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  1. P age |1 InternationalAssociationofRiskandCompliance Professionals(IARCP) 1200GStreetNWSuite800Washington, DC20005-6705USATel:202-449-9750www.risk-compliance-association.com • Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedthe week'sagenda,andwhatisnext • DearMember, • “Duringyourworkinglives,youwillhavetoreinventyourselvesmanytimes. • Successandsatisfactionwillnotcomefrommasteringafixedbodyofknowledgebutfromconstantadaptationandcreativityinarapidlychangingworld.” • Whosaidthat? • ChairmanBenS.Bernanke,atBardCollegeatSimon'sRock,GreatBarrington,Massachusetts. • Whatelsedidhesay? • Theword"graduate"comesfromtheLatinwordfor"step." • Anotherprediction,justassafe,isthatpeoplewillneverthelesscontinuetoforecasttheendofinnovation. • Agreatspeech!ReadmoreatNumber1below. • AtNumber7… • …Ienjoyedanotherspeech: InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  2. P age |2 “Iamverypleasedtobehereamonganaudienceofprofessionaleconomists,whichiscertainlypreferabletoappearingbeforeanaudienceofunprofessionaleconomists.” Whosaidthat? SarahBloomRaskin,MemberoftheBoardofGovernorsoftheFederalReserveSystem,attheSocietyofGovernmentEconomistsandtheNationalEconomistsClub,WashingtonDC. Well,Sarah…don’tbebrutallyhonest,asprofessionaleconomistscanbeasrudeasunprofessionaleconomists… Shewasbrutallyhonest.Shesaid: “Ilikeyourkind! Yourtalentsareneedednowmorethaneveraswetrytoputthetoolsoftheeconomicprofessiontoworkforthecommongood. It'seasytobeaneconomistwholooksbackoncrisesandcrashesandtriestoexplainwhytheyhappened,butmuchhardertobeaneconomistwhoseeffortsmanagetohelpstopthemfromhappeninginthefirstplace. Economicpolicymaking,atitsbest,reflectsacontinuousstruggletomakesurethatdataandexplanationsofsuchdataareconsistentwithreal experience. Ifwe'retoengageinthisstrugglehonestly,it'snoeasytask. Itinvolvesunderstandingnotjustthereliabilityandsignalinvariousdata,butalsoquestioningwhetherthedataaccordswithourunderstandingofactualexperience. So,togetthisrightrequiresmanydifferentperspectives,notjustonthedatabutontheunderlyingrealitiesthedataaretryingtocapture.” Sara,Ilikeyourspeech.Iagree,toengageinthisstrugglehonestly,it's InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  3. P age |3 noeasytask.Ienjoyedyoutoldallthesetoprofessionaleconomists.ReadmoreatNumber7below. WelcometotheTop10list. BestRegards, GeorgeLekatisPresidentoftheIARCP GeneralManager,ComplianceLLC1200GStreetNWSuite800, WashingtonDC20005,USA Tel:(202)449-9750 Email:lekatis@risk-compliance-association.comWeb:www.risk-compliance-association.comHQ:1220N.MarketStreetSuite804,WilmingtonDE19801,USA Tel:(302)342-8828 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  4. P age |4 ChairmanBenS.Bernanke AtBardCollegeatSimon'sRock,GreatBarrington,Massachusetts EconomicProspectsfortheLongRun “Graduationfromcollegeisonlyonesteponajourney,butitisanimportantoneandwellworthcelebrating.” ConsultationPaper OnDraftImplementingTechnicalStandards OnAdditionalLiquidityMonitoringMetricsunderArticle403(2)ofthedraftCapitalRequirementsRegulation(CRR) EXPLANATORYMEMORANDUMTO THEFINANCIALCONGLOMERATESANDOTHERFINANCIALGROUPS(AMENDMENT)REGULATIONS TheseRegulationsimplement,inpart,Directive2011/89/EUoftheEuropeanParliamentandoftheCouncilamendingDirectives98/78/EC,2002/87/EC,2006/48/ECand2009/138/EC(OJL326/1138.12.2011)as regardsthesupplementarysupervisionoffinancialentitiesinafinancialconglomerate. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  5. P age |5 Whocallstheshots?Theproblemoffiscaldominance SpeechbyDrJensWeidmann,PresidentoftheDeutscheBundesbank,atthe4thBankofFrance-DeutscheBundesbankMacroeconomicsandFinanceConference,Paris. SolvencyIIupdateforallfirms AspartofourcommitmenttosharingdevelopmentsinourapproachtotheimplementationofSolvencyII,IthoughtitwouldbehelpfultowritetoallfirmsaffectedbytheDirectivetogiveanupdateonthecurrentpositionandwhatthismeansfortheworkthathastobedoneinthecomingmonths. Asyouknow,therecontinuestobesignificantuncertaintyoverthetimetableandfinalshapeoftheSolvencyIIregime. Singapore–pursuingbroaderanddeepereconomicintegrationwithmajoreconomies OpeningkeynotespeechbyMrLimHngKiang,MinisterforTradeandIndustryandDeputyChairmanoftheMonetaryAuthorityofSingapore,atDeutscheBankAccessAsiaConference2013,Singapore. “Inthelast10years,thecentreofgravityoftheworldeconomyhasbeenmovingawayfromtheUSandEurope InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  6. P age |6 toAsia. Asiaisexpectedtocontinuetoprosperinthedecadesaheadasthemiddleclassexpandsinlinewithstrongeconomicgrowth. Chinaissettobethelargesteconomyintheworldby2030andisalreadycreatingmegacitiesofover10millionatanaveragerateofoneperyear. BesidesChina,India’smiddleclassisexpectedtogrowtoalmost600millionpeopleby2025. InIndonesia,almost60percentofIndonesianhouseholds,inacountryof240millionpeople,areexpectedtoreachmiddle-classstatusby2020.” Prospectsforastrongerrecovery SpeechbyMsSarahBloomRaskin,MemberoftheBoardofGovernorsoftheFederalReserveSystem,attheSocietyofGovernmentEconomistsandtheNationalEconomistsClub,WashingtonDC. MerelyCrackingtheGlassCeilingisNotEnough:CorporateAmericaNeedsMorethanJustAFewWomeninLeadership ByCommissionerLuisA.Aguilar,U.S.SecuritiesandExchangeCommission,Women'sExecutiveCircleofNewYork,TheUniversityClubofNewYork,NewYork,NewYork. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  7. P age |7 TheSingleResolutionMechanism–whyitisneeded SpeechbyMrBenoîtCoeuré,MemberoftheExecutiveBoardoftheEuropeanCentralBank,attheICMAAnnualGeneralMeetingandConference2013,organisedbytheInternationalCapitalMarketAssociation,Copenhagen. “ThefinancialcrisishashighlightedtheweaknessesoftheinstitutionalframeworkofEconomicandMonetaryUnion. ThenegativefeedbackloopbetweenbanksandsovereignsaswellassignsofmarketfragmentationmadeEuropeanleaderstakeanextraordinarydecisionlastsummer,namelytoestablishtheEuropeanBankingUnion.” TheImportantRoleofImmigrantsinOurEconomy ByCommissionerLuisA.Aguilar U.S.SecuritiesandExchangeCommissionRemarksatthe2013AnnualGala GeorgiaHispanicChamberofCommerce Atlanta,Georgia InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  8. P age |8 ChairmanBenS.Bernanke AtBardCollegeatSimon'sRock,GreatBarrington,Massachusetts EconomicProspectsfortheLongRun Letmestartbycongratulatingthegraduatesandtheirparents.Theword"graduate"comesfromtheLatinwordfor"step." Graduationfromcollegeisonlyonesteponajourney,butitisanimportantoneandwellworthcelebrating. IthinkeveryonehereappreciateswhataspecialprivilegeeachofyouhasenjoyedinattendingauniqueinstitutionlikeSimon'sRock. Itis,tomyknowledge,theonly"earlycollege"intheUnitedStates;manyofyoucamehereafterthe10thor11thgradeinsearchofadifferenteducationalexperience. Andwithonlyabout400studentsoncampus,Iamsureeachofyouhasfeltyourselftobepartofaclose-knitcommunity. Mostimportant,though,youhavecompletedacurriculumthatemphasizescreativityandindependentcriticalthinking,habitsofmindthatIamsurewillstaywithyou. What'ssoimportantaboutcreativityandcriticalthinking? Therearemanyanswers. Iamaneconomist,soIwillanswerbytalkingfirstaboutoureconomicfuture--oryoureconomicfuture,Ishouldsay,becauseeachofyouwillhavemanyyears,Ihope,tocontributetoandbenefitfromanincreasinglysophisticated,complex,andglobalizedeconomy. