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.
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1. 1
Basel iii Compliance ProfessionalsAssociation (BiiiCPA)
1200G Street NW Suite800Washington, DC 20005-6705USA Tel:
202-449-9750Web: www.basel-iii-association.com
Basel III News,February 2012
Dear Member,
Most of the major banks try hard to understand and implement the new
Basel iii framework. The same time, banks and financial conglomerates
try hard to influencepoliticiansand changesome of the strict rules.
Are thesebanks right orwrong?It is hard to say. All regulatory
frameworkshave unintended consequences…
Fitch Ratings, the credit ratingsagency, hasreleaseda statement which
explainsthat the USFederal Reserve'sadoption of the BaselIII capital
requirementscan harm the credit marketsby restricting theactivitiesof
banksthat make loans.
Mr Dimon, thechief executiveand chairman of JPMorganChase(and
definitelynot a fan of thenew Basel iii framework) hassaid that banksall
around the worldwereconcentrating on increasingtheir exposuresto
assetsthat have advantageousrisk weighting, while limitingexposure to
assetsthat havedisadvantageousriskweighting. Whereistheproblem?A
huge one… regulatorsare causing thebanking system to amassenormous
concentrationsof assetsthat haveadvantageousrisk weighting
An important concentrationrisk that hasa simplecause: Baselii/ iii.
Thecurrent crisisin Europeis an exampleof wrongBasel 2principles
andcapital regulations.According toBasel 2, sovereignriskisnot that an
important risk… somany times, banksdid not havetoset asideany
capital at all for thegovernment bondstheyheld.
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2. 2
Banks in Europe alsotry toavoid some of themost challengingBaseliii
implementation rules.France and Germanyare alsopushingfor a delay.
But the last week of January, MichelBarnier, the European
Commissioner in chargeof financial regulation, said that hewouldstick
strictlyto a timetablealready agreed for implementingstricter Basel III
bank capital requirements.
Basel iii is a good framework. Good but not great.
Basel III liquidity standard and strategy for assessing
implementation of standards
Endorsedby Group of Governorsand Headsof Supervision
8January 2012
TheGroup of Governorsand Headsof Supervision (GHOS), theoversight
bodyof theBasel Committeeon BankingSupervision, met on 8January
2012.
Themain itemsof discussionwerethe Basel Committee'sproposalson
theLiquidityCoverage Ratio (LCR) and itsstrategy for assessing
implementationof theBasel regulatory frameworkmore broadly.
TheGHOSendorsed the Committee's comprehensiveapproach to
monitoring and reviewingimplementationof the Baselregulatory
framework.
GHOS Chairman and Governor of the Bank of England Mervyn King
noted that "the focus on implementation represents a significant new
direction for theBasel Committee.
Thelevel of scrutinyand transparencyapplied to the manner in which
countriesimplement therulesthe Committeehasdeveloped and agreed
will help ensure full, timely and consistent implementation of the
international minimum requirements".
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TheCommitteewill monitor,onanongoingbasis,thestatusofmembers'
adoption of the globally-agreed Basel rules.
It will review the complianceof members' domestic rulesor regulations
with the international minimum standardsin order toidentifydifferences
that could raiseprudential or level playing field concerns.
TheCommitteewill alsoreview the measurement of risk-weightedassets
toensure consistencyin practiceacrossbanksand jurisdictions.
Against thisbackground, each Basel Committeemember country has
committed to undergoa detailed peer review of itsimplementationof all
componentsof theBasel regulatory framework.
In additiontoBaselIII, the Committeewill assessimplementation of
BaselII and BaselII.5(ie theJuly2009enhancementson market risk and
resecuritisations).
TheGHOSalsoendorsedthe Committee's agreement to publishthe
resultsof the assessments.
TheBasel Committeewill discussand define theprotocol governingthe
publication of the results.
TheGHOSalsoagreed that the initialpeer reviewsshould assess
implementationin 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 the
SwedishRiksbank, noted that "the Committee'srigorouspeer review
processis a clear signal that effectiveimplementationof theBasel
standardsis a top priority.
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Raisingthe resilienceof the global bankingsystem, restoringand
maintainingmarket confidencein regulatory ratios,and providinga level
playing field will onlybe achieved through full, timely and consistent
implementation".
