BCBS extends capital requirements for market risk implementation ruling until 2022
04 May 2018 Basel
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In acknowledgement of ongoing challenges related to the implementation of the revisions to the minimum capital requirements for market risk, the Basel Committee on Banking Supervision (BCBS) has said that its group of governors and heads of supervision (GHOS) has endorsed an extension of the implementation date to 1 January 2022.
BCBS stated this new market risk standard was developed to address a number of structural shortcomings in the Basel II market risk framework (and its subsequent revisions), and served as a key component of the BCBS’s reform of global regulatory standards in response to the global financial crisis.
The committee said it has since monitored the pace of implementation of the standard as well as its impact on banks’ market risk capital requirements.
This will constitute both the implementation and regulatory reporting date for the standard. 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.
In order to address the issues with the standard that the committee has identified, their recently released March this year consultative document proposes a number of revisions to the standard.
It also sets out the committee’s proposals for a simplified alternative to the revised standardised approach to market risk, which in turn take into account responses to the consultative document the committee issued in June last year.
Topics included in the new document’s ‘standard approach’ section include revisions to the treatment of liquid foreign exchange pairs, revisions to correlation scenarios, revisions to capital requirements for non-linear instruments, revisions to risk weights and other clarifications.
Also included in its ‘scope of market risk capital requirements’ section are the treatment of structural foreign exchange positions and the boundary between the trading book and the banking book.
The BCBS is asking for comments by 20 June this year.
BCBS stated this new market risk standard was developed to address a number of structural shortcomings in the Basel II market risk framework (and its subsequent revisions), and served as a key component of the BCBS’s reform of global regulatory standards in response to the global financial crisis.
The committee said it has since monitored the pace of implementation of the standard as well as its impact on banks’ market risk capital requirements.
This will constitute both the implementation and regulatory reporting date for the standard. 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.
In order to address the issues with the standard that the committee has identified, their recently released March this year consultative document proposes a number of revisions to the standard.
It also sets out the committee’s proposals for a simplified alternative to the revised standardised approach to market risk, which in turn take into account responses to the consultative document the committee issued in June last year.
Topics included in the new document’s ‘standard approach’ section include revisions to the treatment of liquid foreign exchange pairs, revisions to correlation scenarios, revisions to capital requirements for non-linear instruments, revisions to risk weights and other clarifications.
Also included in its ‘scope of market risk capital requirements’ section are the treatment of structural foreign exchange positions and the boundary between the trading book and the banking book.
The BCBS is asking for comments by 20 June this year.
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