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  9. P age |9 Myemphasistodaywillbeonprospectsforthelongrun. Inparticular,Iwillbelookingbeyondtheveryrealchallengesofeconomicrecoverythatwefacetoday--challengesthatIhaveevery confidencewewillovercome--tospeak,forachange,abouteconomicgrowthasmeasuredindecades,notmonthsorquarters. Manyfactorsaffectthedevelopmentoftheeconomy,notablyamongthemanation'seconomicandpoliticalinstitutions,butoverlongperiodsprobablythemostimportantfactoristhepaceofscientificandtechnologicalprogress. BetweenthedaysoftheRomanEmpireandwhentheIndustrial RevolutiontookholdinEurope,thestandardoflivingoftheaveragepersonthroughoutmostoftheworldchangedlittlefromgenerationtogeneration. Forcenturies,many,ifnotmost,peopleproducedmuchofwhattheyandtheirfamiliesconsumedandnevertraveledfarfromwheretheywereborn. Bythemid-1700s,however,growingscientificandtechnicalknowledgewasbeginningtofindcommercialuses. Sincethen,accordingtostandardaccounts,theworldhasexperiencedatleastthreemajorwavesoftechnologicalinnovationanditsapplication. Thefirstwavedrovethegrowthoftheearlyindustrialera,whichlastedfromthemid-1700stothemid-1800s. Thisperiodsawtheinventionofsteamengines,cotton-spinningmachines,andrailroads. Theseinnovations,byintroducingmechanization,specialization,andmassproduction,fundamentallychangedhowandwheregoodswereproducedand,intheprocess,greatlyincreasedtheproductivityof workersandreducedthecostofbasicconsumergoods. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  10. P age |10 Thesecondextendedwaveofinventioncoincidedwiththemodernindustrialera,whichlastedfromthemid-1800swellintotheyearsafterWorldWarII. Thiserafeaturedmultipleinnovationsthatradicallychangedeverydaylife,suchasindoorplumbing,theharnessingofelectricityforusein homesandfactories,theinternalcombustionengine,antibiotics,poweredflight,telephones,radio,television,andmanymore. Thethirdera,whoserootsgobackatleasttothe1940sbutwhichbegantoenterthepopularconsciousnessinthe1970sand1980s,isdefinedbytheinformationtechnology(IT)revolution,aswellasfieldslikebiotechnologythatimprovementsincomputinghelpedmakepossible. Ofcourse,theITrevolutionisstillgoingonandshapingourworldtoday.Nowhere'saquestion--infact,akeyquestion,Iimagine,fromyour perspective. Whatdoesthefutureholdfortheworkinglivesoftoday'sgraduates? Theeconomicimplicationsofthefirsttwowavesofinnovation,fromthesteamenginetotheBoeing747,wereenormous. Thesewavesvastlyexpandedtherangeofavailableproductsandtheefficiencywithwhichtheycouldbeproduced. Indeed,accordingtothebestavailabledata,outputperpersonintheUnitedStatesincreasedbyapproximately30timesbetween1700and1970orso,growththathasresultedinmultipletransformationsofoureconomyandsociety. Historysuggeststhateconomicprospectsduringthecomingdecadesdependonwhetherthemostrecentrevolution,theITrevolution,haseconomiceffectsofsimilarscaleandscopeastheprevioustwo. Butwillit? InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  11. P age |11 Imustreportthatnoteveryonethinksso. Indeed,someknowledgeableobservershaverecentlymadethecasethattheITrevolution,asimportantasitsurelyis,likelywillnotgeneratethetransformativeeconomiceffectsthatflowedfromtheearliertechnological revolutions. Asaresult,theseobserversargue,economicgrowthandchangeincomingdecadeslikelywillbenoticeablyslowerthanthepacetowhichAmericanshavebecomeaccustomed. Suchanoutcomewouldhaveimportantsocialandpolitical--aswellaseconomic--consequencesforourcountryandtheworld. Thisprovocativeassessmentofoureconomicfuturehasattractedplentyofattentionamongeconomistsandothersaswell. Doesitmakesense? Here'sonewaytothinkmoreconcretelyabouttheargumentthatthepessimistsaremaking: Fiftyyearsago,in1963,Iwasanine-year-oldgrowingupinamiddle-classhomeinasmalltowninSouthCarolina. Asawayofgettingahandleontherecentpaceofeconomicchange,it'sinterestingtoaskhowmyfamily'severydaylifebackthendifferedfromthatofatypicalfamilytoday. Well,ifIthinkaboutit,IcouldquicklycomeupwiththeInternet,cellphones,andmicrowaveovensasimportantconveniencesthatmostofyourfamilieshavetodaythatmyfamilylacked50yearsago. HealthcarehasimprovedsomesinceIwasyoung;indeed,lifeexpectancyatbirthintheUnitedStateshasrisenfrom70yearsin1963to78yearstoday,althoughsomeofthisimprovementisprobablyduetobetternutritionandgenerallyhigherlevelsofincomeratherthan advancesinmedicinealone. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  12. P age |12 Nevertheless,thoughmymemorymaybeselective,itdoesn'tseemtomethatthedifferencesindailylifebetweenthenandnowareallthatlarge. Heating,airconditioning,cooking,andsanitationinmychildhoodwerenotallthatdifferentfromtoday. Wehadadishwasher,awashingmachine,andadryer. Myfamilyownedacomfortablecarwithairconditioningandaradio,andtheexperienceofcommercialflightwasmuchliketodaybutwithoutthelongsecuritylines. Forentertainment,wedidnothavetheInternetorvideogames,asImentioned,butwehadplentyofbooks,radio,musicalrecordings,anda colorTV(although,Imustacknowledge,thecolorsweregarishandthereweremanyfewerchannelstochoosefrom). Thecomparisonoftheworldof1963withthatoftodaysuggestsquitesubstantialbutperhapsnottransformativeeconomicchangesincethen. Butnowlet'srunthisthoughtexperimentbackanother50years,to1913(theyeartheFederalReservewascreatedbytheCongress,bytheway),andcomparehowmygrandparentsandyourgreat-grandparentslivedwithhowmyfamilylivedin1963. Lifein1913wassimplymuchharderformostAmericansthanitwouldbelaterinthecentury. Manypeopleworkedlonghoursatdangerous,dirty,andexhaustingjobs--upto60hoursperweekinmanufacturing,forexample,andevenmoreinagriculture. Houseworkinvolvedagreatdealofdrudgery;refrigerators,freezers,vacuumcleaners,electricstoves,andwashingmachineswerenotingeneraluse,whichshouldnotbeterriblysurprisingsincemosturbanhouseholds,andvirtuallyallruralhouseholds,werenotyetwiredforelectricity. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  13. P age |13 Intheentertainmentsphere,Americansdidnotyethaveaccesstocommercialradiobroadcastsandmovieswouldbesilentforanotherdecadeandahalf. Somepeoplehadtelephones,butnolong-distanceservicewasavailable.Intransportation,in1913HenryFordwasjustbeginningthemass productionoftheModelTautomobile,railroadswerepoweredbysteam, andregularcommercialairtravelwasquiteafewyearsaway. Importantly,lifeexpectancyatbirthin1913wasonly53years,reflectingnotonlythestateofmedicalscienceatthetime--infection-fighting antibioticsandvaccinesformanydeadlydiseaseswouldnotbedevelopedforseveralmoredecades--butalsodeficienciesinsanitationand nutrition. ThiswasquiteadifferentworldthantheoneinwhichIgrewupin1963orinwhichwelivetoday. Thepurposeofthesecomparisonsistomakeconcretetheargumentmadebysomeeconomists,thattheeconomicandtechnologicaltransformationofthepast50years,whilesignificant,doesnotmatchthechangesofthe50years--or,forthatmatter,the100years--beforethat. Extrapolatingtothefuture,theconclusionsomehavedrawnisthatthesustainablepaceofeconomicgrowthandchangeandtheassociatedimprovementinlivingstandardswilllikelyslowfurther,asourmostrecenttechnologicalrevolution,incomputersandIT,willnottransformourlivesasdramaticallyaspreviousrevolutionshave. Well,that'ssortofdepressing. Isittrue,then,asbaseballplayerYogiBerrasaid,thatthefutureain'twhatitusedtobe?Nobodyreallyknows;asBerraalsoastutelyobserved,it'stoughtomakepredictions,especiallyaboutthefuture. Buttherearesomegoodargumentsontheothersideofthisdebate. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  14. P age |14 First,innovation,almostbydefinition,involvesideasthatnoonehasyethad,whichmeansthatforecastsoffuturetechnologicalchangecanbe,andoftenare,wildlywrong. Asafeprediction,Ithink,isthathumaninnovationandcreativitywillcontinue;itispartofourverynature. Anotherprediction,justassafe,isthatpeoplewillneverthelesscontinuetoforecasttheendofinnovation. ThefamousBritisheconomistJohnMaynardKeynesobservedasmuchinthemidstoftheGreatDepressionmorethan80yearsago. Hewrotethen,"Wearesufferingjustnowfromabadattackofeconomicpessimism. Itiscommontohearpeoplesaythattheepochofenormouseconomicprogresswhichcharacterisedthe19thcenturyisover;thattherapidimprovementinthestandardoflifeisnowgoingtoslowdown." Soundfamiliar? Bytheway,Keynesarguedatthattimethatsuchaviewwasshortsightedand,incharacterizingwhathecalled"theeconomicpossibilitiesforourgrandchildren,"hepredictedthatincomeperperson,adjustedforinflation,couldriseasmuchasfourtoeighttimesby2030. Hisguesslooksprettygood;incomeperpersonintheUnitedStatestodayisroughlysixtimeswhatitwasin1930. Second,notonlyarescientificandtechnicalinnovationthemselvesinherentlyhardtopredict,soarethelong-runpracticalconsequencesofinnovationforoureconomyandourdailylives. Indeed,somewouldsaythatwearestillintheearlydaysoftheITrevolution;afterall,computingspeedsandmemoryhaveincreasedmanytimesoverinthe30-plusyearssincethefirstpersonalcomputerscameonthemarket,andfieldslikebiotechnologyarealsoadvancingrapidly. