Monday June 11 2012 - Top 10 Risk Compliance News Events (114 pages)

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International Association of Risk and Compliance
Professionals (IARCP)
1200 G Street NW Suite 800 Washington, DC 20005-6705 USA
Tel: 202-449-9750 www.risk-compliance-association.com

Top 10 risk and compliance management related news stories
and world events that (for better or for worse) shaped the week's
agenda, and what is next

George Lekatis
President of the IARCP
Dear Member,

We have 3 really important papers that have to do with the
implementation of the Basel iii framework in the USA.
The three notices of proposed rulemaking (NPRs), taken together, will
restructure the Board’s current regulatory capital rules into a harmonized,
comprehensive framework, and will revise the capital requirements to
make them consistent with the Basel III capital standards established by
the Basel Committee on Banking Supervision (BCBS) and certain
provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).
The proposals are published in separate NPRs to reflect the distinct
objectives of each proposal, to allow interested parties to better
understand the various aspects of the overall capital framework, including
which aspects of the rule would apply to which banking organizations,
and to help interested parties better focus their comments on areas of
particular interest.
The problem is we did not learn more about the quantitative liquidity
requirements and the capital surcharge for global systemically important
banks (these are not part of this rulemaking). I hope we will have more
details soon.

Welcome to the Top 10 list.
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International Association of Risk and Compliance Professionals (IARCP)
www.risk-compliance-association.com

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The
NUMBER 1

Basel III in the USA
Proposed Rulemakings for an
Integrated Regulatory Capital
Framework, Questions and Answers
June 7, 2012

Chairman Ben S. Bernanke
Economic Outlook and Policy
Before the Joint Economic Committee,
U.S. Congress, Washington, D.C. June 7, 2012
Chairman Casey, Vice Chairman Brady, and other
members of the Committee, I appreciate this
opportunity to discuss the economic outlook and
economic policy.

Consultation paper on Draft
Implementing Technical
Standards on supervisory
reporting requirements for
liquidity coverage and stable funding
07 June 2012

The European Banking Authority (EBA) launched today a consultation
on Draft Implementing Technical Standards (ITS) on supervisory
reporting requirements for liquidity coverage and stable funding.

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Auditing in the Small Business Environment
DATE: June 7, 2012
SPEAKER: Jeanette M. Franzel, Board Member
EVENT: PCAOB Forum on Auditing in the Small Business
Environment
LOCATION: Minneapolis, MN

Auditing the Future
DATE June 7, 2012
SPEAKER(S): Jay D. Hanson, Board Member
EVENT: Fair Value Measurements and Reporting Conference
LOCATION: National Harbor, MD

FASB Board Decisions
Summary of Board decisions are provided for the information and
convenience of constituents who want to follow the Board’s deliberations.

Call for evidence on Transaction Reporting
From The British Bankers’ Association (BBA) to
the European Securities and Markets Authority
(ESMA)

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The Next Phase in Islamic Finance
Ravi Menon
Managing Director, Monetary Authority of
Singapore
Opening Address at the 3rd Annual World Islamic
Banking Conference: Asia Summit, Grant Hyatt
Singapore, 5 June 2012

Governor Daniel K. Tarullo
Dodd-Frank Act Implementation
Before the Committee on Banking, Housing, and
Urban Affairs, U.S. Senate, Washington, D.C. June 6,
2012

Mortgage financing: FINMA
recognises new minimum standards
The Swiss Financial Market Supervisory
Authority FINMA has approved the new
minimum re-quirements for mortgage financing drawn up by the Swiss
Bankers Association (SBA) as a minimum regulatory standard.

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NUMBER 1

Basel III in the USA

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Basel III in the USA, Board of Governors of the Federal Reserve
3:30 PM, Thursday, June 7, 2012 - Marriner S. Eccles Federal Reserve
Board Building, 20th Street entrance between Constitution Avenue and
C Streets, N.W., Washington, D.C.
Matters to be Considered:
Discussion Agenda:
1. Proposed interagency rulemakings: strengthening and
harmonizing the regulatory capital framework for banking organizations,
including proposed rules for implementing Basel III for banking
organizations and proposed consolidated capital requirements for
savings and loan holding companies.
2. Final interagency rulemaking: market risk capital rule.

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Proposed Rulemakings for an Integrated Regulatory Capital
Framework, Questions and Answers
June 7, 2012
Question 1: What does the package of proposed rulemakings
contain and why is it divided into three parts?
The package contains three notices of proposed rulemaking (NPRs) that,
taken together, would restructure the Board’s current regulatory capital
rules into a harmonized, comprehensive framework, and would revise the
capital requirements to make them consistent with the Basel III capital
standards established by the Basel Committee on Banking Supervision
(BCBS) and certain provisions of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).
The proposals are published in separate NPRs to reflect the distinct
objectives of each proposal, to allow interested parties to better
understand the various aspects of the overall capital framework, including
which aspects of the rule would apply to which banking organizations,
and to help interested parties better focus their comments on areas of
particular interest.
The BCBS quantitative liquidity requirements and the BCBS capital
surcharge for global systemically important banks are not part of this
rulemaking.
First Paper: The Basel III NPR
1. The first NPR, Regulatory Capital Rules: Regulatory Capital,
Implementation of Basel III, Minimum Regulatory Capital Ratios,
Capital Adequacy, Transition Provisions, and Prompt Corrective Action
(Basel III NPR), is primarily focused on proposed reforms that would
improve the overall quality and quantity of banking organizations’
capital.
The NPR would revise the Board’s risk-based and leverage capital
requirements, consistent with the Dodd-Frank Act and with agreements
reached by the BCBS in Basel III: A Global Regulatory Framework for
More Resilient Banks and Banking Systems (Basel III).

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The proposal includes transition provisions designed to provide sufficient
time for banking organizations to meet the new capital standards while
supporting lending to the economy.
Second Paper: The Standardized Approach NPR
2. The second NPR, Regulatory Capital Rules: Standardized Approach
for Risk-weighted Assets; Market Discipline and Disclosure
Requirements (Standardized Approach NPR), would revise and
harmonize the Board’s rules for calculating risk-weighted assets to
enhance their risk sensitivity and address weaknesses identified over
recent years.
It would incorporate aspects of the BCBS’s Basel II standardized
framework in the International Convergence of Capital Measurement and
Capital Standards: A Revised Framework (Basel II), Basel III, and
alternatives to credit ratings for the treatment of certain exposures,
consistent with the Dodd-Frank Act.
Third Paper: The Advanced Approaches and Market Risk NPR
3. The third NPR, Regulatory Capital Rules: Advanced Approaches
Risk-based Capital Rule; Market Risk Capital Rule (Advanced
Approaches and Market Risk NPR), would revise the advanced
approaches risk-based capital rule (in a manner consistent with the
Dodd-Frank Act) and incorporate certain aspects of Basel III that the
Board would apply only to advanced approaches banking organizations
(generally, the largest, most complex banking organizations).
This NPR would also codify the Board’s market risk capital rule and, in
combination with the other components described above, would apply
consolidated capital requirements to savings and loan holding companies
(SLHCs).
Question 2: Which banking organizations are covered by the
proposed rulemakings?
The Basel III NPR and the Standardized Approach NPR would apply to
state member banks, bank holding companies domiciled in the United
States not subject to the Board’s Small Bank Holding Company Policy

