1Basel iii ComplianceProfessionalsAssociation (BiiiCPA)1200G Street NW Suite800Washington, DC 20005-6705USATel: 202-449-97...
2Certainrowsarein italics. Theserowswouldbe deletedafter all theineligiblecapital instrumentshave been fully phasedout (fr...
3NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
4NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
5NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
6NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
7NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
8NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
9NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
10NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
11NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
12Disclosuretemplate during the transition phaseTheproposed template for use during the transitionphaseis thesameasthestea...
13Example- Row 8: In 2014banks will be required tomake 20% of theregulatory adjustmentsin accordancewithBasel III.Consider...
14Therefore, new rowshave been added in each of thethree sectionsonregulatory adjustmentstoalloweach jurisdictionto set ou...
15Example- Betweenrows41and 42:Assume that thebank described in the bullet point above isin ajurisdictionthat currentlyreq...
16Example– Row 60:Totake account of the fact that the existingnational treatment of a BaselIII regulatory adjustment may b...
17Example:Consider a jurisdictionthat currentlyrisk weightsdefinedbenefit pension fund net assetsat 200% and in 2014a bank...
18Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
19Financial stability and risk disclosureKeynote addressbyMr Jaime Caruana, General Managerof the BIS,totheFSB Roundtableo...
20Accounting standards need to converge, standards for the discussion andanalysis that accompany financial statements need...
21How do wepromote market discipline?First, weneed to make sure that the market hastheinformation it needs.And a key eleme...
22Sound standards and practicesenhancethequalityof informationavailabletoinvestors,depositorsand othermarket participants,...
23And it isgoodforthestabilityofthesystem asawhole,becauseit reducesthechancethat unexpectedeventswill causemajor system-w...
24This suggeststhe public sector hasa keyrolein promotingmarkettransparency. Whenever one suggeststhepublic sectorshould d...
25As a result, everyone in the market may just watcheach other, insteadofmakingtheinvestment in producingand obtainingaccu...
26Greater transparencyis one waytohelp break this cycle, by making itpossiblefor investorsto seemore preciselywhere, and w...
27datacollectednationallyonaharmonisedbasisinacentralhub, proposedtobe hosted by the BIS.TheFSB and national supervisorsar...
28Disclosuresoftenseek to provide information "through theeyes ofmanagement" that reflectshow organisationsmeasure and man...
29Core principles for effective banking supervisionBISConsultativedocument, December 2011TheBaselCommitteeonBankingSupervi...
30Variousadditional criteria havebeen upgraded toessential criteria asaresult, while new assessment criteria werewarranted...
31greater public disclosureand transparency, and enhanced financialreporting and external audit.As a result of this review...
32The 29 Core Principlesare:Supervisory powers, responsibilities and functionsPrinciple1– Responsibilities, objectivesandp...
33At a minimum, the licensingprocessconsistsof an assessment of theownership structure and governance(includingthe fitness...
34approachand deploys supervisoryresourceson aproportionate basis,takingintoaccount the riskprofileand systemic importance...
35Prudential regulations and requirementsPrinciple14– Corporate governance: The supervisor determinesthatbanksandbankinggr...
36This includesprudent policiesand processestoidentify, measure,evaluate, monitor, report and control or mitigatecredit ri...
37Principle22– Market risks:Thesupervisordeterminesthat bankshaveanadequatemarket risk management processthat takesintoacc...
38account their risk appetite,risk profile and market and macroeconomicconditions.Thisincludesprudent policiesand processe...
39risk management strategiesand corporategovernancepoliciesandprocesses.Principle29– Abuse of financial services: Thesuper...
40Basel III SpeakersBureauTheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) hasestablished the Basel III Speakers ...
41Tolearnmore you may visit:www.basel-iii-association.com/ Questions_About_The_Certification_And_The_Exams_1.pdfwww.basel-...
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Basel 3 January 2012

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Basel iii Compliance Professionals Association (BiiiCPA)
http://www.basel-iii-association.com

The Basel iii Compliance Professionals Association (BiiiCPA) is the largest association of Basel iii Professionals in the world. It is a business unit of the Basel ii Compliance Professionals Association (BCPA), which is also the largest association of Basel ii Professionals in the world.

