BCBS

BCBS Publishes Report on Outcome of February 2019 Meeting

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From the February 27 to 28 meeting, the Basel Committee on Banking Supervision (BCBS) has published this press release with the outcome.

At the meeting the Committee:

  • Agreed to publish high-level supervisory expectations related to crypto-assets considering the high degree of risks associated with such exposures. These expectations will be published in March.
  • Reiterated its support for reforms of interest rate benchmarks and approved a work plan to look at the interactions with supervisory requirements.
  • Agreed to publish, in March, a summary of the different practices used by jurisdictions to proportionately apply the global minimum prudential standards.
  • Announced it would publish, in March, a joint statement with the International Organization of Securities Commissions (IOSCO) clarifying certain implementation aspects of the margin requirements framework.

BCBS Publishes its Work Program for 2018 and 2019

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On June 5, 2018, the Basel Committee on Banking Supervision (“BCBS“) published details of its work program for 2018 and 2019. Details of the work program can be found here.

There are four key themes surrounding the work program. These are:

  • Policy Development – the BCBS intends to finalize its revisions to the revised market risk framework “shortly” so that there is sufficient time for the framework to be implemented by January 1, 2022. The BCBS will continue to review potential longer-term revisions to the regulatory treatment of accounting provisions.
  • Implementation – the BCBS is continuing to monitor the implementation of its post financial crisis reforms. It expects to publish its next report on the adoption of Basel III standards by its members in October 2018.
  • Supervision – the BCBS intends to finalize a set of principles on stress-testing practices in 2018.
  • Monitoring and evaluation – the BCBS intends to devote more time to evaluating and assessing the impact of its reforms and assessing emerging risks. In particular, crypto-assets and risks in the FinTech industry will be themes it will be focusing on.

European Commission Adopts Delegated Regulation on RTS on Additional Collateral Outflows

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On October 31, 2016, the European Commission adopted a Delegated Regulation supplementing the Capital Requirements Regulation (“CRR“) (Regulation 575/2013) in relation to regulatory technical standards (“RTS“) for additional liquidity outflows corresponding to collateral needs that have resulted from the impact of an adverse market scenario on an institution’s derivatives transactions (C(2016) 6867 final).

In March 2014, the EBA submitted a draft RTS to the European Commission. These proposed to take flows of collateral into account on a gross basis, contrary to the Basel Committee on Banking Supervision’s (“BCBS“) net approach. However, the assessment of the draft RTS was then delayed. The EBA submitted an amended draft RTS to the Commission for endorsement in May 2016. The method of calculation used in the RTS is founded on the historical look‑back approach developed by the BCBS.

The Council of the EU and the European Parliament must now consider the Delegated Regulation. If no objections are raised by either of them, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU (“OJ“).

EBA Amends Historical Look-Back Approach Method for Calculating Additional Collateral Outflows

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On May 3, 2016, the European Banking Authority (EBA) issued an opinion to the European Commission supporting the Commission’s proposed amendment to the historical look-back approach (HLBA) methodology used in the draft Regulatory Technical Standards (RTS) on additional collateral outflows.

The amendment by the EBA followed a request by the European Commission that the draft RTS be amended so that the calculation of the additional collateral outflows was based on the HLBA for market valuation changes developed by the Basel Committee on Banking Supervision (BCBS). The BCBS’s HLBA focuses on the largest net difference in collateral posted instead of the largest gross difference which had been the focus of the EBA’s approach.  In December 2015, the Commission had raised concerns that the EBA’s HLBA approach could have a significant impact on credit institutions and international derivative markets.  Therefore, it decided not to adopt the draft RTS as it had been submitted by the EBA, but signalled it was open to endorsing an amended draft RTS based on the BCBS’s HLBA approach.

BCBS Reports on Regulatory Consistency of Risk-Weighted Assets for Credit Risk in the Banking Book

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On April 1, the Basel Committee on Banking Supervision (“BCBS”) issued its second report: an analysis of risk-weighted assets (“RWA”) for credit risk in the banking book.

