ING Direct 2013 Annual Report Download - page 361

regulations may conflict with one another, or where regulators revise their previous guidance or courts overturn previous rulings, which
could result in our failure to meet applicable standards. Regulators and other authorities have the power to bring administrative or judicial
proceedings against us, which could result, among other things, in suspension or revocation of our licenses, cease and desist orders, fines,
civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of operations and financial condition.
If we fail to address, or appear to fail to address, any of these matters appropriately, our reputation could be harmed and we could be
subject to additional legal risk, which could, in turn, increase the size and number of claims and damages brought against us or subject us
to enforcement actions, fines and penalties.
Basel III
In December 2010, the Basel Committee on Banking Supervision (‘Basel Committee’) announced higher global minimum capital standards
for banks and introduced a new global liquidity standard and a new leverage ratio. The Basel Committee’s package of reforms, collectively
referred to as the ‘Basel III’ rules, will, among other requirements, increase the amount of common equity required to be held by subject
banking institutions, prescribe the amount of liquid assets and the long-term funding a subject banking institution must hold at any given
moment and limit leverage. Banks will be required to hold a ‘capital conservation buffer’ to withstand future periods of stress such that
the total Tier 1 common equity ratio, when fully phased in on 1 January 2019, will rise to 7%. Basel III also introduced a ‘countercyclical
buffer’ as an extension of the capital conservation buffer, which would allow national regulators to require banks to hold more capital
during periods of high credit growth (to strengthen capital reserves and moderate the debt markets). Further, Basel III has strengthened
the definition of capital that will have the effect of disqualifying many hybrid securities, including those issued by the Group, from inclusion
in regulatory capital, as well as the higher capital requirements for trading, derivative and securitisation activities as part of a number of
reforms to the Basel II framework. In addition, the Basel Committee and the Financial Stability Board (‘FSB’) published measures in October
2011 that would have the effect of requiring higher loss absorbency capacity, liquidity surcharges, exposure limits and special resolution
regimes for, and instituting more intensive and effective supervision of, ‘systemically important financial institutions’ (‘SIFIs’) and so-called
‘Global’ SIFIs (‘G-SIFIs’), in addition to the Basel III requirements otherwise applicable to most financial institutions. The implementation of
these measures began in 2012, and full implementation is targeted for 2019. ING Bank was designated by the Basel Committee and the
FSB as one of the global systemically important banks (‘G-SIBs’), forming part of the G-SIFIs, in 2011, 2012 and 2013, and by the Dutch
Central Bank (De Nederlandsche Bank N.V., ‘DNB’) and the Dutch Ministry of Finance as a domestic SIFI in November 2011. The Basel III
proposals and their potential impact are monitored via semi-annual monitoring exercises in which ING Bank participates. As a result of
such monitoring exercises and ongoing discussions within the regulatory environment, revisions have been made to the original Basel III
proposals as was the case with the revised Liquidity Coverage Ratio in January 2013 and the revised Net Stable Funding Ratio and Leverage
Ratio in January 2014. It remains to be seen whether further amendments to the 2010 framework and standards will be made by the Basel
Committee in the coming years.
For European banks, the Basel III requirements will be implemented through the so-called Capital Requirements Regulation and Capital
Requirements Directive IV (‘CRD IV Regulation’ and ‘CRD IV Directive’, respectively), which were adopted by the EC in June 2013 following
approval by the European Parliament in April 2013. The CRD IV Regulation entered into force on 28 June 2013 and the CRD IV Directive on
17 July 2013, and all banks and investment firms in the EU (as opposed to the scope of the Basel III requirements, which apply to
‘internationally active banks’) are required to apply the new rules from 1 January 2014 in phases, with full implementation by 1 January
2019. While the full impact of these rules, and any additional requirements for SIFIs or G-SIFIs, if and as applicable to the Group, will
depend on how the CRD IV Directive will be transposed into national laws in each Member State, including the extent to which national
regulators and supervisors can set more stringent limits and additional capital requirements or surcharges, as well as on the economic and
financial environment at the time of implementation and beyond, we expect these rules to have a material impact on ING’s operations and
financial condition and they may require the Group to seek additional capital. Further, the International Accounting Standards Board
(‘IASB’) has issued and proposed certain amendments to several IFRS standards during the course of 2012 and 2013, which changes include
a package of amendments to the accounting requirements for financial instruments announced in November 2013, introducing a new
hedge accounting model and allowing changes to address the so-called ‘own credit’ issue that were already included in IFRS 9 Financial
Instruments that would replace IAS 39, the accounting standard heavily criticized in the wake of the financial crisis. Such changes could also
have a material impact on our reported results and financial condition, as well as on how we manage our business, internal controls and
disclosure.
Solvency II
The European Council has agreed upon a full scale revision of the solvency framework and prudential regime applicable to insurance and
reinsurance companies, known as ‘Solvency II’, which was adopted on 25 November 2009 (Directive 2009/138/EC). A key aspect of
Solvency II is the closer alignment of the assessment of risks and capital requirements with economic capital methodologies. Under the
Solvency II regime, insurance companies may be permitted to make use of an internal economic capital model as a basis for calculation of
their capital needs and solvency position (in the Netherlands, such a model (including ING’s model) has to be approved by the DNB).
The final text of the Level I Framework Directive includes rules regarding, among other things, own funds, capital requirements,
investments and group supervision. Following adoption of this Level I Framework Directive, the EC and European Insurance and
Occupational Pensions Authority (‘EIOPA’), formerly CEIOPS, have initiated the development of detailed rules following the Lamfalussy
process. Under this process, Directives related to financial institutions are developed on the basis of a four-level approach intended to
complement the principles of the Level I Framework Directive. Level 2 measures will be issued by the EC (delegated acts and/or
implementing technical standards proposed by EIOPA), and Level 3 guidance will be issued by EIOPA.
Risk factors continued
359ING Group Annual Report 2013
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information