Scanning the Horizon for Regulatory Change in 2022 and Beyond
At VERMEG we are proactive and engage with our clients about the regulatory landscape. It’s my job to interpret the rules on a global basis. So, let’s take a look at a few of the biggest trends that we’ve seen over the last 12 months, and also at what is coming up soon.
Changes in 2021
To get started, I’d like to look back to the changes that we saw in 2021.
One of the biggest changes applies to counterparty credit risk, which affects risk calculations, derivatives, securities financing transactions (STFs) and products that go through clearing. There were also many changes to leverage ratio, net stable funding ratio (NSFR) and some of the COVID-specific rules that came through as a response to the pandemic – many of those are still being tailored.
The start of this year also marked the first time in decades that the UK and the EU were operating separately in isolation. The European Banking Authority (EBA) tend to have longer lead times than the PRA and the FCA, and have typically proposed their changes first.
So, there are now PRA-specific versions of many of the templates that were covered under COREP. Even though the content hasn’t changed much, the cell references and the templates have, and so old submission protocols might not work anymore.
The EBA and the PRA have both updated their rules, as Basel 3.1 progresses, but at different time scales. Sometimes the PRA publishes something, and the EBA then adopts something broadly equivalent for the same area, but a few months down the line. Sometimes vice versa. This can make tracking things quite a challenge.
Changes in 2022
What about 2022?
Most of what we’ve seen in the first quarter of this year is rules going live from regulations that were finalised last year. The new IFPR went live on the 1st of January 2022, while the first reporting date for CRR2 was at the end of March 2022.
The UK and Europe has investment firms reporting under IFPR for the first time. Those rules are much simpler than the banking rules, but they rely on firms hitting certain criteria to mean that they can report as investment firms. If companies don’t meet those criteria, some may fall under the current rules for banks by default. That’s a problem because the current banking rules are far more detailed, thus more expensive to implement, and it’s not always clear whether a firm falls under IFPR.
We’ve also seen the first instances of counterparty credit risk going live for reporting in May, which was a big event because banks aren’t always set up in the way that regulators expect them to be. Some banks had to abandon their netting and some of their hedging because they didn’t have their factors aligned correctly.
Q1 of 2022 also saw the release of the high earners report, which involves additional disclosures on who earns what in the bank. The format also changed from XML to XBRL, which was a surprise to those who expected the movement to be very much in the opposite direction.
To help with this concern, VERMEG is pleased to offer a 3-month free trial of its XBRL Checker software to further enhance testing capabilities, in order to support its users and the wider community with this major change.
What Else You Need to Know
We’re also seeing the implementation of many minor changes that were being discussed last year, such as changes to the net stable funding ratio (NSFR) and to the definitions around capital. The rules haven’t changed much but the definitions of the rules have! A change to Tier 1 capital, for example, may be significant to a bank and yet not highlighted by the regulator as a substantial change.
Firms should also be aware of changes to the leverage ratio templates (LV for the PRA in particular) which include measuring monthly average values for the first time. The other point to mention about the leverage ratio is that because it combines capital and credit risk, including counterparty credit risk, the content of the leverage ratio calculations is going to change due to calculation changes upstream.
Then there’s IFRS9, a big change made to accounting rules which is starting to creep into regulatory reporting. We’re seeing IFRS9 concepts appearing more and more in FINREP, both on the IFRS side and on the GAP side.
And of course, there are also the SRDD changes due to the phased shutdown of the XML-based OSCA platform and the move to BEEDS. This is happening across Q1 to Q3. After that, OSCA will be switched off. Click here and discover how VERMEG helped Bank of England reporting to move from OSCA to BEEDS.
Many of the concepts that I’ve talked about today are either brand new or yet to come into play, and so we’re still waiting to see the full impact that they will have on the industry. And there are some even larger questions in the UK about the role of the regulator, and to what extent the UK will be diverging from European rules. We’re in for some interesting times.
For more details, click here and listen to the FinTalk Podcast Episode where I discuss how to react to 2021’s Regulatory Reporting Changes.
Discover more about VERMEG’s FinTalk Podcast: Financial tech discussion in Collateral, Regulatory and Digital Transformation in Banking, Insurance and Investment Firms.
Hanbury Hampden-Turner
Head of Regulatory Reporting, EMEA.