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Global Regulator & Central Bank News Roundup (Vol. 28/2023)

July 24 - July 30 2023

Your weekly summary of key regulatory updates in an objective bite-size format, drawing on official news and press releases from 400+ financial services regulators, central banks as well as global and regional standard setters,

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At a glance - Highlights by topic

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Prudential & financial stability⁠

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ECB and EBA release results of their 2023 banking stress test exercises, highlighting banks’ resilience against adverse economic conditions

ECB reports €73 Billion in unrealised losses in Euro Area banks' bond portfolios, urges review of interest rate risk strategies

U.S. federal bank agencies call for strengthened capital requirements for major banks

U.S. Federal Reserve Board discloses specific capital requirements for major banks following stress test

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Cyber⁠

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Bank of France initiates call for solutions on deep fakes

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Fintech & ecosystem innovation⁠

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Mauritius FSC consults on guidance notes for stablecoins

SAMA issues final approval for new Insurtech Rules

EIOPA launches consultation on open insurance use case

OSFI proposes changes to capital and liquidity rules for crypto-assets

Oman CMA launches public consultation on virtual assets regulatory framework

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ESG⁠

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IOSCO backs ISSB's new sustainability-related financial disclosure standards, encourages global adoption

ISSB launches public review of proposed IFRS Sustainability Disclosure Taxonomy to enhance global sustainability reporting standards

NGFS releases report on monetary policy and climate change

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Prudential & financial stability

ECB and EBA release results of their 2023 banking stress test exercises, highlighting banks’ resilience against adverse economic conditions

Both the European Central Bank (ECB) and the European Banking Authority (EBA) have the released the results of their respective stress test exercises, both confirming that banks are in a position to withstand a severe economic downturn.

The ECB’s exercise, which encompassed 98 banks (57 large and 41 medium-sized) which represent approximately 80% of the Euro Area’s total banking sector assets, showed that under challenging macroeconomic conditions over three years, the Common Equity Tier 1 (CET1) ratio of the tested banks could drop by 4.8 percentage points to a mean of 10.4%, with the most severe impact on the CET1 ratio stemming from credit and market risk, alongside reduced income generation. Smaller banks recorded a higher capital depletion compared to larger banks due to lower-income generation and higher loan losses. However, their CET1 ratio still remained higher compared to larger counterparts. Overall, both improved asset quality and profitability contributed to a better resilience of banks relative to previous stress tests, the ECB noted.

The stress test by EBA, on the other hand, which involved 70 banks from 16 EU and EEA countries that cover 75% of EU banking sector assets, projected a capital depletion under the adverse stress test scenario of 459 bps, resulting in a fully loaded CET1 ratio at the end of the scenario of 10.4%

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Link (ECB)

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Link (EBA)

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ECB reports €73 Billion in unrealised losses in Euro Area banks' bond portfolios, urges review of interest rate risk strategies

Further to the stress testing results, the ECB has in a separate statement reported that banks under its supervision incurred €73 billion ($86 billion) in net unrealised losses on their bond portfolios in February 2023. The figure was provided through a data collection exercise carried out jointly with the European Banking Authority. It included details of bonds held at both amortised cost and fair value, and also covered data on hedging activities and on the portfolios' sensitivity to changes in interest rates and credit spreads. The ECB noted that these losses would only materialise if the banks were forced to sell the securities, which is perceived as unlikely even in distressed market conditions. The report also revealed that gross unrealised losses had risen steadily since December 2021, reaching approximately €124 billion by December 2022. Against this backdrop, the ECB has urged banks to pay close attention to their interest rate risk strategies.