With respect to the LiquidityCoverageRatio, GHOS membersreiterated
thecentral principlethat a bank is expectedto have a stablefunding
structureand astock of high-qualityliquid assetsthat should beavailable
tomeet itsliquidityneedsin timesof stress.
Oncethe LCR hasbeen implemented, its100% threshold will be a
minimum requirement in normal times.
Butduringaperiodofstress,bankswouldbeexpectedtousetheir poolof
liquidassets, therebytemporarily fallingbelow theminimum
requirement.
TheBasel Committeehasbeen askedtoprovidefurther elaborationon
thisprinciplebyclarifyingtheLCR rulestext tostateexplicitlythat liquid
assetsaccumulatedin normal timesare intendedtobe used in timesof
stress.
It will alsoprovide additional guidanceon the circumstancesthat would
justify the use of thepool.
TheBasel Committeewill alsoexaminehow central banks interact with
banksduringperiodsof stress,with a view to ensuring that the workings
of the LCR donot hinder or conflict withcentral bank policies.
TheGHOSalsoreaffirmed itscommitment tointroducetheLCR asa
minimum standard in 2015.
Membersfullysupportedthe Committee's proposed focus, courseof
actionand timelinetofinalisekeyaspectsof the LCR by addressing
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specific concernsregardingthepool of high-qualityliquid assetsaswell
assome adjustmentsto the calibrationof net cashoutflows.
Themodificationscurrentlyunder investigationapplyonly toa few key
aspectsand will not materiallychangetheframework'sunderlying
approach.
TheGHOS directed the Committeeto finaliseand subsequentlypublish
itsrecommendationsin thesethree areasby the end of 2012.
GovernorKing said, "The aim of the LiquidityCoverageRatiois to
ensure that banks, in normal times, have a sound fundingstructure and
hold sufficient liquid assetssuch that central banks areasked to perform
onlyaslendersof last resort and not aslendersof first resort.
While theLiquidityCoverageRatiomay represent a significant challenge
for some banks, thebenefitsof a strong liquidityregime outweighthe
associated implementation costs."
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SIFIs: isthere a need for a specific regulation on systematically
important financial institutions?
Remarksof Stefan Ingves,Chairmanof theBasel Committeeon Banking
Supervisionand Governor of SverigesRiksbank, prepared for roundtable
discussion at theEuropean IdeasNetwork Seminar on Long-term
growth:organizingthe stabilityand attractivenessof European Financial
Markets,Berlin (Deutsche Bank), 19-20January 2012.
Goodmorningandthank you forinvitingmetosharesomethoughtswith
you on the questionof whethera specific treatment is warrantedfor
systemicallyimportant financial institutions,or "SIFIs".
In the few minutesI have tointroducethis topic, I will set out the basis
for the Basel Committee's responsetothisquestion, whichis an
unqualified "yes".
I will saya few wordsabout the Committee'sview and the actionswe
havetaken on SIFIsthat have been stronglyinfluencedby recent
experience.
I will then review how our responsewill helptoaddressthetoo-big-to-fail
issue.
Our work on thisissueis ongoing and I will then saya few wordsabout
theCommittee'scurrent efforts.
I willconcludebysharingwithyou my thoughtson thedirectionoffuture
workrelated to global systemically important banks - or G-SIBs.
Experiencesfrom thebanking system - focuson G-SIBs
TheBasel Committee'smotivation for policy measuresfor G-SIBs that
supplement the Basel III frameworkis based on the "negative
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externalities" that thesefirms createand whichcurrent regulatory
policiesdonot fullyaddress.
Theseadverse sideeffectscan become amplified by the global reach of
thesefirms- aproblem in anyoneG-SIB could triggerproblemsfor other
financial institutionsaround the worldand evendisrupt theglobal
economy (eg Lehman Brothers).
Theimpact caused by thefailure of large, complex, interconnected, global
financial institutionscansend shocksthroughthefinancial system
which, in turn, can harm the real economy.
This scenario played out in the recent crisisduring which authoritieshad
limitedoptionsother than the provision of public support asa meansfor
avoidingthetransmission of such shocks.
