Grand Regulatory News Update

The European Supervisory Authorities (ESAs) will hold a public hearing to present the first batch of consultation papers on the mandates stemming from the Digital Operational Resilience Act (DORA). The aim of this hearing is to gather market participants' initial views on the proposed policy products. These products focus on areas such as Information and Communications Technology (ICT) risk management tools, methods, processes, and policies, as well as criteria for the classification of ICT-related incidents and materiality thresholds for major incidents and significant cyber threats. The consultation papers also discuss the establishment of templates for the register of information related to contractual arrangements on the use of ICT services provided by third-party service providers, and policies for these arrangements.

DORA Regulation: Policy Product Consultation

ESA has launched a public consultation on DORA policies, aiming to boost EU financial sector’s digital resilience by managing ICT risks. It covers standards for ICT risk, incident classification, third-party risks, and more.

GrandAlessandro Micagni

The Financial Stability Board (FSB) has proposed a digitalised toolkit for financial institutions and service providers to enhance third-party risk management and oversight. With the increasing reliance on third-party service providers in the finance sector due to digitalisation, the toolkit aims to reduce risks and fragmentation of regulatory approaches across jurisdictions. It also seeks to strengthen financial institutions' ability to manage third-party risks and improve the resilience of the financial system. The toolkit emphasises critical services and offers a holistic view of third-party risk management, differing from the historical focus on outsourcing. It is adaptable to smaller, less complex institutions or intragroup third-party service relationships due to the principle of proportionality.

FSB: Third Party Risk Management Proposal

The FSB proposes a digital toolkit to enhance third-party risk management in finance. It reduces risks, fosters regulatory alignment, and strengthens institutions’ resilience. The toolkit focuses on critical services, offers a holistic view, and is adaptable to smaller institutions.

GrandAlessandro Micagni

Elizabeth McCaul, a member of the Supervisory Board of the European Central Bank (ECB), addressed a workshop on the future of globalization, discussing three fundamental shifts in finance and the challenges they pose for supervisors. First, she highlighted the issue of recent bank failures and the challenges associated with high inflation and rising interest rates. Second, she addressed the shift in lending from the banking sector to other market participants and the interconnectedness between banks and the nonbank financial intermediation (NBFI) sector. Lastly, she discussed the impact of the digital transformation on the competitive landscape in banking, noting that the financial value chain is fragmenting and being reshaped, posing challenges for the "supervisability" of the financial sector. The speech emphasized the importance of being forward-looking in risk assessments and ensuring the financial sector is well-equipped for future challenges.

ECB : Financial Sector Challenges & Regulations

ECB’s Elizabeth McCaul discussed financial transitions: bank failures and inflation issues; shift in lending patterns; and digital transformation’s impact on banking. Emphasized was the need for proactive risk assessments and preparedness for future challenges.

GrandAlessandro Micagni

The European Supervisory Authorities (ESA) have launched a public consultation on the first batch of policy products under the Digital Operational Resilience Act (DORA). DORA aims to enhance the overall digital operational resilience of the EU financial sector by addressing risks and vulnerabilities associated with the increased use of information and communication technology (ICT) systems. The act covers 21 different types of financial entities and includes provisions for ICT risk management, incident management and reporting, as well as third-party risk management. The consultation covers draft standards for ICT risk management, incident classification, and policies on ICT services performed by third-party providers, among others. The public consultation will last until September 11, 2023, followed by an online public hearing on July 13. The final legal instruments will be submitted to the European Commission by January 17, 2024.

ESA: DORA & ICT Third Party Providers

On May 26th, 2023, the ESA released a discussion paper on delegated acts under DORA. It addresses criteria for critical ICT third-party providers and supervisory fees. The paper presents unified standards for assessing “criticality,” but lacks clarity on their application in determining providers.

GrandAlessandro Micagni

The Wolfsberg Group, an association of international banks, has released a set of principles for the ethical use of artificial intelligence and machine learning (AI/ML) in financial crime compliance. The group acknowledges the significant impact of AI/ML on improving the efficiency and effectiveness of risk management programs in the financial sector. The published principles emphasize the need for appropriate data ethics in using these technologies to ensure fair, effective, and explainable outcomes. The document outlines five elements for responsible AI/ML use: legitimate purpose, proportionate use, design and technical expertise, accountability and oversight, and openness and transparency.

Financial Compliance: AI ethics

The Wolfsberg Group, an alliance of global banks, has issued guidelines for ethically deploying AI and machine learning in financial crime compliance. These technologies are recognized for their role in optimizing risk management in finance.

GrandAlessandro Micagni

The Single Resolution Board (SRB) has published new guidance on liquidity in resolution data for 115 of Europe's largest banks. This guidance builds on the SRB's previously issued "Expectations for banks" and aims to enhance banks' resolvability and preparedness for potential resolutions. Liquidity is a crucial element in ensuring a bank's resolvability. The guidance focuses on three objectives: improving banks' internal frameworks, governance, and management information systems; ensuring banks have developed capabilities to report a predefined set of data points on their liquidity situation; and expecting banks to implement remedial actions to address any deficiencies in their capabilities to provide these data points. SRB Chair, Dominique Laboureix, emphasized the importance of having the right information about liquidity to achieve the SRB's goals of swiftly dealing with troubled banks, providing confidence to the market and consumers, and avoiding the use of taxpayer funds.

Single Resolution Board: EU Banks Liquidity Framework

SRB issued new liquidity data guidelines for 115 large European banks, enhancing resolvability. The focus is on refining frameworks, ensuring data reporting capabilities, and addressing deficiencies.

GrandAlessandro Micagni

Read More

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Risk Management For Financial Stability

Raimund Röseler emphasized risk management for financial stability, focusing on interest rate and commercial credit risks. Effective management tackles rate fluctuations, while close supervision mitigates loan default risks in high-risk banks.

GrandAlessandro Micagni

[2]

EU Regulatory framework changes: Supervisory Reporting

The EBA has revised the ITS on supervisory disclosures, updating it in line with EU legal changes, especially for supervisory reporting and investment firms. Aimed at boosting data quality and comparability, it seeks to enhance market transparency.

GrandAlessandro Micagni

[3]

EU new Anti-Money Laundering Regulatory Framework

EU plans new anti-money laundering framework: strengthens laws, protects citizens’ rights. Banks to conduct thorough customer due diligence to combat money laundering and terrorism financing. Proposed changes: new EU authority, risk-based regulation.

GrandAlessandro Micagni