Laurence CARON-HABIB’s Post

MORE FINAL REPORTS Today #EBA has released the "prudential package" of technical standards and guidelines under #MiCAR  The reports concern own funds, liquidity requirements and recovery plans: Final draft regulatory technical standards (RTS) on own funds requirements and stress testing for issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs). Final draft RTS detailing the procedure for adjusting own funds to 3% of the average reserve of assets for significant issuers. Final draft RTS on liquidity requirements, including minimum reserve percentages and liquidity management techniques. Final draft RTS defining highly liquid financial instruments, including concentration limits. Final draft RTS on liquidity management policy and procedures, including risk management and stress testing. Guidelines on recovery plans, specifying the required format, content, and communication strategies. https://lnkd.in/dwUgNi4v

In the latest edition of our European Regulatory Radar you can read about: - the key AIFMD II changes and the next steps firms should take; - the SSM’s updated supervisory priorities for 2024-2026 and what this means for banks. For more, read our article here or get in contact with us. Sébastien Leleu - Sven Muehlenbrock - Alix Tchana - Alan Picone - Julie Castiaux - Anne-Sophie Minaldo-Baucheron - Jean-Christophe Cabilin, FRM KPMG Luxembourg #SSM #AIFMDII 

EBA has published a comprehensive package of technical standards and guidelines under the Markets in Crypto-Assets Regulation (MiCAR). This package focuses on prudential matters, including own funds, liquidity requirements, and recovery plans for issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs). Final Draft RTS on Own Funds: Specify criteria for assessing higher risk, procedures for adjusting own funds requirements, and minimum stress testing program requirements for ART and EMT issuers. Final Draft RTS on Liquidity: Set specific minimum percentages of reserve assets for daily and weekly maturities, define eligible highly liquid financial instruments, establish concentration limits, and outline the minimum content of liquidity management policies and procedures. Guidelines on Recovery Plans: Specify the format and content of recovery plans, including communication and disclosure plans, that issuers must develop and maintain. Firm Implications: ART and EMT Issuers: They must understand and comply with the stricter requirements for their funds and liquidity, including adjusting their funds to 3% of the average reserve assets for significant tokens. Develop robust stress testing programs and comprehensive liquidity management policies and procedures. Recovery plans must be prepared to meet the specified format and content requirements. Financial Institutions: Should be aware of the new regulatory framework for ARTs and EMTs and assess any potential risks arising from their exposure to these tokens. They may need to adjust their risk management practices and due diligence processes when dealing with ART and EMT issuers. Investors: Should be aware of the increased regulatory scrutiny of ARTs and EMTs, which could impact these assets' stability and risk profile. The prudential requirements and recovery plans of ART and EMT issuers should be considered. Key Action Points for Firms: Please review and Understand: Thoroughly review the EBA's regulatory products and their implications for your business activities. Assess Impact: Evaluate the new requirements' impact on your existing operations, risk management frameworks, and compliance procedures. Develop Implementation Plans: Please create and implement plans to address gaps or deficiencies identified in your current practices to ensure you comply with the new rules. Monitor Developments: Please keep in mind future regulatory updates and guidance from the EBA and other relevant authorities. Seek Expert Advice: If needed, please hire legal and compliance experts to ensure a smooth transition to the new regulatory regime. #eba #mica https://lnkd.in/es3735v5

An interesting research paper published in January 2023 in ARGUMENTA OECONOMICA by researchers at the Department of Statistics at the University of Economics in Bratislava, Slovakia. As per the Abstract, the correct approach to liquidity risk management in banks is essential for securing their financial stability. The position of #liquidity risk among the rest of bank risks is specific because the negative outcome is not just a loss, but directly the bankruptcy of the institution. Such an occurrence might start a chain reaction and bring uncertainty into the entire financial system. This paper focused on one source of liquidity #risk, i.e. management of liquidity throughout the day. The management of #intraday liquidity is related to cash inflows and outflows occurring during the business day, their timing and settlement. In 2013, the #BCBS published the document Monitoring tools for intraday liquidity management, often referred to by the regulatory authorities. It offers basic concepts of intraday liquidity monitoring and sketchily defines #stress scenarios. The author suggests possibilities of how to perform intraday liquidity stress testing in a bank, which is often required by supervisors, even though no detailed approach or methodology as to how to proceed was introduced by the regulators. The research was carried out on anonymised data of cash #inflows and #outflows recorded on a central bank reserves account of one of the Slovak commercial banks. Both a base and four stress scenarios were developed and suggested for the better understanding of expected #cashflows in standard conditions and during stress. The author’s aim was to develop scenarios in a non-traditional way by means of a basic and EWMA historical #bootstrap simulations, respectively. Stress scenarios are supposed to simulate reputation crisis, disruption in #RTGS payment system, increased deposit outflows and bank run. The purpose of the proposed intraday liquidity monitoring scenarios was to strengthen resilience not only for a concrete bank, but also the entire financial system. Intraday liquidity #monitoring is a key factor in securing stability of the financial sector. #GRC #riskmanagement #liquidityrisk #ILAAP #stresstesting #modeling #intradayliquidity #scenarioanalysis #bootstrapsimulation #LCR #NSFR