Such rescueshave had obviousimplicationsfor fiscal budgetsand
taxpayers. In addition, themoral hazard arisingfrom public sector
interventionsand implicit government guaranteescan alsohave longer
term adverseconsequences.
Theseincludeinappropriaterisk-taking, reducedmarket
discipline,competitivedistortions,andincreasedprobability ofdistressin
thefuture.
The Basel Committee's response
What hasthe Committeedone in responsetothe G-SIB issue?
As a starting point, werecognised that there is nosinglesolution for
dealingwiththe negative externalitiesposedby G-SIBs.
BaselIII willhelpimprovetheresilienceofbanksandbankingsystemsin
a number of ways.
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Theseincludebetter qualityand higher levelsof capital;improvingrisk
coverage;introducinga leverageratiotoserveasa backstop tothe
risk-basedframework;introducingcapital buffersaswell asa global
standard for liquidityrisk.
Thesemeasuresare significant but arenot sufficient toaddressthe
negative externalitiesposedby G-SIBs nor are they adequateto protect
thesystem from thewiderspillover risksof G-SIBs.
TospecificallyaddresstheG-SIBs issue, the Committee's approachisto
reducetheprobabilityof a G-SIB's failureand the impact of a potential
failure by increasingits lossabsorbency in the form of a common equity
capital surcharge.
Basedon a methodologyfor assessing systemic importanceof G-
SIBs, thisadditionallossabsorbencywillcomplement themeasures
adoptedbytheFinancialStabilityBoard (FSB) toestablishrobust national
resolutionand recovery regimesand toimprove cross-border
harmonisationand coordination.
But even with improved resolution capacity, the failure of the largest and
most complex international banks will continue to pose disproportionate
risksto the global economy.
Our empiricalanalysisindicatesthat thecostsof requiringadditionalloss
absorbencyfor G-SIBsareoutweighedby the associatedbenefits of
reducingthe probability of a systemic financial crisis.
We have alsointroduced transitional arrangementstoimplement the
capital surchargethat help ensure that the banking sector can meet the
higher capital standardsthrough reasonableearningsretentionand
capital raising, whilestill supporting lendingto the economy.
TheCommittee's analysispointstoadditional lossabsorbency generally
in therangeof around 1% to 8% of risk-weightedassets. Our agreed
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calibrationfrom 1% to2.5% isin thelowerhalf of thisestimatedrange.As
a meansto discouragebanksfrom becoming even more systemically
important, there is a potential surchargeof 3.5%.
Looking ahead
TheCommittee's approach to dealing withG-SIBswasendorsedby the
G20Leadersat their November 2011summit.
At that time, an initial list of 29 banksthat weredeemed globally
systemicallyimportant waspublished.
This isnot a fixed listand it will be updatedannuallyand published each
November.
Transparencyis a very high priorityand weexpect market disciplineto
playan important role.
Assuch, themethodologyand the data usedtoassesssystemic
importancewill be publicly availablesothat marketsand institutionscan
replicatethe Committee's determination.
Therequirementswill be phased in startingJanuary 2016withfull
implementation by January2019.
Thebasis for adoptingspecific requirementsto addressexternalities
posed by G-SIBs isnot exclusivefor theglobal banking system.
Measuresshould be developed for all institutionswhosedisorderly
distressor failure, becauseof their size, complexityand systemic
interconnectednesswouldcausesignificant disruption to thewider
financial system and economic activity.
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These could include financial market infrastructures, insurance
companies, other non-bank financial institutions and domestic
systemicallyimportant banks.
TheCommitteeisnow in theprocessof determiningwhether there are
elementsof the G-SIBsassessment methodologythat could be applied to
domesticSIBs.
Anumber of countries,notablySwitzerland, the United Kingdom and
Swedenhave alreadytaken action toimplement higher capital
requirementsfor banks that are deemed systemically important at the
national level.
TheSwisstoo-big-to-fail package, whichwasapproved by the Swiss
Parliament in September 2011, is due tocome intoforce on 1March2012.
Thepackage, whichis particularlydemandingwithrespect tocapital
requirements,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 equitywhile
up to3% may beheld in the form of convertiblecapital (CoCos).