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  15. P age |15 Moreover,evenasthebasictechnologiesimprove,thecommercial applicationsofthesetechnologieshavearguablythusfaronlyscratchedthesurface. Consider,forexample,thepotentialforITandbiotechnologytoimprovehealthcare,oneofthelargestandmostimportantsectorsofour economy. Astrongcasecanbemadethatthemodernizationofhealth-careITsystemswouldleadtobetter-coordinated,moreeffective,andlesscostlypatientcarethanwehavetoday,includinggreaterresponsivenessofmedicalpracticetothelatestresearchfindings. Robots,lasers,andotheradvancedtechnologiesareimprovingsurgicaloutcomes,andartificialintelligencesystemsarebeingusedtoimprovediagnosesandchartcoursesoftreatment. Perhapsevenmorerevolutionaryisthetrendtowardso-calledpersonalizedmedicine,whichwouldtailormedicaltreatmentsforeach patientbasedoninformationdrawnfromthatindividual'sgeneticcode. Takentogether,suchadvancescouldleadtoanotherjumpinlifeexpectancyandimprovedhealthatolderages. Otherpromisingareasfortheapplicationofnewtechnologiesincludethedevelopmentofcleanerenergy--forexample,theharnessingofwind,wave,andsolarpowerandthedevelopmentofelectricandhybridvehicles--aswellaspotentialfurtheradvancesincommunicationsandrobotics. I'msurethatIcan'timagineallofthepossibilities,buthistoriansofsciencehavecommentedonourcollectivetendencytooverestimatetheshort-termeffectsofnewtechnologieswhileunderestimatingtheirlonger-termpotential. Finally,pessimistsmaybepayingtoolittleattentiontothestrengthoftheunderlyingeconomicandsocialforcesthatgenerateinnovationinthemodernworld. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  16. P age |16 Inventionwasoncetheprovinceoftheisolatedscientistortinkerer. Thetransmissionofnewideasandtheadaptationofthebestnewinsightstocommercialuseswereslowanderratic. Butallofthatischangingradically. Weliveonaplanetthatisbecomingricherandmorepopulous,andinwhichnotonlythemostadvancedeconomiesbutalsolargeemergingmarketnationslikeChinaandIndiaincreasinglyseetheireconomicfuturesastiedtotechnologicalinnovation. Inthatcontext,thenumberoftrainedscientistsandengineersisincreasingrapidly,asaretheresourcesforresearchbeingprovidedbyuniversities,governments,andtheprivatesector. Moreover,becauseoftheInternetandotheradvancesincommunications,collaborationandtheexchangeofideastakeplaceathighspeedandwithlittleregardforgeographicdistance. Forexample,researchpapersarenowdisseminatedandcritiquedalmostinstantaneouslyratherthanafterpublicationinajournalseveralyearsaftertheyarewritten. And,importantly,astradeandglobalizationincreasethesizeofthepotentialmarketfornewproducts,thepossibleeconomicrewardsforbeingfirstwithaninnovativeproductorprocessaregrowingrapidly. Inshort,bothhumanity'scapacitytoinnovateandtheincentivestoinnovatearegreatertodaythanatanyothertimeinhistory. Well,whatdoesallthishavetodowithcreativityandcriticalthinking,whichiswhereIstarted? Thehistoryoftechnologicalinnovationandeconomicdevelopment teachesusthatchangeistheonlyconstant. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  17. P age |17 Duringyourworkinglives,youwillhavetoreinventyourselvesmanytimes. Successandsatisfactionwillnotcomefrommasteringafixedbodyofknowledgebutfromconstantadaptationandcreativityinarapidlychangingworld. Engagingwithandapplyingnewtechnologieswillbeacrucialpartofthatadaptation. YourworkhereatSimon'sRock,andtheintellectualskills,creativity,andimaginationthatthatworkhasfostered,arethebestpossiblepreparationforthesechallenges. AndwhileIhaveemphasizedtechnologicalandscientificadvancestoday,itisimportanttorememberthattheartsandhumanitiesfacilitatenewandcreativethinkingaswell,whilehelpingustodrawmeaningthatgoesbeyondthepurelymaterialaspectsofourlives. Iwishyouthebestinfacingthedifficultbutexcitingchallengesthatlieahead. Congratulations. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  18. P age |18 • ConsultationPaper • OnDraftImplementingTechnicalStandards • OnAdditionalLiquidity • MonitoringMetricsunderArticle403(2)ofthedraftCapitalRequirementsRegulation(CRR) • RespondingtothisConsultation • TheEBAinvitescommentsonallproposalsputforwardinthispaperandinparticularonthespecificquestionssummarisedin5.2.Commentsare mosthelpfulifthey: • respondtothequestionstated; • indicatethespecificpointtowhichacommentrelates; • containaclearrationale; • provideevidencetosupporttheviewsexpressed/rationaleproposed;and • describeanyalternativeregulatorychoicestheEBAshouldconsider.PleasesendyourcommentstotheEBAbyemailto • EBA-CP-2013-18@eba.europa.euby14.08.2013,indicatingthereference • ‘EBA/CP/2012/18’onthesubjectfield. • Pleasenotethatcommentssubmittedafterthedeadline,orsentto anothere-mailaddresswillnotbeprocessed. • Publicationofresponses InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  19. P age |19 Allcontributionsreceivedwillbepublishedfollowingthecloseoftheconsultation,unlessyourequestotherwise. Pleaseindicateclearlyandprominentlyinyoursubmissionanypartyou donotwishtobepubliclydisclosed. Astandardconfidentialitystatementinane-mailmessagewillnotbetreatedasarequestfornon-disclosure. AconfidentialresponsemayberequestedfromusinaccordancewiththeEBA’srulesonpublicaccesstodocuments. Wemayconsultyouifwereceivesucharequest.AnydecisionwemakenottodisclosetheresponseisreviewablebytheEBA’sBoardofAppealandtheEuropeanOmbudsman. Dataprotection Informationondataprotectioncanbefoundatwww.eba.europa.euundertheheading‘LegalNotice’. 2.ExecutiveSummary TheproposedCapitalRequirementsDirective/Regulation(CRR/CRD)setsoutrequirementsconcerningliquiditywhichareexpectedtoapplyfrom1January2014andmandatestheEBAtopreparedraftregulatory /implementingtechnicalstandards(RTS/ITS)inthisarea. TheEBAhasdevelopedtheseITSproposalsonthebasisofthelegislativetextsfortheCRRagreedbytheEuropeanParliamentandtheCouncilinApril2013,inaccordancewiththemandatecontainedinArticles403(2)ofthosetexts. Thesetextswillbesubjecttolegal-linguisticreviewbeforebeingformallyadoptedandthefinaltextpublishedintheOfficialJournaloftheEuropeanUnion. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  20. P age |20 • TheEBAwillreviewtheITSproposalstoensurethattheytakeaccountofanychangesmadeinthefinaltextoftheCRR,aswellastotakeaccountofanychangesarisingoutoftheconsultationprocess. • MainfeaturesoftheITS • ThisCPcontainstheEBAproposalinrelationtosupervisoryreportingofadditionalmonitoringmetricsforliquidity. • Indefiningitsproposal,theEBAfollowedtheapproachdevelopedbythe • BaselCommitteeonBankingSupervision(BCBS). • TheEBA’sproposedmetricstobecoveredbythisITSincludethefollowing: • amaturityladder(templateandinstructions).ThisissimilartothecontractualmaturitymismatchputforwardbytheBCBStextand providesinsightintotheextenttowhichabankreliesonmaturitytransformationunderitscurrentcontracts. • Itcomprisestwoseparatetemplates(setoutintwoworksheets),oneforcontractualflowsandoneforbehaviouralflows. • Thematurityoftheoutflowsandinflowstobereportedinbothtemplatesrangefromopenmaturityuptogreaterthan10years(13bucketsintotal). • someadditionalmonitoringtools(templatesandinstructions)relatedto: • oconcentrationoffundingbycounterparty:ThisissimilartotheconcentrationoffundingmetricputforwardbytheBCBS,anditallowstheidentificationofthosesourcesofwholesaleandretailfundingofsuchsignificancethattheirwithdrawalcouldtriggerliquidityproblems. • Itisproposedthatinstitutionsreportthetoptenlargestcounterpartiesfromwhichfundingobtainedexceedsathresholdof1%oftotalliabilities,togetherwithinformationonthecounterpartyname,counterpartytype InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  21. P age |21 andlocation,producttype,currency,amountreceived,weightedaverageandresidualmaturity. oconcentrationoffundingbyproducttype:Thisseekstocollectinformationabouttheinstitution'sconcentrationoffundingbyproducttype,brokendownintodifferentfundingtypesrelatedtoretailandwholesalefunding. Itisproposedthatinstitutionsreportthetotalamountoffundingreceivedfromeachproductcategory,whenitexceedsathresholdof1%oftotalliabilities. opricesforvariouslengthsoffunding:Thisseekstocollectinformationabouttheaveragetransactionvolumeandpricespaidbyinstitutionsforfundingwithdifferentmaturitiesrangingfromovernightto10years. orolloveroffunding:Thisseekstocollectinformationaboutthevolumeoffundsmaturingandnewfundingobtainedi.e.