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Basel 3 January 2012

  1. 1. 1Basel iii ComplianceProfessionalsAssociation (BiiiCPA)1200G Street NW Suite800Washington, DC 20005-6705USATel: 202-449-9750Web: www.basel-iii-association.comBasel III News,January 2012Dear Member,Interesting! Wehavethefirst important Basel iii templates.We will start with thePost 1January 2018disclosuretemplateFrom the BISConsultativedocument, Definition of capital disclosurerequirements, Issued for comment by 17February 2012, December 2011Post 1January 2018 disclosure templateThecommon template that the Basel Committeehasdeveloped isdesignedto capture the capital positionsof banksafter the transitionperiod for the phasing-in of deductionsendson 1January2018TheBasel Committeeproposesthat banks should publish thecompleteddisclosuretemplatewith thesame frequencyasthepublicationof theirfinancial statements(typically quarterly or half yearly).Furthermore, it is proposedthat thecompleted disclosuretemplateshouldeitherbeincludedin thebank’spublishedfinancialreportsor,at aminimum, thesereports should providea direct link tothe completedtemplate on thebank’swebsite.Banks should alsomake availableon their websitesan archiveof alltemplatesrelatingto prior reportingperiods.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  2. 2. 2Certainrowsarein italics. Theserowswouldbe deletedafter all theineligiblecapital instrumentshave been fully phasedout (from 1January2022onwards).Regardingthe shading (below):-Each dark grey row introducesa new section detailing a certaincomponent of regulatorycapital.-Thelight grey rowswithnothick border represent the sum cellsin therelevant section.-Thelight grey rowswitha thick border showthe main componentsofregulatorycapital and the capital ratios.NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  3. 3. 3NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  4. 4. 4NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  5. 5. 5NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  6. 6. 6NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  7. 7. 7NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  8. 8. 8NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  9. 9. 9NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  10. 10. 10NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  11. 11. 11NotesBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  12. 12. 12Disclosuretemplate during the transition phaseTheproposed template for use during the transitionphaseis thesameasthesteadystatedisclosuretemplateset out in Section 1except for thefollowingadditions(all of whichare highlightedin thetemplate belowusingcellswithdottedborders and capitalisedtext):Anew column hasbeen added for bankstoreport the amount of eachregulatoryadjustment that is subject totheexistingnational treatmentduring thetransitionphase(labelledasthe “pre-BaselIII treatment”).Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  13. 13. 13Example- Row 8: In 2014banks will be required tomake 20% of theregulatory adjustmentsin accordancewithBasel III.Considera bank with“Goodwill, net of relatedtax liability” of $100mnand assume that thebank isin a jurisdiction that doesnot currentlyrequirethis tobe deducted from common equity.Thebank wouldreport $20mn in the first of thetwoemptycellsin row 8and report $80mn in the second of thetwocells.Thesum of thetwocellswill thereforeequal thetotal Basel III regulatoryadjustment.While thenew column showsthe amount of each regulatory adjustmentthat is subject totheexistingnational treatment, it is necessaryto showhowthisamount is included under existingnational treatment in thecalculationof regulatory capital.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  14. 14. 14Therefore, new rowshave been added in each of thethree sectionsonregulatory adjustmentstoalloweach jurisdictionto set out their existingnational treatment.Example- Betweenrows26and 27:Considera jurisdictionthat currentlyfiltersout unrealisedgainsandlosseson holdingsof AFS debt securitiesand consider a bank in thatjurisdictionthat hasan unrealisedlossof $50mn.Thetransitional arrangementsrequire this bank to recognise20% of thisloss(ie $10mn) in 2014.This meansthat 80% of this loss(ie$40mn) is not recognised.Thejurisdictionwouldthereforeincludea row betweenrows26and 27that allowsbankstoadd back thisunrealised loss.Thebank wouldthenreport$40mn inthisrowasanadditiontoCommonEquityTier 1.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  15. 15. 15Example- Betweenrows41and 42:Assume that thebank described in the bullet point above isin ajurisdictionthat currentlyrequires goodwill to be deducted from Tier 1.This jurisdictionwouldinsert a new row in betweenrows41and 42, toindicatethat duringthe transition phasesome goodwill will continuetobededucted from Tier 1(in effectAdditional Tier 1).The$80mnthat thebank hadreportedin thelastcellofrow8,wouldthenneed to be reported in this new row insertedbetweenrows41and 42.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  16. 16. 16Example– Row 60:Totake account of the fact that the existingnational treatment of a BaselIII regulatory adjustment may be toapplya risk weighting, jurisdictionswouldalsobe abletoadd new rowsimmediatelyprior tothe row on riskweightedassets(row 60).Theserowswouldneedtobedefinedbyeach jurisdictiontolist theBaselIII regulatory adjustmentsthat are currentlyrisk weighted.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  17. 17. 