TheCoCoswouldconvert whena bank'scommon equityfallsbelow 7%.
Thetwobig Swissbanks,Credit SwissandUBSwillhavetoholdatotalof
10%common equitytier 1capital.
This exceedsboth Basel III and the internationallyagreed capital
surchargefor G-SIBs.
Thepackage alsoincludesa so-called"progressivecomponent" equal to
6% of RWA consistingentirelyof CoCos.
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Unlike the CoCos under the buffer, the Cocos under the progressive
component will convert when capital levels falls below 5% common
equity.
In theUnited Kingdom, Sir John Vickers,chair of theIndependent
Commission on Banking, recommendedin September 2011that
systemicallyimportant retail banks definedasretail banks withRWA
exceeding3% of GDP should haveprimary loss-absorbingcapacityof at
least 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 to
bear lossesin resolution. Thesearethe socalledbail-in bonds.
Theproposed changesrelated to lossabsorbencyare intended to be fully
completed by the beginningof 2019.
In Sweden, authorities(theSwedishFinancial SupervisoryAuthority, the
Ministryof FinanceandtheRiksbank) announcedin November 2011that
capital ratiosfor thefour major banks will be advocated toat least 10%
common equityto RWA from 1January2013,and 12% from 1January
2015.
TherequirementsfollowtheBasel III definitionsand include, like Basel
III, a capital conservation buffer of 2.5%, but no countercyclicalbuffer.
TheSwedishproposal goesfurther thanBasel III, both with regard tothe
levelsand in termsof timing
Conclusion
BaselIII will improvetheresilienceof banksand bankingsystemsbut by
itselfisnot sufficient to fullyaddressthenegativeexternalitiesarising
from global systemically important banks.
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Theseadverse sideeffects,which includean increasedrisk of contagion
andmoral hazard, haveseriousimplicationsfor fiscal budgetsand
taxpayers.
In response, the Basel Committee hasdeveloped assessment
methodologyto identify G-SIBs and hasadopted an additional loss
absorbencyrequirement for such banksthat must be met through higher
common equity.
This is meant toreducetheprobabilityof a G-SIB's failure by increasing
itslossabsorbencyin theform of a common equitycapital
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FSB - G20 MONITORING PROGRESS
The United States of America
Interestingparts
TheBasel III frameworkagreement and other BaselIII proposals, must
befully implemented through US regulationsby the end of 2012.
TheUnited Statesis committedto meetingthesedeadlines.
U.S. agenciesexpect to releasea final rulein 2012, in order tomeet the
implementationtimeline of January 1,2013.
Stresstestingformsone part of enhanced supervision under the
Dodd-FrankAct (DFA).
TheDFA requiresone supervisorystresstest per year to be conductedby
theFederal Reserve on banks with more than $50billion in consolidated
assetsand/ orbanksdesignated for heightened supervisionand two
stresstestsper year by largefirms.
TheDFA requiresboth banksand supervisorsto discloseresults,
althoughtheexact natureof that disclosure isstill subject torule making.
On March22,2010,U.S. supervisorsissuedthefinal interagencyguidance
on funding and liquidityrisk management.
Thepolicystatement emphasizestheimportanceof cashflow
projections,diversifiedfundingsources,stresstesting, acushion ofliquid
assets,and a formal, welldeveloped contingencyfundingplan asprimary
toolsfor measuringand managing liquidityrisk.
In the springof 2011, Federal Reserve completeda Comprehensive
CapitalAnalysis and Review (CCAR), a cross-institution study of the
capital plansof the 19largest U.S.bank holdingcompanies.
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TheCCAR involved a forward-looking, detailed evaluationof capital
planningand stressscenario analysisat the19largebank holding
companies.
As part of theCCAR, theFederal Reserveassessedthefirm'sability, after
takingintoaccount theproposed capital actions,tomaintainsufficient
capital levelstocontinuelendingin stressedeconomic
environments,includingunder an adversescenariospecified by the
FederalReserve.
TheDodd-Frank Act requires the Federal Reserve to conduct annual
stresstestsfor all systemically important companiesand publish a
summary of the results.
