Regulatory Watch July 2018

A roundup of recent banking regulatory matters including a look at what’s on the current regulatory radar, the revision of the Internal Rating Based (IRB) Approach, the operational risk from a cyber-security perspective and data management – the implementation of BCBS 239.

In May 2014, the European Banking Authority (EBA) published its roadmap for the implementation of the regulatory review of the IRB approach. The objective was to identify and reduce the sources of undue variability in the implementation of the IRB models, in order to enhance the comparability of the capital requirements thus calculated.
Four years later, the review is almost finalized with the fourth and final phase of this roadmap being addressed (credit risk mitigation). In this briefing, we offer an overview of the evolution of the IRB approach.
Another undisputed hot topic in the banking industry is that of operational risk. With the current digital evolution, process automation and FinTech, new technologies have been a game changer for the banking industry.

However, alongside these new opportunities come new threats: cyber-attacks are increasing and are more creative and successful than ever. In this context, the European Union issued its first framework for Threat Intelligence-based Ethical Red Teaming in order to ensure cyber-resilience among the European institutions.

Another crucial operational issue for banks currently is data management. The implementation of BCBS 239 “Principles for effective risk data aggregation and reporting” issued in January 2013 is still in progress, even though it was initially due in January 2016 for Global Systemically Important Banks (G-SIB).

As you will see in our “In-Depth” article the current evolving regulatory environment combined with new technologies continues to hamper compliance with Basel principles.

To conclude, we are exploringe two emerging challenges in the banking industry: the finalization of the Market Risk framework and the EBA’s warning about the inadequate preparation for Brexit by financial institutions.

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