Basel Committee on Banking Supervision (BCBS)

European Parliament Adopts Resolution on Finalization of Basel III

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On November 23, 2016, the European Parliament published a provisional version of the text of the resolution it has adopted on finalization of Basel III.

Among other things, in the resolution, the Parliament:

  • Underlines the importance of sound global standards and principles for the prudential regulation of banks and welcomes the post-crisis work of the Basel Committee on Banking Supervision (“BCBS“) in this area. The Parliament notes the BCBS’ ongoing work to finalize the Basel III framework and underlines the need for greater transparency and accountability to enhance the legitimacy and ownership of the BCBS’ deliberations.
  • Stresses that the current revision should respect the principle of not significantly increasing overall capital requirements, while at the same time strengthening the overall financial position of EU banks. The Parliament also underlines the equally important principle to be respected of promoting the level playing field at the global level, by mitigating rather than exacerbating the differences between jurisdictions and banking models, and by not unduly penalizing the EU banking model.
  • Is concerned that early analysis of recent BCBS drafts indicates that the reform package at its current stage might not comply with the principles mentioned above. As a result, the Parliament calls on the BCBS to revise its proposals accordingly, and calls on the European Central Bank (“ECB“) and the Single Supervisory Mechanism (SSM) to ensure respect of the principles in finalizing and monitoring the new standard. The Parliament underlines that this approach would be instrumental in ensuring consistent implementation of the new standard by the Parliament as co-legislator.
  • Calls for dialogue and an exchange of best practices among regulators concerning the application of the principle of proportionality to be established at EU and international levels.
  • Calls on the European Commission to prioritize work on a “small banking box” for the least risky banking models. The Parliament also calls on the Commission to extend this work to an assessment of the feasibility of a future regulatory framework consisting of less complex and more appropriate and proportional prudential rules specifically adapted to different types of banking models.
  • Stresses the importance of the role of the Commission, the ECB and the EBA in engaging in the BCBS’ work, and in providing transparent and comprehensive updates on developments in the BCBS’ discussions. The Parliament calls for this role to be given stronger visibility during meetings of the European Economic and Financial Affairs Council (ECOFIN), and for enhanced accountability to its Economic and Monetary Affairs Committee (ECON).

The Parliament has instructed its President to forward the resolution to the Commission.

Econ Vote on Resolution on Basel III Revisions

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On November 10, 2016, the European Parliament published a press release on a vote taken by its Committee on Economic and Monetary Affairs (“ECON“) in relation to revisions to Basel III, which are currently under consideration by the Basel Committee on Banking Supervision (“BCBS“).

The text of the resolution has not been published, yet the release states that it calls on the European Central Bank (“ECB”), the European Commission (“EC”) and the EBA to engage in the BCBS’s work and report to the ECON on their progress. Furthermore, the press release states that the revisions should:

  • strengthen the overall financial provision of European banks but should not significantly increase overall capital requirements;
  • respect the principle of proportionality and the important role played by banks in financing the European economy; and
  • consider and mitigate the differences between jurisdictions and, at the same time, avoid penalizing the EU banking model.

The resolution will be considered by the European Parliament in its plenary session between November 21, 2016 and November 24, 2016.

The package of reforms to Basel III is expected by the end of 2016 and will cover issues such as internal ratings-based (“IRB“) approaches and operational risk as well as the standardized approach for credit risk.

Basel Committee Issues Revised Framework for Market Risk Capital Requirements

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The Basel Committee on Banking Supervision (BCBS) has issued revised standards for minimum capital requirements for market risk. The purpose of the revised market risk framework is to ensure that the standardised and internal model approaches to market risk deliver credible capital outcomes and promote consistent implementation of the standards across jurisdictions. The revisions focus on three key areas: revised boundary between banking book and trading book, revised internal models approach for market risk and revised standardised approach for market risk. The revised framework also includes a shift from value-at-risk to an expected shortfall measure of risk under stress and incorporation of the risk of market illiquidity.

The revised framework produces market risk risk-weighted assets (RWAs) that account for less than 10% of total RWAs, compared to approximately 6% under the current framework. The revised market risk standard would result in a medium (weighted mean) increase of approximately 22% (40%) in total market risk capital requirements as against the current market risk framework.

The revised market risk framework comes into effect on 1 January 2019. A detailed explanatory note of the new standards is available here.

BCBS October 2015 Progress Report on Implementation of Basel Regulatory Framework

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On October 15, 2015, BCBS issued its ninth progress report (BCBS 338) on BCBS members’ implementation of Basel II, Basel 2.5 and Basel III, as at the end of September 2015.

The report focuses on the status of domestic rule-making processes to ensure that the Basel standards are transformed into national law or regulation according to the internationally agreed timeframes. It includes the status of adoption of the risk-based capital standards, the liquidity standards, the framework for systemically important banks, the leverage ratio, the revised Pillar 3 disclosure requirements and the large exposure framework.

BCBS FAQs on Basel III Countercyclical Capital Buffer

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On October 19, 2015, the Basel Committee on Banking Supervision (BCBS) issued frequently asked questions (FAQs) on the Basel III countercyclical capital buffer (BCBS 339).

In December 2010, the BCBS published its final standards on the buffer in its paper on the Basel III regulatory framework (BCBS 189) and guidance for national authorities operating the countercyclical capital buffer (BCBS 187). The BCBS states that the FAQs provide excerpts from BCBS 187 and BCBS 189, together with clarifications, particularly on the role of jurisdictional reciprocity and the computation of the capital buffer add-on.

The BCBS has also published a dedicated website on the countercyclical capital buffer that sets out details of how member jurisdictions of the BCBS have implemented the buffer to date.

BCBS Consults on Proposed Revised Version of General Guide to Account Opening

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On July 16, 2015, the Basel Committee on Banking Supervision (BCBS) issued a consultation paper on a proposed revised version of its general guide to account opening.

The guide was first published in February 2003. The proposed revised version takes into account the significant enhancements that have been made to the Financial Action Task Force (FATF) recommendations and related guidance since it was first published.

The guide focuses on account opening. It is not intended to address every possible situation, but instead focuses on some of the mechanisms that banks can use in developing an effective customer identification and verification program that enables them to meet their obligations under anti-money laundering (AML) and counter-terrorist financing (CTF) requirements. The guide also sets out the information that should be gathered at the time of account opening and will help the bank to complete the customer risk profile. The aim is to support banks in implementing the FATF standards and guidance, which require the adoption of specific policies and procedures, in particular on account opening.

When finalized, the revised version of the guide will be added as an annex to the BCBS’ guidelines for a sound management of risks related to money laundering and financing of terrorism, which were published in January 2014.