Additionally, theAct requiresthat thesesystemicallyimportant companies
and all other financial companies with $10billion or more in assets that
areregulatedby a primary Federal financial regulatory agencyconduct
semi-annual or annual (respectively) internalstresstestsand publish a
summaryof the results
Supervisoryreviewsare ongoing, with a focus on requiring bank
organizationstohave sound capital planningpoliciesand processesfor
determinationsregardingdividend, aswell asthe redemption and
repurchaseof common stock and other tier 1capital instruments.
Regulatorsare writingrulesgoverningstresstestsunder the DFA.
Thedeadlineforimplementationof rulesgoverningstresstestsisJanuary
17,2012.
U.S. agenciesare incorporatingthe guidanceintothesupervisory process.
U.S.supervisorscontinuetomonitor theliquidityrisk profiles of all banks
via the field examination staff.
Theyalsocollect liquiditydata at largeand regional banks on a daily or
monthlybasis.
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On June15, 2011, U.S. banking supervisorspublished proposed guidance
on stresstesting applicableto all banking organizationswithmore $10
billion in consolidatedassets
Addressing systemically important financial institutions (SIFIs)
TheDodd-Frank Act modifies U.S. regulatory frameworkbycreatingthe
FinancialStabilityOversight Council (FSOC), chairedbytheSecretaryof
the Treasury, withthe authorityto determine that a nonbank financial
company shall be supervised by the Board of Governorsand subject to
prudential standardsif theCouncil determinesthat material financial
distressat thenonbank financial company, or the
nature, scope, size, scale, concentration, interconnectedness, or mix of the
activitiesof thenonbank financial company, could posea threat to the
financial stability of the UnitedStates.
TheFSOC issued a second notice of proposed rulemakingand proposed
guidanceon October 11, 2011.
Thebanking agencieshave actively participated in drafting and
commentingon thedocumentsincluded in theKeyAttributesof
EffectiveResolution Regimesfor Financial Institutionsthat was
approved by the FSB Plenaryin Oct. 2011.
CMG meetingshavebeen held with major U.S. banking firmsand their
significant host regulators.
TheU.S.firms submitted initial recovery planstoU.S.regulatorson
August 16, 2010.U.S.regulatorsreviewedtheplansand are workingwith
thefirms to further refinethem.
Information from the recovery planswill help toinform theU.S.
regulatorsin developingand maintainingfirm-specific resolutionplans.
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TheDodd-Frank Act creatednew authoritytoresolve nonbank financial
institutions,similar tothat which the FDIC has withregard toinsured
banks,whosefailure could have serioussystemic effects.
Additionally, legislation requiresresolutionplansfor all large bank
holdingcompaniesand non-bank financial companies subject to
heightened supervisionby the Federal Reserve.
TitleII of the Dodd-FrankAct allowstheFDIC to be appointedas
receiver for nonbank financial firms, the failure of which could cause
systemic risk totheU.S. economy.
Under the Dodd-Frank Act framework, the FDIC can create a bridge firm
in order to maximize value in an orderly liquidation processfor a financial
group.
While TitleII became effectiveupon signing, the FDIC drafted
regulationsfor theimplementationof itsauthorityunder TitleII to
provideclarityon how the FDIC wouldimplement a resolutionunder the
Dodd-FrankAct.
A first set of interim final rules was adopted in January 2011. A second set
of rules was proposed in March 2011, and a final rule was approved in July
2011.
TheFRB and FDIC are finalizingissuanceof a rule implementing the
resolutionplan provision in the legislationwhichis due18 months
from enactment.
On September 21, 2011, the FDIC adopted an interim rule requiringan
insureddepositoryinstitutionwith$50billion or more in total assetsto
submit to theFDIC a contingencyplan for the resolution of such
institution in the event of itsfailure. Commentsare due by November
21,2011.
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Extending the regulatory perimeter to entities/activities that
pose risksto the financial system
TheFSOC hasauthority toexpand theU.S. regulatory perimeterby
designatingthe largest, most interconnected nonbank firmsfor
heightened prudential standardsand supervisionby theFederal Reserve.
TheFSOC hasproposed a rule regardingthe criteria and processfor
designatingnonbank financial firms.
FSOC issued a second more detailedproposal on this framework,with
interpretiveguidanceon October 11, 2011for public comment.
