CCAR, DFAST, SOX, SCAP requirements for IHCs, BHCs, and FBOs selling MBS and CDOs…WTH?!

The financial world operates in acronyms but this is really an indication of today’s complex regulatory environment. Now, more than ever, there are more risks, more laws and more scrutiny.

The 2008 financial crisis was met with regulatory response and reform that included updates to Basel and the Dodd-Frank Act to name a few.

Here are three major themes that underpin banks’ requirements today:

1. Cash is king

Large banks have more than doubled their capital levels in response to higher capital retention requirements. This means deleveraging risky portfolios and going back to piggy bank basics to weather a storm, since the government won’t provide umbrellas.

2. Audit needs help

There is increased reliance on the information that audit or compliance teams provide, yet they are still seen as a necessary evil. With the assistance of technology or additional manpower, the first and second lines of defense are involved whether they like it or not.

3. The need to be in the know

Banks have to know their risks and be able to action on them quickly. This means transparency in reporting and access to relevant data that can tell the big story to the big bosses.

Compliance is complex. And if you work for a bank, your boss’ #1 priority is (or at least should be) to implement an effective compliance program. “This sounds easy, but it’s difficult especially when you have a global organization,” says Richard Dean Pradas, AVP at Barclays Bank in New York. As a foreign-based bank operating in the U.S., Barclays is an intermediary holding company (IHC) that is regulated under the Comprehensive Capital Analysis and Review (CCAR) requirements.

CCAR is an annual exercise introduced by the U.S. Federal Reserve to assess and supervise financial institutions both qualitatively and quantitatively. IHCs are required to have effective capital planning processes and sufficient capital to absorb the losses—similar to the 2008 financial crisis—while meeting creditor obligations.

IHCs must design their own stress test scenarios to prove “capital adequacy.” There are four mandatory elements in CCAR’s capital plan:

  1. An assessment of expected uses and sources of capital that reflects the organization’s size, complexity, risk profile and scope of operations.
  2. A detailed description of assessing capital adequacy.
  3. Devise an actual policy.
  4. A discussion of changes to the business plan that will have a material impact on capital adequacy or liquidity.

So while banks focus on asset efficiency and meeting a submission deadline to authorities, what impact will President Trump have on the regulatory environment (if any at all)?

Pradas notes a potential for decreased regulation, but “it’s also about having a compliance culture that supports collaboration and communicates changes up and down the org chart. This is still at the forefront at Barclays.”

Webinar: Banking Compliance Outlook for 2017

Banking Compliance Outlook for 2017

Hear Richard Dean Pradas, AVP at Barclays Bank and Brian Chung, senior product manager, ACL in this 60-minute on-demand webinar where they cover: the financial crisis of 2008 and its impact on banking, compliance trends, elements of an effective bank compliance program and how to leverage technology for compliance.

Watch now

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