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U.S. federal bank agencies call for strengthened capital requirements for major banks

The U.S. federal bank agencies have issued for public comment a proposal for stronger capital requirements for large banks. The proposal seeks to implement the final requirements under the Basel III agreement while also introducing a broader set of capital requirements for large banks with $100 billion or more in total assets. Specifically, the proposal focuses on standardizing elements of the capital framework concerning credit risk, market risk, operational risk, and financial derivative risk. Additionally, it mandates that banks account for unrealized gains and losses from certain securities in their capital ratios. These banks will also be subjected to the supplementary leverage ratio and the countercyclical capital buffer, should it be activated. Under the proposal, large banks would begin transitioning to the new framework on July 1, 2025, with full compliance required by July 1, 2028.

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Other highlights

The Federal Reserve Board has revealed the individual capital requirements for all large banks following this year's stress test, which will come into effect on October 1. The total capital requirement is comprised of the minimum capital requirement set at 4.5%, a stress capital buffer requirement determined from the stress test results with a minimum of 2.5%, and, if applicable, a capital surcharge for global systemically important banks. Deutsche Bank USA Corporation, UBS Americas Holding LLC, and The Goldman Sachs Group, Inc. are subject to the highest capital requirements at 13.8%, 13.6% and 13% respectively.

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Cyber

Bank of France initiates call for solutions on deep fakes

The Bank of France has initiated a Call for Solutions concerning Deep Fakes, as part of its continued emphasis on cybersecurity. The initiative is handled by the Lab, the Bank’s Open Innovation Center, which uses collaborative models to spur innovation. Aiming to enhance their abilities to detect and analyze deep fakes, the Bank of France is inviting businesses possessing effective systems for identifying and studying such content to participate in the project. The participants are expected to propose actionable responses and experimental ideas, helping to incorporate new technological abilities into the bank's security framework. For further details and participation, interested parties are directed to the bank's innovation webpage.

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Fintech & ecosystem innovation

Mauritius FSC consults on guidance notes for stablecoins

The Financial Services Commission (FSC) of Mauritius is expanding its regulatory framework for virtual assets with the issuance of draft guidance notes on stablecoins. With the new guidance, the FSC aims to clarify its policy stance and regulatory treatment of stablecoins. To that end, the guidance notes set out inter alia how stablecoins will be treated and classified under the FSC’s existing Virtual Asset and Initial Token Offerings Services Act and – as required – other applicable laws. Additionally, the paper sets out the proposed prudential requirements for reserve assets. Key requirements in this respect include that reserve assets may not be pledged, re-hypothecated, or re-used, except for the purpose of creating liquidity to meet reasonable expectations of requests to redeem stablecoins and that the value of the reserve assets must, at all times, equal or exceed the aggregate peg value of all outstanding stablecoins. Stakeholders are invited to provide feedback on the draft notes by August 11, 2023.

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SAMA issues final approval for new Insurtech Rules

Following its public consultation, the Saudi Arabian Monetary Authority (SAMA) has issues the final approval on its new Insurtech Rules. The new Rules form part of SAMA's ongoing initiative to enhance the insurance sector, keeping pace with technological advancements in the industry. The The Rules aim to provide a flexible, innovative regulatory framework for Insurtech companies, safeguarding client interests and fostering fair competition. Key pillars include obligations of practitioners, the accuracy of client information, and codes of conduct to protect client rights, along with compliance and control measures.

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EIOPA launches consultation on open insurance use case

The European Insurance and Occupational Pensions Authority (EIOPA) has initiated a consultation on the implementation of an open insurance dashboard. This initiative is a follow-up to EIOPA’s initial discussion paper open insurance, which concluded that a more focused approach would be required to better comprehend the implications of open insurance for different stakeholder groups. The proposed dashboard would enable customers to view all their insurance policies in one place and facilitate comparison of various insurance offerings. The released discussion paper reviews the operational aspects of the proposed dashboard from a regulatory standpoint, exploring topics such as data flows, stakeholder roles, standardization and interoperability, data protection, ethics, legal frameworks, implementation challenges, benefits, and risks. Comments on the consultation can be provided until October 24, 2023..