17Example:Consider a jurisdictionthat currentlyrisk weightsdefinedbenefit pension fund net assetsat 200% and in 2014a bank has$50mn oftheseassets.Thetransitional arrangementsrequire this bank todeduct 20% of theassetsin 2014.This meansthat the bank will report $10 mn in the first empty cell in row15and $40 mn in the second emptycell (the total of the two cellsthereforeequalsthe total Basel III regulatory adjustment).Thejurisdictionwoulddisclosein one of the insertedrowsbetweenrow59and 60that suchassetsare risk weightedat 200% during thetransitional phase.Thebank wouldthen report a figure of $80mn ($40mn * 200%) in thatrow.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  18. 18. 18Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  19. 19. 19Financial stability and risk disclosureKeynote addressbyMr Jaime Caruana, General Managerof the BIS,totheFSB Roundtableon risk disclosure, Basel, 9December 2011.AbstractHigh-qualityrisk disclosureis good for markets,becauseit helpsinvestorsmake more informeddecisions.It is good for prudential supervisors,becauseit makesbanksmoreaccountabletoboth supervisorsand investors.And it isgood for financial stability, becauseit reducesthechancethatunexpected eventswill disrupt the system.To be effective in promoting market discipline, disclosure must becomplemented by strong incentives for counterparties to engage inmonitoring.Thepublic sectors role in promoting transparencyarisesfrom a numberof market failures,includingthe externalitiestobe gained from commonstandards,the"freerider" problemsthat may leadtotoolittleinvestmentin producingand gatheringfinancial information, and thetendencyofmarketsto overreact tobad newswhenthe information environment isclouded.Guidedby theseconsiderations,the Financial Stability Board and theBasel Committeeon BankingSupervision have long supportedimprovementsin transparency, through their workonaccounting, disclosuretemplatesand aggregate market data.At thesametime, industryand investorrepresentativesneedtoplayakeyrolein developing disclosurestandards.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  20. 20. 20Accounting standards need to converge, standards for the discussion andanalysis that accompany financial statements need to be established, andexternalauditorsneed to insist on higher-qualityrisk disclosures.Full speechGood morning, and welcometoBasel. We are meeting at a time of greatturbulenceand uncertaintyin the global economy and financial system.But althoughall of usarefocusedonimmediatechallengesandrisks,it isimportant not tolosesight of the need tocarry forward our longer-termagendatowardsbuildinga better, stronger financial system.Your discussionstodayare an essential part of makingprogresson thisagenda.If wecan achievea significant improvement in thequality, comparabilityandtimelinessof risk disclosuresby financial firms, thiswill without adoubt help break theviciouscyclesof contagion, asset salesandpullbackfrom risk-takingthat have paralysed marketsrepeatedlyover the last fewyears.Thethree pillarsof BaselII continueto guideour effortsto strengthenfinancial regulationin the BaselIII era and beyond.Wevenow accomplisheda great deal on Pillar 1- minimum capitalrequirements.The task now is to follow through on Pillar 2 bystrengthening supervisoryreview, with a focus on firm-wide risk management and risk governance,and on Pillar 3 disclosures,by improvingmarket discipline.And while Pillar 3 is a good stepin the right direction, achievingouroverall objectiveof stronger market disciplinewill require effortsthat gobeyond strictlyregulatoryapproaches.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  21. 21. 21How do wepromote market discipline?First, weneed to make sure that the market hastheinformation it needs.And a key element of market information is sound, consistentlyhigh-qualityriskdisclosures.That will be thesubject of my remarks, and of coursethetheme of yourdiscussionstoday.But I should alsopoint out that market disciplineonlyworkswheninvestorshavetheright incentivestousetheinformation, and bankshavetheright incentivestotake account of thesignals sent by themarket.For theseincentivestobe right, theperception of a public safety net forbanksthat are "toobig to fail" needstobe eliminated.Thispointstotherelevanceof theworkbytheFSB and Basel Committeetoreducemoral hazard by increasinglossabsorbency, strengtheningresolutionproceduresand enhancingsupervisoryintensityforsystemicallyimportant banks.If wesuccessfullyfollowthrough on this work,then investorswill havestronger incentivestodevelop a comprehensivepicture of therisksandexposuresfacing financial institutions,and the banks should facemorepressure tobe asaccurate and transparent aspossibleabout theseexposures.TheFSB and the Basel Committeehave long supported soundaccountingand robust disclosure standardsand practices.Examplesincludetherisk disclosuretemplate for structured creditproductsset out in theFinancial StabilityForumsreport tothe G7 inApril 2008, the BaselCommitteesworkon Pillar 3 disclosures,and themore recent worktoencourage sound expected-lossprovisioningrulesand related disclosures.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  22. 22. 