‘roll-overoffunding’onadailybasisoveramonthlytimehorizon. 3.BackgroundandrationaleThenatureofITSunderEUlaw ThepresentdraftITSareproducedinaccordancewithArticle15ofEBAregulation.Paragraph4ofthatsamearticleprovidesthatITSshallbeadoptedbymeansofanEURegulationorDecision. AccordingtoEUlaw,EUregulationsarebindingintheirentiretyand directlyapplicableinallMemberStates. Thismeansthat,onthedateoftheirentryintoforce,theybecomepartofthenationallawoftheMemberStatesandthattheirimplementationintonationallawisnotonlyunnecessarybutalsoprohibitedbyEUlaw,exceptinsofarasthisisexpresslyrequiredbythem. ShapingtheserulesintheformofaRegulationwouldensurea level-playingfieldbypreventingdivergingnationalrequirementsandwouldeasethecross-borderprovisionofservices;currently,aninstitution InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  22. P age |22 thatwishestotakeupoperationsinanotherMemberStatehastoapplydifferentsetsofrules. BackgroundandregulatoryapproachfollowedinthedraftITS InJanuary2013,theBaselCommitteeonBankingSupervision(BCBS)publisheditsrevisedtextontheliquiditycoverageratio(LCR)andliquidityriskmonitoringtools. Thesemonitoringtools,togetherwiththeLCRstandard,providethecornerstoneofinformationthataidsupervisorsinassessingtheliquidityriskofaninstitution,becausetheycanhelpcompetentauthoritiesidentifypotentialliquiditydifficultiessignaledthroughanegativetrendinthemetricsorthroughanabsoluteresultofthemetrics. TheEBAwillobservefurtherworkconductedbytheBCBSinrespectofliquidityriskmonitoringandconsideramendmentstoitsownproposalsasnecessary. Onesuchtopicmaybemonitoringtoolsforintra-dayliquiditymanagement. Withinthiscontext,theEBAmayconsiderincreasingfurtherthegranularityofsomeoftheproposedtimebucketscoveringtheperiodofthefirst3months. Inputfromtheindustryontheselastaspectswouldbewelcome. TheCRRprovisionsrelatedtoliquidityreportingtranslatetheseBCBSproposalsintoEUlaw. Thus,inadditiontotheLCR,institutionswillhavetoreporttotheir competentauthoritiesinformationrelatedtoadditionalmetrics. Inthiscontext,theCRRalsoprovides,inArticle403(3)(b),thattheEBAshalldevelopdraftITStospecifytheadditionalliquiditymonitoringmetricsrequiredtoallowcompetentauthoritiestoobtaina InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  23. P age |23 comprehensiveviewoftheliquidityriskprofile,proportionatetothenature,scaleandcomplexityofaninstitution'sactivities. ThisCPcontainstheEBAproposalinrelationtosupervisoryreportingofadditionalmonitoringmetricsforliquidity. Indefiningitsproposal,theEBAfollowedtheapproachdevelopedbytheBCBS. TheEBA’sproposedmetricstobecoveredbythisITSincludethefollowing: -amaturityladder(templateandinstructions) osomeadditionalmonitoringtools(templatesandinstructions)relatedto: oconcentrationoffundingbycounterpartyoconcentrationoffundingbyproducttype opricesforvariouslengthsoffunding orolloveroffunding ThemetricrelatedtothematurityladderissimilartothecontractualmaturitymismatchputforwardbytheBCBStext. ThetemplatedevelopedintheITSisdesignedtocapturethematuritymismatchofaninstitution'sbalancesheet,andassuch,isreferredtoasthe‘maturityladder’. Thesematuritymismatchesindicatehowmuchliquidityabankwould potentiallyneedtoraiseineachofdifferenttimebandsifalloutflowsoccurredattheearliestpossibledate. Thismetricprovidesinsightintotheextenttowhichthebankreliesonmaturitytransformationunderitscurrentcontracts. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  24. P age |24 Thematurityladderformspartofthepackageof‘monitoringtools’whichtheEBAhasdesigned. Thematurityladderisamonitoringtoolwhichcomprisestwoseparatetemplates(whicharesetoutintwoworksheets),oneforcontractualflowsandoneforbehaviouralflows(inflowsandoutflows). Thecontractualflowsresultingfromlegallybindingagreementsshould bereportedaccordingtotheprovisionsoftheseagreements,whilethebehaviouralflowsshouldbebaseduponabase-caseeconomicscenariousedbythereportinginstitutioninitscurrentbusinessplanning(thescenariothattheinstitutionexpectstohappen,asopposedtopre-definedstressedconditions). Thematurityoftheoutflowsandinflowstobereportedbothinthecontractualtemplateandthebehaviouraltemplaterangefromopenmaturityuptogreaterthan10years(13bucketsintotal),whichallowsallrelevantmaturitiestobecaptured. Themetricsrelatedtotheadditionalmonitoringtoolsaredesignedtomonitoraninstitution'sliquidityriskthatfallsoutsidethescopeofthereportsonLiquidityCoverageandStableFunding. Thetemplateonconcentrationoffundingbycounterparty,similartotheconcentrationoffundingmetricputforwardbytheBCBStext,allowstheidentificationofthosesourcesofwholesaleandretailfundingofsuchsignificancethattheirwithdrawalcouldtriggerliquidityproblems. Excessiverelianceonindividualcounterpartiescouldleadtothe crystallisationofliquidityrisk,wherethefundingrelationshiptoceaseduringastressscenario. Itisthereforeimportanttoprovidetemplatesforreportingontheseitems,soastohelpinstitutionstoidentifytheserisksearlyandseekfundingfromawiderangeofcounterparties. ForthepurposeofthisITS,itisproposedthatinstitutionsarerequiredtoreportthetoptenlargestcounterpartiesfromwhichfundingobtained InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  25. P age |25 exceedsathresholdof1%oftotalliabilities,togetherwithinformationonthecounterpartyname,counterpartytypeandlocation,producttype, currency,amountreceived,weightedaverageandresidualmaturity. Thetemplateonfundingbyproducttypeseekstocollectinformation abouttheinstitution'sconcentrationoffundingbyproducttype,brokendownintodifferentfundingtypesrelatedtoretailandwholesalefunding. Excessiverelianceonspecificproducttypescouldleadtothe crystallisationofliquidityrisk,werethespecificproducttypesproventobesubjecttohighoutflowsduringastressscenario. Itisthereforeimportanttoprovidetemplatesforreportingontheseitems,soastohelpinstitutionstoidentifytheserisksearlyandseekfundingfromawiderangeofproducttypes. ForthepurposeofcompletingtheITStemplates,itisproposedthat institutionsreportthetotalamountoffundingreceivedfromeachproductcategory,whenitexceedsathresholdof1%oftotalliabilities. Withregardtothecounterbalancingcapacityontheassetsside,theEBAisconsideringintegratingintothefinalITSthetemplateandinstructionsshownintheappendixofthisconsultationpaper. Thispartofthereportingaimsatcapturingconcentrationsofassetsusedtocounterbalanceoutflowsandwouldcollectinformationaboutthetenlargestholdingsinthoseassetsissuedbyasinglename. Itisclearthathighconcentrationsmayrepresentariskofoverestimationofthecounterbalancingcapacityifthemarketsforthevariousfinancialinstrumentsissuedbyaspecificindividualissuerfalldry. Additionalinformationontheissuer/counterpartylocationmayaddinsightoninterconnectedness. Aspartofthetotal,thetemplateseeksalsoinformationonreceivedstand-byliquidityfacilitieswhichareseenaspartofthecounterbalancingcapacitybytheinstitution. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  26. P age |26 Insightinthesespecifictypesofconcentrationscannotsufficientlybeobtainedfromothertemplates. Thetemplateonpricesforvariouslengthsoffundingseekstocollectinformationabouttheaveragetransactionvolumeandpricespaidbyinstitutionsforfundingwithdifferentmaturitiesrangingfromovernight to10years. Finally,thetemplateontheroll-overoffundingseekstocollectinformationaboutthevolumeoffundsmaturingandnewfunding obtainedi.e.