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OSFI proposes changes to capital and liquidity rules for crypto-assets

The Office of the Superintendent of Financial Institutions (OSFI) has announced a consultation on its proposed changes to capital and liquidity regulations for crypto-asset exposures. The changes come in response to new guidelines from the Basel Committee on Banking Supervision issued in December 2022. OSFI's two draft guidelines, tailored to federally regulated deposit-taking institutions and insurers, will replace the interim guidance from August 2022 and are expected to be implemented in early 2025. The guidelines suggest different approaches based on the institution's exposure to crypto-assets, and detail four types of crypto-assets along with their respective regulatory capital treatments. Public consultation on these guidelines will be open until September 20, 2023.

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Other highlights

The Capital Market Authority (CMA) of Oman announced the launch of the public consultation of its proposed regulatory framework for virtual assets and virtual asset service providers. The new framework, which is in the process of development, encompasses regulation for all virtual assets activities, a licensing framework for all VASP categories as well as a supervisory framework to identify, assess, and mitigate ongoing risks. Stakeholders are invited to provide feedback to the consultation until August 17, 2023.

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Link

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ESG

IOSCO backs ISSB's new sustainability-related financial disclosure standards, encourages global adoption

The International Organization of Securities Commissions (IOSCO) has announced its endorsement of the sustainability-related financial disclosure standards recently set by the International Sustainability Standards Board (ISSB). After extensive engagement and analysis over two years, IOSCO found the ISSB Standards fit to serve as a global framework for the development and use of sustainability-related financial information in both trading and capital raising. The IOSCO now calls for its 130 member jurisdictions, which regulate over 95% of global financial markets, to consider ways to adopt and apply the ISSB Standards within their jurisdictional arrangements. This move supports the organization's goal to improve climate-risk disclosure for investors and is expected to promote consistent and comparable climate-related and other sustainability-related disclosures.

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ISSB launches public review of proposed IFRS Sustainability Disclosure Taxonomy to enhance global sustainability reporting standards

The International Sustainability Standards Board (ISSB) has announced the release of the Proposed IFRS Sustainability Disclosure Taxonomy for public review. The taxonomy, which aligns with the disclosure requirements in the ISSB’s two initial standards - IFRS S1 and IFRS S2, would facilitate structured reporting of sustainability-related financial information, improving global comparability and access for investors. The ISSB will collect feedback on the proposals for 60 days ending on 26 September 2023. Final feedback is set to be reviewed in the second half of 2023, leading to the issuance of the finalised digital taxonomy early in 2024. The ISSB is simultaneously engaging with stakeholders to enhance the IFRS Sustainability Disclosure Taxonomy's interoperability with other sustainability-related prerequisites. A webinar to discuss the proposal is scheduled for 3 August 2023.

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NGFS releases report on monetary policy and climate change

The Network for Greening the Financial System (NGFS) has released a new report analyzing feedback from its members on climate change impact on their economies and monetary policies. The 55 responding members have indicated increased priority in understanding the macroeconomic impacts of climate change and resulting implications for monetary policy, with over 50% of respondents having already initiated macroeconomic analysis to deepen their understanding of these effects over the monetary policy relevant horizon and 40% of respondents having started integrating climate change considerations into their operational monetary policy framework. The NGFS will continue to use its collective expertise to help central banks to understand and address the economic impact of climate change in the context of monetary policy.

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International cooperation

In the context of their latest bilateral meeting in Riyadh, the Saudi Arabian Monetary Authority and the Hong Kong Monetary Authority have signed a MoU to promote cooperation on financial innovation. The MoU aims to enhance knowledge sharing in areas like financial innovation and Fintech, accelerate collaborative efforts across their respective Fintech landscapes, and highlight the latest developments in sectors such as supervision technologies and payment infrastructure.

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At a glance - Highlights by topic

Prudential & financial stability

Cyber

Fintech & ecosystem innovation

ESG

International cooperation

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