22Sound standards and practicesenhancethequalityof informationavailabletoinvestors,depositorsand othermarket participants,aswellastoprudential authorities and regulators- includingabout riskexposures,risk management practicesand policies,governance, andcapital measuresand ratios.Thiscanleadtogreatertransparencythat cansupport marketconfidence, improvemarket disciplineand facilitatesound riskmanagement practicesby financial firmsand other companies,and hasthepotential tolead to more consistent practicesover time.Together witheffectivesupervision, these canhelp tofoster safeandsoundbanking systems and more stablefinancial markets.We should recognise the limitationstowhat improved informationaboutriskscan achieve.Theeconomyand thefinancial system arealwayschangingandevolving, and our understanding of key relationshipsstrugglestokeep up.Risksoftenappearpreciselyintheareastowhichmarket participantsandpublic authoritieshave paid the leastattention, and about whichtheyhavedemanded the least accurateinformation.Given theselimitsto our understanding, weneed tobe prudent.This means protecting the system against the unknown andunexpected, for example by strengthening capital and liquidity buffers atinstitutionsand initial margin in traded markets.Nevertheless, strengthened, transparent disclosure isgood formarkets, becauseit helps investorsmake more informed decisions.It isgoodforprudential supervision, becauseit helpstomakebanksmoreaccountable,both to supervisorsand investors.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  23. 23. 23And it isgoodforthestabilityofthesystem asawhole,becauseit reducesthechancethat unexpectedeventswill causemajor system-widedisruptions.We should not forget that the official sector hasa direct interest inpromotingfinancial stability through increasedtransparency; theexperienceof thepastfour yearshasremindedusof themanycoststhat apoorlyfunctioningfinancial system can imposeon taxpayers and the realeconomy.Onemight think that market participantswouldnaturallyprovidecomprehensive, relevant disclosurein a timely manner, sinceits in theinterest of investors,counterpartiesand institutions.But aswehaveseen, thisis oftennot thecase.For example, duringthe ongoing turbulencerelatedto Europeansovereigndebt, investorsand market analystshavestruggledtodevelop acomprehensiveand reliableassessment of the exposures of financialinstitutionstotroubledsovereignsthroughbond holdingsandderivativespositions.Someof the disruptionstobank fundingmarketshave reflectedscepticism astowhetherenough is known about theseexposures, aswellasthe chain of exposuresrelated to them - banks exposuresto otherbanks,and soon.We at theBISregularlypublishinformation on the aggregate exposuresof national financial systems, but of coursethis saysnothingabout thenetworkof exposuresof individual institutions.Lackingadequateinformationtoinform their risk assessments,providersof fundshavenaturallypulledback from European financial firms of allsorts- in the processunderminingthe stabilityof the system and puttingstill greater pressure on banks and sovereigns.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  24. 24. 24This suggeststhe public sector hasa keyrolein promotingmarkettransparency. Whenever one suggeststhepublic sectorshould dosomething, itsgood practicetoidentify the specificmarket failures thatimpel public action.With respect to risk disclosure,I wouldemphasisethe followingones.First, common standardshave externalities.Just aseveryone benefits from common weightsand measuresin thephysical world, orfrom common standardsforelectronic media like DVDencoding, theres a social benefit from financial statementsfollowingasinglestandard, includingkeyconcepts,common definitionsandprinciples,and, totheextent possible, common formats.In some cases,collaborativeeffortsby the industry can generate theneeded standards;in others,especiallywherethe subject matter iscomplex and there isa widerangeof interestedparties, some of whommay not support full, timely transparency, thepublic sector must play arole.Second, producing and gathering financial information aresubject to"freerider" problems.Its costlytoproduce, interpret and analyse information from disclosures.But if one investor or counterparty doesso, pricesadjust and othersbenefit from it. Sowhile investorscan and do make money from carefullystudying publicly availableinformation, theres still an incentiveto "freeride" - towait for someoneelseto gather relevant information, then tosharein the benefit by tradingon it.And preparersmay facesimilar incentivesto wait for othersbeforeprovidinguseful information about their risk exposures and riskmanagement practices.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  25. 25. 25As a result, everyone in the market may just watcheach other, insteadofmakingtheinvestment in producingand obtainingaccurateinformation.Theres no wayto completelyeliminatesuch free-ridingfrom markets,but establishingcommonstandardsgoespart way,byreducingthecosts-in time, effort and resources- neededtoproduceand acquiremarket-relevant information.We want toseea richer array of information made availablethat islesscostlytocollect, more widelyavailableto market participants,moreusableand more comparable.This should help takeus towardsmarketswherepricesare movedprimarilyby new information, rather than by herd behaviour, leverageorsudden shiftsin riskappetites.Third, if theinformationenvironment ismurky, thenmarketsoverreact tobadnews.We saw this in the 2007-09 crisis- whenever problemswere discovered inone asset class, or one institution, investors started to scrutinise similarlyplaced assetsor institutions,and downgradedtheir valuationsof them.This sometimesled to a self-fulfillingprocessthat madethingsstillworse.Thesame hashappenedin sovereign debt crises, includingthe currentchallengesin Europe - whenone country getsintotrouble, investorsimmediatelylook around toseewhos next.This creates a kind of collective action problem - it makes sense for eachplayer individuallyto pull back, but when manyplayers do this the impactis devastatingfor themarket asa whole.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  26. 26. 