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Statement (generally, bank holding companies with less than $500 million
in consolidated assets), and SLHCs domiciled in the United States.
Consistent with Section 171 of the Dodd- Frank Act, the proposed
rulemakings would apply to all SLHCs regardless of asset size.
The Advanced Approaches and Market Risk NPR would generally apply
to banking organizations meeting specified thresholds.
In general, the advanced approaches risk based capital rule applies to
those banking organizations with consolidated total assets of at least $250
billion or consolidated total on-balance sheet foreign exposures of at least
$10 billion (excluding insurance underwriting assets) and their depository
institution subsidiaries.
The market risk capital rule generally applies to those banking
organizations with aggregate trading assets and trading liabilities equal
to at least 10 percent of quarter-end total assets or $1 billion.
Question 3: How are these proposed rulemakings related to the
Dodd-Frank Act?
The NPRs are consistent with statutory requirements in the Dodd-Frank
Act.
For example, pursuant to section 171 of the Act, the NPRs would establish
minimum riskbased and leverage capital requirements for SLHCs, phase
out certain capital instruments over a three-year period, and establish new
minimum generally applicable capital requirements.
In addition, pursuant to section 939A of the act, the NPRs remove
references to, or requirements of reliance on, credit ratings in the Board’s
capital rules and replace them with alternative standards of
creditworthiness.
Question 4: What are the main changes to the minimum capital
requirements?
The proposal includes a new common equity tier 1 minimum capital
requirement of 4.5 percent of risk-weighted assets and a common equity
tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets.
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The proposal also increases the minimum tier 1 capital requirement from
4 to 6 percent of risk-weighted assets.
The minimum total riskbased capital requirement would remain
unchanged at 8 percent.
The proposal introduces a supplementary leverage ratio that incorporates
a broader set of exposures in the denominator measure of the ratio for
banking organizations subject to the advanced approaches capital rule.
This supplementary leverage ratio is based on the international leverage
ratio in Basel III.
Question 5: What are the main changes related to the definition
of capital being proposed?
Capital instruments issued by banking organizations would be subject to
a set of strict eligibility criteria that would prohibit, for example, the
inclusion in tier 1 capital of instruments that are not perpetual or that
permit the accumulation of unpaid dividends or interest.
Trust preferred securities, for example, would be excluded from tier 1
capital, consistent with both Basel III and the Dodd-Frank Act.
Under the Basel III NPR, banking organizations would be subject to
generally stricter regulatory capital deductions (the majority of which
would be taken from common equity tier 1 capital).
For example, deductions related to mortgage servicing assets, deferred
tax assets, and certain investments in the capital of unconsolidated
financial institutions would generally be more stringent than those under
the current rules.
Question 6: What is the capital conservation buffer and how
would it work?
In order to avoid limitations on capital distributions (including dividend
payments, discretionary payments on tier 1 instruments, and share
buybacks) and certain discretionary bonus payments, under the proposal
banking organizations would need to hold a specific amount of common
equity tier 1 capital in excess of their minimum risk based capital ratios.
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The fully phased-in buffer amount would be equal to 2.5 percent of
risk-weighted assets.
Question 7: Will the new capital requirements and capital
conservation buffer be imposed immediately or will there be a
transition period?
The Basel III NPR contains transition provisions designed to give ample
time to adjust to the new capital requirements, consistent with the
agreement in Basel.
The new minimum regulatory capital ratios and changes to the
calculation of risk weighted assets would be fully implemented January 1,
2015.
The capital conservation buffer framework would phase-in between 2016
and 2018, with full implementation January 1, 2019.
Question 8: What is common equity tier 1 capital and why are
you proposing a new common equity tier 1 requirement?
Common equity tier 1 capital is a new regulatory capital component that
is predominantly made up of retained earnings and common stock
instruments (that comply with a series of strict eligibility criteria), net of
treasury stock, and net of a series of regulatory capital deductions and
adjustments.
Common equity tier 1 capital may also include limited amounts of
common stock issued by consolidated subsidiaries to third parties
(minority interest). Common equity tier 1 capital is the highest quality
form of regulatory capital because of its superior ability to absorb losses
in times of market and economic stress.
Question 9: What are the main elements of the Standardized
Approach NPR?
It would increase the risk sensitivity of the Board’s general risk-based
capital requirements for determining risk-weighted assets (that is, the
calculation of the denominator of a banking organization’s risk-based

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capital ratios) by proposing revised methodologies for determining
risk-weighted assets for:
- Residential mortgage exposures by applying a more risk-sensitive
treatment that would risk-weight an exposure based on certain loan
characteristics and its loan-tovalue ratio;
- Certain commercial real estate credit facilities that finance the
acquisition, development, or construction of real property by
assigning a higher risk weight;
- Exposures that are more than 90 days past due or on nonaccrual
(excluding sovereign and residential mortgage exposures) by
assigning a higher risk weight; and
- Exposures to foreign sovereigns, foreign banks, and foreign public
sector entities by basing the risk weight for each exposure type on the
country risk classification of the sovereign entity.
The NPR would also replace the use of credit ratings for securitization
exposures with a formula-based approach.
Additionally, the NPR would provide greater recognition of collateral and
guarantees.
However, for most exposures, no changes are being proposed in the
NPR.
More specifically, the treatment of exposures to the U.S. government,
government-sponsored entities, U.S. states and municipalities, most
corporations, and most consumer loans would remain unchanged.
It would introduce disclosure requirements that would apply to banking
organizations domiciled in the United States with $50 billion or more in
total assets, including disclosures related to regulatory capital.
The changes in the Standardized Approach NPR are proposed to take
effect January 1, 2015.
Banking organizations may choose to comply with the proposed
requirements prior to that date.

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Question 10: What are the primary objectives of the Advanced
Approaches and Market Risk NPR?
It would revise the advanced approaches risk-based capital rule in a
manner consistent with the Dodd-Frank Act by removing references to
credit ratings from the securitization framework, requiring an enhanced
set of quantitative and qualitative disclosures (especially in regard to
definition of capital and securitization exposures), implement a higher
counterparty credit risk capital requirement to account for credit
valuation adjustments, and propose capital requirements for cleared
transactions with central counterparties.
The NPR would incorporate the market risk capital rules into the
integrated regulatory capital framework and propose its application to
savings and loan holding companies that meet the trading thresholds.
Question 11: How will the Prompt Corrective Action (PCA)
framework change as a result of the proposed rulemakings?
Under the proposal, the capital thresholds for the different PCA
categories would be updated to reflect the proposed changes to the
definition of capital and the regulatory capital minimum ratios.
Likewise, the proposal would augment the PCA capital categories by
incorporating a common equity tier 1 capital measure.
In addition, the proposal would include in the PCA framework the
proposed supplementary leverage ratio for advanced approaches banking
organizations.
Note that the new PCA framework would take effect starting on January 1,
2015, consistent with the full transition of the minimum capital
requirements and the Standardized Approach for the calculation of risk
weighted assets.

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NUMBER 2

Chairman Ben S. Bernanke
Economic Outlook and Policy
Before the Joint Economic Committee,
U.S. Congress, Washington, D.C. June 7, 2012
Chairman Casey, Vice Chairman Brady, and other
members of the Committee, I appreciate this
opportunity to discuss the economic outlook and
economic policy.
Economic growth has continued at a moderate rate so far this year.
Real gross domestic product (GDP) rose at an annual rate of about 2
percent in the first quarter after increasing at a 3 percent pace in the
fourth quarter of 2011.
Growth last quarter was supported by further gains in private domestic
demand, which more than offset a drag from a decline in government
spending.
Labor market conditions improved in the latter part of 2011 and earlier
this year.
The unemployment rate has fallen about 1 percentage point since last
August; and payroll employment increased 225,000 per month, on
average, during the first three months of this year, up from about 150,000
jobs added per month in 2011.
In April and May, however, the reported pace of job gains slowed to an
average of 75,000 per month, and the unemployment rate ticked up to 8.2
percent.
This apparent slowing in the labor market may have been exaggerated by
issues related to seasonal adjustment and the unusually warm weather
this past winter.
But it may also be the case that the larger gains seen late last year and
early this year were associated with some catch-up in hiring on the part of

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employers who had pared their workforces aggressively during and just
after the recession.
If so, the deceleration in employment in recent months may indicate that
this catch-up has largely been completed, and, consequently, that
more-rapid gains in economic activity will be required to achieve
significant further improvement in labor market conditions.
Economic growth appears poised to continue at a moderate pace over
coming quarters, supported in part by accommodative monetary policy.
In particular, increases in household spending have been relatively well
sustained.
Income growth has remained quite modest, but the recent declines in
energy prices should provide some offsetting lift to real purchasing
power.
While the most recent readings have been mixed, consumer sentiment is
nonetheless up noticeably from its levels late last year.
And, despite economic difficulties in Europe, the demand for U.S.
exports has held up well.
The U.S. business sector is profitable and has become more competitive
in international markets.
However, some of the factors that have restrained the recovery persist.
Notably, households and businesses still appear quite cautious about the
economy.
For example, according to surveys, households continue to rate their
income prospects as relatively poor and do not expect economic
conditions to improve significantly.
Similarly, concerns about developments in Europe, U.S. fiscal policy, and
the strength and sustainability of the recovery have left some firms
hesitant to expand capacity.
The depressed housing market has also been an important drag on the
recovery.

