Supervising building societies’ treasury and lending activities

Joe Di Rollo reviews practical aspects of product pricing & FTP at BSA Seminar with PRA speakers helping building societies understand key changes in SS 20 / 15.

ALMIS International’s founder & CEO, Joe Di Rollo, will be sharing the platform with the PRA’s Head of Building Societies at the BSA’s half day seminar on 21 February 2017 in London. Designed to provide building society executives an opportunity to understand the impact of the PRA’s revised Supervisory Statement SS 20/15 (formerly known as the Specialist Sourcebook for Building Societies) from experts.

The seminar will include a presentation on the topic of product pricing, which has been given much greater prominence in the revised SS. To finish off there will be an open session for questions to the speakers and discussion from the floor.

To find out more and to book your place click here.

IRRBB to remain PILLAR 2

Basel Committee on Banking Supervision have published its latest paper on Interest Rate Risk (IRRBB). This paper details Interest Rate Risk principals updated since the consultation paper was published last year. The Committee has concluded that the heterogeneous nature of IRRBB would be more appropriately captured in Pillar 2.

Nevertheless IRRBB is set to become an increasing priority for regulators and risk managers as the Committee is recommending an enhanced Pillar 2 approach.

Banks are expected to implement the standard by 2018.

https://www.bis.org/bcbs/publ/d368.pdf

ALMM Update

The PRA has finalised the date of changes to liquidity reporting rules. On 22 April 2016, FSA 050-053 will be switched off and the EU requirements to report additional liquidity monitoring metrics introduced. Firms will not be required to report both sets of returns simultaneously. Note the first reporting date for returns C67.00, C68.00, C69.00, C70.00 and C71.00 will be 30 April for monthly reporters, and 30 June for quarterly reporters.

C66.00 (Maturity analysis) has been dropped

For the months from April 2016 to October 2016 only, the reporting remittance date for monthly reporters is the 30th calendar day after the reporting reference date. Afterwards it reverts to 15 calendar days. Quarterly reporters have 30 calendar days to remit returns.

Reporting remains monthly – but quarterly for institutions that are not part of a group with subsidiaries or parent institutions located outside the UK and the “balance sheet total of the institution represents only a small proportion of the sum of individual balance sheet totals of all institutions in the respective Member State and the institution has total assets which are not significant”. This means almost all UK banks and building societies are quarterly.

http://www.bankofengland.co.uk/pra/Pages/publications/ps/2016/ps1516.aspx

Navigating COREP Taxonomy Changes

The much-anticipated update to the current (version 2.3.1) taxonomy (the set of definitions published by the EBA which precisely interpret the meaning/value of numerical data entered into COREP and FINREP returns) has been published. This new version (2.4.1) currently does not have an implementation date but has already superseded version 2.4 which was never implemented.

The EBA has also issued a version 2.5 which will supersede all previous versions to become the definitive taxonomy from December 31st 2016. Amongst others, one of the first reports affected will be the monthly LCR for period ending Dec 2016.

To complicate the situation even further, the recent European LCR Delegated Act, implemented by the UK regulatory authorities, requires dual reporting of the monthly COREP LCR. As version 2.3.1 does not cover the Delegated Act’s requirements, in practical terms this will mean firms using both the existing COREP taxonomy version 2.3.1 and a manual Excel spreadsheet work around until such time as version 2.4.1 (or version 2.5) is implemented.

This complicated and uncertain environment is a challenge for both financial firms, many of whom are still finding their way through the rigours of COREP and FINREP, and for service providers like ALMIS International who must ensure their software is always compliant, regardless of the frequency and uncertainty of regulatory directives from the EBA.

ALMIS International will continue to develop its Regulatory Reporting module to comply with the now published ‘gold standard’ of version 2.5. However, we will continue to work closely with the EBA and the PRA at UK national level so that if version 2.4.1 is implemented between now and December 31st, our software, training and support will ensure your returns remain compliant and help you navigate a smooth course.

For more information contact Jenna Haston j.haston@almis.co.uk or call +44 131 452 8898

Colin McKay joins as Chief Operating Officer

November 1st 2015, ALMIS International announces the key appointment of Colin McKay as Chief Operating Officer (COO). This key appointment signals an exciting new phase in the expansion of the company, established in 1992, which has seen significant growth over the past two years. ALMIS International now supports over 50 clients with the development of a comprehensive Asset Liability Management (ALM) and Regulatory Reporting solution for small and mid-size banking firms.

