Market News

We recently published our regulatory roadmap for insurance and pensions, where amongst other regulations, we addressed the Wet toekomst pensioenen (Wtp). Yesterday, the news has come out that pension providers are granted additional time to transition to the new pension system.  Due to growing concerns among both pension funds and parties in the Senate, the new transition deadline has been set to the 1st of January 2028. Last Monday, several parties expressed their fears that the implementation of the new pension system could end poorly due to the tight deadline. ICT problems, staff shortages and administrative pressure could lead to problems at the pension providers. Minister Carola Schouten will remove the exact year from the law so that it can easily be amended if necessary. The deadline will for now be set at January 2028, but could be changed in the meantime.   We foresee that existing running programs may take this opportunity to slow down the pace of implementation, which would not be advisable. As resource allocation remains a challenge, it is essential that pension providers ensure and optimize their capacity to effectively execute this large program. The new deadline is there to grant providers the time to set up a structured and high-quality programme to meet this complex transition.  A crucial vote on the act is scheduled for Tuesday, May 30, which will determine the fate of the Wet toekomst pensioenen. If the act passes, it will mark the conclusion of years of debate.

At FiSer, we always bring topics for discussion, and today we talk about ISO 20022. The ISO 20022 is a new global payment standard of the future, and it’s about migration from old fashioned MT format to the new MX format. This standard will bring order to a current disjointed payments landscape and eventually enables interoperability across the global payment industry, including SWIFT and major payment market infrastructures such as T2, EBA, and CHAPS. High-level ISO 20022 implementation roadmap: – Migration to new MX format: March 2023 till November 2025 – Coexisting period (MT/MX)both formats will be accepted and supported on the SWIFT network until 2025, when ISO 20022 will become a globally recognized standard. The first key date is 20 March 2023 (as per revised ECB and SWIFT timelines), and it’s quickly approaching. So, are you ready to go live? Yes, and probably not at the same time. The migration approach is different among banks. Some (very few) banks will migrate immediately, while others will wait. It is not a “one size fits all” situation. Such change of substantial magnitude is a painful and expensive exercise impacting customers, payment and reporting product offering, IT/non-IT, operations, risk, and compliance. There are differences in objectives across banks; can you afford bare minimum compliance or use the momentum to unlock new business opportunities? It is a critical time to shape the future of your payment business and a difficult choice to make. Here is how FiSer Consulting can help you to drive this regulatory change and make the most out of it: – Implement by setting up a foundation of your future payment platform: e.g., centralize payment infrastructure and decommission obsolete elements of it – Maximize value from new MX payment data: generate richer and better-structured data for data consumers – Ensure operational readiness – staff training, work instructions update, risk assessment, and mitigation – Accelerate digital – transform your payment platform to make it scalable and cloud-native

With the start of a new year, the European Commission prepares for the next phase of the European Single Market, which has its 30th anniversary this year, with further efficiency improvements within the Capital & Securities Markets. In December the European Commission (“the Commission”) published a Capital Markets Union Clearing Package, which includes, among other measures, a proposal for a review of the European Market Infrastructure Regulation (“EMIR review proposal”) also called EMIR 3. (https://lnkd.in/ekmP6pfV). Also in December, the EU member states settled their negotiating position on a proposed update of the central securities depositories regulation (CSDR). The planned review will make EU securities settlement more efficient by simplifying requirements and clarifying authorisation processes among other things. (https://lnkd.in/e7JjjEZx) The proposed reviews and updates of these regulations will also impact the position of depositories and clearing institutions between the EU and the UK especially with the encouragement for the transfer of more Euro clearing from the UK to EU CCPs.

