finalisation of Basel III reforms

The FSB has designated Basel III as one of the priority areas for implementation monitoring.?The task of?regular monitoring and reporting?in this area is carried out by the Basel Committee on Banking Supervision (BCBS). To monitor progress and assess the implementation of Basel III and its outcomes, the BCBS established the?Regulatory Consistency Assessment Programme (RCAP)?in 2012.

The FSB published in October 2019 its?fifth annual report?on the implementation and effects of the G20 financial regulatory reforms. Below is an extract from this report on the status of implementation of Basel III.

Regulatory adoption of several core Basel III elements has generally been timely to date.

All 24 FSB jurisdictions have the core elements of the Basel III risk-based?capitaland?liquidity?(Liquidity Coverage Ratio (LCR)) rules in force.

Final rules on higher loss absorbency requirements for?global systemically important banks (G-SIBs)?are in force in all jurisdictions that have G-SIBs headquartered in them, while final rules on the assessment methodology and higher loss absorbency requirements for?domestic systemically important banks (D-SIBs)?are in force in 23 jurisdictions.

However, implementation of some other Basel III standards is behind schedule.

The?leverage ratio1?and the?Net Stable Funding Ratio (NSFR), which took effect in January 2018, and the supervisory framework for measuring and controlling?large exposures, which took effect in January 2019, have yet to be adopted by all jurisdictions (Graph 1). The leverage ratio is now in force in 16 jurisdictions (one more since 2018), while 11 jurisdictions have final rules in force for the NSFR (unchanged since 2018). Only 10 jurisdictions have final rules in force for the large exposures framework.

There is also limited progress in the adoption of other Basel III standards whose implementation deadline has passed. They include: interest rate risk in the banking book (11 FSB jurisdictions have final rules in place); standardised approach for counterparty credit risk exposures (11 jurisdictions); capital requirements for bank exposures to central counterparties (nine jurisdictions), equity investments in funds (10 jurisdictions) and TLAC holdings (14 jurisdictions); margin requirements for non-centrally cleared derivatives (16 jurisdictions);2?and the revised Pillar 3 framework (11 jurisdictions).

Implementation of the finalised reforms to the capital framework, which were agreed in December 2017 and will take effect from January 2022, has started in some jurisdictions but is still at a very early stage.

Delayed implementation may have implications for a level playing field, and puts unnecessary pressure on those jurisdictions that have implemented the standards based on the agreed timelines. The reported reasons for implementation delays are: concerns over the pace of implementation in other jurisdictions (affecting the level playing field); the complexity of the standards (or difficulties in interpreting and transposing them into domestic rules); and operational challenges for banks (e.g. information technology issues).

Jurisdictions should lead by example and implement these reforms according to the agreed timelines. The Basel Committee on Banking Supervision (BCBS) is monitoring closely the implementation of the reforms and will consider additional measures to improve implementation timeliness.

The consistency of implementation with some Basel standards should be further improved.

Risk-based capital framework?– BCBS has assessed all FSB jurisdictions.3

Eighteen (representing 69% of the market) were found to be compliant or largely compliant with risk-based capital rules; and

The six EU members of the FSB (assessed as a single jurisdiction, representing 31% of the market) were found to be materially non-compliant.

Liquidity coverage ratio?– All FSB jurisdictions have been assessed by the BCBS and were found to be compliant (16) or largely compliant (8) with the LCR.

G-SIB and D-SIB standards?– Ten of the 11 FSB jurisdictions that are home to G-SIBs were found by the BCBS to be compliant with G-SIB standards.4?The D-SIB frameworks in these jurisdictions were also found to be broadly aligned with the D-SIB principles.

Net stable funding ratio and large exposures framework?– In 2018 the BCBS began to assess the consistency of implementation of the NSFR and the large exposures framework. The five FSB jurisdictions assessed so far were found to be compliant with both standards.

G-SIB and D-SIB standards?– Ten of the eleven FSB jurisdictions that are home to G-SIBs were found by the BCBS to be compliant with G-SIB standards.?The D-SIB frameworks in these jurisdictions were also found to be broadly aligned with the D-SIB principles.

Net stable funding ratio and large exposures framework.?The BCBS has begun to assess the consistency of implementation of the NSFR and the large exposures framework. The first FSB jurisdiction assessed was found to be compliant with both standards. All jurisdictions are expected to be assessed by end 2020.

Status of implementation

View status of implementation of reforms in priority areas by FSB jurisdictions as reported in the latest FSB annual report to G20?(as of October 2019)

For further information, see the?latest?BCBS?progress report on implementation of Basel standards?(as of October 2019).

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1 Based on the existing (2014) exposure definition. Implementation based on the revised exposure definition, agreed in December 2017, is due by 2022.

2 In July 2019 the?BCBS and IOSCO extended by one year?the final implementation date for the margin requirements for non-centrally cleared derivatives, to 1 September 2021.

3 The most material inconsistencies relate to internal models for credit risk, counterparty credit risk and securitisation, and the definition of capital.

4?Canada’s G-SIB standards have not been assessed since it only became home to a G-SIB with the 2017 G-SIB designation.