NGFS published Transition Plan Package Last week, the Network for Greening the Financial System (NGFS) published its Transition Plan Package. It has published three detailed reports on: 1. considerations for emerging markets and developing economies in tailoring transition plans; 2. how financial institutions can use real economy transition plans to inform their own climate-related risk management and facilitate transition finance; and 3. Key elements of credible transition plans and how micro-prudential authorities can assess credibility #ngfs #transitionplans #climaterisk #transitionfinance https://lnkd.in/eNKtiec2

Published in the Argumenta Economica in 2023, this important paper entitled:"𝗜𝗻𝘁𝗿𝗮𝗱𝗮𝘆 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗠𝗼𝗱𝗲𝗹𝗹𝗶𝗻𝗴 𝘂𝘀𝗶𝗻𝗴 𝗦𝘁𝗮𝘁𝗶𝘀𝘁𝗶𝗰𝗮𝗹 𝗠𝗲𝘁𝗵𝗼𝗱𝘀" suggests possibilities of how to perform 𝗶𝗻𝘁𝗿𝗮𝗱𝗮𝘆 𝗹𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝘀𝘁𝗿𝗲𝘀𝘀 𝘁𝗲𝘀𝘁𝗶𝗻𝗴 in a bank, which is often required by supervisors, 𝑒𝑣𝑒𝑛 𝑡ℎ𝑜𝑢𝑔ℎ 𝑛𝑜 𝑑𝑒𝑡𝑎𝑖𝑙𝑒𝑑 𝑎𝑝𝑝𝑟𝑜𝑎𝑐ℎ 𝑜𝑟 𝑚𝑒𝑡ℎ𝑜𝑑𝑜𝑙𝑜𝑔𝑦 𝑎𝑠 𝑡𝑜 ℎ𝑜𝑤 𝑡𝑜 𝑝𝑟𝑜𝑐𝑒𝑒𝑑 𝑤𝑎𝑠 𝑖𝑛𝑡𝑟𝑜𝑑𝑢𝑐𝑒𝑑 𝑏𝑦 𝑡ℎ𝑒 𝑟𝑒𝑔𝑢𝑙𝑎𝑡𝑜𝑟𝑠. According to the authors, the correct approach to #liquidityrisk management in banks is essential for securing their financial stability where the position of liquidity risk among the rest of bank risks is specific because the negative outcome is not just a loss, 𝗯𝘂𝘁 𝗱𝗶𝗿𝗲𝗰𝘁𝗹𝘆 𝘁𝗵𝗲 𝗯𝗮𝗻𝗸𝗿𝘂𝗽𝘁𝗰𝘆 𝗼𝗳 𝘁𝗵𝗲 𝗶𝗻𝘀𝘁𝗶𝘁𝘂𝘁𝗶𝗼𝗻. Such an occurrence might start a 𝗰𝗵𝗮𝗶𝗻 𝗿𝗲𝗮𝗰𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗯𝗿𝗶𝗻𝗴 𝘂𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 𝗶𝗻𝘁𝗼 𝘁𝗵𝗲 𝗲𝗻𝘁𝗶𝗿𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝘀𝘆𝘀𝘁𝗲𝗺.  This paper focused on one source of liquidity risk, i.e. management of liquidity throughout the day. The management of intraday liquidity is related to cash inflows and outflows occurring during the business day, their timing and settlement. The research was carried out on anonymised data of cash inflows and outflows recorded on a central bank reserves account of one of the Slovak commercial banks. Both a base and four stress scenarios were developed and suggested for the better understanding of expected cashflows in standard conditions and during stress. The author’s aim was to develop scenarios in a non-traditional way by means of a basic and Exponentially Weighted Moving Average (#EWMA) historical bootstrap simulations, respectively. Stress scenarios are supposed to simulate reputation crisis, disruption in #RTGS payment system, increased deposit outflows and bank run. 𝗧𝗵𝗲 𝗽𝘂𝗿𝗽𝗼𝘀𝗲 𝗼𝗳 𝘁𝗵𝗲 𝗽𝗿𝗼𝗽𝗼𝘀𝗲𝗱 𝗶𝗻𝘁𝗿𝗮𝗱𝗮𝘆 𝗹𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗺𝗼𝗻𝗶𝘁𝗼𝗿𝗶𝗻𝗴 𝘀𝗰𝗲𝗻𝗮𝗿𝗶𝗼𝘀 𝘄𝗮𝘀 𝘁𝗼 𝘀𝘁𝗿𝗲𝗻𝗴𝘁𝗵𝗲𝗻 𝗿𝗲𝘀𝗶𝗹𝗶𝗲𝗻𝗰𝗲 𝗻𝗼𝘁 𝗼𝗻𝗹𝘆 𝗳𝗼𝗿 𝗮 𝗰𝗼𝗻𝗰𝗿𝗲𝘁𝗲 𝗯𝗮𝗻𝗸, 𝗯𝘂𝘁 𝗮𝗹𝘀𝗼 𝘁𝗵𝗲 𝗲𝗻𝘁𝗶𝗿𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝘀𝘆𝘀𝘁𝗲𝗺. #intradayliquidity #riskmanagement #LCR #Basel #bankrun #movingaverage #liquiditycoverage #NSFR #resilience #financialstability #statisticalmethods #bootstrapsimulation #stresstesting #scenarioanalysis #reputationalrisk #crisis #knowledge #information #resources #movingaverage #cashflows #settlementrisk #BCBS