Hedge funds
Operatorsandmanagersof commoditypoolsare requiredtoregisterwith
theCFTC asCommodity Pool Operators,and thosewhomake trading
decisionson a pool’s behalf must register withtheCFTC asCommodity
TradingAdvisors.
Certainexemptionsfrom registration apply, however, includingfor
operatorsof poolsthat accept no more than 15 participantsor are
“otherwiseregulated” asan SECregistered investment company, aswell
asoperatorsof poolsthat have limitedfuturesactivityor that restrict
participationtosophisticated persons.
Pursuant to legislationpassed by Congress, CFTC and SEC staff have
jointlyproposed regulationsfor public comment that establishtheform
and content of the reportsthat dual-registeredinvestment advisersto
private fundsare required to file.
Theregulationswill require investment adviserstomaintain recordsand
may require them tofile information relatedto: use of leverage;
counterpartycredit risk exposure; tradingand investment positions;
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valuation policies and practicesof the advised fund(s); typesof assets
held; sidearrangementsor sideletters;tradingpractices;and any
other information deemed necessary.
Reportsof dual registrantsare expected to be filed SEC and made
availableto theCFTC.
On January26,2011, theCFTC andSEC jointlyproposedrulesthat would
requirecertain private fund adviserstomaintainrecordsand certain
private fund adviserstofile non-publicinformation designedtoassist the
Financial StabilityOversight Council in itsassessment of systemic riskin
the U.S. financial system.
Under the proposal, each private fund adviser would file certain basic
information annually, and certain largeprivateadvisers(i.e. thoseadvisers
managinghedgefundsthat collectivelyhaveat least $1billion in assetsas
of the closeof businesson any day during the reportingperiod for the
requiredreport) wouldfile basicinformation each quarter alongwith
additional systemic risk relatedinformationconcerning certain of their
private funds.
Thecomment period closed onApril 12, 2011, and the CFTC and SEC
planto finalize the rules this fall.
Recordkeepingand reporting requirementswill includedisclosureof:
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(i)
(ii)
(iii)
(iv)
(v)
assetsunder management;
useof leverage;
counterparty credit risk exposure;
tradingand investment positions;and
tradingpractices, aswell asother specified information.
TheDodd-Frank Act providesfor a one-year transitionperiod from the
date of enactment beforethe privatefund adviser registrationand
recordkeeping/ disclosureobligationsgointoeffect.
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TheSEC will engagein rulemakingto implement certain provisions.
TheDodd-Frank Act generallyrequiresall advisersto hedgefunds(and
other private poolsof capital, includingprivateequityfunds) whose
assetsunder management exceed $100million toregister withtheSEC.
TheAct authorizesthe SEC to impose recordkeepingand reporting
requirementson not only thoseadvisersrequiredtoregister, but also
certainother privatefund advisers(i.e. adviserstoventure capital funds).
Therecordkeepingand reportingrequirementsare designedto require
privatefund adviserstoreport information on thefundstheymanagethat
is sufficient to assesswhetheranyfund posesa threat to financial stability.
Securitisation
In April 2010,theSEC proposedrevisionstoitsrulesrelatingtoABS shelf
eligibility.
In July2010,USCongresspassed the Dodd-FrankAct, whichrequires
rulemakingto implement further changesrelatedtothe offeringof
securitizedproductsin the United States.
Section 943 of the Dodd-Frank Act requires issuers of ABS to disclose the
history of the requeststhey received and repurchasesthey made related to
their outstandingABS.
TheSEC approved final rulestoimplement Section 943on January20,
2011.
Thefinal rulesrequireABS issuerstofilewith theSEC, in tabular format;
thehistory of therequeststheyreceivedand repurchasesthey made
relatingtotheir outstandingABS.
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Thetablewill providecomparable disclosuressothat investorsmay
identify originatorswith clearunderwritingdeficiencies.
TheSEC alsoadoptedfinal rulesto implement Section 945 of the
Dodd-FrankAct, which requiresABSissuerstoreview assetsunderlying
theABS and todisclosethe nature of thereview.
In July2011, theSEC issueda followup re-proposal totheApril 2010
proposalonABS shelf eligibility.