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Despite historically low mortgage rates and high levels of affordability,
many prospective homebuyers cannot obtain mortgages, as lending
standards have tightened and the creditworthiness of many potential
borrowers has been impaired.
At the same time, a large stock of vacant houses continues to limit
incentives for the construction of new homes, and a substantial backlog of
foreclosures will likely add further to the supply of vacant homes.
However, a few encouraging signs in housing have appeared recently,
including some pickup in sales and construction, improvements in
homebuilder sentiment, and the apparent stabilization of home prices in
some areas.
Banking and financial conditions in the United States have improved
significantly since the depths of the crisis.
Notably, recent stress tests conducted by the Federal Reserve of the
balance sheets of the 19 largest U.S. bank holding companies showed that
those firms have added about $300 billion to their capital since 2009; the
tests also showed that, even in an extremely adverse hypothetical
economic scenario, most of those firms would remain able to provide
credit to U.S. households and businesses.
Lending terms and standards have generally become less restrictive in
recent quarters, although some borrowers, such as small businesses and
(as already noted) potential homebuyers with less-than-perfect credit, still
report difficulties in obtaining loans.
Concerns about sovereign debt and the health of banks in a number of
euro-area countries continue to create strains in global financial markets.
The crisis in Europe has affected the U.S. economy by acting as a drag on
our exports, weighing on business and consumer confidence, and
pressuring U.S. financial markets and institutions.
European policymakers have taken a number of actions to address the
crisis, but more will likely be needed to stabilize euro-area banks, calm
market fears about sovereign finances, achieve a workable fiscal
framework for the euro area, and lay the foundations for long-term
economic growth.
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U.S. banks have greatly improved their financial strength in recent years,
as I noted earlier.
Nevertheless, the situation in Europe poses significant risks to the U.S.
financial system and economy and must be monitored closely.
As always, the Federal Reserve remains prepared to take action as needed
to protect the U.S. financial system and economy in the event that
financial stresses escalate.
Another factor likely to weigh on the U.S. recovery is the drag being
exerted by fiscal policy.
Reflecting ongoing budgetary pressures, real spending by state and local
governments has continued to decline.
Real federal government spending has also declined, on net, since the
third quarter of last year, and the future course of federal fiscal policies
remains quite uncertain, as I will discuss shortly.
With regard to inflation, large increases in energy prices earlier this year
caused the price index for personal consumption expenditures to rise at
an annual rate of about 3 percent over the first three months of this year.
However, oil prices and retail gasoline prices have since retraced those
earlier increases.
In any case, increases in the prices of oil or other commodities are
unlikely to result in persistent increases in overall inflation so long as
household and business expectations of future price changes remain
stable.
Longer-term inflation expectations have, indeed, been quite well
anchored, according to surveys of households and economic forecasters
and as derived from financial market information.
For example, the five-year-forward measure of inflation compensation
derived from yields on nominal and inflation-protected Treasury
securities suggests that inflation expectations among investors have
changed little, on net, since last fall and are lower than a year ago.

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Meanwhile, the substantial resource slack in U.S. labor and product
markets should continue to restrain inflationary pressures.
Given these conditions, inflation is expected to remain at or slightly below
the 2 percent rate that the Federal Open Market Committee (FOMC)
judges consistent with our statutory mandate to foster maximum
employment and stable prices.
With unemployment still quite high and the outlook for inflation
subdued, and in the presence of significant downside risks to the outlook
posed by strains in global financial markets, the FOMC has continued to
maintain a highly accommodative stance of monetary policy.
The target range for the federal funds rate remains at 0 to 1/4 percent, and
the Committee has indicated in its recent statements that it anticipates
that economic conditions are likely to warrant exceptionally low levels of
the federal funds rate at least through late 2014.
In addition, the Federal Reserve has been conducting a program,
announced last September, to lengthen the average maturity of its
securities holdings by purchasing $400 billion of longer-term Treasury
securities and selling an equal amount of shorter-term Treasury
securities.
The Committee also continues to reinvest principal received from its
holdings of agency debt and agency mortgage-backed securities (MBS)
in agency MBS and to roll over its maturing Treasury holdings at auction.
These policies have supported the economic recovery by putting
downward pressure on longer-term interest rates, including mortgage
rates, and by making broader financial conditions more accommodative.
The Committee reviews the size and composition of its securities
holdings regularly and is prepared to adjust those holdings as appropriate
to promote a stronger economic recovery in a context of price stability.
The economy's performance over the medium and longer term also will
depend importantly on the course of fiscal policy.
Fiscal policymakers confront daunting challenges. As they do so, they
should keep three objectives in mind.
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First, to promote economic growth and stability, the federal budget must
be put on a sustainable long-run path.
The federal budget deficit, which averaged about 9 percent of GDP
during the past three fiscal years, is likely to narrow in coming years as
the economic recovery leads to higher tax revenues and lower income
support payments.
Nevertheless, the Congressional Budget Office (CBO) projects that, if
current policies continue, the budget deficit would be close to 5 percent of
GDP in 2017 when the economy is expected to be near full employment.
Moreover, under current policies and reasonable economic assumptions,
the CBO projects that the structural budget gap and the ratio of federal
debt to GDP will trend upward thereafter, in large part reflecting rapidly
escalating health expenditures and the aging of the population.
This dynamic is clearly unsustainable.
At best, rapidly rising levels of debt will lead to reduced rates of capital
formation, slower economic growth, and increased foreign indebtedness.
At worst, they will provoke a fiscal crisis that could have severe
consequences for the economy.
To avoid such outcomes, fiscal policy must be placed on a sustainable
path that eventually results in a stable or declining ratio of federal debt to
GDP.
Even as fiscal policymakers address the urgent issue of fiscal
sustainability, a second objective should be to avoid unnecessarily
impeding the current economic recovery.
Indeed, a severe tightening of fiscal policy at the beginning of next year
that is built into current law--the so-called fiscal cliff--would, if allowed to
occur, pose a significant threat to the recovery.
Moreover, uncertainty about the resolution of these fiscal issues could
itself undermine business and household confidence.
Fortunately, avoiding the fiscal cliff and achieving long-term fiscal
sustainability are fully compatible and mutually reinforcing objectives.
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Preventing a sudden and severe contraction in fiscal policy will support
the transition back to full employment, which should aid long-term fiscal
sustainability.
At the same time, a credible fiscal plan to put the federal budget on a
longer-run sustainable path could help keep longer-term interest rates
low and improve household and business confidence, thereby supporting
improved economic performance today.
A third objective for fiscal policy is to promote a stronger economy in the
medium and long term through the careful design of tax policies and
spending programs.
To the fullest extent possible, federal tax and spending policies should
increase incentives to work and save, encourage investments in workforce
skills, stimulate private capital formation, promote research and
development, and provide necessary public infrastructure.
Although we cannot expect our economy to grow its way out of federal
budget imbalances without significant adjustment in fiscal policies, a
more productive economy will ease the tradeoffs faced by fiscal
policymakers.
Thank you. I would be glad to take your questions.

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NUMBER 3

Consultation paper on Draft Implementing Technical Standards
on supervisory reporting requirements for liquidity coverage and
stable funding
07 June 2012

The European Banking Authority (EBA) launched today a consultation
on Draft Implementing Technical Standards (ITS) on supervisory
reporting requirements for liquidity coverage and stable funding.

These ITS, which will be part of the EU single rulebook, intend to specify
the main features (formats, frequencies, IT solutions) of prudential
reporting to be applied by financial institutions in Europe.

The consultation runs until 27 August 2012.

These ITS will become part of the general supervisory reporting
framework.

In this respect, they are an addition to the draft ITS text proposed in the
Consultation Paper on supervisory reporting for institutions (CP50)
published on 20 December 2011 and need to be read in conjunction with
them.

