Prudential Regulation


Prudential Regulation

AFME's Prudential Regulation division focuses on the issues relating to changes to the global, EU and UK prudential regulatory frameworks. This section covers risk types such as Credit Risk, Market Risk, Counterparty Credit risk, Operational Risk and Liquidity Risk.

Overview

Working proactively and reactively on regulatory, legislative and policy initiatives, the division provides members with a forum to discuss prudential issues and concerns, with the aim of:

  • seeking appropriate, measured and globally consistent regulatory outcomes;
  • seeking quality policy developments;
  • enhancing and maintaining AFME's status as a trusted interlocutor;
  • fostering a regulatory dialogue with the industry; and
  • contributing industry expertise to informed debates about regulation.
The division is advised by the Prudential Regulation Board, which sets its broad policy focus and objectives, and the Prudential Regulation Committee, which scrutinises proposed regulations and advises on technical matters. These bodies are supported by a wide range of technical working groups.

Working groups:
  • Operational Risk WG;
  • Trading Book WG;
  • Counterparty Credit Risk WG;
  • RWA WG;
  • Large Exposure WG;
  • CRM Framework Sub-group.

EU

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CRR3
AFME is working closely with EU regulators as they seek to implement the final revisions to Basel III in the EU. We are engaging on behalf of our Members with the EU institutions as they seek to negotiate and finalise the implementation of Basel III as part of CRR3. AFME’s positions on the various elements of the Basel III package from December 2017 can be found on our CRR3 page.

Working Group: CRR3 Sub-group.


CRD V / CRR II

Until 2018 AFME supported the process of finalising the CRDV/CRR II.

These proposals introduced the Net Stable Funding Ratio (NSFR) and the Leverage Ratio as binding requirements for EU banks. The package also includes the implementation of Total Loss Absorbing Capacity (TLAC) for EU G-SIBs, as well as a number of other Basel standards - including a new framework for market risk capital requirements.

AFME’s archived positions on the various elements of the CRDV/CRRII package
.

UK

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Basel 3.1
AFME has engaged with the PRA and HMT in relation to the UK’s implementation of Basel III. The UK authorities refer to the anticipated transposition of these international standards in the UK as Basel 3.1

AFME has developed a series of papers relating to various elements of the anticipated Basel 3.1 package.

Committee: UK Basel 3.1 Steering Committee.

Global

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Basel III
The Basel III framework is a central element of the Basel Committee’s response to the global financial crisis. It aims to address a number of shortcomings in the pre-crisis regulatory framework and provides a foundation for a resilient banking system to avoid the build-up of systemic vulnerabilities.

The main objective of the latest revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets (RWA). The key (and most impactful) measure to address this is the Output floor which sets the minimum amount of capital a bank can draw from use of internal models-based approaches to 72.5% of the capital required under the standardised approach. The CRR3 proposals will also include significant changes to the Credit risk and Operational Risk framework, as well as implementing other reforms related to CVA risk and Market risk.

AFME is working closely with EU regulators as they seek to implement the final revisions to Basel III in the EU. We are engaging on behalf of our Members with the EU institutions as they seek to negotiate and finalise the implementation of Basel III as part of CRR3.Further information about our positions on the elements of the Basel III package can be found on this page.

Documents can be found here.

Working Group: Regulatory Reporting.


Prudential Treatment of Crypto Asset
GFMA joined the Futures Industry Association, the Institute of International Finance, the International Swaps and Derivatives Association, the International Securities Lending Association, the Bank Policy Institute, the International Capital Markets Association, and the Financial Services Forum in a joint trade association response to the Basel Committee on Banking Supervision’s second consult on the “Prudential Treatment of Crypto asset Exposures.

Related documents.

Working Group: AFME Prudential Treatment of Crypto Assets Task Force.


Liquidity Risk

AFME’s on-going work on liquidity risk and associated treasury topics continues as on-going implementation considerations and technical discussions are augmented with legislative proposals on high impact areas of the NSFR and on outstanding fundamental aspects of the LCR. Current areas and topics of work include considerations around the long-term funding associated with repos and derivatives, inherent procyclicalities of the LCR measure and considerations surrounding the use of liquid asset buffers.
Medium term linkages with climate risk and changing monetary policy are likely to bring further opportunities for active collaboration in the policy setting process, while intra-day liquidity risk may also provide scope for further work.

Significant resource is assigned to providing specialist treasury members with the most appropriate bilateral and group for a in which to consult on potentially sensitive and complex aspects of the current and expected frameworks.

Working Group: Liquidity WG

Document.

Contacts

Caroline Liesegang

Managing Director, Head of Capital & Risk Management, Sustainable Finance and Research

Constance Usherwood

Managing Director, Capital & Risk Management

Mark Bearman

Director, Capital & Risk Management

Gurmaj Singh Dhillon

Associate Director, Capital & Risk Management