2014

Join us for an update on the Federal Reserve's approved Final Rule establishing Enhanced Prudential Standards (EPS) for large Foreign Banking Organizations (FBOs) and US Bank Holding Companies.

Topics included:
• Key aspects of the Final Rule
• Timeline
• Scope of intermediate holding company (IHC) formation
• New Implementation Plan requirement
• Other EPS-related rule changes
• Deferred compliance dates
• Action plan for FBOs

You are welcome to join the on-demand version of this interactive discussion by going to: http://bit.ly/1mWc2bI

This webcast is part of an ongoing series. Register for any EY webcast and you will be asked if you want to receive invitations to future webcasts.

Published in: Business, Economy & Finance
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  • 1. Enhanced Prudential Standards for FBOs, Final Rule 12 March 2014
  • 2. Page 2 Enhanced Prudential Standards for FBOs, Final Rule Disclaimer ► This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ► The views expressed by the presenters are not necessarily those of EY. ► This presentation is © 2014 Ernst & Young LLP. All Rights Reserved. EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more of the member firms, of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a member firm serving clients in the US. For more information about our organization, please visit ey.com.
  • 3. Page 3 Enhanced Prudential Standards for FBOs, Final Rule Circular 230 disclaimer ► Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. ► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
  • 4. Page 4 Enhanced Prudential Standards for FBOs, Final Rule Marc Saidenberg Ernst & Young LLP Principal +1 212 773 9361 marc.saidenberg@ey.com Adam Girling Ernst & Young LLP Principal +1 212 773 9514 adam.girling@ey.com Today’s presenters Chris Maher Ernst & Young LLP Principal +1 212 773 6524 chris.maher@ey.com Peter Davis – Moderator Ernst & Young LLP Principal +1 212 773 7042 peter.davis@ey.com
  • 5. Page 5 Enhanced Prudential Standards for FBOs, Final Rule Today’s agenda ► FBO EPS final rule overview ► FBO EPS final rule applicability ► Linkage to existing BHC regulation ► Legal entity structure ► Final rule timeline ► Key changes from the proposal – IHC requirements ► Key dates for IHC implementation ► Key elements of an implementation plan ► Implications and next steps ► One-minute recap
  • 6. Page 6 Enhanced Prudential Standards for FBOs, Final Rule FBO EPS final rule overview On 18 February 2014, the Federal Reserve Board approved a final rule establishing Enhanced Prudential Standards for both FBOs and US BHCs ► Follows industry comment on proposals issued in late 2011 (BHCs) and late 2012 (FBOs) Objectives ► Address the financial stability risks posed by the US entity, branch and agency operations of FBOs ► Impose comparable supervisory and regulatory standards on FBOs as applicable to US banking organizations ► Establish ‘single point of entry’ to support resolution of US entities ► Ensure consolidated risk governance and integrated view over US operations ► Require FBOs to maintain financial resources in the US by enhancing the quantitative prudential standards applicable to US operations (i.e., capital, liquidity and counterparty limits)
  • 7. Page 7 Enhanced Prudential Standards for FBOs, Final Rule FBO EPS final rule applicability Size Requirements Global assets > US$10b < US$50b ► If publicly traded: US risk committee ► Home country capital stress tests Global assets ≥ US$50b Combined US assets < US$50b ► Home country risk-based and leverage capital ► US risk committee requirements ► Annual liquidity stress test requirement ► Debt to equity limits (if FBO is determined to be a “grave threat”) Global assets ≥ US$50b Combined US assets ≥ US$50b ► Formation of a US Intermediate Holding Company (IHC) if the US non-branch assets ≥ US$50b ► US risk-based and leverage capital requirements ► US capital stress testing (CCAR) ► Risk management requirements (including US Chief Risk Officer (CRO)) ► US risk committee requirements ► US liquidity risk management, liquidity stress testing and buffer ► Debt to equity limits (if FBO is determined to be a “grave threat”) ► IHC expected to be subject to Bank Holding Company (BHC) regulatory reporting requirements
  • 8. Page 8 Enhanced Prudential Standards for FBOs, Final Rule Linkage to existing BHC regulation The EPS final rule is not a fully self contained regulation; in several areas it invokes other existing US BHC regulation and supervisory guidance as applicable to the IHC: EPS Final Rule Basel III Liquidity Risk Management IHC is required to comply with the Basel III market risk and standardized credit risk rules in the same manner and to the same extent as a US BHC Applies standards similar to those in Federal Reserve letter SR 10-6, Interagency Policy Statement on Funding and Liquidity Risk Management Regulatory Reporting Expectation that IHCs would be subject to substantially the same regulatory reporting regime as US BHCs, to be addressed by future rulemaking efforts Capital and Stress Testing (CCAR) IHC is required to comply with the capital plan rule and stress testing standards in the same manner and to the same extent as a US BHC Pending Regulation US LCR Final Rule Single Counterparty Credit Limits Early Remediation Basel III Leverage Revisions Dodd Frank Act Section 165
  • 9. Page 9 Enhanced Prudential Standards for FBOs, Final Rule Legal entity structure Standards applicable to large FBOs with US non-branch assets of US$50b or more Combined US operations ► US risk committee, CRO and governance ► Liquidity prudential standards FBO consolidated parent requirements ► Must meet home-country stress test standards comparable to those of US ► Limited regulatory reporting US branches/agencies requirements ► 14-day stress liquidity buffer requirement ► Asset maintenance requirement and funding restrictions (if parent does not meet home- country stress tests) FBO parent US IHC US branches/ agencies US bank US broker- dealer Other subsidiaries IHC requirements ► Risk-based capital ► Leverage capital ► Capital plan and Stress Testing (CCAR) ► Liquidity risk management, stress testing and buffers ► Risk management framework ► Expected compliance with BHC regulatory reporting requirements