Main features of the ITS

These ITS aim at providing national authorities with harmonized
information on their liquid assets, inflows and outflows and their stable

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sources of funding using uniform reporting formats developed by the
EBA.
Against this background, this consultation paper puts forward proposals
regarding the reporting requirements for both liquidity coverage and
stable funding.
The purpose of this monitoring is two-fold:
(i) To inform the economic impact assessment of the liquidity
requirements the EBA is asked to perform during the monitoring period,
and
(ii) To enable competent authorities to monitor institutions’ compliance
with the liquidity requirements once they have been introduced as
binding minimum standards.
The scope and level of application of these ITS are in line with the Capital
Requirements Regulation (CRR) text.
The latter provides for the liquidity coverage reporting to be done at least
monthly and the stable funding reporting at least quarterly.
These ITS have been developed on the basis of the templates for liquidity
reporting used by the EBA in compiling the Basel III monitoring exercise
as well as on the COREP and FINREP guidelines.
They also build on voluntary reporting exercises conducted
predominantly by larger institutions.
Next steps
These draft ITS have been developed on the basis of the European
Commission’s legislative proposals for the CRR/CRD IV.
Following the end of the consultation period, and to the extent that the
final text of the CRR changes before the adoption of the ITS, the EBA will
adapt its draft ITS accordingly to reflect any developments.
The CRR also mandates the EBA to develop additional liquidity
monitoring metrics to provide competent authorities with a
comprehensive view of institutions’ liquidity risk profiles.

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The EBA is currently working on these metrics and will launch a public
consultation in due course, depending on the timeline that will be
adopted in the CRR.
As stated above, the information collected under these ITS will be used to
inform the EBA’s impact assessment on the introduction of the liquidity
requirements.
The EBA will disclose the methodology it intends to use for this
assessment later this year.
A separate consultation on a data point model containing all the relevant
technical specifications necessary for developing an IT reporting format
will be published in the second half of 2012.
Based on the CRR proposals and these ITS, institutions are required to
comply with the new reporting requirements as of 1 January 2013.
In the current timeline for the implementation of the CRR/CRD IV, the
first regular reporting period is expected to be January 2013.
Notes to editors
1. The CRR/CRD IV package (the so-called Capital Requirements
Regulation - ‘CRR’- and the so-called Capital Requirements
Directive – ‘CRD’) sets out prudential requirements which are
expected to be applicable as of 1 January 2013.
The package translates in European law international standards on
bank capital agreed at the G20 level (most commonly known as the
Basel III agreement).
One of the major achievements will be the creation of a Single Rule
Book - a set of rules directly applicable in all EU member states -
that will improve both transparency and enforcement in the EU
banking sector.
2. Draft ITS are produced in accordance with Article 15 of EBA
regulation which provides for their adoption by means of
regulations or decisions.

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According to EU law, EU regulations are binding in their entirety
and directly applicable in all Member States.
This means that, on the date of their entry into force, they become
part of the national law of the Member States and that their
implementation into national law is not only unnecessary but also
prohibited by EU law, except in so far as this is expressly required
by them.

EBA Consultation Paper on Draft Implementing Technical
Standards on Supervisory reporting requirements for liquidity
coverage and stable funding, London, 07 June 2012

I. Responding to this Consultation

EBA invites comments on all matters in this paper

Comments are most helpful if they:

- respond to the question stated;

- indicate the specific question to which the comments relates;

- contain a clear rationale;

- provide evidence to support the views expressed /rationale proposed;
and

- describe any alternative regulatory choices EBA should consider

Please send your comments to the EBA by 27 August 2012

Publication of responses

All contributions received will be published following the close of the
consultation, unless you request otherwise.

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P a g e | 26

Please indicate clearly and prominently in your submission any part you
do not wish to be publically disclosed.

A standard confidentiality statement in an e-mail message will not be
treated as a request for non-disclosure.

A confidential response may be requested from us in accordance with the
EBA’s rules on public access to documents.

We may consult you if we receive such a request. Any decision we make
not to disclose the response is reviewable by the EBA’s Board of Appeal
and the European Ombudsman.

II Executive Summary

The CRD IV proposals which are expected to be applicable as of 1.1.2013,
set out prudential requirements for EEA institutions.

The CRR contains, in a number of Articles, specific mandates which
require the EBA to develop draft Implementing Technical Standards
(henceforth ITS) related to supervisory reporting requirements (Articles
95, 96, 383, 403 and 417 of CRR).

These ITS will be part of the single rulebook enhancing regulatory
harmonisation in Europe with the particular aim of specifying uniform
formats, frequencies and dates of prudential reporting as well as IT
solutions to be applied by institutions and, as the case may be, investment
firms in Europe.

The draft ITS are intended to be put forward as one integrated draft
Regulation and this consultation paper consequently supplements EBA
Consultation Paper CP50 on supervisory reporting for institutions,
published on 20 December 20112.

The draft ITS text proposed in the present document is an addition to the
draft ITS text proposed in that CP and needs to be read in conjunction
with it.

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The rationale behind a single draft Regulation is that it is beneficial that
reporting requirements are grouped together in one legal act to facilitate a
comprehensive view, improved understanding and compact access to
them by legal or natural persons subject to the obligations laid down
herein.

In the case of monitoring the implementation of new standards, the
benefits of standardised data collection and IT solutions will reduce the
burden on institutions and allow a more accurate examination of the
impact of such standards.

This consultation paper puts forward proposals regarding the reporting
requirements according to the mandate of the EBA provided in Article
481 of the CRR to monitor and evaluate the liquidity reporting
requirements made in accordance with Article 403(1).

This CP is not consulting on a number of items not specified in the CRR.

Such matters include, but are not limited to, the calibration of the
liquidity standards, the definition of liquid assets, the scope of application
and frequency of reporting.

Please note that the EBA has developed the present draft ITS based on
the European Commission’s legislative proposals for the CRR/CRD IV.

Following the end of the consultation period, and to the extent that the
final text of the CRR changes before the adoption of the ITS, the EBA will
adapt its draft ITS accordingly to reflect any developments.

Following the close of the consultation on dd.mm, the EBA will assess
the responses received, along with any relevant changes in the final CRR
legislative text.

Main features of this ITS

The CRR specifies a new liquidity coverage requirement that would be
applicable to all credit institutions no earlier than 1.1.2015, following a
delegated act by the EC.
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Article 481 requires the EBA to, amongst other things, monitor and
evaluate the reports submitted in accordance with this ITS and to report
to the EC whether a specification of the general liquidity requirement
would “have a material detrimental impact on the business and risk
profile of Union institutions or on financial markets or the economy and
bank lending....”.

With regard to a stable funding requirement, the article requires the EBA
to submit a report to the EC on whether and how a stable funding
requirement would be appropriate, together with a similar assessment on
the impact on Union institutions, financial markets and bank lending.

The ITS has been developed on the basis of templates for liquidity
reporting used by the EBA in compiling its “Report on the Basel III
monitoring exercise” which were in turn based on those in the
Quantitative Impact Study (QIS) carried out by the Basel Committee on
Banking Supervision (BCBS), adapted for the purposes of the
requirements put forward by the CRR.

The template consequently builds on the experience gained in a number
of Member States with voluntary reporting predominantly by larger
institutions.

In addition the EBA has conducted a small number of voluntary reporting
exercises for a broader range of institutions to increase familiarity with
the liquidity coverage requirement and to improve data quality.

The ITS has been developed, as much as possible, on the basis of the
COREP and FINREP guidelines, given that these have been
implemented already in various Members States and have been proved in
practice to improve convergence in the field of supervisory reporting.

However, there is a very limited overlap of data requirements with
existing data collected, as is commonly the case with liquidity reporting.

The scope and level of application of this ITS follows the scope and level
of application of the CRR.

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As mentioned above, the EBA is mandated to follow the legislative text.

The reporting frequency will be not less than monthly for the liquidity
coverage reporting and not less than quarterly for the reporting of the
stable funding as required by the CRR.

Timing of ITS development and application date

Based on the EC proposals and this ITS, institutions are required to
comply with new reporting requirements according to Titles II and III as
of 1 January 2013.

From this date onwards competent authorities will have to check
institutions‟ compliance with the afore-mentioned regular reporting
requirements and reporting instructions belonging to the reporting
templates.

The first regular reporting period for the liquidity reporting according to
Title II is expected to be January 2013, with the first reporting reference
date being end January 2013

The reporting of the stable funding according to Title III is expected to
commence in the quarter of 2013 with the first reporting reference date
being end-March 2013 2012.

Q1: Are the proposed dates for first remittance of data, i.e. end of
January and end of March 2013, feasible?
The EBA intends to finalise the draft ITS and endorse it for submission to
the EC by November 2012.

The proposed submission dates assume that a final CRR will be available
beforehand.

While this is a very short period of time before reporting is legally required,
in the case of many large institutions, they will have been reporting on a
voluntary basis for an extended period of time, and other institutions can

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plan on the basis of final legislative text which should be available at a
much earlier date.

