News

On 22nd May 2018, the Basel Committee on Banking Supervision issued a consultation document for revisions to the minimum capital requirements for market risk (available here).

 

The consultative document (in attachment) aim to address issues that the Basel Committee has identified in the course of monitoring the implementation and impact of the market risk standard issued in January 2016.

 

In particular, the proposed changes include:

• Changes to the measurement of the standardised approach to enhance its risk sensitivity, including changes to FX risk;
• Recalibration of standardised approach risk weights applicable to general interest rate risk, FX risk and equity risk;
• Revisions to the assessment process to determine whether a bank’s internal risk management models appropriately reflect the risks of individual trading desks;
• Clarifications on the requirements for identification of risk factors that are eligible for internal modelling; and
• Clarifications on the scope of exposures that are subject to market risk capital requirements.

 

In addition, following the Basel Committee’s 2017 consultation on a simplified alternative to the standardised approach (further information available here) Consultation Document – Revisions to the minimum capital requirements for market risk), the consultative document also proposes a recalibration of the Basel II standardised approach for banks with less material market risk exposure.

 

In acknowledgment of ongoing challenges related to implementation of the standard, the Basel Committee’s oversight body, the Group of Governors and Heads of Supervision, has endorsed an extension of the implementation date of the market risk standard to 1 January 2022. This deferred implementation date is intended to allow banks additional time to develop the systems infrastructure needed to apply the standard and for the Committee to address certain specific outstanding issues. The Basel Committee furthermore informs that it plans to finalise any revisions to the market risk standard as soon as possible to allow enough time for national implementation and for banks to develop the necessary infrastructure.