Prudential Regulation & Supervision

AFME covers the full range of capital and liquidity regulation, including micro- and macroprudential regulation. This is also often referred to as “Pillar 1” under the second Basel accord (Basel II). We support members and policy makers across all relevant risk types, for example, market risk, credit risk, liquidity risk, operational risk, as well as risks stemming from financial innovation. We also look at key issues such as the leverage ratio, large exposures, the definition of own fund instruments, macroprudential issues and financial stability. We also follow policies relating to market access and market structure, e.g. bank branches and subsidiarisation in the EU and UK.

Banking supervision, supervisory assessments and the definition of the capital stack are an integral part of the Basel regime, and are commonly referred to as the second pillar under the second Basel accord (Basel II). 

In this area, AFME:

1. supports members in navigating their relationship with supervisors, for instance in facilitating communication and transparency in the Supervisory Review and Evaluation Process (“SREP”) ;
2. assessing and providing feedback on supervisory policies and guidelines; 
3. advocating for holistic consideration of all relevant components of the “capital stack”, including regulatory capital, supervisory capital and macro-prudential capital requirements across national and international frameworks and public authorities.

Recovery and resolution regimes in the EU and UK were set up after the great financial crisis to strengthen confidence in the banking system and ensure long-term financial and economic stability. Crisis prevention and preparation are important aspects under the EU’s Bank Recovery and Resolution Directive (BRRD) and the UK’s Resolution Regime. The regimes require firms and resolution authorities to plan for effective resolution of an institution in the event of future failure. Therefore, work to ensure resolution objectives are achieved include: ensuring the continuity of critical functions, avoiding any significant adverse effects on the financial system and protecting public funds. AFME supports its members in advocating for rules that strike a good balance between safeguarding public interest and proportionate, risk-based requirements for banks.

Non-bank financial institutions (NBFIs) play an important role in the financial system. Banks and NBFIs engage with each other across a wide range of transactions. For example, typical counterparties for banks can be investment and pension funds, as well as insurance companies and broker-dealers. Banks’ exposures to NBFIs include traditional credit facilities, such as credit lines and fully collateralised short-term wholesale loans. Banks also engage with private credit providers via shared loans and / or funding. Given the nature of the risks stemming from the interaction of banks and non-banks, regulators and supervisors are increasingly looking at the NBFI sector as a priority and its implications for the financial system and real economy. AFME supports its members in facilitating a better understanding of the risks and vulnerabilities across stakeholders. AFME advocates for the review of the regulatory framework for non-banks to ensure that emerging risks are addressed proportionally, whilst carefully considering the impact that any changes will have on the wider banking sector.