It is important to keep in mind that timelines contained in the CRR might
change which may impact the above dates related to the ITS.

In any case, EBA will adapt its draft ITS according to the final version of
the CRR text before submitting it to the EC for adoption.

III. Background and rationale
Draft ITS on Liquidity reporting

On July 20th 2011, the EC published legislative proposals on a revision of
the CRD which seeks to apply the Basel III framework in the EU.

These proposals have recast the contents of the CRD into a revised CRD
and a new CRR - which are colloquially referred to as the CRR proposals.

These are currently being finalised by EU legislators (Council and
European Parliament) in the framework of the co-decision procedure.

In anticipation of the finalisation of the legislative texts for the CRR, the
EBA has developed the draft ITS in accordance with the mandate
contained in Article 403.1 (a) of the draft CRR endorsed by the EC in July
2011.

This approach, to draft the ITS on the basis of the EC’s endorsed text was
deemed a more efficient way forward, as it will allow banks to start
evaluating the potential challenges of the new liquidity reporting
framework (introduced as a legal requirement for the first time in the
CRR proposals) pending finalisation of the co-decision process.

In any case, the EBA will adapt its draft ITS according to the final version
of the CRR text before submitting them to the EC for adoption.

The final ITS on liquidity reporting and reporting on stable funding will
be included in the ITS on supervisory reporting requirements for
institutions.
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The nature of ITS under EU law

These draft ITS are produced in accordance with Article 15 of EBA
regulation.

According to Article 15(4) of EBA regulation, they shall be adopted by
means of regulations.

According to EU law, EU regulations are binding in their entirety and
directly applicable in all Member States.

This means that, on the date of their entry into force, they become part of
the national law of the Member States and that their implementation into
national law is not only unnecessary but also prohibited by EU law,
except in so far as this is expressly required by them.

Shaping these rules in the form of a Regulation would ensure a
level-playing field by preventing diverging national requirements and
would ease the cross-border provision of services.

Background and regulatory approach followed in the draft ITS
In the context of domestic-based liquidity regimes within the European
Union, liquidity risk regulatory and reporting frameworks currently in use
in the various

Member States are heterogeneous. This led to inefficient outcomes and
increased costs for cross-border institutions and national supervisory
authorities, especially during the events of the 2007-2008.

To tackle such regulatory shortcomings which emerged during the crisis
and taking account of the new liquidity regulatory framework proposed
by the BCBS in December 20106, the EC’s proposed CRR envisages
introducing a liquidity coverage requirement from 1.1.2015 following an
observation and a review period.

Such a requirement aims to improve short term resilience of the liquidity
risk profile of institutions. According to the proposed CRR, the
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Commission will also consider introducing a stable funding requirement
in 2018 following an observation and review period, to address funding
problems arising from maturity mismatches.

To this aim, institutions are requested to report to national authorities the
elements needed to monitor their liquid assets, inflows and outflows and
their stable sources of funding according to Title II (Liquidity Reporting),
Annex III (Items subject to supplementary reporting of liquid assets) and
Title III (Reporting on stable funding) of the CRR, using uniform
reporting formats developed by EBA.

With that in mind, the present ITS has been developed to provide national
authorities with harmonised information on institution’s liquidity risk
profile, taking into account the nature, scale and complexity of
institutions' activities.

As the ITS on liquidity reporting will become part of the general
supervisory reporting framework requirements, following the
introduction of liquidity requirements, formats have been developed with
the aim to ensure consistency where allowed by the CRR proposed text.

Under the proposed CRR text, EBA is also requested to monitor and
evaluate the reports made by institutions and, after consulting the ESRB,
to report annually and for the first time by 31 December 2013 to the
Commission on the following issues:

(a) Whether the general liquidity coverage requirement in Article 401 CRR
is likely to have a detrimental impact on the business and risk profile of
Union institutions or on financial markets or then economy and bank
lending (Article 481(1) CRR);

(b) Appropriate uniform definitions of high and extremely high liquid and
credit quality of transferable assets for the purposes of Article 404 CRR.

By 31 December 2015, EBA is also requested to report to the Commission
whether and how it would be appropriate to ensure that institutions use
stable sources of funding, including an assessment of impact on the
business and risk profile of Union institutions or on financial markets or
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P a g e | 33

the economy and bank lending (Art. 481(3) CRR).

Therefore, information included in the ITS on liquidity reporting will also
be useful to EBA in reporting on the impact of the general liquidity
coverage requirement and the appropriateness of a stable funding
requirement.

However, this draft ITS will not help the EBA determine whether certain
transferable assets are of high or extremely high liquidity and credit
quality, as this an assessment independent of whether individual
institutions are holding such assets.

Level of application and frequency of liquidity coverage
reporting and the reporting on stable funding

The scope and level of application of the ITS follows the scope and level
of application of the CRR, i.e. it applies

- on a consolidated basis (Article 10(3) CRR): to EU parent credit
institutions and investment firms and to credit institutions and
investment firms controlled by an EU parent financial holding company
or by an EU parent mixed financial holding company;

- on an individual basis (Article 5(4)) : to all credit institutions and
investment firms that are authorised to provide the investment services
listed in points 3 and 6 of section A of Annex I to Directive 2004/39/EC.

However, according to Article 7 of the proposed CRR text, competent
authorities will be allowed to waive in full or in part the application of
Article 401 (Liquidity Coverage Requirement) to a parent institution and
to all or some of its subsidiaries, if they fulfil a set a predefined conditions,
including if the parent institution complies on a consolidated basis with
the obligation set forth in Article 401 and 403 (Article 7(1) (a)).

The frequency of the reporting requirements are aligned with those
envisaged in the draft CRR text: not less than monthly for the liquidity
reporting and not less than quarterly for the reporting on stable funding.

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Both the frequency and the scope of application of the ITS will be revised
to be aligned to final text of the CRR, especially regarding the application
of liquidity requirements to investment firms (Article 480(2) of CRR).

IV. Draft Implementing Technical Standards on Supervisory
reporting requirements for liquidity coverage reporting and
reporting on stable funding

In between the text of the draft ITS that follows, further explanations on
specific aspects of the proposed text are occasionally provided, which
either offer examples or provide the rationale behind a provision, and/or
set out specific questions for the consultation process.

Where this is the case, this explanatory text appears in a framed text box.
Structure of the draft ITS

CHAPTER 1 Subject matter, Scope and Definitions

CHAPTER 2 Reporting reference and remittance dates

CHAPTER 3 Format and frequency of reporting on liquidity and on
stable funding

Section 1 Format and frequency of reporting on liquidity

Section 2 Format and frequency of reporting on stable funding

CHAPTER 4 IT solutions for the submission of data from institutions to
competent authorities

CHAPTER 5 Final provisions

Annex I Liquidity coverage reporting template

Annex II Stable funding reporting template

Annex III Instructions liquid assets

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Annex IV Instructions inflows

Annex V Instructions outflows

Annex VI Instructions Stable funding

Draft Commission Implementing Regulation (EU) No XX/2012
of XX Month 2012 laying down implementing technical standards with
regard to supervisory reporting of institutions according to the (proposal
for a ) European Parliament and Council Regulation (EU) No [xx] of
[date] on prudential requirements for credit institutions and investment
firms.

CHAPTER 1
Subject matter, Scope and Definitions

Article 1
Subject matter and scope

1. This Regulation lays down uniform requirements that all institutions
subject to the Regulation of the European Parliament and of the Council
on prudential requirements for credit institutions and investment firms
(hereinafter “CRR”) must meet relating to the submission of supervisory
data to competent authorities for the following areas:

a) liquidity reporting requirements as defined in Part III, Title II of
Regulation xx/xx ;

b) supplementary reporting of liquid assets as defined in Annex III of
Regulation xx/xx ;

c) stable funding reporting requirements as defined in Part III, Title III of
Regulation xx/xx ;

d) additional liquidity monitoring metrics as defined in Part III, Title II
of Regulation xx/xx ;

e) IT solutions as defined in Part III, Title II of Regulation xx/xx .
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P a g e | 36

Explanatory text for consultation purposes

The draft CRR also requires the EBA to develop a draft ITS to cover
additional monitoring metrics by Jan 1, 2013.

The EBA intends to launch a separate consultation on this matter in
autumn 2012.

The data point model will be published for consultation in the third
quarter of 2012.