‘roll-overoffunding’onadailybasisoveramonthlytimehorizon. Asareminder,pleasenotethatArticle403(2)ofthedraftCRRstipulatesthataninstitutionshallreportseparatelytothecompetentauthoritiesofthehomeMemberStatetheitemssubjecttoliquidityriskreportinginacurrencywhenithas aggregateliabilitiesinthatcurrency,differentfromthesinglecurrencyusedforreporting,amountingtoorexceeding5%oftheinstitution’sorthesingleliquiditysub-group’stotalliabilities;or asignificantbranchasdefinedinArticle52oftheCRDinahostMemberStateusingacurrencydifferentfromthereportingcurrency. ThepresentITShavebeendevelopedtoprovidecompetentauthoritieswithharmonisedinformationoninstitutions’liquidityriskprofile,takingintoaccountthenature,scaleandcomplexityofinstitutions'activities. AstheITSonadditionalliquiditymonitoringmetricswillbecomepartofthegeneralsupervisoryreportingframeworkrequirements,followingtheintroductionofliquidityrequirements,formatshavebeendevelopedwiththeaimofensuringconsistencywhereallowedbytheCRRproposedtext. Scope/levelofapplicationandfrequency InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  27. P age |27 • ThescopeandlevelofapplicationoftheseITSseektobeconsistentwiththescopeandlevelofapplicationoftheCRRandoftheprudentialreportingrequirements(COREP),i.e.itapplies: • onaconsolidatedbasis(Article10(3)oftheCRR):toEUparentcredit institutionsandinvestmentfirmsandtocreditinstitutionsandinvestmentfirmscontrolledbyanEUparentfinancialholdingcompanyorbyanEUparentmixedfinancialholdingcompany; • onanindividualbasis(Article5(4)oftheCRR):toallcreditinstitutionsandinvestmentfirmsthatareauthorisedtoprovidetheinvestmentserviceslistedinpoints3and6ofsectionAofAnnexItoDirective 2004/39/EC. • However,accordingtoArticle7(1)oftheproposedCRRtext,competentauthoritieswillbeallowedtowaiveinfullorinparttheapplicationofPartSixoftheCRR(Liquidityrequirements)toainstitutionandtoallorsomeofitssubsidiaries,iftheyfulfillasetapredefinedconditions,includingiftheparentinstitutioncompliesonaconsolidatedbasiswiththeobligationsetforthinArticle401and403. • Thereportingfrequencywillbemonthlyforallmonitoringmetrics. • Underspecificclearandfactualcriteria,dulyframedintheITS,proportionatetothenature,scaleandcomplexityofaninstitution'sactivities,thereportingfrequencycanbereduced,respectivelytoaquarterlybasis. • Thesespecificcriteriarelatetotheexistenceofcross-borderactivitiesandsizeoftheinstitution’sbalancesheet. • ItshallbenotedthatArticle64oftheCRDrelatedtosupervisorypowersallowscompetentauthoritiestoimposeadditionalormorefrequentreportingrequirements,includingreportingonliquiditypositions. • Forexampleinperiodsofstresscompetentauthoritiescouldimposesomereportingwithadailyfrequency. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  28. P age |28 TimingofITSdevelopmentandapplicationdate ConsideringthattheEBAisconsultingonthisreportingforadditionalmetricsatalaterstagethanfortheotherreportingrequirements,theEBAmayconsiderfurthertheappropriateapplicationdatecomparedtotheapplicationdateofotherreportingrequirements(inparticularthereportingrequirementsforliquiditycoverageandstablefunding). AccordingtothedraftCRR,theEBAisexpectedtosubmittheseITStotheEuropeanCommission(EC)by1January2014. Thedatapointmodelrelatedtothereportingonadditionalmonitoringmetricswillbepublishedforconsultationinthecourseof2013. 4.DraftimplementingtechnicalstandardsonAdditionalLiquidityMonitoringMetricsundertheCapitalRequirementsRegulation(CRR) THEEUROPEANCOMMISSION, HavingregardtotheTreatyontheFunctioningoftheEuropeanUnion,HavingregardtoRegulationxx/XX/EUoftheEuropeanParliamentandoftheCouncilof[ddmmmmyyyy]onprudentialrequirementsforcreditinstitutionsandinvestmentfirms[CRR],andinparticulartoArticles ......and403(3)(b)thereof,[ADDENDUMTOTHELEGALBASESASPRESENTEDINCP50ANDSUBSEQUENTCPsONVARIOUSASPECTSOFREPORTING] Whereas: ...[ADDENDUMTOTHERECITALSASPRESENTEDINCP50ANDSUBSEQUENTCPsONVARIOUSASPECTSOFREPORTING] (xx) (xx)Reportingforadditionalmetricsrelatingtoliquidityshouldcompriseamaturityladder,becausethisiswhatwouldallowthematurity InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  29. P age |29 mismatchofaninstitution'sbalancesheettobecaptured;metricsbasedontheconcentrationoffundingbycounterpartyandproducttype,becausethesemetricsidentifycounterpartiesandinstrumentsthatareofsuchrelevancethatwithdrawaloffundsordecliningmarketliquiditycouldtriggerliquidityproblems;metricsbasedonthepricesforvariouslengthsoffundingandtherolloveroffundingbecausesuchinformationwillbecomevaluableovertimeassupervisorswouldbemadeawareof changesinfundingspreads,volumesandtenors. (xx)Giventhatarticles5to9ofRegulationxx/xxx[CRR]specifythelevelofapplicationoftheliquiditycoverage,thelevelandscopeofthereportingofthatliquiditycoverageandontheadditionalmonitoringmetricsshouldbealignedwiththat,andthereforethereportingontheseadditionalmonitoringmetricsshouldberequiredonlyatthelevelofconsolidationatwhichreportingonliquiditycoverageisrequiredaccordingtoArticle403(3)(a). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  30. P age |30 EXPLANATORYMEMORANDUMTO THEFINANCIALCONGLOMERATESANDOTHERFINANCIALGROUPS(AMENDMENT)REGULATIONS ThisexplanatorymemorandumhasbeenpreparedbyHMTreasuryandislaidbeforeParliamentbyCommandofHerMajesty. Purposeoftheinstrument TheseRegulationsimplement,inpart,Directive2011/89/EUoftheEuropeanParliamentandoftheCouncilamendingDirectives98/78/EC,2002/87/EC,2006/48/ECand2009/138/EC(OJL326/1138.12.2011)as regardsthesupplementarysupervisionoffinancialentitiesinafinancialconglomerate. ThePrudentialRegulationAuthority(“PRA”)andtheFinancialConductAuthority(“FCA”)areresponsibleforimplementingthemajorityoftheprovisionsofthisDirective. TheRegulationsmakealimitednumberoftechnicalanddefinitionalamendmentstoexistingsecondarylegislationwhichimposesobligationsonthePRAandFCAwithregardtotheirsupervisoryfunctions,inparticularconcerninginformationsharingandconsultationrequirements. LegislativeContext TheFinancialConglomeratesDirective2002(Directive2002/87/EC),providestheframeworkfortheprudentialsupervisionoffinancialconglomeratesinvolvedinbothbankingandinsuranceactivities,supplementingtherelevantbankingandinsurancesectoraldirectivesbyprovidingadditionalsupervisionatthegrouplevel. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  31. P age |31 TheFinancialConglomeratesDirective2002wasimplementedintheUKmainlybyrulesmadebytheFinancialServicesAuthority(“FSA”–thepredecessortothePRAandFCA)undertheFinancialServicesandMarketsAct2000(“FSMA”),butcertainprovisionswhichimposedobligationsonthesupervisoryauthority,weretransposedbytheFinancialConglomeratesandOtherFinancialGroupsRegulations2004(S.I.2004/1862). Directive2011/89/EUistheresultofatechnicalreviewofthe2002DirectivewhichwascommencedbytheEuropeanCommissionin2008andmakeschangestotheFinancialConglomeratesDirective2002andtherelevantsectoraldirectivestoimprovetheeffectivenessofthecurrentrules. TheseRegulationstransposethoseaspectsofDirective2011/89/EUwhichrequireamendmentstobemadetoexistingsecondarylegislation,notablytheFinancialConglomeratesandOtherFinancialGroupsRegulations2004andtheCapitalRequirementsRegulations2006(S.I.2006/3221),bythetranspositiondeadlineof10June2013. MostoftheDirectiveprovisionsarebeingtransposedbyrulesmadebythePRAandFCA. ThoseprovisionsoftheDirectivewhichrelatetoalternativeinvestmentfundmanagers,andwhichalsorequireamendmentstotheFinancialConglomeratesandOtherFinancialGroupsRegulations2004,buthavealatertranspositiondeadlineof22July2013,willbetransposedbywayofaseparatesetofRegulationswhichisduetobemadeforthepurposesoftransposingtheAlternativeInvestmentFundManagersDirective(Directive2011/61/EU)bythatdeadline. TheseRegulationsalsoupdatecertaincross-referencesintheFinancialConglomeratesandOtherFinancialGroupsRegulations2004toprovisionsinPart12ofFSMA,whichwereamendedbytheFinancialServicesandMarketsAct2000(Controllers)Regulations2009(S.I.2009/534)aspartoftheexerciseoftransposingtheAcquisitionsDirective(Directive2007/44/EC). