Basel III Update

The Basel Committee has just published its sixteenth progress report on adoption of the Basel regulatory framework

In it, the committee sets out the adoption status of Basel III standards for each Basel Committee on Banking Supervision (BCBS) member jurisdiction as at the end-March 2019.

This is an update to the Committee’s previous progress reports, which have been published on a semiannual basis since October 2011. In 2012, the Committee started the Regulatory Consistency Assessment Programme (RCAP) to monitor progress in introducing domestic regulations, assessing their consistency and analysis in regulatory outcomes. As part of this program, the Committee periodically monitors the adoption of Basel standards. The monitoring initially focused on the Basel risk-based capital requirements, and has since expanded to cover all Basel standards. These include the finalised Basel III post-crisis reforms published by the Committee in December 2017, which will take effect from 1 January 2022 and which will be phased in over five years.

As of the end-March 2019, all 27 member jurisdictions have risk-based capital rules, Liquidity Coverage Ratio (LCR) regulations and capital conservation buffers in force.

Twenty-six member jurisdictions also have final rules in force for the countercyclical capital buffer and the domestic systemically important bank (D-SIB) requirement.

With regard to the global systemically important bank (G-SIB) requirements published in 2013, all members that are home jurisdictions to G-SIBs have final rules in force. The leverage ratio based on the existing (2014) exposure definition has been partly or fully implemented in 26 member jurisdictions.

Moreover, 26 member jurisdictions have issued draft or final rules for the Net Stable Funding Ratio (NSFR), and 21 member jurisdictions have issued final rules for the revised securitisation framework. Also, 26 member jurisdictions have issued draft or final rules for the standardised approach for measuring counterparty credit risk exposures (SA-CCR), and 24 member jurisdictions have issued draft or final rules for the capital requirements for bank exposures to central counterparties (CCPs).

You can access the full report, with detailed statuses for each member jurisdiction HERE.

Operations Risk - Active Management & Compliance - Athens, Greece: 17 & 18 June 2019

GET THE COURSE BROCHURE!

Send e-mail to courses@citadeladvantage.com with ATHENS in the subject line.

Join us in Athens, Greece on 17 & 18 June for an intensive introduction to Operational Risk Management and Mitigation. This training course has been designed to provide a practical "hands-on" approach to participants which will furnish them with all the tools and techniques they need to begin implementing what they have learned almost as soon as they return to the office.

The underlying course philosophy is to move the participants beyond the largely theoretical international compliance requirements for operational risk, and into an understanding of the practice of operational risk management and an ability to actually implement these procedures.

As the size and complexity of financial institutions has increased, so too have the challenges of understanding and reducing operational risks down to truly manageable levels. Increased regulatory concern and scrutiny have also increased the cost of operational risk events in the shape of outright financial loss, regulatory fines

The objectives of this training course is to provide all staff, irrespective of whether they work in the front-, middle- or back-office, with a sound foundation in the theory and practice of Operational Risk Management. This training is provided in a practical "hands-on" manner that allows them to implement what they have learned easily and effectively the minute they return to the office.
, and declining customer confidence.

For full details and registrations CLICK HERE

Register before 1 May 2019 for the Early Bird Discount.

Managing Operational Risk – What every professional needs to know

By Stanley Epstein

"Operational risk is probably one of the most misunderstood risks in the whole of the risk spectrum.

While risks such as “credit risk”, “liquidity risk”, “market risk” are easily understood by business and other professionals, “operational risk” is a poor relation when it comes to grasping what it really means.

The starting point, of course, is to define what we mean when we speak about operational risk.

My favourite definition is that formulated by the “Basel Committee on Banking Supervision” in its “Principles for the Sound Management of Operational Risk” (BIS - June 2011).

The definition reads;

“Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.” 

 

To read the rest of this article please visit ILLUMEO's Blog >> HERE

Basel Committee on Banking Supervision issues consultative document on the implications of fintech

The Basel Committee on Banking Supervision has released a consultative document on the implications of fintech for the financial sector. 

 

"Sound practices: Implications of fintech developments for banks and bank supervisors" assesses how technology-driven innovation in financial services, or "fintech", may affect the banking industry and the activities of supervisors in the near to medium term.

Various future potential scenarios are considered, with their specific risks and opportunities. 

 

In addition to the banking industry scenarios, three case studies focus on technology developments (big data, distributed ledger technology, and cloud computing) and three on fintech business models (innovative payment services, lending platforms and neo-banks).