2. The liquidity reporting requirements and the supplementary reporting
of liquid assets specified in this regulation apply until the delegated act
for a liquidity coverage requirement as referred to in Article 444 of
Regulation xx/xx has entered in force.

Some supplementary information is asked in the template to increase
data coverage.

At certain times the EBA may propose to change, amend or alter the
reporting specified in this Regulation in order to inform the report
required by Article 481.

This does not prejudge the future calibration of the ratio.

3. The stable funding reporting requirements specified in this regulation
apply until a legislative proposal for a stable funding requirement as
referred to in Article 481 (3) of Regulation xx/xx would enter in force.

4. The reporting shall be done on an individual basis (Article 5) and on a
consolidated basis (Article 10) as defined in Regulation xx/xx.

Individual reporting may only be waived according to the procedures
outlined in Articles 7 and 19.

These Articles make clear the respective roles of the EBA and the relevant
competent authorities in granting any such waivers.

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P a g e | 37

Article 2
Definitions

1. For the purpose of this Regulation, the definitions provided by
Regulation xx/xx shall apply, in particular those included in Article 4 and
400 of the CRR shall apply.

2. For the purpose of this Regulation, the scope and level of application
according to Part 1, Title II of Regulation xx/xx shall apply.


In addition, according to Article 403.2, institutions are required to report
items separately if they are indexed to a currency where the institution has
significant liquidity risk or such currency is the lawful currency of a
jurisdiction where they have a significant branch.

For the purposes of harmonising the definition of a currency where an
institution has significant liquidity risk the EBA proposes that this should
be limited to those currencies which comprise more than 5% of an
institution’s liabilities.

Q2: Do respondents agree with this proposal for defining
significant currency?

The reporting for investment firms should be done following the
requirements of Part 1, Title II until the eventual implementation of any
legislative proposal referred to in Article 480(2) of CRR.

CHAPTER 2
Reporting reference and remittance dates
Article 3

1. The reporting reference dates shall be:

- Monthly reporting: on the last day of each month;

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- Quarterly reporting: 31 March, 30 June, 30 September and 31 December.

Article 4

Reports shall be submitted by institutions to competent authorities by
close of business on the 15th calendar day after the reporting reference
date specified in Article 3.

1. If the remittance day is a public holiday, Saturday or Sunday, reporting
requirement shall be transmitted on the following working day.

2. The above remittance dates concern the submission of unaudited
figures which are figures that have not been assessed by external auditors.
Where applicable, audited figures implying changes in already reported
data shall be submitted as soon as available.

In addition, any errors in the submitted reports shall be corrected by the
reporting institution by submitting the necessary revisions to the relevant
competent authority as soon as possible.


The proposed remittance period is 15 days for the monthly reporting and
15 days for the quarterly reporting.

Q3: Is the proposed remittance period of 15 days feasible?

CHAPTER 3
Format and frequency of reporting on liquidity and on stable
funding

Section 1
Format and frequency of reporting on liquidity coverage
requirement
Article 5

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1. Information submitted pursuant to the templates set out in Annex I
(liquidity coverage reporting template) and according to the instructions
in Annex III, IV and V shall be reported on a monthly basis.

2. Institutions shall have the operational capacity to increase the
frequency to weekly or even daily in stressed situations at the discretion of
the competent authorities.

The items listed for reporting in the template include all the necessary
items specified in Articles 400 to 415 of the CRR. Certain additional items
are included to help institutions and supervisors check data quality and to
inform other relevant policy options, such as intra-group treatments.

Q4: Are there additional sub-categories of inflows and outflows
that are consistent with the specification of the liquidity
coverage requirement in the CRR and would inform policy
options that should be included in the template and accordingly
reported?

With respect to the reporting of liquid assets according to Annex III and
Article 404, in the absence of a harmonised definition, institutions are
permitted to use internal definitions for the purposes of liquidity
reporting.

The CRR also permits competent authorities to give guidance
institutions shall follow in identifying assets of high and extremely high
liquidity and credit quality.

It is not practical in the context of a harmonized reporting framework for
institutions to have complete freedom to define such assets, both from the
point of view of having common IT solutions and data comparability
across submissions.

Therefore the EBA is using this consultation to ask institutions what
additional data on asset class holdings should be collected.

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The most significant amendments to the CRR in respect of liquidity
reporting proposed by the co-decision bodies are to include equities, gold
and high-quality residential mortgage-backed securities or
state-guaranteed bank debt.

It should be noted that collecting data on additional assets does increase
the complexity of the template given that the inflow and outflow rates on
repo and reverse repo transactions are varied according to the liquidity
category which each asset belongs to in accordance with Articles 410 and
413.

The responses to the following question will be taken into account
together with any mandated inclusions or exclusions of assets in the final
version of the CRR for the purposes of giving the guidance to institutions
permitted in Article 404.

Q5: Fur the purposes of providing guidance as to transferrable
securities of high and extremely high credit and liquidity quality,
what additional assets, if any, should the ITS collect?

Section 2
Format and frequency of reporting on stable funding

Article 5
Format and frequency of reporting on stable funding

1. Information submitted pursuant to the template set out in Annex II
(Stable funding reporting requirement) and according to the instructions
in Annex VI shall be reported on a quarterly basis.


The scope, definitions, reporting reference and remittance dates as set
out in Chapters X and X apply.

2. The information to be reported are the following:

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P a g e | 41

a) information on items providing stable funding according to Article
414(1) of Regulation xx/xx ;

b) information on items requiring stable funding according to Article
415(1) of Regulation xx/xx .


The information gathered will help to compile the report to the
Commission on whether and how it would be appropriate to ensure that
institutions use stable sources of funding according to the Article 481§3 of
the CRR in order to promote more medium and long-term funding of the
assets and activities of banking organisations.

The amount of stable funding required of a specific institution should be
a function of the liquidity characteristics of various types of assets held,
off-balance sheet contingent exposures incurred and/or activities
pursued by the institution.

Q6: Do respondents agree that the template captures the
requirement of the draft CRR on reporting of stable funding?
Where applicable, the information required on stable funding will have to
be presented in five buckets (within 3 months, between 3 and 6 months,
between 6 and 9 months, between 9 and 12 months and after 12 months).

V. Accompanying documents
a. Draft Impact Assessment
Introduction

Article 403(3)(a) of the CRR requires the EBA to develop draft
Implementing Technical Standards (ITS) relating to the reporting on
liquidity coverage and stable funding.

As per Article 15(1) second subparagraph of the EBA Regulation
(Regulation (EU) No 1093/2010of the European Parliament and of the
Council), any draft technical standards developed by the EBA will have to
be accompanied by a separate note on Impact Assessment (IA) which
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P a g e | 42

analyses the „the potential related costs and benefits (unless such
analyses are disproportionate in relation to the scope and impact of the
draft ITS concerned or in relation to the particular urgency of the matter).

This IA aims to provide the reader with an overview of findings as regards
the problems and options identified and their potential impact.

This IA deals with the incremental impact of the EBA’s draft ITS to
determine the uniform templates, the instructions on how to use this
template, the frequencies and remittance days for reporting.

Throughout the project the EBA has closely followed the work of
international organisations dealing with related topics, in particular the
Basel Committee on Banking Supervision in charge of monitoring Basel
III requirements.

Problem definition

Article 403(3)(a) CRR mandates the EBA to develop draft implementing
technical standards to specify uniform formats with associated
instructions, frequencies, dates and delays for reporting of the liquidity
coverage and stable funding requirements.

These reports will enable authorities to monitor institutions compliance
with the two requirements once they have become binding.

During the monitoring period, the collected information will inform the
economic impact assessment the EBA is mandated to perform under
Article 481(1), as well as the report on appropriate uniform definitions of
liquid assets according to Article 481(2).

Article 403 CRR requires institutions to report items for the purpose of
monitoring compliance with the liquidity requirements and also
stipulates that the reporting frequency shall not be less than monthly for
the liquidity coverage requirement and quarterly for reporting on stable
funding.

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P a g e | 43

On the contrary, the CRR gives discretion for the EBA to propose options
on

(i) whether to integrate liquidity reporting in the common reporting
framework (COREP),

(ii) the level of detail for some of the reporting items,

(iii) remittance dates and

(iv) reporting of significant currencies.

Timing of ITS development and application date

Institutions are expected to comply with the new CRR Requirements
from January 2013.

Sufficient time for implementing ITS requirements is essential to ensure
data availability and quality in order for competent authorities to perform
their tasks.