As part of this re-proposal,the SEC solicitedcommentson provisions
requiringissuersof privateABS torepresentthat theywill make thesame
information availableto investorsthat wouldbe provided if the securities
werepubliclyregistered.
TheJuly 2011re-proposalalsosolicitedcommentson whether theApril
2010proposal appropriately implemented Section 942(b) of theDodd-
FranckAct withregard to thedisclosureof asset-levelor loan-level data
forABS, if suchdata are necessaryfor investorstoindependentlyperform
duediligence.
In August 2011the SEC adoptedfinal rulestoimplement Section 942of
the Dodd FrankAct to eliminatetheautomaticsuspensionof Exchange
Act reportingobligationsforABS issuersaslong assecurities are held by
non-affiliatesof the issuer.
Also pursuant to Section 942, the SEC adoptedrulesto allowfor the
suspensionof reportingobligationsforABS issuersfor a semi annual
period if there are nolonger anyABS of the classsold in a registered
transactionheld bynon-affiliatesof the issuer.
In April 2010,IOSCO issueditsDisclosurePrinciplesforPublic Offerings
and ListingsofAsset-backed Securities.
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TheSEC adopted new rules relatedtoABS in January andAugust 2011.
Implementation isongoing.
Section 941(b) of theDodd-FrankAct requiresfederal bankingagencies
andtheSEC tojointlyprescriberegulationsthat require securitizersof
ABS, by default, tomaintain5% of the credit riskin assetstransferred,
soldor conveyed through theissuanceofABS.
To implement this,theSEC and other Federalagenciesproposedrulesin
March2011relatingto credit risk retention requirements.
Theproposedruleswouldpermit asponsortoretainaneconomicinterest
equal toat least 5% of the credit risk of theassetscollateralizinganABS
issuance.
Theproposedruleswouldalsopermit asponsortochoosefromamenuof
retentionoptions, withdisclosurerequirementsspecificallytailoredto
each form of risk retention.
The New York Department of Insurance considered legislation to revise
oversight of financial guaranty insurers, which would have served as the
basisfor additionalstate activityin this area.
This legislativeresponsewasin additionto increasedmonitoring and
supervision of financial guarantyinsurersthat is ongoing.
TheNew York Department of Insurancehas taken proactivestepsto
ensure that other relevant stateinsurancedepartment regulators remain
current and up-to-dateon the solvencyof financial guaranty insurers
through quarterly updatesand interstateregulatory communication.
However,the market has contractedsuch that there isonlyone active
writerof financial guarantyinsurancefocusingprimarily on municipal
bond insurancecoverage(andnot structuredproducts) and consequently
therehasnot been a need for legislativerevisionsat thistime.
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22. 22
Stateinsuranceregulatorsare closelymonitoring, and collaboratingon
supervision of financial guarantyinsurers.
Given thecurrent scrutinyand the significant market contraction into
more traditional bond insurancecoverage, there isnoadditional
legislativeor regulatorychangesanticipatedat this time.
Credit rating agencies
TheCredit RatingAgency Reform Act of 2006(RatingAgencyAct)
provided the SEC with exclusiveauthoritytoimplement a registration
and oversight program for NationallyRecognizedStatisticalRating
Organizations(NRSROs).
In June 2007, the SEC approved rulesimplementinga registration and
oversight program for NRSROs, whichbecame effectivethat same
month.
Therules establishedregistration, recordkeeping, financial reportingand
oversight rulesfor credit rating agenciesthat applyto be registeredwith
theSEC.
Theserulesare consistent with theprinciplesset forth in the IOSCO
Statement of PrinciplesRegardingtheActivitiesof Credit Rating
Agencies and theIOSCO Code of Conduct Fundamentalsfor Credit
RatingAgencies.
Sinceadopting theimplementingrulesin 2007, the SEC hasadopted
additional amendmentsto itsNRSRO rules.
TheDodd-Frank Act containsa number of provisionsdesignedto
strengthentheSEC’sregulatory oversight of NRSROs.
Basel iii ComplianceProfessionalsAssociation (BiiiCPA)
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23. 23
On May18, 2011, theSEC voted to proposenew rules and amendments
that would implement certain provisionsof theDodd-FrankAct and
enhancethe SEC’s existingrulesgoverningcredit ratingsand NRSROs.
