Brexit - Finbridge informs institutions about challenges in banking regulation and supervisory reporting
The peculiarities of the German banking market and its regulatory landscape will prove challenging for non-resident institutions. There is still a lot of uncertainty about the final outcome of Brexit negotiations. Thus, the intensity and scope of the new requirements under consideration remain unclear. Yet we identified the most relevant topics to be addressed in the upcoming months.
Internal Governance & Risk Management: Individual requirements regarding the instution’s internal governance and risk management apply which are mainly based on the business carried out and the risk associated with it. Organisational structures and processes should therefore be carefully assessed in order to comply with supervisory expectations (such as EBA Guidelines on Internal Governance on an international level and Minimum Requirements for Risk Management – MaRisk – on a national level). In addition to international reporting requirements there are national regulatory reporting requirements that need to be implemented such as AWV, BISTA and several others regarding million loan exposures and risk bearing capacity.
Internal Models: As all internal models need new permissions from either the ECB or the national supervisor, applications for a new approval are needed in a timely manner. Previously approved models can only be used for a limited period of time and under the application of strict conditions.
Supervisory Capital Requirements: Depending on the future outline of regulatory equivalence provided by the CRR, existing provisions for the calculation of regulatory capital requirements may still apply for third-country positions. Otherwise, exemptions have to be removed and RWA implications should be assessed and optimized.
Derivatives & Securities: Key issues in counterparty credit risk arise for the recognition of UK’s CCPs and trade repositories and the potential need to establish alternative memberships given the preferential treatment in RWA calculation. For non-centrally cleared derivatives, especially intragroup exemptions in the clearing obligation and the definition of margin requirements may be revoked.