Regulatory and supervisory landscape. November 2017

Transcription

1 Regulatory and supervisory landscape November 2017

2 Regulatory and supervisory landscape Key drivers of change Agency appointments Executive orders President Trump recently nominated Jerome Powell, a current Federal Reserve Board Governor, to serve as the next chair of the Fed. In October, Randal Quarles was confirmed as the Fed s first Vice Chair for Supervision. His confirmation testimony was closely aligned with speeches made by Governor Powell and provides additional perspective on the Fed s likely near-term priorities. Governor Fischer s recent resignation opens an additional door for the Administration to influence regulatory and supervisory priorities. The President has also nominated Joseph Otting to be Comptroller of the Currency. In response to the President s executive order, the Treasury Department issued three reports reviewing bank and credit union, capital markets, asset management and insurance regulation respectively. A report on nonbank financial institutions remains outstanding. Regulation Progress on new regulations or repealing existing regulations has been very slow. There is a general consensus among supervisors/regulators that regulations should be tailored to the risk profiles of different institutions and that regulatory burdens on regional and community banks should be reduced. Legislation The Financial CHOICE Act of 2017, passed by the House in June, takes a more aggressive approach to deregulation than the 2016 version of the legislation. Senator Crapo, Chair of the Senate Banking Committee, has stated his intent to pursue a bipartisan approach and indicated that the Committee would review the CHOICE Act, Treasury reports, AgencyEconomic Growth and Regulatory Paperwork Reduction (EGRPR) reports and public/industry input. Supervisory and enforcement priorities Turnover of the leadership at the independent agencies has already resulted in some changes to key supervisory priorities and is likely to result in more. Some priorities financial crimes, sales practices, cybersecurity, data and internal control standards are unlikely to be affected. Page 2

3 Regulatory and supervisory landscape Primary objectives of post-crisis reforms Improve the financial condition of institutions: Reduce likelihood of failure Expand perimeter of prudential regulation Liquidity Scope of prudential regulation Recovery and resolution planning Housing reforms Simplify the structure of institutions and strengthen oversight of key markets: Make institutions more resilient Improve the resiliency and transparency of markets Improve the governance of institutions: Increase accountability Strengthen controls Capital Risk governance and controls Regulatory reporting Cybersecurity Business strategy Culture Derivatives, equity and fixed income market reforms Market transparency Compliance Improve the conduct of institutions and outcomes for consumers and investors: Develop the right culture at institutions Verify that firms treat customers fairly and do not manipulate markets Page 3

4 Emerging supervisory priority Technological innovation Key technologies (i.e., drivers ) affecting financial services Firms must meet all existing requirements and address the following when innovating: 1 Maintain an appropriate governance framework Fintech Robotics Machine learning 2 Assess, monitor and control potential risks Big/Nexgen data Cloud 3 Test compliance/effectiveness of controls Digital Artificial intelligence 4 Maintain operational resilience 5 Maintain transparency with regulators Cyber Key drivers Blockchain 6 Account for/address legacy issues Page 4

5 Key considerations Further regional and community bank relief is likely to be forthcoming. Agency-led review processes have already netted some results (e.g., recent NPRs on capital for non-advanced approaches banks). A potential increase in the Dodd-Frank Act (DFA) systemic risk threshold from the current level of $50b would offer the prospect of exemption from significant regulatory requirements e.g., resolution planning, Comprehensive Capital Analysis and Review (CCAR). Even if regulatory requirements and supervisory expectations are streamlined, firms will need to maintain robust business as usual risk management and internal control capabilities. Operational resiliency, including a focus on cybersecurity, data security and privacy, will continue to grow in importance given increasing interconnectivity and evolving technologies. Firms will need to become increasingly focused on managing risk and meeting evolving regulatory requirements and supervisory expectations associated with innovation and efforts to pursue the digital transformation of the broader enterprise. To innovate and transform the business effectively, firms will likely need to address a number of legacy foundational concerns, such data quality and disparate risk and control processes. Page 5

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