Joe Di Rollo, founder of ALMIS International, will transition from his current roles of Managing Director and Head of Operations, to that of Chief Executive Officer (CEO), with an intention to concentrate on product development, customer relations and regulatory developments.

Already a Non-Executive Director of ALMIS International for some time, Colin now assumes his new executive role after 25 years as a finance lawyer advising banks in domestic and international markets. During spells in London, Tokyo and Edinburgh Colin has worked in several firms including Freshfields, Eversheds and most recently Shepherd and Wedderburn. Along the way he has led service delivery teams, held various management positions and run several key financial institution accounts.

Colin said, “Joe has developed a world-class solution which the banking market needs now more than ever. With the support of a loyal and expanding client base, the prospects for growth of the business are exciting”.

In welcoming Colin to the team Joe comments,” I believe Colin has the ideal combination of banking expertise, management best practice and customer relations experience to take us forward to the next stage of growth and consolidation.”

ALMIS International hosts its annual user group meeting later this month at which clients will have the opportunity to meet Colin and hear of his initial plans.

For more information, contact Jenna Haston by email or call on 0131 452 8898.

LCR under the new Delegated Act 58 Banks and Building Societies attend ALMIS webinar

From 1st October all UK Banks and Building Societies are required to produce the LCR under the new delegated act. To help bring clarity to the new delegated act and address the key points which affect small banks and building societies ALMIS International, already experts in delivering an automated solution, hosted a highly informative and interactive webinar on Tuesday 29th September, attended by 58 delegates.

The webinar was led by Joe Di Rollo (Managing Director) of ALMIS International and covered the main points for completing and calculating the new LCR.

This webinar was very relevant to understanding and navigating the issues posed by the new CRD IV liquidity regime which came into force on 1st October. There is definitely an appetite for greater understanding of the new regime and discussion of the more complex and ambiguous issues, as evidenced by the high turnout from both banks and building societies. Everyone agreed on the need for clarity in order to achieve effective compliance and best practice.

The webinar focused on the main points for completing and calculating the LCR and highlighted some key issues.

Key Issues

There is now increased choice for investing in HQLA’s (High Quality Liquid Assets). Delegates were asked which instruments they are considering. The results are captured in the graph below:

lcr-webinar-graph

Outflows are the most complex part of the return with some interesting differences in interpretation. One example of different opinions in interpretation discussed at the webinar is detailed below:

If a customer has a balance greater than the FSGS limit (shortly to be £75,000) should the entire balance be treated as a higher risk outflow of 10% or only the portion of the balance above the insured amount?

The EBA FINAL draft implementing technical standards states:

1.1.1.2 Deposits subject to higher outflows

“Credit institutions shall report here the full balance of the deposits subject to higher outflow rates in accordance with paragraph 2 and 3 of Article 25 of Commission delegated regulation (EU) 2015/61. Those retail deposits where the assessment under paragraph 2 of Article 25 for their categorization has not been carried out or is not completed shall also be reported here”.

This wording suggests that the intent is for the entire balance to be considered non-stable.

On the other hand…

Article 25 para 1 – Credit institutions shall multiply by 10% other retail deposits, including that part of retail deposits not covered by Article 24.

Firms are interpreting this to mean that only the excess over the guarantee is subject to the higher outflow.
ALMIS software is designed to handle both interpretations.

In summary, ALMIS is already a fully automated solution which produces the LCR from core data. This same core data is used for liquidity adequacy and analysis, providing a reliable, automated system to help ensure efficient compliance with the new regulations, regardless of interpretation.

For the presentation slides, please contact Jenna Haston by email on j.haston@almis.co.uk or call on 0131 452 8898.

Liquidity under CRD IV and ALMM – Additional Liquidity Monitoring Metrics – Is there a positive aspect?

The imminent introduction of the new LCR and ALMM will indeed increase the volume and even frequency of reporting for many Building Societies but, after closer inspection, is it all bad news or can firms use this data to their competitive advantage?

Volume of Reporting

The amount of regulation reporting for liquidity from each individual firm is now twice the volume that the entire UK Building Society sector was producing prior to 2008. The six new ALMM reports alone contain over 15,000 data points. The new ALMM reports can be considered work in progress as the EBA gain approval from the European Commission and they add technical definitions and validations. For a temporary period, firms are reporting three different cuts of liquidity data as regulations move towards new standards.