TheRatingAgencyAct wasenactedin order “to improve ratingsquality
for the protection of investorsand in thepublic interestby fostering
accountability, transparency, and competitionin the credit rating
industry.”
Tothat end, the RatingAgencyAct and the SEC’simplementing
regulationsprohibit certain conflictsof interest for NRSROs and require
NRSROs todiscloseand managecertainothers.
NRSROs are alsorequired todisclosetheir methodologiesand
underlying assumptionsrelatedto credit ratingsthey issuein additionto
certainperformancestatistics.
Under the new rules and rule amendments proposed by the SEC on May
18, 2011to implement certain provisionsof the Dodd-Frank Act, NRSROs
wouldbe 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 to
determineit.
- Enhancetheir publicdisclosuresabout the performanceof their
credit ratings.
Basel iii ComplianceProfessionalsAssociation (BiiiCPA)
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24. 24
Risk management
TheDodd-Frank Act requires the Federal Reserve to conduct annual
stresstestsfor all systemically important companiesand publish a
summary of the results.
Additionally, theAct requiresthat thesesystemicallyimportant companies
and all other financial companieswith $10billion or more in assetsthat
areregulatedby a primary Federal financial regulatory agencyconduct
semi-annual or annual (respectively) internal stresstestsandpublish a
summaryof the results.
TheFederal Reserve hascreated an enhanced quantitativesurveillance
program that will usesupervisoryinformation, firm specificdata
analysis, and market based indicatorstoidentify developingstrainsand
imbalancesthat may affect thelargest and most complex firms.
Periodic scenario analysis across large firms will enhance understanding
of the potential impact of adverse changes in the operating environment
on individual firmsand on the system asa whole.
This work will be performed by a multi-disciplinarygroup comprisedof
economicand market researchers, supervisors,market operations
specialists,and accountingand legal experts.
TheFederal Reserve is currentlydeveloping rulestoimplement the
provision in coordinationand consultationwiththeother relevant
agencies.
Basel iii ComplianceProfessionalsAssociation (BiiiCPA)
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25. 25
TheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) is the
largest associationof Basel iii Professionalsin theworld. It is a business
unit of theBasel ii ComplianceProfessionalsAssociation (BCPA), which
is alsothe largest associationof Baselii Professionalsin the world.
Basel III SpeakersBureau
TheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) has
established the Basel III Speakers Bureau for firmsand organizations
that want toaccessthe Basel iii expertise of Certified Baseliii
Professionals(CBiiiPros).
TheBiiiCPAwill be the liaisonbetweenour certified professionalsand
theseorganizations,at nocost. We stronglybelievethat this can be a
great opportunityfor both, our certified professionalsand theorganizers.
Tolearnmore:
www.basel-iii-association.com /Basel_iii_Speakers_Bureau.html
Certified Basel iii Professional (CBiiiPro)
Distance Learning and Online Certification Program.
TheCost: US$297
What is included in this price:
A. The official presentationsweuse in our instructor-led classes(1426
slides)
You can find the coursesynopsis at:
www.basel-iii-association.com/ Course_Synopsis_Certified_Basel_III_Pr
ofessional.html
Basel iii ComplianceProfessionalsAssociation (BiiiCPA)
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26. 26
B. Up to3 OnlineExams
There is onlyone exam you need topass, in order tobecomea Certified
Basel iii Professional (CBiiiPro).
If you fail, you must studyagain theofficial presentations,but you donot
needtospendmoneytotryagain. Upto3examsareincludedintheprice.
Tolearnmore you may visit:
www.basel-iii-association.com/ Questions_About_The_Certification_An
d_The_Exams_1.pdf
www.basel-iii-association.com/ Certification_Steps_CBiiiPro.pdf
C. PersonalizedCertificateprinted in full color.
Processing, printingand posting toyour office or home.
Tobecome a CertifiedBaseliii Professional (CBiiiPro) you must follow
thestepsdescribedat:
www.basel-iii-association.com/ Basel_III_Distance_Learning_Online_C
ertification.html
Basel iii ComplianceProfessionalsAssociation (BiiiCPA)
www.basel-iii-association.com