FRB proposes amendments to FR Y-14 reports, CFO attestation requirement for LISCC IHCs

Posted by Dmitriy Gutman, Advisory Managing Director, Deloitte & Touche LLP, Irena Gecas-McCarthy, Advisory Principal, Deloitte & Touche LLP,  Chris Spoth, Advisory Managing Director, Deloitte & Touche LLP, Ken Lamar, Independent Senior Advisor to Deloitte & Touche LLP,  and Alex LePore, Advisory Senior Consultant, Deloitte & Touche LLP on July 29, 2016

Less than a month after large foreign banking organizations (FBOs) established their intermediate holding companies (IHCs), the largest of these firms must now prepare to meet a new requirement: an attestation by their CFOs to the accuracy of their reports for capital assessments and stress testing.

On July 28, 2016, the Federal Reserve Board (FRB) published a proposal1 in the Federal Register that, among other changes, would amend the FR Y-14A/Q/M reports to apply the CFO attestation requirement to IHCs in the FRB’s Large Institution Supervision Coordinating Committee (LISCC) portfolio beginning with the reports as of December 31, 2017 and becoming fully effective with the reports as of December 31, 2018.

Earlier this year, the FRB applied this requirement to US bank holding companies (BHCs) in the LISCC portfolio, reflecting its ongoing concerns with data quality, governance, controls, and accountability over reporting.  The extension of this requirement to IHCs—which have not yet participated in the FRB’s annual Comprehensive Capital Analysis and Review (CCAR) program and related stress tests—is a further indication of increased regulatory expectations on accuracy and control environment for these data.

Although the FRB previously announced2 its intent to apply the attestation requirement to LISCC IHCs, these firms should carefully analyze the contents of this proposal and understand what processes and systems they need to have in place in order to comply.

In addition, all firms that file the FR Y-14A/Q/M reports—both IHCs and US BHCs—should be aware of other proposed changes to various schedules.

CFO attestation

Importantly, the FRB would use a similar phased-in implementation approach as it did for US BHCs, which it believes would allow LISCC IHCs to develop internal processes, procedures, and make the necessary system changes to fully implement the requirement.

Specifically, the proposal would establish phased-in requirements as follows:

  •  December 31, 2017: Attest to effectiveness of internal controls over submissions for the as-of date (would not include an attestation to submissions throughout the year)
  • January 31, 2018: Attest to conformance with the FR Y-14 instructions and to the material correctness of data, and agree to report material weaknesses and material errors in the data
  • December 31, 2018: Attest to effectiveness of internal controls throughout the previous year

The FRB acknowledges that the attestation requirement may require respondents to enhance certain systems and processes, including enhancing information technology infrastructure and adding or modifying internal control frameworks and data governance committees to include accountability and escalation processes.  Respondents may also need to increase the frequency of audits of internal controls over the FR Y-14A/Q/M reports.

In addition, the FRB notes that firms subject to the requirement are expected to have a policy in place for determining materiality in the context of attesting to material correctness and internal controls, which should include a robust analysis of quantitative and qualitative considerations.

Other proposed changes

In conjunction with the CFO attestation, the FRB proposed several changes to the FR Y-14A/Q/M reports that would be effective a year earlier, December 31, 2016, including the following.

Capital adjustments and distributions

The FRB would require firms electing to undertake planned capital adjustments or incremental capital distribution requests to provide updated submissions reflecting these adjustments.

The requirement would include two parts:

  1. for planned capital actions, an updated Schedule A.1.d. (Summary, Capital—CCAR) for the BHC Baseline, Supervisory Adverse, and Supervisory Severely Adverse scenarios and an updated Schedule C (Regulatory Capital Instruments), and
  2. for incremental capital action requests, a resubmitted Schedule C.

Supplementary Leverage Ratio (SLR)

Given that firms will be required to estimate their SLR for the CCAR cycle beginning January 1, 2018, the FRB proposes adding SLR items to the FR Y-14A report.

Operational risk

The proposal would also amend the FR Y-14A Schedule E (Operational Risk) to align with expectations contained in recent supervisory guidance, including SR Letter 15-18.

In order to capture information related to the risk management infrastructure and processes as outlined in SR Letter 15-18, the FRB would add two sub-schedules to collect information on:

  1. a firm’s material operational risks included in loss projections based on their risk management framework, and
  2. a firm’s operational risk scenarios included in the BHC Baseline and BHC Stress projections.

Next steps

The proposed amendments to the FR Y-A/Q/M reports are subject to a public comment period that ends on September 26, 2016.

IHCs and US BHCs should analyze the proposal and submit comments, either individually or through industry trade associations, as appropriate.

As further developments occur, Deloitte Advisory will issue additional updates as appropriate.

For more information on the FRB’s proposal, please click here.


1Federal Reserve System, “Proposed Agency Information Collection Activities; Comment Request,” 81 Fed. Reg. 49653 (July 28, 2016), available at https://www.gpo.gov/fdsys/pkg/FR-2016-07-28/pdf/2016-17876.pdf.
2Federal Reserve System, “Agency Information Collection Activities: Announcement of Board Approval Under Delegated Authority and Submission to OMB,” 81. Fed. Reg. 35016 (June 1, 2016), available at https://www.gpo.gov/fdsys/pkg/FR-2016-06-01/pdf/2016-12867.pdf.

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