Proportionality

There are, however, positive aspects to the new regime announced recently by the PRA.

  • Daily reporting will not be a requirement for firms with >£5bn assets.
  • The new LCR (liquidity under CRD IV) replaces the BIPRU 12 type A/B approach, is more rules based than principles driven and for many produces a lower minimum.
  • The minimum liquidity target is therefore considered easier for most building societies.
  • There is now a wider range of instruments to invest liquid assets.

Turning Compliance to Competitive Advantage

The volume and ‘work in progress’ nature reporting demand that all firms implement smart, automated and flexible systems. The up side though of getting this right will enable firms to better analyse and manage liquidity to their advantage – providing more accurate visibility over a Funds Transfer Pricing allowing understanding of the true cost of liquidity and how to best manage this.

To assist with this, we are developing auto population for four of the main reports and this auto population will be available from beginning of September 2015. We have also prepared a document that explains the reports and a more detailed ALMIS specification.

For further information or to request an ‘ALMIS Guide to understanding ALMM’, please contact j.haston@almis.co.uk

ALMM – Additional Liquidity Monitoring Metrics

ALMM – timing of new introduction

6 new reports that contain over 15,000 data points. Under taxonomy 2.3 these contain very limited validations and can be therefore seen as work in progress.

Four categories of reporting are:

  • A contractual maturity analysis (c66)
  • The concentration of funding by counterparty and product (c67 & C68)
  • Volumes, spreads and roll-overs of funding in the past month (c69 & c70)
  • The concentration of counterbalancing capacity (c71)

Current timescale is that the ALMM will be introduced from 1 July 2015 but this is subject to approval by the European Commission and at the current time this approval has not been given. There is therefore wide expectation of a delay and a revised timetable.

Even with this earliest adoption, most UK firms will be exempt from monthly submissions (Chapter 7B, Article 16b of Regulation (EU) No 680/2014). For those firms (total assets less than EUR 30bn), reporting would not commence until the next quarterly (q3) September reference with reporting in November 2015

For a detailed specification or further information, please contact j.haston@almis.co.uk

IRRBB Consultation Document Published by Basel Committee on Banking Supervision

The Basel Committee at the Bank for International Settlements has just published (8th June 2015) its consultation document on a review of the regulatory treatment of interest rate risk in the banking book (IRRBB).

The BIS wants to strengthen the treatment of IRRBB to ensure that banks have appropriate capital to cover potential losses from their risks to changes in interest rates. Also, to limit any capital arbitrage between the trading book and the banking book, as well as between banking book portfolios that are subject to different accounting treatments.

The BIS is seeking comments on two options for the capital treatment of interest rate risk in the banking book:

  • a uniformly applied Pillar 1 measure for calculating minimum capital requirements, to promote greater consistency, transparency and comparability, thereby promoting market confidence in banks’ capital adequacy and a level playing field internationally;
  • a Pillar 2 option, which includes quantitative disclosure of interest rate risk in the banking book based upon the proposed Pillar 1 approach, which would better accommodate differing market conditions and risk management practices across jurisdictions.

The outcome of this consultation may be expected to feed through – in due course – into amended EU capital rules and will therefore, impact all UK Banks and Building Societies. ALMIS International are at the forefront of providing a dedicated solution to IRRBB through its market risk module. Banks are invited to make comment before 11th September 2015.

For more information, contact Jenna Haston on 0131 452 8898 or email j.haston@almis.co.uk

Scottish Business Pledge

ALMIS International are delighted to make the commitment to the Scottish Business Pledge.
The Scottish Business Pledge is a values-led partnership between the government and business. It is a shared ambition of boosting productivity, competitiveness, sustainable employment, and workforce engagement and development.

It is built on:

  • a commitment from the Scottish Government, and its partners to support sustainable business growth in Scotland
  • a voluntary code of business practice which you can use to guide and boost the future development of your company
  • a mutual pledge to ensure that prosperity, innovation, fairness and opportunity develop hand in hand in Scotland

Look out for more updates in the coming months around how ALMIS International pledge to deliver on all nine components of the Scottish Business Pledge.

To find out more, please visit Scottish Business Pledge