26Greater transparencyis one waytohelp break this cycle, by making itpossiblefor investorsto seemore preciselywhere, and whether,theirconcernsare justified.Saying there is a public sector role in promoting transparency, for thereasons Ive just laid out, is not the same as saying that strengtheningtransparencyisthepublic sectorsjob alone.Indeed, industryand investor effortsneed to be at the centreofdeveloping standards, sincethis will ensure that new requirementshavetheproper technicalgroundingand a strong buy-in by marketparticipants.Thepublic sector can contributeby catalysingprivate sectoreffortsandbydirectingthoseeffortsin fruitful directions.At thesametime,however,if theprivatesectordoesnot stepin toaddresstheseissuesadequately, supervisoryand regulatory authoritiesmay needtoundertake further reforms toimprove disclosurestandardsandpractices.Alongside thisworkat the firm level, theinternational community hasalsobeen workingtoimprovetransparencyby strengtheningthecollection, aggregationand disseminationof financial sector data.TheBIS, together withthe Committeeon the Global FinancialSystem, haslongperformed thisrolewithrespect to cross-borderbankingand OTC derivativesmarket activity.Looking forward, the FSB has made substantial progress in developing adata framework that facilitates monitoring of key interlinkagesamong themajor global banksin a consistent manner.While thisproject is still verymuch workin progress,it is notablethatnational authoritiesand theFSB are consideringstoring and pooling theBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  27. 27. 27datacollectednationallyonaharmonisedbasisinacentralhub, proposedtobe hosted by the BIS.TheFSB and national supervisorsare alsoworkingtomake sure that theshift of derivativesmarket activityto central tradingand clearingplatformsleadstoa greater availabilityof useful market-leveldata onactivityin theseinstruments.Also, followingthe FSBrecommendationearlier thisyear, theFSBsStandingCommitteeon theAssessment of Vulnerabilities,whichIchair, is alsoassessingwhethernewlyidentifiedrisks could benefit fromimproved risk disclosurepractices.But even asweworkto improve theassessment of risks and theavailability and qualityof aggregated industryand market data througheffortsby the official sector,strengthened disclosuresby individualinstitutionsstill offer themost promisingbenefitsin termsofstrengtheningfinancial stability.Going forward, I wouldemphasisea number of key challenges:Followingthrough on convergenceof IASB and FASB accountingstandards, includingtheir riskdisclosurerequirements.Progressin converging the twomain international accountingstandardsframeworkswill help ensurethat userscan make meaningfulcomparisonsacrossinstitutionsand entities operatingin multiplejurisdictions.Developingstandardsforthediscussionandanalysisthat firmsprovidetocomplement thefigures in thefinancial statements.Common standardscan be useful not only for financial data, but alsofortheinterpretationsgiven to them.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  28. 28. 28Disclosuresoftenseek to provide information "through theeyes ofmanagement" that reflectshow organisationsmeasure and managetheirrisks.Whilethisapproachcanbehelpful in understandingbusinessmodelsandriskmanagement practices,it canleadtodisclosureof informationthat isnot comparable acrossfirms, and therefore difficult for investorsandregulatorybodies toassess.Strengtheningthe contribution of external auditsto thequalityof riskdisclosures.What is thedegreeof assurancethat auditorsprovideabout publicdisclosures,includingthosein financial statements,managementsdiscussionand analysissectionsof financial reports, and risk informationon their clients websites?Towhat extent, and in what ways, dothey review or audit theaccuracyandreliabilityof thefinancial reportsthat theyexamine, and howdotheyreport on their assessmentsand findingsto the public?Thesearedeep questionsabout how to best evolve the audit function asfinancial systems and investor needsevolve, and theywont be resolvedovernight.Theyneedtobeaddressed, however,if wearetoclarify andtostrengthentherole of auditorsin promoting transparencyat firms.Thediscussionsat the FSB Roundtabletodaywill mark important stepstowardsprogressin many of theseareas.I am confident theFSBand itsstandard-settingbodies areup tothetask,and I encourage key stakeholdersin the private sector to jointogether toencourage and tosupport better, more transparent riskdisclosurepractices.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  29. 29. 29Core principles for effective banking supervisionBISConsultativedocument, December 2011TheBaselCommitteeonBankingSupervisionhasissuedforconsultationitsrevised Coreprinciplesfor effectivebankingsupervision.Theconsultativepaper updatesthe Committees2006Coreprinciplesforeffectivebanking supervisionand theassociatedCore principlesmethodology(assessment methodology).Both the existingCore Principlesand theassociatedassessmentmethodologyhaveserved their purposewellin termsof helpingcountriestoassesstheir supervisorysystems and identify areasfor improvement.While consciouseffortsweremade to maintain continuity andcomparability asfar aspossible, the Committeehasmerged theCorePrinciplesand the assessment methodology intoa singlecomprehensivedocument.Therevisedset of twenty-nineCorePrincipleshavealsobeenreorganisedtofoster their implementationthrough a more logical structure,highlightingthe differencebetweenwhat supervisorsdothemselvesandwhat theyexpect banks todo:Principles1to13 addresssupervisorypowers,responsibilitiesandfunctions,focusingon effectiverisk-basedsupervision, and theneed forearlyintervention and timelysupervisoryactions.Principles14to29 cover supervisoryexpectationsof banks, emphasisingtheimportanceof good corporategovernanceand risk management, aswell ascompliancewith supervisorystandards.Important enhancementshave been introducedintothe individual CorePrinciples,particularlyin thoseareasthat are necessaryto strengthensupervisorypracticesand riskmanagement.