With the publication of the final Interest Rate Risk in the Banking Book (IRRBB) standards https://lnkd.in/eMHGMZkT the embedding of the Basel standards into EU Law has been completed. The initial Basel (BCBS) Standards on IRBBB were published in April 2016 and have been developing over the years. Given the recent macro-economic climate, with increasing interest rates and inflation, the European Central Bank has also indicated that addressing sensitivities in interest rates and credit spreads is a supervisory top priority for the coming years. The implementation and embedding of the new regulation in the banking sector often require change management across multiple (agile) departments within the financial institution. FiSer Consulting specialises in firm-wide strategic implementation and change management to, amongst others, assure the timely implementation of the new regulation.

The Governing Council of the European Central Bank (ECB) has decided to reschedule the launch of the new Target 2 real-time gross settlement (RTGS) system and its central liquidity management model from 21 November 2022 to 20 March 2023. In view of the current geopolitical conditions and volatile financial markets, the additional four-month period allows users more time to complete their testing in a stable environment, ensures user readiness, as well a smooth transition to the new platform; taking into consideration that the Eurosystem will provide all the necessary support to market participants during their final preparations. This will have a large impact on the MX Migration roadmap of the global financial industry, as there are a number of other migrations planned in 2023 that potentially need to move. You can read more about it here https://lnkd.in/eGPFWbSU

On October 5th, the EU Council’s Committee of Permanent Representatives endorsed the final compromise texts of the Markets in Cryptoassets Regulation (MiCA) and the recast Regulation on information accompanying transfers of funds and certain cryptoassets. This is the next step in finalising the legislative procedure for the regulation. The next steps are formal approval by, first the EU Parliament plenary and then by the Council before they can be published in the Official Journal. The steps in the legislative process can be found here https://lnkd.in/eXJNUz3g MiCA establishes a framework that regulates the work of issuers of unbacked crypto assets, stablecoins, trading platforms, and wallets in which crypto assets are held. MiCA regulates issuers and service providers of crypto-assets, as well as it features rules with regard to market abuse. It is intended to harmonize the EU market, create regulatory certainty, improve customer protection and strengthen financial stability. The Transfer of Funds Regulation (TFR) is part of a package of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules, presented by the Commission on 20 July 2021, and will become applicable once MiCA does. The TFR compliments MiCA by adding an anti-money-laundering layer to the user protection offering of the MiCA proposal.

As we bring in-depth industry knowledge on Payments, Banking, and Insurance & Pension practices, we want to highlight an important topic going on in the Banking market which relates to how the Digital Euro Project has started the prototyping exercise. As part of the investigation phase of the digital euro project, which started in October 2021, the ECB has selected five companies (Amazon, CaixaBank, Worldline, EPI, Nexi) for the joint prototyping exercise https://lnkd.in/dhYKFBye . The aim of this prototyping exercise is to test how well the technology behind a digital euro integrates with prototypes developed by these companies. Simulated transactions will be initiated using the front-end prototypes developed by the five companies and processed through the Eurosystem’s interface and back-end infrastructure. The prototyping exercise is expected to be completed in the first quarter of 2023. Prototyping is an essential element in (digital) transformation strategies as it will save time, money and effort in the long run. It allows for quick feedback rounds and to test and review real-life product cases in the early stages of strategic transformations. In this way prototyping helps to define and refine the route to a successful transformation. The strategic objective of a digital euro issued by the Eurosystem would be to provide a monetary anchor in the digital age, serving as a public good. It could foster innovation, increase the efficiency of payments, and support the overall economic efficiency of the European Union.

The European Commission has adopted on Oct 27th a review of EU banking rules (the Capital Requirements Regulation and the Capital Requirements Directive). These new rules will ensure that EU banks become more resilient to potential future economic shocks, while contributing to Europe’s recovery from the COVID-19 pandemic and the transition to climate neutrality. The Commission proposes to give banks and supervisors additional time to properly implement the reform in their processes, systems and practices, and start applying the new rules from 1 January 2025. The extended implementation period will allow banks to focus on managing financial risks stemming from the COVID-19 crisis and on financing the recovery, and give them enough time to adjust before the reform reaches its full effect. More on: https://lnkd.in/dY2dar4U