Although fintech is only the latest wave of innovation to affect the banking industry, the rapid adoption of enabling technologies and emergence of new business models pose an increasing challenge to incumbent banks in almost all the scenarios considered.

Banking standards and supervisory expectations should be adaptive to new innovations, while maintaining appropriate prudential standards. Against this background, the Committee has identified 10 key observations and related recommendations on the following 

supervisory issues for consideration by banks and bank supervisors: 

1. The overarching need to ensure safety and soundness and high compliance standards without inhibiting beneficial innovation in the banking sector;
2. The key risks for banks related to fintech developments, including strategic/profitability risks, operational, cyber and compliance risks;
3. The implications for banks of the use of innovative enabling technologies;
4. The implications for banks of the growing use of third parties, via outsourcing and/or partnerships;
5. Cross-sectoral cooperation between supervisors and other relevant authorities;
6. International cooperation between banking supervisors;
7. Adaptation of the supervisory skillset;
8. Potential opportunities for supervisors to use innovative technologies ("suptech");
9. Relevance of existing regulatory frameworks for new innovative business models; and
10. Key features of regulatory initiatives set up to facilitate fintech innovation.

The Committee says that it welcomes comments on all aspects of the consultative document. 

 

Comments should be uploaded by Tuesday 31 October 2017 via the following BCBS link.

Corporate Governance in the Banking Industry

By Stanley Epstein 

Broadly speaking corporate governance can be best described as a system of rules, practices and processes by which a business enterprise is directed and controlled. In essence corporate governance involves balancing the interests of the many stakeholders in a firm. These stakeholders include its shareholders, management, customers, suppliers, financiers, government and the larger community.

Corporate governance has become firmly entrenched on the world business scene over the past three decades. Today it is a key component in the operation of all manner of firms around the globe. Even more important is the need for corporate governance to be effective, not only for business firms but for the economy as a whole.

Banking is an important component of the economy, be it national or global. Banks play a very important financial intermediation role in this space. Clearly any difficulties arising from corporate governance shortcomings at banks will also result in a very high degree of nervousness in both the public and the market.

Some very fundamental deficiencies in bank corporate governance became very apparent during the 2008 financial crisis adding to the general distress that the crisis itself generated.

So in 2010 the Basel Committee on Banking Supervision published a set of principles for enhancing sound corporate governance practices at banking organizations. These principles set out best practices in corporate governance for banks.

The Basel Committee has since revised its original set of principles. This revision was published in July 2015, after consultation with the international banking community.

The revised guidance stresses the vital importance of effective corporate governance and promotes the importance of risk governance as part of a bank's overall corporate governance structure.

There are in all thirteen principles, which range from the bank board’s responsibilities, composition, structure; senior management, governance, risk management, compliance, audit compensation, disclosure right through to the role of bank supervisors.

So what major changes have taken place over the past five years?

The following five broad themes are evident in the revision.

1. The guidance has been expanded as regards the role of the board in overseeing the implementation of effective risk management systems.
2. Additional stress is placed on the need for the board to be competent as a group and for individual board members to devote enough time to their role on the board and to keep up-to-date of current banking developments.
3. Reinforces the guidance on risk governance. This also covers the risk management roles played by bank business units, risk management teams and internal audit. The importance of a sound risk “culture” is also addressed.
4. Bank supervisors are provided with guidance on how to evaluate the processes that banks use to select not only their board members but their senior management as well.
5. The guidance also recognizes that compensation schemes are a key part of the governance and incentive structure by which the bank board and its senior management transmit acceptable risk-taking behavior and strengthen the bank's operating and risk culture.

The Basel Committee stresses that these principles are relevant irrespective of whether or not a jurisdiction chooses to adopt the Committee’s regulatory framework. The board and senior management at each bank still have an obligation to pursue good governance.

As regards Systematically Important Financial Institutions (SIFIs), these organizations are expected to have the corporate governance structure and practices appropriate with their role in and potential impact on national and global financial stability.

The full document covering the revised principles can be downloaded directly from the BIS at http://www.bis.org/bcbs/publ/d328.pdf

 

Successful BCBS239 monitoring is simple – but not off-the-shelf

From Bobsguide –

“Achieving compliance with the requirements of BCBS239 is proving to be a real headache for many banks.

As a set of principles laid down by the Basel Committee on Banking Supervision, they are hard to quarrel with. Yet because they are principles, rather than detailed requirements, knowing what to measure and report on and how to present it is far from straightforward.

Although, at its heart, BCBS239 asks for risk reports to be timely, complete and accurate, many banks struggle to understand how they should measure themselves against these headings.”

Read more>>