avantage Presentation on The New Large Exposures Regime
In our latest briefing session we provided an opportunity for our guests to receive an update on regulatory developments, including the new large exposures requirements under BIPRU 10, the impact of national discretions for financial institutions with subsidiaries or Group companies incorporated in other European Member States, and practical implementation issues (changes to governance arrangements, processes, data, systems, etc.).
FSA 2010/41 introduces a few key changes to the rules for large exposures introduced by the amendments to the Capital Requirements Directive (”CRD II”), including:
- The exemption from the large exposure regime for 'limited licence' and 'limited activity' investment firms;
- The removal of the current 'inter-bank exemption' which allowed for exposures to institutions with a maturity of one year or less to be exempt from the large exposure limit; and
- The provisions for intra-group exposures.
Martin Clark, Partner, avantage, began proceedings by welcoming participants and providing an overview of the speakers and programme. Martin introduced the topic observing that the new large exposures regime will be applied from 31 December 2010.
Our first guest speaker, Irving Henry, Director, British Bankers' Association, discussed the latest developments regarding exemptions, including feedback on some decisions reached by the FSA regarding waiver applications received by some of the BBA member banks. The presentation took into account the removal of the ‘inter-bank exemption’, national exemptions, collateral, third-party trading book exposures, intra-group exposures and reporting.
Download a copy of Irving's presentation here.
Frederic Gielen, Partner, avantage, went on to discuss the practical challenges of the implementation of the new large exposures regime. Frederic highlighted the connection between the large exposures regime and the the amendments to the securitisation-related requirements introduced by FSA2010/29 (also transposing certain CRD II amendments). He explained that exposures can arise not only through direct investments made by firms but also through investments in schemes/structures, which themselves invest in underlying assets.
Frederic noted that BIPRU 10.3.15 states that where a scheme (e.g., securitisation positions) has exposure to a group of underlying assets the firm must assess the exposure of the transaction to determine the existence of a group of connected clients. He explained that the impact of the large exposures regime on securitisation positions must be carefully considered.
Frederic then gave an overview of a case-study to demonstrate the practical issues banks would likely face when implementing the new regime and identifying any connected counterparties. In particular Frederic discussed the treatment of exposures in relation to the risks associated with the scheme and the underlying assets.
Download a copy of Frederic's presentation here.
In the final presentation, James Phillips, Director, Lombard Risk, provided a summary of the timeline for implementation of the large exposures regime giving an overview of the practical implications of the timing of implementation, including the reporting impacts and definition changes within FSA 2010/41. James also emphasised further forthcoming reporting changes, resulting from the implementation of the CEBS Guidelines on large exposures reporting by 2012.
Download a copy of James' presentation here.
The session concluded with a question and answer session where each of the speakers responded to questions from the floor.
If you would like further information, please contact us.
