Posted by Craig Brown, Deloitte Advisory managing director, Deloitte & Touche LLP, on June 2, 2016
As large foreign banking organizations (FBOs) prepare for the July 1, 2016 compliance date to establish their intermediate holding companies (IHCs) under Regulation YY, regulatory reporting has become a key area of focus. Regulators have increased their expectations with respect to governance, controls, data, and ownership over reporting, especially in connection with the FR Y-14 reports related to capital assessments and stress testing. Although many IHCs will be subject to certain of the Federal Reserve Board’s (FRB) regulatory reports for the first time, these firms should be prepared to meet regulators’ heightened expectations across their US operations.
On May 31, 2016, the FRB finalized the initial application of several regulatory reports to IHCs—including the FR Y-14 series, the FR Y-9C (Consolidated Financial Statements for Holding Companies), and the FR Y-15 (Banking Organization Systemic Risk Report)—beginning with the reporting period ending on September 30, 2016. In addition, IHCs must comply with the information collections associated with applicable regulatory capital rules beginning on the July 1, 2016 IHC compliance date.
Although the FRB adopted the regulatory reporting framework for IHCs largely as proposed in February 2016, there are certain key changes and clarifications that IHCs should understand now.
Major changes from proposal
CFO attestation requirement not yet applicable
Importantly, the FRB clarified that the CFO attestation requirement under the FR Y-14 series has not yet been proposed for IHC subsidiaries of FBOs that are part of the Large Institution Supervision Coordinating Committee (LISCC) portfolio.
This clarification comes in response to industry feedback suggesting that any CFO attestation requirement applicable to IHCs of LISCC FBOs should apply no sooner than December 31, 2017, with the same transition period and allowances set forth in the final rule for US bank holding companies (BHCs) (e.g., that the initial attestation will relate solely to the effectiveness of internal controls rather than with respect to the submissions throughout the year).
The FRB noted that it will consider the industry’s comments in any future proposal to apply the attestation requirement to these IHCs.
Some relief under FY Y-14 series
Although the FRB adopted the requirement for IHCs to report pre-provision net revenue (PPNR) information from 2009 to present on the FR Y-14Q report, it acknowledged the challenges in providing such data. Accordingly, it will consider requests to modify the requirement to report financial data for previous years or extend the time period to report historical data on the FR Y-14 series on a case-by-case basis.
In addition, the FRB decided not to adopt the proposed requirement that IHCs filing the FR Y-14 series for the first time submit historical industry market size information.
Extension of filing deadline for initial FR Y-15
The FRB also extended the filing date for the first FR Y-15 report until December 5, 2016 (i.e., 65 days after the September 30, 2016 as-of date) for all IHCs, including an existing BHC designated as an IHC, and will allow institutions that have not previously filed the report to file “reasonable estimates,” consistent with the instructions.
Additional reporting requirements forthcoming
In addition to pending proposals to apply the FFIEC 009/009a (Country Exposure Report/Country Exposure Information Report) and aspects of the FFIEC 101 (Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework) to IHCs, the FRB noted that the FFIEC intends to seek public comment on a proposal to apply the FFIEC 102 report to IHCs.
The FRB also issued a proposal to amend the FR Y-10 to include the IHC organization structure, but the filing would be made by the FBO parent of the IHC.
Comments on the three pending proposals are due in June 2016.
Regulatory capital reporting
The FRB clarified that the FR 4200 and FR 4201 requirements are the information collections that are embedded within the regulatory capital requirements, and do not impose reporting, recordkeeping, or disclosure requirements beyond those already applicable to IHCs under Regulation YY.
FR Y-9C and FR Y-11
In response to requests for guidance on how IHCs should report formation of the IHC for purposes of the FR Y-9C, the FRB notes that an FBO with an existing BHC that it designates as the IHC should reflect any issuance of the stock to be treated as a sale for purposes of the FR Y-9C report.
Conversely, an FBO that creates a new IHC above an existing BHC should treat the creation of the US top-tier holding company as a reorganization for purposes of line item 6a on Schedule HI-A of the FR Y-9C report, and an IHC without an insured depository institution should treat the item as though it were a de novo filer.
With respect to line item 1 of Schedule IS-A of the FR Y-11 report, the IHC should carry forward the entry from the line item reported for the end of the previous calendar year on the FR Y-7N report, Schedule IS-A, including adjustments from amended income statements, for example.
Although the FRB decided to delay the application of the CFO attestation requirement to IHCs of LISCC FBOs, these institutions should expect to be subject to the requirement in the future, and should continue to enhance their processes and controls related to the FR Y-14 reporting series.
In addition, IHCs should continue to monitor and analyze the finalization of the three outstanding regulatory reporting proposals, as well as the forthcoming proposal to apply the FFIEC 102.
As further developments occur, Deloitte Advisory will issue additional updates as appropriate.
For more information on the reporting requirements, please click here.