More than five months since the Federal Reserve (Fed) issued its final Enhanced Prudential Standards (EPS) for foreign banking organizations, a considerable number of critical questions remain unanswered despite guidance from regulators. The June 26th publication of frequently asked questions (FAQs) primarily repeated or reinforced the EPS rule’s text; however, some additional clarity on key issues such as the level of detail needed for FBOs’ required implementation plans was provided.
We believe the key takeaway is that details matter – both in what has been explained by the Fed and what has yet to be clarified. The Fed expects a cogent and comprehensive discussion of EPS implementation by foreign banking organizations (FBOs) that includes a detailed assessment and a roadmap for how firms will comply with all aspects of the EPS (including structural, capital, liquidity, and risk management requirements). The implementation plan will need to reflect FBOs’ planned and underway efforts to develop and implement more robust management information systems (MIS) that support risk and finance data aggregation, regulatory reporting, and stress testing.
On the other hand, there are still a number of specifics that the Fed has yet to clarify and communicate, particularly regarding the implementation of the intermediate holding company (IHC) and transfer of subsidiaries to meet the July 1, 2016 effective date, and how the creation of the IHC may impact the bank holding company’s stress testing obligations.
This Regulatory Brief analyzes the FAQs, incorporating approaches taken by FBOs across the industry, and suggests actions that firms should be taking now.