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  32. P age |32 Policybackground-Whatisbeingdoneandwhy TheaimofDirective2011/89/EUistoactasaquickfixinresponsetogapsinconglomeratesupervisionthatwerehighlightedbytheexperienceofthefinancialcrisisandidentifiedinthereviewoftheFinancialConglomeratesDirective2002carriedoutbytheEuropeanCommissionin2008/2009. Thechangesareexpectedtoeliminatetheunintendedconsequencesandtechnicalomissionsintherelevantsectoraldirectives(coveringthesupervisionofbankingandinsuranceinstitutions),andimprovetheconsistencyofsupervisionofgrouprisks. Thechangesincludeamendmentstothecapitalcalculationmethodologyforconglomerates,arequirementtoincludeassetmanagementcompaniesandalternativeinvestmentfundmanagersintheconglomeratesidentificationprocess,andamendmentstotheidentificationthresholdtriggers,aswellasprovidingforconglomeratestresstesting. MostofthesesubstantivechangeswillbeimplementedbyamendmentstoPRAandFCArules. However,alimitednumberofamendmentsarerequiredtoexistingsecondarylegislationwhichimposesobligationsonthePRAandFCAwithregardtotheirsupervisoryfunctionsinrelationtoconglomerates. Thesemainlyconcernconsequentialamendmentstoconsultationandinformationsharingrequirements. AmorefundamentalreviewoftheFinancialConglomeratesDirective 2002iscurrentlyunderway. Theaimofthisistoprovideawider-rangingassessmentofthethefinancialcrisis. TheEuropeanCommissionpublishedaprogressupdatereportonthisreviewinDecember2012. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  33. P age |33 Thisnotedtheimportanceoftakingintoaccounttherecentandpendingchangestosectorallegislation–suchasSolvencyIIandtheCapital RequirementsDirective(“CRD4”)–aswellastheimplicationsofBankingUnionproposalsforconglomeratesupervision. Asaresult,thereportstatedthattheCommissiondoesnotintendtobringforwardlegislativeproposalsin2013,butwillkeepthesituationunderreviewtodeterminetheappropriatetimingfortherevision. Consolidation TherearenocurrentplanstoconsolidatetheamendmentstotheFinancialConglomeratesandOtherFinancialGroupsRegulations2004ortheCapitalRequirementsRegulations2006. However,the2004RegulationsarelikelytobeamendedagainfollowingthecurrentmorefundamentalreviewoftheFinancialConglomeratesDirective2002,atwhichstagefurtherconsiderationwillbegiventoconsolidation. TheCapitalRequirementsRegulations2006areexpectedtobefurtheramendedorreplacedaspartoftheexerciseoftransposingCRD4whichisduetobeadoptedlaterthisyear. Consultationoutcome TheEuropeanCommissionundertookatargetedpre-legislativeconsultationonitsreviewoftheFinancialConglomeratesDirectiveinNovember2009,priortoissuingitsformalproposalinAugust2010. WeunderstandthataUKstakeholderrespondedbuttheresponsewasnotmadepublic. Detailsoftheconsultation,includingpublishedresponses,areavailableat:http://ec.europa.eu/internal_market/consultations/2009/fcd_review_en.htm InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  34. P age |34 AdraftoftheseRegulationswassubjecttoapublicconsultationinthedocumentCP12/40:FinancialConglomeratesDirective–Technical reviewamendments,ajointFSA-HMTreasuryconsultation,whichwaspublishedontheFSAwebsiteon21December2012,andisavailableat:http://www.fsa.gov.uk/static/pubs/cp/cp12-40.pdf. Theconsultationclosedon21March2013andnoresponseswerereceivedconcerningtheTreasury’sdraftRegulations. TheTreasuryalsoconsultedtheFSAanditssuccessorauthoritiespriortomakingtheseRegulations,whichimposeobligationsdirectlyonthePRAandFCA,andtheFSAwascontentwiththedraftRegulations. Guidance TheTreasuryisnotplanningtoissueanyguidanceontheseRegulations,whichdonotimposeobligationsdirectlyonbusiness. ThePRAandtheFCAareduetoissuepolicystatementsdetailingtheirfinalrulesimplementingotherpartsofDirective2011/89/EU. TRANSPOSITIONNOTEFORDIRECTIVE2011/89/EU ThistranspositionnotesetsoutthelegislationwhichtransposesintoUKlawDirective2011/89/EUoftheEuropeanParliamentandoftheCouncilamendingDirectives98/78/EC,2002/87/EC,2006/48/ECand2009/138/ECasregardsthesupplementarysupervisionoffinancialentitiesinafinancialconglomerate. ThisDirectivemakestechnicalamendmentstotheFinancialConglomeratesDirective2002(Directive2002/87/EC),whichdealswiththesupplementarysupervisionoffinancialconglomerates,whicharegroupswhichcarryoutsignificantactivitiesinboththebanking /investmentservicesandinsurancesectors. Italsomakesconsequentialamendmentstotherelevantsectoraldirectivesdealingwiththeregulationofbanks/investmentfirmsandinsurancefirms. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  35. P age |35 TheFinancialConglomeratesDirective2002wasoriginallytransposedmainlybywayofrulesmadebytheFinancialServicesAuthority(the“FSA”)undertheFinancialServicesandMarketsAct2000,andalsoinpartbytheFinancialConglomeratesandOtherFinancialGroupsRegulations2004(SI2004/1862)madebytheTreasury. ThenewDirectivemakestechnicalchangestotheFinancialConglomeratesDirective2002,includingchangestotheconglomerate capitalcalculationsmethodology,changestoincludeassetmanagementcompaniesandalternativeinvestmentfundmanagerswithintheprocessforidentifyingafinancialconglomerate,andchangestotheapplicationofidentificationthresholdtriggers. ThenewDirectiveisbeingtransposedmainlybythewayofamendmentsbeingmadetotherulesofthePrudentialRegulationAuthority(the“PRA”)and(wherenecessary)theFinancialConductAuthority(the“FCA”),whichwereestablishedinplaceoftheFSAwitheffectfrom1April2013(whentheFinancialServicesAct2012cameintoforce). TheserulescontinuetobemadeundertheFinancialServicesandMarketsAct2000(asamendedbytheFinancialServicesAct2012). ThenewDirectiveincludesamendmentstoDirective2009/138/EC(“SolvencyII”),whosetranspositiondateiscurrentlydelayed. TheFSAhasconsultedonproposedamendmentsarisingfromthenewDirectivetothedraftPRAprudentialsourcebook(SOLPRU)whichwill,induecourse,transposeaspectsofSolvencyII. ReferencestothesedraftPRAHandbookrulesareshowninthisTranspositionNotealthoughSOLPRUwillnotbemadeuntilthetranspositionofSolvencyIItakesplace. TheDirectiveisalsobeingtransposedinpartbywayofamendmentsbeingmadebytheTreasurytotheFinancialConglomeratesandOtherFinancialGroupsRegulations2004andtheCapitalRequirementsRegulations2006(SI2006/3221),togetherwithconsequentialamendmentsbeingmadetootherlegislation. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  36. P age |36 MostoftheprovisionsofthisDirectiveareduetoapplyfrom10June2013. AmendmentstotheFinancialConglomeratesandOtherFinancial GroupsRegulations2004relatingtoalternativeinvestmentfundmanagers(whichapplyfrom22July2013)willbemadeseparatelybyway oftheRegulationsbeingmadetotransposetheAlternativeInvestment FundManagersDirective(Directive2011/61/EU). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  37. P age |37 Whocallstheshots?Theproblemoffiscaldominance SpeechbyDrJensWeidmann,PresidentoftheDeutscheBundesbank,atthe4thBankofFrance-DeutscheBundesbankMacroeconomicsandFinanceConference,Paris. 1.Introduction Ladiesandgentlemen, Iwouldliketothankyoufortheopportunitytospeakheretoday.Indeed,inspringtimethereisnobetterplacetobethanParis. AsHenryMillerputit:“Godknows,whenspringcomesto ParisthehumblestmortalalivemustfeelthathedwellsinParadise”. However,otherpartsofEuropearecurrentlyalongwayfromParadise. Numerouscountriesareexperiencingaseverecrisis,andmanypeoplearegoingthroughatimeofgreathardship. Thus,ourmostimportantchallengeistoovercomethecrisis,restoregrowthandleadEuropebacktoprosperity–withoutendangeringpricestability. Toachievethisobjectivemanydifficultandfar-reachingdecisionshavetobetaken. Againstthisbackdrop,conferencessuchasthisoneareessential.Afterall,scientificresearchisacentralpillarofgooddecision-making. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  38. P age |38 Thus,IwouldliketothanktheBanquedeFranceforhostingthisevent.Thissessionoftheconferenceistitled:“FiscalPolicyinaMonetary Union”. Whatisacentralbanker’sroleinsuchadiscussion? Well,MervynKingoncesaid:“Centralbanksareoftenaccusedofbeing obsessedwithinflation.Thisisuntrue.Iftheyareobsessedwithanything,itiswithfiscalpolicy.” Assooften,MervynKingwasright,wecentralbankersareindeedobsessedwithfiscalpolicy–andGermanonesquiteprobablysomewhat moresothanthoseofadifferentnationality. Thisobsessionisdrivenbytwointerrelatedobservations: First,highlevelsofpublicdebtharbourtheriskofhigherinflation. Second,soonerorlaterhighlevelsofpublicdebtareboundtohurteconomicgrowth. GiventhehighlevelsofpublicdebtinmanyEuropeancountries,onewouldexpectabroadconsensusinfavourofconsolidation–andnotjustamongfixatedcentralbankers. However,therealityisabitmorecomplexthanIjustimplied. Therearedifferentviewsonthedangersandmeritsofpublicdebt. Infact,wearecurrentlyobservingachangeofmoodthathasbeendubbedthe“austeritybacklash”. Somepoliticiansclaimthattheircountriesaredyingfrommereausterityonitsown;othersconveytheimpressionthatthepolicyofconsolidationhasreacheditslimits. Consequently,theycallforittobepostponed. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  39. P age |39 These“backlashers”arguethatinthecurrenteconomicsituationinflationarypressureisonlyoflimitedconcern. Alongthesamelinestheyarguethatconsolidationratherthandebthurtsgrowththemost–atleastintheshortrun. InmyspeechIwouldliketodiscussthesetwoissues:first,therelationshipbetweenpublicdebtandinflationandsecond,thequestionofconsolidationandgrowth. 2.Soundpublicfinancesasaprerequisiteformonetarypolicy Publicdebtandinflationarerelatedonaccountofmonetarypolicy’spowertoaccommodatehighlevelsofpublicdebt. Thus,thehigherpublicdebtbecomes,thegreaterthepressurethatcan beputuponmonetarypolicytorespondaccordingly. Suddenlyitmightbefiscalpolicythatcallstheshots–monetarypolicynolongerfollowstheobjectiveofpricestabilitybutrathertheconcernsoffiscalpolicy. Astateoffiscaldominancehasbeenreached. Technically,fiscaldominancereferstoaregimewheremonetarypolicyensuresthesolvencyofthegovernment. Thetraditionalrolesarereversed:monetarypolicystabilisesrealgovernmentdebtwhileinflationisdeterminedbytheneedsoffiscalpolicy. Intheconventionalview,fiscaldominanceentailsthefamous “unpleasantmonetaristarithmetic”. InthewordsofSargentandWallace:“…themonetaryauthority…musttrytofinancewithseigniorageanydiscrepancybetweentherevenuedemandedbythefiscalauthorityandtheamountsofbondsthatcanbesoldtothepublic.” InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  40. P age |40 Intheirsetup,fiscalpolicyrunsachronicprimarydeficitwhichleadstoacorrespondingincreaseinthemoneysupply. Asasimplemoneydemandholdsinthemodel,thepriceleveladjuststoestablishequilibriuminthemoneymarket. Putmorebluntly:thecentralbankfinancesgovernmentdeficitsthroughtheprintingpress. Recently,however,anotherconceptoffiscaldominancehasgainedmuch attentionintheacademicliterature:thefiscaltheoryofthepricelevel. Accordingtothistheory,fiscalpolicycanaffectinflationevenifitdoesnotmonetisepublicdebtalongthelinesofSargentandWallace. InthewordsofWoodford:“Fiscaldominancemanifestsitselfthroughpressureonthecentralbanktousemonetarypolicytomaintainthemarketvalueofgovernmentdebt.” Themainpillarofthefiscaltheoryrestsonthefactthatbondsareclaimstonominalpayoffs. Now,ifgovernmentsareunabletoraisesufficientrealresources,anewdirectlinkarisesbetweencurrentandexpecteddeficitsandinflation. Intuitively,thelogicofthefiscaltheorycanbedescribedasfollows:Letusassumeadditionalexpenditure,forinstancehighertransfers,whicharenotfinancedbyadditionaltaxesbutbyissuingadditionalbonds. Consequentlythevalueofrealdebtisnowhigherthanthepresentvalueoffuturetaxpayments. Householdsfeelricherandthusconsumemore,causingoutputandinflationtoincrease. Monetarypolicyhastostabiliserealdebttoavoidaninflationspiral,withtheresultthatitrespondsatarateoflessthan1to1toinflation,therebyviolatingtheTaylorprinciple. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  41. P age |41 Thus,higherinflationreducesdebtinrealtermsandlowerrealinterestratesreducetherealdebtserviceburdenofexistinggovernmentdebt. Ineachofthetwocases,aregimeoffiscaldominanceischaracterisedbyhigherinflationandprobablyalsomorevolatileinflation. Monetarypolicyisnolongerabletocontroltheinflationrate,andthereforewelfarelosseswilloccur. However,thestorydoesnotendhere. Remainingwithintheworldoftheory,wecancontinueasfollows:becauseeconomicagentsareforward-looking,itisquitepossiblethatthe consequencesIhavejustdescribedcouldmanifestthemselvesbeforethe economyhasenteredtheregimeoffiscaldominance. Lookingahead,publicdebtcannotbeaccumulatedforever. Soonerorlater,governmentsthatrunlargedeficitsforalongperiodoftimeriskhittingafiscallimit–apointatwhichgovernmentrevenuescan nolongerbeincreasedtostabilisegovernmentdebt. Thisinabilitytoraiserevenuesmighthaveeconomicreasons,suchasacrossingofthepeakoftheLaffercurve. Buttheremightalsobepoliticalreasonsthatmakeitinfeasibletoraisetaxes. Certainly,theactualfiscallimitishighlyuncertaininmanyways:itisaprobabilitydistributionratherthanapointanddependsonexpectations,shocksandpolicymeasurestaken. Andforward-lookingagentsknow:oncethegovernmenthitsthefiscallimit,eitheranadjustmentoffiscalspendingoranadjustmentofmonetarypolicyneedstooccur. Otherwisedebtcannotbestabilised. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  42. P age |42 Andasaconsequence,monetarypolicymightcomeunderpressuretostepinandstabilisegovernmentdebt. Thus,eveniffiscalpolicyhasnotyetreacheditslimit,theeconomicmechanismsattachedtothefiscaltheoryofthepricelevelmightalready swingintoaction. Tobespecific:letusassumethatagentsexpect,withsomeprobability,thatmonetarypolicywillbeartheburdenofadjustmentandstabiliserealgovernmentdebtthroughhigherinflation. Onceinflationexpectationsstartrising,thesamemighthappenwithinflationaswell. Thus,evenifthefiscallimithasnotbeenreached,itmaystillaffectinflation. Inotherwords,howpolicymakersareexpectedtocopewiththefiscallimit,includingtheireffortstoconsolidate,notonlyaffectsexpectationsconcerningfuturepolicyregimesbutcanalsoaffecttoday’swelfare. Againstthebackdropofthistheoreticalanalysis,onethingshouldbemadeclearfromamonetarypolicyperspective:policymakersshouldnotassumethattheyareonsafegroundjustbecauseinflationexpectationsarefirmlyanchored. Onlyifagentsexpectdeviationsfroma“virtuousregime”ofmonetarydominancetobeshort-lived–say,becausepolicymakersstillenjoyhighcredibility–willinflationexpectationsremainwellanchored. However,ifagentslearnthatthedeviationisgoingtolastforlongerthaninitiallyexpected,theirinflationexpectationswillchange. Andthismighthappenverysuddenly. 3.Hence,thecaseforconsolidation Whatconclusioncanwedrawfromthistheoreticalanalysis? InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  43. P age |43 Well,therightconclusionisthatfiscalconsolidationiscruciallyimportanttokeepinflationexpectationsanchored. Onthisbasis,onecouldmakeasolidcaseforconsolidation. Foritisincumbentongovernmentstoreducethelevelofpublicdebt.Indeed,theyhavetodothistopromoteeconomicgrowthandtoensure pricestability. AsOlivierBlanchardputit:wehavetogetoutofthedangerzone. Certainly,overthepastthreeyearsmanycountrieshavemadegreateffortstoconsolidatetheirpublicfinances. However,themaindriveroftheseeffortswasnotacademictheorybutprofanemarketpressure. AsSimonNixonrecentlywroteintheWallStreetJournal: “Foreuro-zonecountriesfacinghighborrowingcostsorreliantoninternationalaidtofundtheirbudgetdeficits,fiscalconsolidationwasn’tachoicebutanecessity.” Anditstillis. Evenso,nowthatmarketpressurehaseasedsomewhat,sohasthepoliticalwilltoconsolidate. Manyarguethatconsolidationhasgonetoofarandthatitwillimpedegrowthgiventhecurrentstateoftheeconomy. Butisthatatenableargumentagainsttheneedtoreducepublicdebt,togetoutofthedangerzone? Letustakeacloserlookattherelationshipbetweenconsolidationandgrowth. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  44. P age |44 4.Butwillconsolidationhurtgrowth? Toputmyviewinanutshell:Iseenoconflictbetweenconsolidationandgrowth. And,indeed,thereisnotmuchcontroversyregardingthelong-termrelationshipbetweenconsolidationandgrowth. Variousstudieshaveconfirmedthat,inthelongrun,solidpublic financeshaveabeneficialeffectongrowth–andIamnotjustreferringtotheReinhart-Rogoffstudythathasreceivedsomecriticismrecently. Cecchettiandothers,forinstance,alsofindthathighdebtlevelsinhibitpotentialgrowth. Nevertheless,theshort-termrelationshipbetweenconsolidationandgrowthishotlydebated. Andthisdebateiscurrentlyobscuringtheconsensusonthelonger-termeffectsofconsolidation. Thisisbecausethedebaterelatesdirectlytopolicydecisionsandtotheirshort-termeffectsonwhichpoliticiansareverystronglyfocused. Morespecifically,thedebateisfocusingontheappropriatepaceofconsolidationinthecurrentcircumstances. Thediscussion,therefore,isrevolvingaroundthesizeofthefiscalmultiplier. Thelargerthemultiplier,thegreaterthenegativeeffectconsolidationhasonshort-termgrowth. Ingeneral,thesizeofthemultiplierdependsonanumberoffactors. Itdependsonthespecificfiscalandeconomicsituationoftherelevantcountry,includingthesizeoftheexportsector,theexchangerateregime, InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  45. P age |45 trustinfiscalsustainabilityandtheconcretedesignoftheconsolidationmeasures. Recentresearchhashighlightedthefactthatthemultipliermightalsobestate-dependent. Thiswouldimplythepossibilitythatthemultiplierislargerinacrisis. Onereasonforthiscouldbethatmonetarypolicyisconstrainedbythezerolowerbound. Anotherreasoncouldbethatthenumberofliquidity-constrained householdsisincreasing. Empiricalstudiestendtofindthatmultipliersareindeedlargerinrecessionsandinsituationswhereconsolidationtakesplaceduringafinancialcrisis. However,manyofthesestudiessufferfromalackofdataasdeeprecessionstendtobequiterareevents. Moreover,thewayinwhichsuchstudiesaresetupisoftenratherbasicandfraughtwithestimationchallenges. Finally,therearealsostudieswhichimplythatthefiscalmultipliermightbesmallerwhenpublicdebtratiosarehighandthesustainabilityofpublicfinancesisindoubt. Now,whatdoesallthistellusaboutthecurrentsituationandtheappropriatepaceofconsolidation? BlanchardandLeigh,inarecentworkingpaper,suggestthatthefiscalmultiplieriscurrentlylargerthanpreviouslythought. Therefore,theyconcludethatconsolidationwouldcurrentlyberathercostlyintermsofgrowthandmore“backloading”wouldbedesirable. However,thedatasetfromwhichtheseresultshavebeenobtainedis InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  46. P age |46 rathersmall. Onceothercontrolvariablesareincludedandvariationofthecountrysampleistakenintoaccount,theresultsarenolongerrobust. Allthingsconsidered,thesizeoffiscalmultipliersseemstobesubjecttoconsiderableuncertainty–bothingeneralandwithregardtothecurrentsituation. Consequently,Ithinkweshouldlookbeyondthesizeoftheshort-termfiscalmultiplierwhendiscussingconsolidation. Ingeneral,ifconsolidationisachievedbyreducingpublicspending,forinstance,itwillenhancepotentialgrowth. Inaddition,consolidationwillfosterfiscalsustainability. Inthisregard,itisimportanttoconsiderhowfinancialmarketsjudgeacountry’sfiscalsituationandtranslatetheresultsintheirriskassessment. Thereiswidespreadagreementthattheinfluenceofcountry-specificfiscalcharacteristicshasrisenoverthecourseofthecrisis. Thecurrentcrisisis,toalargeextent,acrisisofconfidence–financialmarketshavelosttheirconfidenceinthesustainabilityofpublicfinances. Againstthisbackdrop,sustainedandcredibleconsolidationwouldsenda clearsignal. Also,withregardtopoliticalacceptance,Idoubtthatturningdefermentofconsolidationintoanever-endingstorywillfindmorepublicsupportthanafairlyswiftcorrection. AndthisiswhyIbelievethatdeterminedconsolidationwouldhelpconvincethemarketsthatthefuturefiscalpositionisgoingtobesound. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  47. P age |47 This,inturn,wouldbringdownlong-terminterestratesorensurethattheyremainatalowlevel,whichwouldbebeneficialforeconomicgrowth. Bydelayingconsolidation,ontheotherhand,governmentswouldriskanincreaseinmarketuncertainty. Asaconsequence,sovereignbondspreadswouldremainhighorgoupevenfurther. 5.Conclusion LadiesandgentlemenHighlevelsofpublicdebtareoneofthemajoreconomicpolicychallengesofourtimes–especiallyfromacentralbanker’spointofview. Sustainablepublicfinancesareanecessaryprerequisiteforastablecurrency–aprerequisitethatmonetarypolicyitselfcannotcreate. Giventhathighlevelsofpublicdebtalsohurteconomicgrowth,thereisasolidcaseforconsolidation. True,intheshortrun,consolidationcandampengrowth;thatisundisputed. Nevertheless,acrediblecommitmenttosoundpublicfinanceswillalsoinspireconfidence. Andconfidenceiswhatislackingintheeuroarea.Thankyou. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  48. P age |48 SolvencyIIupdateforallfirms AspartofourcommitmenttosharingdevelopmentsinourapproachtotheimplementationofSolvencyII,IthoughtitwouldbehelpfultowritetoallfirmsaffectedbytheDirectivetogiveanupdateonthecurrentpositionandwhatthismeansfortheworkthathastobedoneinthecomingmonths. Asyouknow,therecontinuestobesignificantuncertaintyoverthetimetableandfinalshapeoftheSolvencyIIregime. Weareveryconsciousoftheimplicationsfortheindustryofthecontinuingdelaysintermsofcomplexityandcost. WecannotyetprovidethecleartimetablebutweareactingintwowaystohelptheUKindustry,bothintheEuropeannegotiationandinour approachtoimplementationforUKfirms. Iwilltakeeachofthesepointsinturn. Europeantimetable WeareactivelyengagingwithEuropeancolleaguestosupportthetimelyresolutionofpolicyissues. Earlierthisyearweinvitedfirmstotakepartinthelong-termguaranteesassessmentandwesubmitteddatatotheEuropeanInsuranceandOccupationalPensionsAuthority(EIOPA)attheendofApril. EIOPAiscurrentlyanalysingdatafromMemberStateswithaviewtopreparingareportforEuropeanco-legislatorsinJune. ThisisexpectedtobefollowedbyareportfromtheEuropeanCommissionwhichwillinformthedevelopmentoftheOmnibusII InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  49. P age |49 DirectivewhichiscurrentlyscheduledforavoteintheEuropean Parliamenton22October2013. On27March2013,EIOPApublisheditsconsultationsonpreparatoryguidelinesforSolvencyII. TheguidelinescoverareasthatEIOPAconsiderstobethemoststableandfundamentaltoensureeffectivepreparationbyMemberStatesstartingfrom1January2014. ItisimportanttonotethattheguidelinesfocusonpreparednessratherthanbringingforwardelementsofSolvencyIIearly. Thefourareasare: systemsofgovernance; forward-lookingassessmentoftheundertaking’sownrisks(basedontheORSAprinciples); submissionofinformation(reporting);and pre-applicationforinternalmodels. Weareverymuchawareoftheconcernsraisedbyindustry,inparticular,withregardstothecostofpotentialduplicationofworkandparallelrunningstemmingfromthereportingguidelines. TheEIOPApositiononthereportingguidelineswillbeclearertowardstheendoftheyear,andweverymuchsupportthereviewclauseinEIOPA’scovernotetotheconsultationsdesignedtoremovethepotentialforanextendedperiodofparallelrunning. WewillberespondingtoEIOPA’sconsultationsbythedeadlineof19June,andIwouldliketothankfirmsfortheirattendanceandconstructiveinputwhichwillinformourresponse. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  50. P age |50 EIOPAwillconsiderallresponsestotheconsultationswithaviewtoproducingfinalguidelinesintheautumn;andNationalCompetentAuthorities(NCAs),includingthePRA,willhavetwomonthstorespondastowhethertheywillcomplyorintendtocomplywitheachoftheguidelines,and/orgivereasonsfornon-compliancewhereneeded. Weappreciatethatthetimingisdifficultasitleaveslittletimeforusandforyoutoprepare. WewillprovideasmuchinformationtotheUKindustryassoonaswecan. Theworkonthelong-termguaranteesassessment,theOmnibusIIDirectiveandtheEIOPApreparatoryguidelinesshouldcometogetherintheautumn. Thereis,therefore,unlikelytobeanycertaintyaboutthetimetablebeforethen. Approachtoimplementation InOctober2012IacknowledgedtheEUdelaytotheimplementationofSolvencyIIandsetoutanewplanninghorizonof31December2015forUKfirms. WehaverephasedandscaledbackourplansforfutureworkonSolvencyIIandwebelievethattheactionwehavetakenisbothsensibleand pragmatic. Ithasreducedconsiderablythecosttoindustryunderthespecialprojectfeesthisyear. Sincemylettertofirmsabout‘ICAS+’inJanuarythisyear,wehavereceivedrequestsfromjustunderhalfofthefirmsinourinternalmodelapprovalprocess(IMAP)thatwishtoleveragetheinvestmentintheirSolvencyIIinternalmodelstomeetthecurrentregulatoryrequirements. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com