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  30. 30. 30Variousadditional criteria havebeen upgraded toessential criteria asaresult, while new assessment criteria werewarrantedin other instances.Closeattentionwasgiventoaddressingmany of the significant riskmanagement weaknessesand other vulnerabilitieshighlighted in the lastcrisis.In addition, thereview hastaken account of several key trendsanddevelopmentsthat emerged during the last few years of market turmoil:theneed for greater intensityand resourcesto deal effectivelywithsystemicallyimportant banks;the importanceof applying a system-wide,macroperspectivetothemicroprudentialsupervisionof bankstoassist in identifying, analysing and takingpre-emptiveaction to addresssystemicrisk; and theincreasingfocuson effectivecrisismanagement, recovery and resolution measures in reducingboth theprobability and impact of a bank failure.TheCommitteehassought togive appropriate emphasistotheseemergingissuesbyembeddingthem intothe Core Principles,asappropriate, and includingspecific referencesunder each relevantPrinciple.In addition, sound corporategovernance underpinseffectiveriskmanagement and public confidencein individual banks and the bankingsystem.Givenfundamental deficienciesin banks corporategovernancethat wereexposedin the last crisis, a new Core Principleon corporategovernancehasbeen added in this review by bringing together existingcorporategovernancecriteria in the assessment methodology and givinggreateremphasistosound corporate governancepractices.Similarly, the Committeereiterated thekeyroleof robust marketdisciplinein fosteringa safeand sound bankingsystem by expanding anexistingCore Principleintotwonew onesdedicated respectivelytoBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  31. 31. 31greater public disclosureand transparency, and enhanced financialreporting and external audit.As a result of this review, thenumber of Core Principleshasincreasedfrom 25to29.There area total of 36new assessment criteria, comprising 31newessential criteria and 5 new additional criteria.In addition, 33additional criteria from theexistingassessmentmethodologyhavebeen upgraded toessential criteria that representminimum baselinerequirementsfor all countries.TheBasel Committeewelcomescommentson therevised CorePrinciples.Commentsshould besubmittedbyTuesday20March2012byemail to: baselcommittee@bis.org.Alternatively, commentsmay be sent by post to theSecretariat of theBasel Committeeon BankingSupervision, Bank for InternationalSettlements,CH-4002Basel, Switzerland.All commentsmay be publishedon the Bank for InternationalSettlementsswebsiteunlessa commenter specificallyrequestsconfidential treatment.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  32. 32. 32The 29 Core Principlesare:Supervisory powers, responsibilities and functionsPrinciple1– Responsibilities, objectivesandpowers:An effectivesystemof banking supervision hasclear responsibilitiesand objectivesfor eachauthorityinvolved in thesupervision of banksand bankinggroups.Asuitablelegal framework for banking supervision is in placeto provideeach responsibleauthoritywiththe necessarylegal powersto authorisebanks,conduct ongoingsupervision, addresscompliance withlawsandundertake timelycorrectiveactionstoaddresssafety and soundnessconcerns.Principle2– Independence, accountability, resourcingand legalprotection forsupervisors: The supervisor possessesoperationalindependence,transparent processes, sound governanceand adequateresources,and is accountablefor the dischargeof its duties.Thelegalframeworkforbankingsupervisionincludeslegalprotectionforthesupervisor.Principle3– Cooperation and collaboration: Laws, regulationsor otherarrangementsprovidea framework for cooperation and collaborationwith relevant domestic authoritiesand foreignsupervisors.Thesearrangementsreflect the need toprotect confidential information.Principle4– Permissibleactivities: Thepermissibleactivitiesofinstitutionsthat are licensedand subject tosupervision asbanks areclearlydefinedand the useof the word“bank” in namesis controlled.Principle5– Licensing criteria: The licensingauthorityhasthe powertosetcriteriaand reject applicationsfor establishmentsthat donot meet thecriteria.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  33. 33. 33At a minimum, the licensingprocessconsistsof an assessment of theownership structure and governance(includingthe fitnessand proprietyof Board membersand senior management) of thebank and its widergroup, and itsstrategic and operating plan, internal controls, riskmanagement and projected financial condition (including capital base).Where the proposedowner or parent organsationis a foreignbank, theprior consent of itshome supervisoris obtained.Principle6– Transfer of significant ownership: The supervisor hasthepowertoreview, reject and imposeprudential conditionson anyproposalsto transfersignificant ownership or controllinginterestshelddirectlyor indirectlyin existingbanksto other parties.Principle7– Majoracquisitions: Thesupervisorhasthepowertoapproveor reject (or recommend tothe responsibleauthoritythe approval orrejectionof), and imposeprudential conditionson, major acquisitionsorinvestmentsby a bank, against prescribedcriteria, includingtheestablishment ofcross-borderoperations,andtodeterminethatcorporateaffiliationsor structuresdonot exposethebank toundue risksor hindereffectivesupervision.Principle8– Supervisoryapproach: An effectivesystem of bankingsupervision requiresthe supervisor todevelop and maintain aforward-lookingassessment of Core Principlesfor EffectiveBankingSupervisionthe risk profile of individual banksand banking groups,proportionateto their systemic importance;identify, assessand addressrisksemanatingfrom banks and thebanking system asa whole;have aframeworkin place for earlyintervention;and have plansin place,inpartnershipwithotherrelevant authorities,totakeaction toresolvebanksin an orderlymanner if theybecome non-viable.Principle9– Supervisorytechniquesandtools:The supervisor usesanappropriaterangeof techniquesand toolsto implement the supervisoryBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  34. 