Recent developments in Brazilian financial regulation

neiNei Schilling Zelmanovitsnei, a partner at Brazilian law firm Machado Meyer, reviews the changes to financial sector regulation in Brazil since the financial crisis. He focuses on the implementation of the Basel 3 capital standards, anti-money laundering rules, and suitability requirements. The piece was published in the latest issue of Global Banking & Financial Policy Review.

Read the full article here.

Banking can learn from insurance on systemic risk

0ca3a49e-f02b-4ea7-8a10-0039e5789a30Insurers are shrinking their balance sheets and divesting business to escape systemically important status, and so should banks, argues Patrick Jenkins in the FT.

“When Italy’s Generali managed to get itself off the global list of systemically important insurance companies in November, there were cheers in Trieste.

Removal from the nine-strong list of insurers, deemed systemically important financial institutions (Sifis), meant a huge administrative problem evaporated. So did the prospect of tougher Sifi capital requirements from 2019. Generali’s secret had been to shrink and simplify its business. First it sold its US life reinsurance business to France’s Scor. Then it sold Swiss private bank BSI to Brazil’s now troubled BTG Pactual.

The moves convinced regulators at the Financial Stability Board that Generali was no longer a global Sifi (replacing it with another European insurer, Aegon).
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Basel 3’s capital requirements for market risk

Basel_-_Bank_für_internationalen_Zahlungsausgleich1The Basel Committee on Banking Supervision has issued the revised minimum capital requirements for market risk, a major component of the Basel 3 capital standards.

“The key features of the revised framework include:

– A revised boundary between the trading book and banking book;

– A revised internal models approach for market risk;

– A revised standardised approach for market risk;

– A shift from value-at-risk to an expected shortfall measure of risk under stress; and

– Incorporation of the risk of market illiquidity.”

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Basel 3’s new market risk framework and leverage ratio requirements endorsed


The Basel Committee’s governing body has endorsed Basel 3’s new market risk framework and leverage ratio requirements.

“Notable improvements in the new risk framework, which takes effect in 2019, include:

– A revised boundary between the banking and trading books that will reduce scope for arbitrage;

– A revised internal models approach with more coherent and comprehensive risk capture;

– An enhanced model approval process and more prudent recognition of hedging and portfolio diversification; and

– A revised standardised approach that serves as a credible fall-back and floor to the model-based approach, and facilitates more consistent and comparable reporting of market risk across banks and jurisdictions.


The [Group of Central Bank Governors and Heads of Supervision (GHOS)] also discussed the final design and calibration of the leverage ratio. Members agreed that the leverage ratio should be based on a Tier 1 definition of capital and should comprise a minimum level of 3%, and they discussed additional requirements for global systemically important banks.”

Read the full press release here.

China’s cabinet to have greater financial supervision role

Poor coordination among China’s banking, securities and insurance supervisors has prompted the authorities to consider unifying financial sector supervision under a single watchdog, while the central banks is trying to increase its role in macroprudential supervision, Reuters reports.

“After last summer’s stock market crash was blamed in part on poor coordination between financial regulators, sources said China was considering merging its banking, insurance and securities watchdogs into a single ‘super-commission’.

This month’s renewed stock market turmoil has made it more urgent to unify China’s regulatory system to restore confidence in markets and ward off financial risks.”

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EU and US securitisation split worries investors

Different regimes for “simple, transparent and standardized” securitizations are being considered by the EU, the United States, and the Basel commitee, the FT reports.

e0e1b85e-b216-4e9d-8437-8eeac71d8437“The European Commission’s plan to boost the continent’s securitisation market through regulatory changes is causing concern over market fragmentation.

Brussels is in the process of introducing measures for ‘simple, transparent and standardised’ (STS) securitisations. These aim to provide greater visibility, reduce capital charges for investors, and revive a market that has struggled in Europe since the financial crisis.”

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