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Banking Risk & Regulatory Academy 2021
10 WEBINARS 35 DELOITTE SUBJECT 11 COUNTRIES
MATTER EXPERTS
Austria
DAY1 │ 14-JUNE
1) What’s new on the regulatory and Belgium
supervisory agenda?
2) Capital management & stress testing in the
post-COVID period Cyprus
DAY2 │ 15-JUNE
France
1) The post-COVID credit risk environment
2) The banking sector’s NPL outlook
Germany
DAY3 │ 16-JUNE
1) Strategic view on the BIRD Hungary
2) Cloud
Ireland
DAY4 │ 17-JUNE
1) ESG strategy for the banking sector Poland
2) Deep dive in the cyber and IT security
ecosystem
Romania
DAY5 │ 18-JUNE
The Netherlands
1) All about AML: from EBA’s expectations to
recent innovations
2) RegTech insights – the future of compliance United Kingdom
© 2021 Deloitte Central Europe 1
DAY 1 / SESSION 1 What’s new on the regulatory and supervisory agenda? © 2021Deloitte © 2021 Deloitte Central Europe Risk & Regulatory Academy 22
Agenda
Overview of the regulatory landscape
Simon Brennan
Outlook for prudential capital Risk Advisory Director,
Deloitte EMEA Centre for
requirements Regulatory Strategy
simbrennan@deloitte.co.uk
Dimitrios Goranitis Stephan Thouet
Decoding supervisory priorities and Risk & Regulatory Leader,
Deloitte Central Europe
Audit & Assurance Director,
Deloitte Germany
expectations digoranitis@deloittece.com sthouet@deloitte.de
Michael Cluse Steven Van Honacker
Risk Advisory Director, Risk Advisory Director,
Deloitte Germany Deloitte North West Europe
mcluse@deloitte.de svanhonacker@DELOITTE.com
© 2021 Deloitte 3
Regulatory Outlook 2021
Recover, renew, rebuild
4
Supervisory priorities
Topics on the supervisory agenda
Financial resilience and business Operational resilience and
Sustainability
model viability digitalisation
• Decline in credit quality predicted to follow the • Regulatory developments on sustainability across • Growing convergence in the approaches taken by
COVID-19 pandemic has not yet materialised. As disclosure, risk management and stress testing regulators to operational resilience. Regulators
government support schemes are phased out, continue apace, with increased focus expected expect banks to consider still more challenging
banks will need to understand the implications on how financial institutions contribute to operational disruption scenarios.
for their capital positions and focus on robust reaching “net zero”. • Banks must respond to supervisors' concerns
credit risk management. • Focus areas for banks include developing regarding digitisation, including reliance on
• Threat of deteriorating conditions for financial accurate and complete ESG data and robust unregulated third-parties, prudential and
resilience will keep pressure on firms to address frameworks to prevent “greenwashing”. conduct risks in digital payments, and use of AI.
longstanding structural challenges to their • Regulators continue to work on shaping a more
profitability. competitive regulatory framework and increasing
their Regtech and Suptech capabilities.
Conduct, culture and Financial crime in the new normal Recovery and resolution planning
governance
• As system-wide financial support schemes • Banks will need to monitor developments
continue to be withdrawn, supervisors will keep a in relation to the European Commission’s AML IBOR
close eye on customer outcomes. Lenders will package, in particular, expectations on data
need to strengthen controls and oversight of sharing.
forbearance and collections functions. • Banks will also need to demonstrate more
effective management of crypto-related AML Prudential capital requirements
• Boards, in general, will need to demonstrate
greater collective diversity of skills risks and better, more extensive use of watchlists.
and experience.
5
Outlook for Prudential
Capital Requirements
6
Basel III and Basel IIIfinal
EU takes a phased approach to implement the new rules
Own Funds
Capital Requirements =
RWA
While a revision of regulatory
capital was at the heart of the
„original“ Basel III framework,
the finalisation of the
LCR NSFR LR revised
regulatory packages aims to
LR increase comparability and risk
sensitivity of the RWA
calculation.
Credit Risk
Core Equity Tier 1
Market
OpRisk
Risk
Additional Tier 1 CRSA IRB CVA CCR Sec.
Tier 2 Capital Floor
© 2021 Deloitte Central Europe 7
Overview of final Basel III framework
The choice of available approaches for pillar 1 will be revised under Basel IIIfinal
Pillar 1 – approaches
Risk type Sophistication of approach
Banks and Highlights of key changes
SA F-IRB A-IRB
other FI
• Revised standardized approach for credit risk
to improve granularity and risk sensitivity
Sovereigns SA F-IRB A-IRB
• Output floor at 72.5% of standardised
approach RWA limits benefits of internal
Large Corporates SA F-IRB A-IRB approaches
• Constraints on the use of IRB approaches for
Credit SA F-IRB A-IRB many low-default portfolios and introducing
Other corporates
Risk floors on many parameters in internal models
Specialised • Extended implementation period with
SA Slotting F-IRB A-IRB
lending uncertainty over possible EU divergence and
the Jan 2023 BCBS timeline
Retail SA IRB
Equity SA F-IRB A-IRB
How to approach the reforms
Securitisation Standardised Securitisation External Ratings- Securitisation Internal Ratings- • Understand the business impacts
Securitisation 1.250% RW
Approach (SEC-SA) Based Approach (SEC-ERBA) Based Approach (SEC-IRBA)
• Understand infrastructure and data
requirement
Simplified Standardised Standardised Approach Internal Model
Counterparty Credit Risk Original Exposure Method
Approach (SA-CCR) Method (IMM) • Plan updates to models, calculations,
reporting and business operating models
Credit Valuation Basic Approach (BA-CVA)
CCR-Charge Multiplier Standardised Approach (SA-CVA)
Adjustment
Alternative Standardised Standardised Approach Alternative Internal Model Internal Model Approach
Market Risk Approach (“Sensitivity Based Approach”) Approach (IMA)
Legend/Treatment for Output Floor
Standardised Alternative Standardised Advanced Standardised Internal Discontinued or
Basic Indicator The Standardised Approach Approach EU only
Operational Risk Approach (BIA) Approach (TSA)
Measurement Standardised Measurement Measurement
Approach (SMA) Approach (ASA) Approach (SMA) Approach (AMA)
© 2021 Deloitte Central Europe 8
Basel III implementation timing
Within the European Union we understand that the CRD VI/CRR III proposal from the European Commission is now likely
to come in Q3 2021 due to a COVID-related delay to work.