Intraday liquidity modelling using statistical methods

Important remarks at a keynote speech by Claudia Buch, Chair of the Supervisory Board of the ECB titled "Global rifts and financial shifts: supervising banks in an era of geopolitical instability" Full speech here https://lnkd.in/eRgbJAPc Some takeaways on: Credit risk: Adequate provisioning for novel risks, including geopolitical risks, is essential for maintaining prudential capital ratios and acting as a safeguard in case these risks materialise. Yet, banks may lack the necessary historical data needed to apply classic expected loss provisioning models. Banks have thus increasingly turned to overlays to provision against potential loan losses. As supervisors, we encourage the use of overlays, but they should be based on sound methodologies and governance, such as simulations and scenario analysis. As a result, the ECB will take further supervisory action on both sets of banks: those that ignore the risks altogether and those that rely on outdated models. Stress testing remains a cornerstone of European banking supervision’s prudential oversight, with scenarios capturing effects of geopolitical tensions. European significant institutions are exposed, for example, to counter party credit risk arising via non-bank financial institutions which, in turn, are highly sensitive to geopolitical risks via hidden leverage or crowded trades. In addition to the 2025 EU-wide stress test, European banking supervision will therefore conduct an exploratory counter party credit risk scenario analysis. Capital and liquidity planning Banks’ capital and liquidity planning need to account for geopolitical risk events. The ECB is scrutinising the tools that banks are using for the planning process – the ICAAP and the ILAAP. Across these measures, we will increasingly focus on evaluating to what extent banks are sufficiently incorporating geopolitical factors into their risk management. Operational resilience and cyber risks Operational resilience is another area where we incorporate geopolitical risk factors into supervisory work since geopolitical upheaval can generate cyber threats and disrupt outsourced services. That’s why European banking supervision is conducting targeted reviews aimed at strengthening the sector’s cyber defences and scrutinising outsourcing arrangements.    This year, the ECB conducted its first cyber resilience stress test. The results showed that, generally, banks do have high-level response and recovery frameworks in place. Key areas for improvement include business continuity frameworks, incident response planning, backup security and third-party provider management. #ICAAP #ILAAP #stress testing #geopolitical risks #cyber stress test

This week, a draft of the guide on governance and risk culture was shared. What impact does it have? Why is good governance important for banks? 📌 Good governance is essential for banks to make informed decisions and ensure their safety and stability. It helps prevent deficiencies that could lead to poor decision-making and risks to capital and operational resilience.   What impact did past financial crises have on governance and risk culture? 📉 Both the global financial crisis and individual bank failures have demonstrated that weaknesses in governance and risk culture can serve as early warning signs or even root causes of future issues. Since the financial crisis, governance and risk culture have become top priorities for regulators worldwide. The Basel Committee on Banking Supervision (BCBS) has set international standards, which are reflected in the Capital Requirements Directive (CRD) and the European Banking Authority (EBA) guidelines.   What role does the ECB Guide play? 📄 The ECB Guide on governance and risk culture outlines key supervisory expectations based on the current regulatory framework. It builds on the SSM supervisory statement from 2016 and incorporates additional evidence from supervisory activities. The Guide aims to enhance internal governance and risk culture but does not introduce new legal requirements.   Thank you, Christophe Crnkovic, Max Weltersbach, LL.M., Nikolai Prehn and Jan Strüter, for the collaboration.   💡 Want to know more about these changes? Explore our comprehensive PDF covering Cross-Border Payment Services Regulation, Internal Governance and Risk Culture, FMA minimum standards for ICAAP, CSDR Settlement Discipline, Unified Standards for Crypto and E-Money Tokens and more captivating topics in our #Financial #Services #Newsletter: https://lnkd.in/eQqyMdYh.

On December 10th the FSB ( Financial Stability Board) issued its final report on Liquidity Preparedness for Margin and Collateral Calls and on December 11th the PRA announced consultations on liquidity reporting reforms for insurers. With the final report for the SWES ( System-Wide Exploratory Scenario ) issued at the end of November, this capped an important year in understanding and improving the financial and operational resilience of Non-Bank Institutions in stress scenarios. While the immediate focus is on enhancing regulatory reporting and transparency it is important not to forget the fundamental requirement to build resilient and "fit for purpose" operational processes internally and with counterparties and third-party service providers. The Bank of England's system-wide exploratory scenario exercise final report https://lnkd.in/eT4n6nbv Take a look at these other related links: https://lnkd.in/eXAFWcWD https://lnkd.in/ezn9vJGX https://lnkd.in/eFzzBWG8 #BOE #FSB #SWES