Regulatory

Toolkit: A look

ahead Ruth Wandhöfer

Global Head of Regulatory & Market

Strategy

May 11, 2015

Treasury and Trade Solutions

Subtitle

Agenda

3

1. Current global banking environment

2. Upcoming regulatory developments and how Citi can help you navigate change

3. Impact to corporates

1. Current Global Banking Environment

The Regulatory Environment Continues To Evolve

A safer banking system comes at a cost in terms of sector profitability and growth opportunities. Capital efficiency

is key. Investors pressure will drive banks to make better capital allocation decisions.

Regulatory Pressure Across Geographies Regulation

Litigations

FX

LIBOR fixing

Money

laundering Tax evasion

Sanctions PPI

Ring-fencing

MIFID 2

Basel III

TLAC &

MREL

Stress tests

Dodd-Frank

Volcker rule

TLAC

Resolution Living Wills

2014

2013

2012

2011

4.0

4.0

4.1

4.0

Americas

2014

2013

2012

2011

3.9

4.2

4.0

41

EMEA

2014 2014

2013

2012

2011

2.2

2.8

2.9

3.1

APAC

4.1

1

2

3

4

5

Low

Regulatory

Pressure

High

Regulatory

Pressure

Implications for Banking Models

Raising cost of regulation and compliance for cross-border

banking

Shift towards simplicity and transparency of business models

Re-focusing business models:

– Domestic focused vs. regional networks

– Fee business vs. balance-sheet usage

Reduced financial flexibility and trapped capital of traditional

models

Deploy resources in businesses in regions where competitive

Resulting in Higher Levels of Capital & Liquidity

Leverage ratio

RWA floors

Pillar 2

ECB harmonisation

IFRS 9

TLAC / MREL

Banks using capital strength as

competitive advantage

Many banks trying to offset

removal of state support with sub

debt

Regulatory – direction of travel still upwards

Market Ratings

Overall Implications

“Best-in-class” capital structures still rising

– CET1: 12+% (previously 10+%)

– Total capital: 17-22% (previously 15-20%)

Some banks/business lines may struggle to make an acceptable RoE at these levels

Higher CET1 levels make capital efficiency even more important => full use of AT1 / T2

Ringfencing / subsidiarisation brings many challenges but will also highlight the benefits of diversification

2. Upcoming regulatory developments and how Citi

can help you navigate change

Upcoming regulatory developments 2016

G20 / Global

China holds the presidency

Focus on financial inclusion

EU

The Netherlands gained the 6-month Presidency of the Council of the European Union on 1

January 2016

Priorities include:

Progressing the measure required to complete the Banking Union

Capital Markets Union (CMU) initiative and corresponding regulations on securitisation

and a revised Prospectus Directive

Addressing ‘too big to fail’; progressing the negotiations on the Bank Structural Reform

Regulation; new legislative proposal on recovery and resolution of central

counterparties to be launched (by the European Commission)

Commencing dialogue negotiations on the directive on institutions for occupational

retirement provision IORP II

FTT directive may also be addressed

Tax evasion and tax avoidance including a new proposal for the conversion of the

OECD BEPS measures into EU legislation

Global Regulatory Overview April 2016

Upcoming regulatory developments 2016-2019

Global Regulatory Overview April 2016 8

Regulatory Market Watch for Corporates (latest update Feb 2016 and next update scheduled for

publication May 2016)

Global Regulatory Guide for Corporates (latest update 2015/2016)

Webinars and thought leadership articles as well as ongoing press publications.

1:1 presentations at your request

Navigating the regulatory environment

Regulatory thought leadership and client communications to help you keep on top regulatory change

3. Impact to corporates

Regulatory Focus Themes for 2016 and impacts (1/2)

On-going regulatory reform across banking sector continues to impact corporate

landscape

General Risk of overlaps and inconsistencies in regulatory developments across the globe: triggers concerns around non-level-

playing field; fragmented approach challenges global operating model of banks as well as global corporations

• Prudential Reform/Basel III: the combination of capital, leverage ratio and short/long-term liquidity requirements for banks

translates into more granular and focused balance sheet management, where corporate deposits and loans continue to be

impacted. Long-term (+365 days) corporate deposits and shorter term corporate loans as well as dealing with highly credit

rated counterparties will be more attractive for banks. Further reforms to the Basel III framework are underway (emergence of

‘Basel IV’) e.g. leverage ratio consultation, which corporates and their banking partners need to be mindful of. The focus of the

BCBS has moved beyond capital. For 2016 onwards, the BCBS will focus on 3 areas to complement the Basel III framework: 1

Improved corporate governance and culture 2. IT systems / infrastructure with a focus on risk data aggregation and risk

reporting and 3. Effective stress-testing

Structural Reform, Ring-fencing and Recovery & Resolution Planning (RRP): Ring-fences, local capital/liquidity dispositioning

and challenges on implementation of internationally agreed RRP models creates questions around availability and cost of

global network based services, such as liquidity/cash management/trade finance. Key message to regulators focusses on

importance of global transaction banking services to the real economy. We are also anticipating new RRP rules for central

counterparties.

Global Taxation measures (OECD): Focus on removing global corporates’ ability to shift profits into low tax jurisdictions. Key

to have decision making/treasury in location where tax applies. Further exacerbates the fragmented regulatory landscape due

to reliance on domestic implementation.

EU Tax transparency: New EU directive (issued 04/2016) requires multinational companies operating in the EU with global

revenues exceeding EUR 750 million a year to publish key information on where they make their profits and where they pay

their tax in the EU on a country-by-country basis. The same rules would apply to non-European multinationals doing business

in Europe. In addition, companies would have to publish an aggregate figure for total taxes paid outside the EU. This new

directive places additional compliance burdens on corporates.

Regulatory Focus Themes for 2016 and impacts (2/2)

On-going regulatory reform across banking sector continues to impact corporate

landscape

Payment Specific measures:

Ongoing evolution of European payments legislation with Payment Service Directive 2 – consumer protection enhancements with

focus on ensuring corporate flexibility. 2016 is the year of development of Level 2 measures and Citi is in the driving seat both in

terms of advocacy and in drafting implementation guidance for firms

SEPA implementation phase one completed in summer 2014 – efforts continue to enhance harmonization across borders and

ongoing work on development of SEPA Instant Payments Scheme (to be delivered in 2017).

Derivatives Clearing/Trading: Alliance between the US/European regimes has finally picked up pace following agreements

reached in February 2016

Annex - Global Calendar Glossary

Global Regulatory Overview April 2016 13

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