ISO 20022 is an emerging global and open standard that impacts SWIFT cross-border payments and cash management messaging. Processes and value chains in financial services often cover different geographical and business areas. The proliferation of different messaging standards in the financial industry creates problems in automating these end-to-end chains. ISO20022 aims to resolve this issue as it improves end to end processing across domains and geographies that currently use vastly different standards and information formats. It is supported by a central repository, which includes a data dictionary and a catalogue of messages – and is accessible to all. This move will relieve institutions in a payment processing chain of the obligation to pass on complete data. Transitioning to ISO 20022 definitions and structures will improve transaction data quality. While centralised orchestration, translation and protocol mediation services will enable institutions to continue with the formats and protocols they use today, and to implement ISO 20022 at their own pace without impacting the rest of the community; institutions will benefit immensely by investing to build the necessary expertise and capacity to plan for a smooth yet inevitable transition. From the end of 2022 the MT standard will be supported for backward compatibility purposes only. New developments will be based on ISO 20022 data, and will require institutions to implement structured data capabilities. Fiser Consulting understands that moving to ISO 20022 is a significant undertaking, and provides assurance for delivery of a complex yet effective transformation strategy for your institution. Click here for more detailed information on Swift ISO20022 adoption.

On April 19th, 2021, ECB published the results of the Targeted Review of Internal Models (TRIM), summarising findings and follow-ups of this multi-year project. The TRIM review covered internal models for credit, market, and counterparty credit risk. Given that there are many internal models operating in banks, ECB focused on those significantly material and critical for risk-weighted assets (RWA) calculation. In the last few years, ECB Banking supervisory conducted 200 on-site investigations in 65 significant banks with internal models in place and identified over 5,000 findings. “This large-scale exercise, the ECB’s biggest project ever, contributes to a level playing field in European banking by ensuring internal models are reliable and their outcomes are comparable,” said Andrea Enria, Chair of the ECB’s Supervisory Board, quoted by ECB’s official press release. “It confirms that consistently implementing internal models is possible even within a supervisory area as large as the banking union. Banks are following through to correct deficiencies and fully comply with the requirements. Our guide to internal models will support them in that respect.” In total, TRIM leads to a 12% increase in RWA, approximately €275 billion growth equivalent. That is, TRIM identified that more risks in significant institutions than estimated. According to ECB’s report, the Common Equity Tier 1 ratio of banks using internal models declined on average by about 70 basis points due to TRIM over 2018-2021. In 2016, European Central Bank (ECB) launched the Targeted Review of Internal Models (TRIM) to raise concerns over the non-risk-based variability of the model outputs used for regulatory capital requirements calculation. Capital requirements are highly associated with a bank’s ability to react to unfavourable risks. Banks using the Advanced Internal Model Approach (A-IRB), which consist of more variables than its counterpart, usually are entitled to less requirement. The TRIM aims to ensure that the internal models used by supervised entities are reliable and comparable – differences in outputs occur only when the underlying risks, which are led by the difference in portfolio composition, are different. In practice, remediation plans requested by TRIM Obligations are strongly linked to a bank’s ability to initiates changes within the organisation. Changes could range from policy establishment to on-site execution to documentation. As credit risk modelling is one of the most data-intensive domains in banking operations, many changes requested by TRIM Obligations touch upon issues regarding data quality and storage. Because the massive number of changes should be implemented within the regulatory timeline, the bank needs to ensure even tighter collaboration across the organisation, bringing more challenges during execution. A clear example is that in the pandemic time, more cross-organisational alignments are needed given a drastic increase in remote working. As a consulting firm highly aware of changes in the financial sectors, we indeed see that ECB’s launch of TRIM has driven financial institutions towards a big load of changes in the risk management domain. With our proven and extensive record in driving transformation, we believe that we can add much value to our financial institutional clients, helping them firmly address challenges in their remediation plans implementation.   For more details of ECB’s TRIM report, please check the original article.