Eva Dauberton
News Editor
US Federal agencies identify weaknesses in resolution plans of major banks
The US Federal Deposit Insurance Corporation and US Federal Reserve Board (the Agencies) have recently announced their findings after reviewing the July 2023 resolution plan submissions of the eight largest and most complex banks. They have identified weaknesses in the plans submitted by Bank of America, Citigroup, Goldman Sachs, and JP Morgan Chase. However, no weaknesses were found in the plans submitted by the other banks.
According to section 165(d) of the Dodd-Frank Act, banks with total assets of $250 billion or more, certain banks with total assets between $100 billion and $250 billion, and designated nonbank financial companies are required to report their plans for rapid and orderly resolution in the event of financial distress or failure. These plans, also known as living wills, must outline the bank’s strategy for orderly resolution in bankruptcy.
Based on their review, the Agencies have the authority to determine whether a firm’s resolution plan is “not credible or would not facilitate an orderly resolution” under Title 11 of the United States Code.
In this case, the Agencies have jointly determined that the weaknesses identified in Bank of America, Goldman Sachs, JPMorgan Chase, and Citigroup’s 2023 plans are considered “shortcomings”, that is, weaknesses that raise doubts about the plan’s feasibility.
The Agencies have provided feedback letters to each of the eight banks to address these shortcomings. These letters identify areas for the continued development of the banks’ resolution strategies and capabilities. For the four banks with identified shortcomings, the letters specify the specific weaknesses that resulted in the shortcomings and outline the remedial actions required by the Agencies. The banks are expected to address these shortcomings in their next resolution plans, due by 1 July 2025.
CFPB Director Rohit Chopra, Member of FDIC Board of Directors, commented: " The largest financial institutions in the US continue to pose serious threats to the global financial system in the event of their failure, absent government support. While there are an array of legal mechanisms to reduce risks from institutions that are too big to fail, ending that fundamental unfairness is still just an aspiration rather than a reality."
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US Treasury proposes rules to address national security threat in tech investments
The US Department of the Treasury (Treasury) has released a Notice of Proposed Rulemaking (NPRM) to execute Executive Order 14105: “Dealing with United States Investments in Certain National Security Technologies and Products in Countries of Concern”(Outbound Order). The proposed rule aims to tackle the national security risk presented to the United States by certain countries actively trying to develop sensitive technologies essential for military, intelligence, surveillance, or cyber-enabled capabilities.
Some context
The Outbound Order, issued on 9 August 2023, declared a national emergency to address the threat to the United States posed by certain countries of concern, which seek to develop and exploit sensitive or advanced technologies or products critical for military, intelligence, surveillance, or cyber-enabled capabilities.
The order specifically instructed the Secretary of the Treasury to establish a program that either prohibits or requires notification for certain types of outbound investments made by United States individuals or entities into certain entities located in or under the jurisdiction of a country of concern.
Key takeaways
This proposed rule would:
- Require United States persons to notify the Treasury regarding certain transactions involving persons of a country of concern who are engaged in activities related to certain national security technologies and products that may contribute to the threat to the national security of the United States.
- Prohibit United States persons from engaging in certain other transactions involving persons of a country of concern who are engaged in activities related to certain other national security technologies and products that pose a particularly acute national security threat to the United States.
Specifically, the NPRM provides details on key concepts and aspects of the program’s implementation, including:
- Obligations of a US person regarding a covered transaction
- Categories of covered transactions and excepted transactions
- Technical specifications to inform the scope of covered transactions based on certain technologies and products in the areas of semiconductors and microelectronics, quantum information technologies, and artificial intelligence
- Information that a US person is required to provide to the Treasury as part of a notification
- The knowledge standard and expectations for a US person to conduct a reasonable and diligent inquiry prior to undertaking a transaction
- Conduct that would be treated as a violation of the proposed rule and applicable penalties for such conduct.
Next steps
The deadline for comments is 4 August 2024. The NPRM will be followed later by final implementing regulations, which will set the program's effective date.
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EBA publishes final draft ITS on pillar 3 disclosures
The European Banking Authority (EBA) has released a final draft of the implementing technical standards (ITS) for Pillar 3 public disclosures. These draft ITS implement the changes brought about by the amending Regulation (EU) 2024/1623 (CRR 3).
Some context
CRR 3, which will come into effect in January 2025, introduces new or modified public disclosure requirements in relation to credit risk, output floor, credit valuation adjustment (CVA) risk, operational risk, and market risk.
Furthermore, CRR 3 also introduces new disclosure obligations regarding shadow banking, cryptoassets, an extension of disclosure requirements for non-performing exposures and forbearance, as well as environmental, social, and governance (ESG) risks that apply to all financial institutions.
To implement the amendments to Pillar 3 disclosures and supervisory reporting, the EBA is following a two-step sequential approach, with these draft ITS forming part of step 1. These draft ITS focus solely on the changes resulting from the full implementation of the Basel III standards that directly impact the disclosure requirements. Step 2 will involve the implementation of other reporting and disclosure requirements that are not directly linked to Basel III.
Key takeaways
The final report specifies new and revised disclosure requirements for output floor, cryptoassets, CVA risk, credit risk, market risk, and operational risk. The objective is to provide financial institutions with a comprehensive and standardised set of disclosure formats, ensuring consistency with international disclosure standards.
The templates and instructions provided in this final report will not be published in the official journal as part of the draft ITS. Instead, they will be made available on the EBA website as part of the ITS-related IT tools, making it easier for institutions to implement the draft ITS.
Next steps
In the later part of 2024, the EBA will supplement these ITS with the disclosure requirements of CRR 3 that are not directly linked to Basel III implementation. This includes extending the disclosure requirements on ESG risks to all institutions, in line with the principle of proportionality, as well as introducing new disclosure requirements on shadow banking.
The EBA will subsequently publish a technical package, which will include the Data Point Model (DPM), validation rules, and taxonomy. These tools will be used by large and other financial institutions to submit the required information to the EBA Pillar 3 data hub.
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HKMA urges retail banks to strengthen consumer protection efforts against fraudulent calls
The Hong Kong Monetary Authority (HKMA) has issued a Dear CEO letter urging retail banks (including virtual banks) to strengthen their efforts in protecting consumers from fraudulent phone calls. The letter also emphasises the importance for other authorised institutions not engaged in retail banking to support their customers by referring to the requirements outlined in the letter whenever possible.
Some of the measures outlined in the letter include:
- Providing stronger support to consumers in verifying the authenticity of phone calls
- Assisting customers affected by fraudulent calls
- Simplifying the process of reporting fraudulent calls to the police
- Promptly reporting identified fraudulent calls to the police
- Improving customer communication and education
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FINRA June fines summary
The US Financial Industry Regulatory Authority (FINRA) has published its latest disciplinary summary for June 2024 covering a range of enforcement actions. Amongst the firms that have been fined for violations are Murray Securities, Inc, Barclays Capital, Inc, TD Ameritrade, Inc and RBC Capital Markets, LLC. The briefing also details the numerous individuals fined or barred by the regulator.
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