The CRR applies to institutions regardless of their size, risk profile, etc.

The appropriate balance between the required level of detail of the
submitted information and the nature, scale and complexity of
institutions activities is imperative in the consideration of reporting
formats and frequencies.

Objectives of the technical standards

The objective of the draft ITS is to determine uniform templates and
instructions on how to use this template, the frequencies and dates of
reporting as well as IT solutions for the purposes of liquidity reporting
requirements.

This draft ITS will assist institutions in fulfilling their reporting
requirements under Article 403(1) CRR. Additional liquidity monitoring

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P a g e | 44

metrics according to Article 403(3)(b) CRR will be consulted at a later
stage.

It is important that the relevant data is available for the review of the
appropriateness of the liquidity coverage and stable funding
requirements in 2015 and 2018, respectively.

Policy proposals

Given that the uniform liquidity reporting requirements are being
introduced for the first time in the EU, an appropriate reporting template
needs to be developed.

I. Including the ITS as an Annex to the COREP reporting standard
At this stage reporting is for the observation period for the liquidity
standards, rather than a final standard. In this light, two alternatives have
been considered:

(i) Following an approach chosen for the QIS based on a stand-alone
Excel template, or

(ii) including liquidity risk reporting in the common reporting
framework.

Option I
Advantages:

- Keeping full flexibility for future adaptions after the ratios have been
finally calibrated.

Disadvantages:

-No established reporting infrastructure,

-No link to bank identifiers and other data which would be useful for the
economic impact assessment to be performed under Article 481 (1).

Option 2
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P a g e | 45

Advantages:
- Harmonised methodology to collect the data,

- the ability to cross-reference to other metrics,

- stablished infrastructure to analyse and manipulate the data.

Disadvantages:

-Any changes to the template as a result of the observation period would
need to take place within the COREP timetable.

Based on the above reasoning it is concluded that option 2 is more
beneficial and hence integration into COREP is proposed.

II. Submission time
The time between reporting date and submission is not specified in CRR.

The CP proposes as a baseline that reporting dates should be at month
end for LCR and quarter end for NSFR, and that the submission time
should be 15 calendar days.

This would take into consideration that the LCR incorporates a 30 days
forward looking stress scenario, i.e. ideally remittance should occur
before this period ends.

EBA encourages stakeholders to comment on the feasibility of the
proposed submission time.

III. Level of detail for certain reporting items for the liquidity
coverage requirement
In the absence of an adopted CRR there has been no finalized list of
liquid assets to be reported yet.

Moreover, according to positions of both the ECOFIN and the European
Parliament, the EBA shall collect information on certain assets for the
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P a g e | 46

purpose of its economic impact assessment even in cases where they
would not meet certain criteria, e.g. central bank eligibility.

For the purposes of this consultation, the EBA proposes the following:

The template includes those assets that were specifically listed in the
Commission proposal.

Respondents are explicitly asked to suggest additional asset classes to be
included in the reporting for the purpose of the economic impact
assessment, and without prejudice to their eligibility after final calibration
of the LCR.

IV. Reporting in significant currencies
Article 405(g) CRR on the operational requirements for holdings of liquid
assets requires that „the denomination of the liquid assets is consistent
with the distribution by currency of liquidity outflows after the deduction
of capped inflows.

Without collecting information on collecting the liquidity coverage
requirement by currency, the EBA could not measure the impact of this
proposal.

Likely economic impacts

It is recognised that the reporting of liquidity requirements will incur
operational and compliance costs for institutions and competent
authorities.

It is not envisaged that these costs would be over and above those
incurred if the liquidity reporting requirements were constructed in an
alternative manner.

In fact, if it was proposed to require reporting outside the scope of
COREP, presumably this would increase operational costs in the
long-term.

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The proposal to rely on the COREP reporting framework is aimed at
minimising the incremental economic impact of the liquidity reporting
requirements for institutions and competent authorities.

b. Overview of questions for public consultation

Q1: Are the proposed dates for first remittance of data, i.e. end of January
and end of March2013 feasible?

Q2: Do respondents agree with this proposal for defining significant
currency?

Q3: Is the proposed remittance period of 15 days feasible?

Q4: Are there additional sub-categories of inflows and outflows that are
consistent with the specification of the liquidity coverage requirement in
the CRR and would inform policy options that should be reported?

Q5: Fur the purposes of providing guidance as to transferrable securities
of high and extremely high credit and liquidity quality, what additional
assets, if any, should the ITS collect?

Q6: Do respondents agree that the template captures the requirement of
the draft CRR on reporting of stable funding?

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NUMBER 4

Opening Remarks
DATE: June 7, 2012
SPEAKER: Jeanette M. Franzel, Board Member
EVENT: PCAOB Forum on Auditing in the Small Business
Environment
LOCATION: Minneapolis, MN
Welcome to the PCAOB Forum on Auditing in the Small Business
Environment.
I am Jeanette Franzel, Board Member at the Public Company Accounting
Oversight Board.
I will be the host and moderator today. Before I go further, I must tell you
that the views I express today are my personal views and do not
necessarily reflect the views of the Board, any other Board member, or the
staff of the PCAOB.
This is our eighth year of holding forums in cities across the United States
on auditing in the small business environment.
During 2011, the Board held seven of these forums across the U.S.,
reaching more than 750 participants.
The goal of these meetings is to create an opportunity for discussion and
dialogue between PCAOB and auditors in smaller firms by providing
opportunities for auditors to learn about the PCAOB's work, and to
provide feedback and ask questions about PCAOB activities-- including
inspections, auditing standards and guidance, and current projects and
priorities of the Board.
So please participate. We welcome your input and questions.

_____________________________________________________________

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The statutory mission of the PCAOB is to oversee audits of public
companies in order to protect the interests of investors and further the
public interest in the preparation of informative, accurate, and
independent audit reports.
The PCAOB is also charged with overseeing the audits of broker-dealer
compliance reports under federal securities laws to promote investor
protection.
We fulfill our mission through our inspections, our authority to set
auditing standards, and our enforcement efforts.
We are going to be talking today about those programs through
presentations and case studies, with special emphasis on some of the
issues facing smaller firms.
Today, we will cover a number of updates on the auditing environment,
audit standard-setting activities, related SEC activities, and a review of
common financial reporting issues facing smaller issuers.
In addition, we will spend a considerable amount of time discussing
practical aspects of auditing through our case studies involving the top
ten inspection findings and the relevant auditing standards.
Finally, we will cover the process for remediation of deficiencies detected
during PCAOB inspections.
In 2011, there were 476 domestic firms that issued audit opinions on the
financial statements of 100 or fewer issuers, making them subject to
PCAOB inspections every three years, which is why we sometimes refer
to these firms as "triennial firms."
Of those firms, 287, or 60 percent, issued audit opinions on between 1 and
5 issuers.
The triennial firms include a broad range of firm size, structure, and
practice, including sole proprietorships with small staffs to large network
firms with dozens of partners and multiple offices.
These firms audit public companies of all types and sizes, including shell
companies, small manufacturing and financial services companies, and
new startups, with market caps in the tens of millions of dollars, and
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P a g e | 50

larger companies that encompass multiple industries with market caps in
the billions of dollars.
In the aggregate, triennial firms audit the financial statements of issuers
that represent $110 billion to $120 billion in U.S. market capitalization
(based on data as of December 31, 2011).
Ensuring that these firms consistently perform high quality audits is
important to the Board as well as the investing public.
Auditors have been given an important and trusted role in the capital
markets, and, from time to time, that role has been re-examined by the
government and the profession itself.
Such examination is appropriate, given the auditors' role of providing
assurance to investors, lenders and others that an audited company's
financial statements and related disclosures fairly present the institution's
financial results in conformity with applicable accounting and disclosure
standards and rules.
Clearly, reliable financial statements with auditor assurance are important
to your clients, their investors, and the broader financial markets.
A strong, high quality audit function is essential to the effective
functioning of the capital markets, which in turn, affects the well-being of
American families.
More than half of American households invest their savings in securities
to provide for retirement, education, and other goals.
It is encouraging that we have heard from many stakeholders who believe
that audit quality has improved since the passage of the Sarbanes-Oxley
Act and the establishment of the PCAOB.
But there is still more that needs to be done.
The Board is concerned by the number of serious deficiencies found in
our 2010and 2011 inspections.
Our inspection findings spiked in the 2010 inspections for the annually
and triennially inspected firms.