The report’s first objective is to identify the main drivers of RWA variation and evaluate their effects. The report distinguishes between risk-based drivers (i.e. those drive by underlying differences in risk) and practice-based drivers (i.e. those that reflect differences in bank practices and regulatory environments). The second objective of the report is to highlight where there is potential to modify current standards either to reduce practice-based RWA variation or to simplify the capital framework of internal ratings-based models and increase its comparability.

The report also contains sound practices relating to institutions’ intendent model validation functions, which the BCBS observed during the study. Report.

BCBS Finalizes Revised General Guide to Account Opening

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On February 4, the Basel Committee on Banking Supervision (“BCBS“) published a revised draft of its guidelines on “sound management of risks related to money laundering and financing of terrorism” which comprises the Guidelines issued in January 2014 and the addition of a new Annex IV – General Guide to Account Opening.

Annex IV is intended to focus on some of the mechanisms that banks can use in developing an effective consumer identification and verification programme and sets out the information that should be collected at the time of account opening. BCBS acknowledges that customer identification and verification policies and procedures will differ to reflect risks arising from the relevant categories of customers, products and services.

Annex IV is divided into two substantive sections: the first deals with what types of information should be collected and verified for natural persons seeking to open accounts; and the second describes what types of information should be collected and verified for legal persons and legal arrangements.  Guidelines.

EBA Publishes Final Draft Technical Standards and Guidelines on Methodology and Disclosure for G-SIIs

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The European Banking Authority (EBA) has published final draft technical standards and revised guidelines on the further specification of the indicators of global systemic importance and their disclosure. The guidelines have been developed according to Directive 2013/36/EU (the Capital Requirements Directive, CRD IV) and in line with international standards. CRD IV requires G-SIIs to hold higher capital levels in order to contain the risks they pose to the financial system and the impact that their potential failure may have on sovereign finance and taxpayers (so-called “too big to fall”). The draft revised Guidelines stipulate that not only G-SIIs, but also other large institutions with an overall exposure of more than €200 billion and which are potentially systemically relevant, will be subject to the same disclosure requirement as the G-SIIs.

The revision was prompted by a new data template and some minor changes introduced by the Basel Committee on Banking Supervision (BCBS) in January 2015 for the identification of global systemically important banks (G-SIBs). The list of EU G-SIBs identified by the BCBS and the global systematically important institutions (G-SIIs) identified by Member States’ authorities are identical.

The final draft technical standards and revised draft guidelines are set out in three reports (revised technical standards (RTS) report, implementing technical standards (ITS) report, and draft guidelines report). The final RTS and ITS will be presented to the European Commission for endorsement, following which the RTS will be subject to scrutiny by the European Parliament and the Council of the EU before publication in the Official Journal of the EU.

BCBS Issues Revisions to Basel Securitization Framework

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The Basel Committee on Banking Supervision (“BCBS“) issued revisions to the Basel II securitization framework on December 11.

 The framework, which comes into effect in January 2018, forms part of the BCBS’s broader Basel II agenda to reform regulatory standards for banks in response to the global financial crisis. The revisions aim to address a number of shortcomings in the securitization framework highlighted by the financial crisis and strengthen the capital standards for securitization exposures held in the banking book.

 The final requirements set out in the framework incorporate feedback to two rounds of consultation in 2012 and 2013 and take account of two quality impact studies undertaking during those consultations. Compared to the 2013 proposals, this final set of requirements includes amendments that smooth the impact of maturity on capital charges, as well as technical enhancements and clarifications.

BCBS Finalizes Risk Management Guidelines on AML and Terrorist Financing

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On January 15, the Basel Committee on Banking Supervision (BCBS) issued risk management guidelines relating to anti-money laundering (AML) and terrorist financing.

The guidelines apply to all banks and are consistent with the international standards on combating money laundering and the financing of terrorism and proliferation issued by the Financial Action Task Force (FATF) in 2012, and supplement their goals and objectives.  Risk Management Guidelines.