34. 34approachand deploys supervisoryresourceson aproportionate basis,takingintoaccount the riskprofileand systemic importanceof banks.Principle10– Supervisoryreporting:The supervisor collects,reviewsandanalysesprudential reportsand statisticalreturnsfrom bankson both asoloand a consolidatedbasis,and independentlyverifies thesereports,through either on-site examinationsor use of external experts.Principle11– Corrective and sanctioningpowersof supervisors: Thesupervisoractsat an earlystageto addressunsafeand unsound practicesor activitiesthat could pose riskstobanksor tothe bankingsystem.Thesupervisor hasat its disposal an adequaterangeof supervisorytoolstobring about timely correctiveactions.This includesthe ability torevokethe banking licenceor to recommenditsrevocation.Principle12– Consolidated supervision: An essential element of bankingsupervision is that thesupervisorsupervisesthebanking group on aconsolidatedbasis, adequately monitoring and, asappropriate, applyingprudential standardsto all aspectsof thebusinessconducted by thebankinggroup worldwide.Principle13– Home-host relationships:Home and host supervisorsofcrossborderbankinggroupsshareinformationandcooperateforeffectivesupervision of the group and group entities,and effectivehandlingofcrisissituations.Supervisorsrequire thelocaloperationsof foreign banksto be conductedtothe same standardsasthoserequired of domesticbanks.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  35. 35. 35Prudential regulations and requirementsPrinciple14– Corporate governance: The supervisor determinesthatbanksandbankinggroupshaverobust corporategovernancepoliciesandprocessescovering, for example, strategicdirection, group andorganisational structure,control environment, responsibilitiesof thebanks’Boardsand senior management, and compensation.Thesepoliciesand processesare commensurate with the risk profileand systemic importanceof thebank.Principle15– Riskmanagement process: The supervisor determinesthatbankshave a comprehensive risk management process(includingeffectiveBoard and senior management oversight) toidentify, measure, evaluate, monitor, report and control or mitigateallmaterial risks on a timely basis and toassessthe adequacyof their capitaland liquidityin relationtotheir risk profile and market andmacroeconomicconditions.This extendsto development and reviewof robust and crediblerecoveryplans,which takeintoaccount the specificcircumstancesof the bank.Therisk management processis commensurate with the risk profile andsystemic importanceof thebank.Principle16– Capital adequacy: Thesupervisorsetsprudent andappropriatecapital adequacyrequirementsfor banksthat reflecttherisksundertaken by, and presentedby, a bank in thecontext of the marketsandmacroeconomicconditionsin whichit operates.Thesupervisor definesthe componentsof capital, bearing in mindtheir abilityto absorb losses.Principle17– Credit risk: The supervisor determinesthat bankshave anadequatecredit risk management processthat takesinto account theirrisk appetite, risk profile and market and macroeconomicconditions.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  36. 36. 36This includesprudent policiesand processestoidentify, measure,evaluate, monitor, report and control or mitigatecredit risk (includingcounterpartycredit risk) on a timelybasis.Thefull credit lifecycle should be covered includingcreditunderwriting, credit evaluation, and theongoing management of thebank’sloan and investment portfolios.Principle18– Problem assets, provisionsand reserves: The supervisordeterminesthat banks have adequatepoliciesand processesfor the earlyidentificationand management of problem assets, and themaintenanceof adequateprovisionsand reserves.Principle19– Concentration risk and largeexposure limits:Thesupervisorsdeterminesthat bankshave adequatepoliciesand processestoidentify, measure, evaluate, monitor, report and control or mitigateconcentrationsof risk on a timelybasis.Supervisorsset prudential limitsto restrict bank exposurestosinglecounterparties or groupsof connected counterparties.Principle20– Transactionswithrelatedparties: In order topreventabusesarisingin transactionswithrelated parties and to addressthe riskof conflict of interest, the supervisor requires bankstoenter intoanytransactionswithrelated parties on an arm’slength basis; tomonitorthesetransactions;totake appropriate stepstocontrol or mitigate therisks;and to writeoff exposuresto related parties in accordancewithstandard policiesand processes.Principle21– Country and transfer risks: The supervisor determinesthatbankshave adequatepoliciesand processestoidentify, measure, evaluate, monitor, report and control or mitigatecountryrisk andtransferrisk in their international lendingand investmentactivitieson a timely basis.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  37. 37. 