All major jurisdictions are likely to miss the timeline with the EU also unlikely to hit the Basel III 2023 implementation deadline.
Jan 2017 Jan 2018 Jan 2019 Jan 2020 Jan 2021 Jan 2022 Jan 2023
CRR 2: Market Risk FRTB reporting FRTB SA reporting by September 2021 FRTB IMA reporting not before Q3 2023
CRR 2 : Leverage ratio and leverage-based G-SIB buffer Two-year implementation period for baseline leverage ratio LR G-SIB buffer
CRR 2 : NSFR Two-year implementation period for NSFR
CRR 2: SA-CCR and large exposures Two-year implementation period for SA-CCR and large exposures
CRR 2 : TLAC Implementation timing unclear as
implementation period likely needed post-
2017 2018
CRR 2 : Own funds for exposures to CCPs 2019 2020 2021 2022
Credit risk (SA and IRB) 2023
2023 to allow for secondary rulemaking
European Commission is Possible delay
expected to propose CVA
implementing legislation for Possible delay
Basel IIIfinal (CRR III) in Q3-Q4 Operational risk
2021. Political negotiations Possible delay
are expected to take
Output floor (transition to 2028)
approximately two years.
Possible delay
Key
Final standards
Legislative proposal/
Consultation/Discussion Paper
Implementation deadline
Known timeline
Expected timeline
© 2021 Deloitte Central Europe 9Future regulation: Capital pressures beyond Basel III implementation
The outlook for the next seven years
Even before Basel III is implemented in the UK and EU, a number of factors will put pressure on banks’ capital positions. The ECB expects the peak of EU
bank capital depletion due to COVID-19 to be in 2022.
Capital relief Expected economic recovery from COVID-19
Government guarantees (Maximum maturity of 6 years)
IFRS 9 impairments added back to capital
2021 today 2022 2023 2024 2025 2026 2027 2028
COVID-19 moratoria end Expected peak COVID-19 capital Earliest date that banks will be required
depletion (ECB) to operate above P2G and CBR (ECB)
IFRS9 impairments (Stage 1 to 2, Stage 2 to 3)
Reversal of IFRS 9 transitional relief
CRR II implementation (EU)
CRR II implementation (UK)
Capital pressure Revised IRB approach (incl. definition of default (EU/UK), IRB Repair (EBA)
and hybrid models (UK))
Risk weight floors for IRB mortgage portfolios (UK)
CCyB rebuild to neutral level
Phase out of CRR Quick Fix temporary measures
Basel 3.1 implementation (assuming BCBS deadlines are met)
© 2021 Deloitte Central Europe 10Implementation planning: Basel III impacts the business end to end
Consideration should be given to both the upstream and downstream elements in the calculation processes, as well as
the broader operating model.
Upstream Downstream
considerations considerations
Regulatory and MI
Business strategy
reporting
Systems rework IFRS9
Data availability Pricing
Data management Stress Testing
Collateral
RWA forecasting
management
Operating model
Governance Resourcing Process Controls Policies
© 2021 Deloitte Central Europe 11Implementation planning: What to do now
Even though the new rules will not apply any time soon, the framework casts a long shadow
Key Takeaways
Banks Implementation Activity
• Banks that stop implementation efforts risk losing momentum. • Banks should be prepared to see policy proposals on Basel III
• Banks should use the remaining time to address pressing strategic and implementation coming from key public authorities in the near term and
operational challenges: ensure that they have sufficient resources available to review the content
of the proposals and respond.
− Managing cross country differences
• These proposals may diverge from the standards set by the BCBS, and not
− Managing the interplay between models and standardised floors always be consistent between jurisdictions.
• Decisions will also need to take account of how the business and risk • Banks need to use this extra time to conduct granular impact assessment
environments are evolving in reaction to COVID-19 and be robust in to gain an early understanding of how the different national variations of
the face of implementation demands – in terms of people, models, Basel III are likely to affect business models across their geographical
capital and costs. footprint and help shape the final rules.
• Regulators will expect banks to make the most of the time, e.g. • Some action is independent of the actual final ruleset. E.g., banks must
improving regulatory reporting – where increased transparency, implement a mechanism to allocate output floor capital requirements to
timeliness and accuracy will be vital for the regulatory response to the business units for pricing of long maturity deals
COVID-19 disruption.
• Likewise, profitability of some business units will suffer under the new
• Banks that maintain momentum in their regulatory change rules. These units must be identified at an early stage so that investments
programmes will be best placed to benefit most from the available will be focussed on “future proof” activities.
time.
© 2021 Deloitte Central Europe 12Decoding supervisory
priorities and expectations
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© 2021. For information, contact Deloitte Central Europe
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