  • 10. Page 10 Enhanced Prudential Standards for FBOs, Final Rule Key changes from the proposal – IHC requirements Formation of the IHC ► FBOs with US$50b or more of non-branch US assets will be required to form an IHC and consolidate any existing BHC, US insured deposit subsidiaries, and 90% of any non-BHC and non-branch assets under the IHC by 1 July 2016 Risk-based capital ► The IHC will be required to comply with US Basel III rules, including market risk and standardized credit risk, but not the US Basel III credit and operational risk advanced measurement approaches Capital planning and stress testing ► CCAR disclosures are phased-in – capital plan and stress tests are non-public in 2017, progressing to full public disclosure of results under both bank and Federal Reserve models in 2018 Liquidity ► The liquidity requirements are largely consistent with the proposed rule, with FBOs subject to liquidity risk management and internal stress test requirements for both the IHC and branch/agency network Risk governance ► The Rule specifies that the IHC’s CRO must be based in the US and provides further clarification of the expected risk management experience for the required independent director Implementation plan ► The Rule introduces a substantial new requirement for IHCs to submit an implementation plan to the Federal Reserve by 1 January 2015, which provides a detailed view of the proposed IHC, as well as a transition plan to comply with applicable regulatory requirements.
  • 11. Page 11 Enhanced Prudential Standards for FBOs, Final Rule Key dates for IHC implementation (institutions with $50 billion or more of US non-branch assets) Final rule implementation dates 1 July 2015 US IHC asset threshold determination to form IHC 30 September 2016 First US regulatory reports filed (FR Y-9C) 1 July 2016 US IHC formation. Risk governance and liquidity requirements apply 30 September 2016 First US Basel III standardized regulatory calculation 5 January 2017 Capital plan and FR Y-14A (non-public) 1 January 2015 Implementation plan due 5 January 2018 Capital plan and full CCAR/DFAST (subject to public disclosure) 18 February 2014 Final rule released 2015 2016 20172014 2018 1 July 2017 US IHC completion (remaining 10% of non-BHC/bank assets) 30 June 2014 US IHC asset threshold determination to submit implementation plan 1 January 2018 Leverage ratio compliance (generally applicable and supplementary leverage ratio (SLR))
  • 12. Page 12 Enhanced Prudential Standards for FBOs, Final Rule Key elements of an implementation plan The implementation plan must address the following areas: ► Structure ► A list of all US subsidiaries, with applicable ownership interests and an organizational chart, which details the proposed IHC ownership hierarchy ► A projected timeline for the transfer by the FBO of ownership interests in US subsidiaries to the IHC ► A description and supporting rationale for all entities not included under the IHC based on the Rule or firm-requested exemptions ► Pro forma financials and capital ratios ► Quarterly pro forma financial statements for the IHC, pro forma regulatory capital ratios and planned capital actions or strategies for capital accretion for the period from 31 December 2015 to 1 January 2018 ► Compliance requirements ► FBOs must provide a description of the current practices and projected timeline, as well as planned actions to comply with the regulatory requirements for risk management and governance, liquidity risk management, liquidity stress testing, liquidity buffers and capital planning ► In addition, FBOs should reasonably expect to include compliance plans for stress testing, as well as financial, bank regulatory and management reporting The Rule introduces a substantial new requirement for FBOs with US$50b or more in non- branch US assets to submit an implementation plan to the Fed by 1 January 2015.
  • 13. Page 13 Enhanced Prudential Standards for FBOs, Final Rule Implications and next steps Final rule topic Potential implications Timing and regulatory expectations ► Potentially heightened supervisory expectations given extended implementation timeline ► Review strategic vs. tactical approaches IHC structure ► Scope of IHC consolidation confirmed; finalize tax, capital, liquidity factors, product moves and business restructuring ► Re-evaluate options to designate BHC as IHC Implementation plan ► Develop ‘plan for the plan’, including governance approvals ► Substantial work to generate pro forma financial statements and capital ratios based on IHC structure selected CCAR and stress testing ► Plan for strategic compliance – governance/process, models, data and infrastructure Risk-based capital ► Focus on standardized credit risk and market risk implementation ► Model risk approvals for market risk remain; re-evaluate possible FRB model approvals for specific risk and IRC ► Re-assess any planned capital actions to meet risk-based capital and leverage ratio requirements SCCL ► Opportunity to better align to global efforts. Other considerations ► Active regulatory dialogue around movement of business into a US branch or to non US entities
  • 14. Page 14 Enhanced Prudential Standards for FBOs, Final Rule One-minute recap
  • 15. Page 15 Enhanced Prudential Standards for FBOs, Final Rule Key contacts Peter Davis Ernst & Young LLP Principal +1 212 773 7042 peter.davis@ey.com Adam Girling Ernst & Young LLP Principal +1 212 773 9514 adam.girling@ey.com Chris Maher Ernst & Young LLP Principal +1 212 773 6524 chris.maher@ey.com Marc Saidenberg Ernst & Young LLP Principal +1 212 773 9361 marc.saidenberg@ey.com
  • 16. Page 16 Enhanced Prudential Standards for FBOs, Final Rule Thanks for participating.

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