37Principle22– Market risks:Thesupervisordeterminesthat bankshaveanadequatemarket risk management processthat takesintoaccounttheirriskappetite,riskprofile, andmarket andmacroeconomicconditionsandtheriskof a significant deterioration in market liquidity.This includesprudent policiesand processestoidentify, measure,evaluate, monitor, report and control or mitigatemarket riskson a timelybasis.Principle23– Interest rate riskin thebankingbook:The supervisordeterminesthat banks have adequatesystems toidentify, measure,evaluate, monitor, report and control or mitigateinterest raterisk in thebankingbook on a timelybasis.Thesesystemstake intoaccount thebank’srisk appetite, risk profile andmarket and macroeconomicconditions.Principle24– Liquidityrisk:Thesupervisor setsprudent and appropriateliquidityrequirements(whichcan includeeither quantitativeorqualitativerequirementsor both) for banksthat reflecttheliquidityneedsof the bank.Thesupervisor determinesthat banks havea strategythat enablesprudent management of liquidityrisk and compliancewithliquidityrequirements.Thestrategy takesintoaccount the bank’srisk profile aswell asmarketandmacroeconomicconditionsand includesprudent policiesandprocesses,consistent withthebank’srisk appetite, toidentify, measure, evaluate, monitor, report and control or mitigateliquidityrisk over anappropriateset of time horizons.Principle25– Operational risk: The supervisordeterminesthat bankshaveanadequateoperationalriskmanagement frameworkthat takesintoBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  38. 38. 38account their risk appetite,risk profile and market and macroeconomicconditions.Thisincludesprudent policiesand processestoidentify, assess, evaluate,monitor, report and control or mitigateoperational risk on a timely basis.Principle26– Internal control and audit: The supervisor determinesthatbankshave adequateinternalcontrolstoestablishand maintain aproperlycontrolledoperatingenvironment for theconduct of theirbusinesstaking intoaccount their risk profile.Theseincludecleararrangementsfor delegatingauthority andresponsibility; separation of the functionsthat involve committingthebank, paying awayitsfunds, and accountingfor itsassetsand liabilities;reconciliationof theseprocesses;safeguardingthebank’sassets;andappropriateindependent internal audit and compliancefunctionstotestadherencetothesecontrolsaswell asapplicablelawsand regulations.Principle27: Financial reportingand external audit: The supervisordeterminesthat banks and banking groupsmaintain adequateandreliablerecords,prepare financial statementsin accordancewithaccountingpoliciesandpracticesthat are widelyacceptedinternationallyand annuallypublish informationthat fairlyreflectstheir financialcondition and performanceand bearsan independent external auditor’sopinion.Thesupervisor alsodeterminesthat banks and parent companiesofbankinggroupshave adequategovernanceand oversight of the externalaudit function.Principle28– Disclosure andtransparency: The supervisordeterminesthat banks and banking groupsregularlypublish informationon aconsolidatedand, whereappropriate, solobasisthat iseasilyaccessibleand fairly reflectstheir financial condition, performance, risk exposures,Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  39. 39. 39risk management strategiesand corporategovernancepoliciesandprocesses.Principle29– Abuse of financial services: Thesupervisordeterminesthatbankshave adequatepoliciesand processes,includingstrict customerduediligencerulestopromotehigh ethical and professional standardsinthefinancialsectorandprevent thebank frombeingused, intentionallyorunintentionally, for criminal activities.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.comTheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) is thelargest associationof Basel iii Professionalsin theworld. It is a businessunit of theBasel ii ComplianceProfessionalsAssociation (BCPA), whichis alsothe largest associationof Baselii Professionalsin theworld.
  40. 40. 40Basel III SpeakersBureauTheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) hasestablished the Basel III Speakers Bureau for firmsand organizationsthat want to accessthe Basel iii expertise of Certified BaseliiiProfessionals(CBiiiPros).TheBiiiCPAwill be the liaisonbetweenour certified professionalsandtheseorganizations,at nocost. We stronglybelievethat this can be agreat opportunityfor both, our certified professionalsand theorganizers.Tolearnmore:www.basel-iii-association.com /Basel_iii_Speakers_Bureau.htmlCertified Basel iii Professional (CBiiiPro)Distance Learning and Online Certification Program.TheCost: US$297What is included in this price:A.Theofficial presentationsweuse in our instructor-led classes(1426slides)You can find the coursesynopsis at:www.basel-iii-association.com/ Course_Synopsis_Certified_Basel_III_Professional.htmlB. Up to3 OnlineExamsThere is onlyone exam you need topass, in order tobecomea CertifiedBasel iii Professional (CBiiiPro). If you fail, you must study again theofficial presentations,but you donot need to spend moneytotry again.Up to 3 examsareincludedin the price.Basel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com
  41. 41. 41Tolearnmore you may visit:www.basel-iii-association.com/ Questions_About_The_Certification_And_The_Exams_1.pdfwww.basel-iii-association.com/ Certification_Steps_CBiiiPro.pdfC. PersonalizedCertificateprinted in full color.Processing, printingand posting toyour office or home.Tobecome a CertifiedBaseliii Professional (CBiiiPro) you must followthestepsdescribedat:www.basel-iii-association.com/ Basel_III_Distance_Learning_Online_Certification.htmlBasel iii ComplianceProfessionalsAssociation (BiiiCPA)www.basel-iii-association.com

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