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P a g e | 51

Those inspections generally looked at audits of 2009 financial statements.
Inspection findings have remained at a relatively high level for the 2011
inspections.
Later this morning, we will discuss our "Top 10 Common Inspection
Findings."
It is interesting to note that there is a high degree of overlap with the top
10 accounting matters identified by the SEC.
These include matters that are relatively basic as well as issues that are
very complex.
Our case studies today will specifically focus on several of these areas.
Also, in our inspections, we have noted that the following situations tend
to increase the likelihood that findings will be identified:
- a significant increase in a firm's issuer audit practice and/or
expansion into new industries;
- a recently executed firm merger or acquisition; and
- a significant increase in the number of issuers audited per partner.
Our inspections staff devote considerable attention and time during the
inspection process to encourage firms to evaluate possible root causes for
deficiencies within the firm's structure, operations, processes or other
areas that detract from audit quality.
Today we will discuss the inspection procedures relating to firms'
remediation plans and actions.
In general, firms have taken appropriate steps to remediate identified
quality control findings. Remediation remains an area of strong focus of
the Board and staff.
***
Clearly, audit quality requires constant attention and work.
Auditing is difficult and filled with competing tensions, and we can and
should continue to learn from years of experience.
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P a g e | 52

I hope that you find todays program useful and that you will actively
participate in today's discussions and take this information back to your
firms.
We also welcome your input and feedback throughout the program.

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P a g e | 53

NUMBER 5

Auditing the Future
DATE June 7, 2012
SPEAKER(S): Jay D. Hanson, Board Member
EVENT: Fair Value Measurements and Reporting Conference
LOCATION: National Harbor, MD
Good Morning,
I am very honored to be here this morning to address the Fair Value
Measurements and Reporting Conference.
I was a presenter at the first AICPA Fair Value conference in 2009 when I
was a partner at McGladrey & Pullen LLP.
Since then, I have moved on to my new role as a Board member of the
Public Company Accounting Oversight Board, where I am dealing with
many of the same issues I encountered during my years as a public
accountant, but from a different perspective.
I am encouraged that you have all joined this event to explore issues
related to fair value measurements.
I am going to discuss today some of the Board's activities that may be of
consequence to your work and will share with you some of my views from
my new perspective as an audit regulator and standard setter.
Before I go further, however, I must tell you that the views I express today
are my personal views and do not necessarily reflect the views of the
Board, any other Board member, or the staff of the PCAOB.

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P a g e | 54

Introduction – Creation of the PCAOB and its Activities
Historically, basic accounting concepts have not changed often or
quickly.
The past decade, however, has been a period of unprecedented changes
in the areas of accounting and auditing.
The collapse of Enron, the bankruptcy of WorldCom and the subsequent
passage of the Sarbanes-Oxley Act of 2002, as well as the increasing use of
fair value measurements and the financial crisis, all contributed to an
environment that drove these changes.
"SOX," as so many affectionately call the landmark legislation, was the
result of investor losses from financial reporting and auditing deficiencies
early in this century at some of the largest public companies in the United
States: Enron, Global Crossing, Adelphia, Tyco, Qwest Communications,
Xerox and WorldCom.
The events involving these companies shook the confidence in the
integrity and reliability of public company financial reporting and
demonstrated a need for enhancements in internal controls over financial
reporting and corporate governance.
Ten years ago next month, Congress passed the Sarbanes-Oxley Act
almost unanimously, resulting in the most significant legislation relating
to the federal securities laws since 1934.
The Sarbanes-Oxley Act created the PCAOB, which commenced
operations in 2003.
The Board's mission – as set forth in the Act – is "to protect the interests
of investors and further the public interest in the preparation of
informative, accurate and independent audit reports."
As you may know, the PCAOB has four main responsibilities under the
Act:
1. Registration of public accounting firms that audit public companies or
broker-dealers;
2. Standard Setting;
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P a g e | 55

3. Inspections of registered public accounting firms; and
4. Investigations and disciplinary proceedings in cases where auditors
may have violated certain provisions of the securities laws or applicable
standards or rules.
Currently, over 2400 firms, including over 900 foreign firms from 88
jurisdictions, are registered with the PCAOB.
The PCAOB has built an inspection program comprising over 440
inspection staff members.
Of all registered firms, 9 currently are subject to annual inspection
because they issue over 100 audit reports each year, while approximately
850 are subject to inspection at least every three years because they issue
100 or fewer audit reports each year.
Our Office of the Chief Auditor is responsible for leading the Board's
standard setting activities.
When it commenced operations, the Board adopted as its interim
auditing standards those standards promulgated by the AICPA's
Auditing Standards Board before April 16, 2003.
Since then, the Board has issued 15 of its own auditing standards —
including, for example, on audit documentation, internal controls, audit
planning, engagement quality review, and risk assessment — and has
substantially amended a number of interim standards.
More recently, the Board issued concept releases or proposals to trigger
wide-ranging discussions about potential changes to certain fundamental
aspects of auditing, including the contents of the auditor's report,
transparency relating to participants in the audit, audit committee
communications, and auditor independence, objectivity, and skepticism.
Since it began operations, the PCAOB has conducted over 1800
inspections, including inspections in 38 jurisdictions outside the United
States.
Our enforcement program has sanctioned 39 firms and 52 individuals to
date, including imposing censures, temporary and permanent practice

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P a g e | 56

bars, revocations of firm registrations, and civil money penalties up to $2
Million.
In pursuing its mission during the last nine years, the Board has evolved
from a start-up institution focused on establishing a comprehensive,
consistent oversight system to a maturing regulatory organization with
the experience and resources to adapt to changing times and new
challenges.
Changes in the Accounting and Auditing Professions and the
Increase in Fair Value Measurements
The accounting and auditing professions as a whole are facing difficult
questions as a result of the increasing complexity of business transactions
and cutting edge financial instruments which are appearing more
frequently not only in the financial statements of financial institutions but
many other types of companies as well.
Thirty years ago, financial statements were dominated by tangible assets
and historical cost accounting.
Today, after rapid advances in technology and the development of
innovative business models, the balance sheets of an increasing number
of companies are dominated by valuation estimates, rather than "solid
numbers," and it is much more difficult for accountants, auditors and
investors to understand the transactions and products that must be
captured in financial statements.
Management and their accountants increasingly must tackle fair value
measurements and management estimates, consistent with new
accounting standards in connection with derivatives, securitizations,
consolidations, debt/equity issues, revenue recognition, leases and other
issues.
As a result, the valuation process used by management, and the auditor's
review thereof, have had to evolve during the last several decades.
What may have begun as a calculation on a scrap piece of paper – perhaps
a simple multiple of EBITDA – evolved into management memos
documenting valuation processes; auditors becoming aware of potential
pitfalls and increasing their review of management's valuations and
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P a g e | 57

estimates; and management ultimately relying increasingly on outside
valuation specialists, requiring auditors to gain a better understanding of
the assumptions and methodologies employed by these specialists.
And while the sophistication of preparers and auditors dealing with fair
value measurements has increased, the recent financial crisis also
brought unprecedented attention on the difficulties associated with the
valuation of certain types of assets, subjecting the work of accountants to
increased scrutiny by regulators and investors.
PCAOB Inspection Findings
So where does the PCAOB come in?
In order to maximize our effectiveness and most efficiently utilize our
resources, the Board conducts risk-based inspections.
This means that our inspectors choose to review those audit engagements
that they believe, based on extensive research, present the highest level of
audit risk.
Within each audit engagement selected, inspectors choose the most
challenging and high risk audit areas to review, in order to test the firm's
ability to address those challenges and risks.
With this approach, it will not come as a surprise that we look extensively
at the auditing of fair value measurements and other management
estimates.
Common inspection findings reported by the Board included instances
where auditors appear not to have complied with PCAOB auditing
standards in certain audit areas, including, among others, fair value
measurements of financial instruments, impairment of goodwill,
indefinite-lived intangible assets, and other long-lived assets.
Financial Instruments
Often fair values of financial instruments are determined using various
modeling techniques.
Hard-to-value financial instruments include among others, private debt
securities, auction-rate securities, asset-backed securities, collateralized
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Monday June 11 2012 - Top 10 Risk Compliance News Events (114 pages)

Monday June 11 2012 - Top 10 Risk Compliance News Events (114 pages)

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