United Nations Climate Change
Our aim is to help our clients understand the potential opportunities and challenges that COP25 may have on their business.
On December 7, 2017, the Basel Committee on Banking Supervision (BCBS) published the Basel III: Finalising post-crisis reforms document. It contains what the BCBS terms as revisions to the Basel III standards on credit risk, credit valuation adjustment risk and operational risk. The document also prescribes minimum capital requirements as a percentage of risk-weighted assets (RWAs) to apply to all banks, whether using the standardized approaches or internal ratings-based (IRB) approaches, and sets out requirements for the controversial leverage ratio. The BCBS considers that the revisions complete the Basel III Framework but European banks generally consider the revisions to go far beyond the original Basel III standards, and thus the disputed name.
Hardly. Most jurisdictions are still making law and regulations to apply the Basel III standards, which were supposed to come into force globally by the end of 2015. Most recently, European Union (EU) lawmakers adopted wide-ranging amendments to Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (CRR) and Directive 2013/36/EU on access to the activity of credit institutions and investment firms and the prudential supervision of credit institutions and investment firms (CRD IV), which will apply some of the last Basel III standards including the leverage ratio and the net stable funding ratio. Most of these amendments to CRR and CRD IV will apply only from Q3 2021.
Probably not before 2024. The BCBS has set a five-year transition period for the revisions with most revisions to standards supposed to be applied by supervisors by January 1, 2022. However, few jurisdictions are likely to have transposed the revisions into law by then, and any that have will likely be reluctant to move before either the EU or United States (US) do. And neither of these heavyweights will have done so by 2022. We expect EU policy-makers to publish draft legislation transposing the revisions by the end of Q1 2020. This legislation is unlikely to apply before early 2024.
Lobby up. Most governments will transpose the revisions with greater or lesser divergences from what was agreed in Basel to suit domestic banks and other stakeholders. This will certainly be the case in the EU, where the European Commission has consistently proposed (and gotten away with) some tailoring of BCBS standards when transposed in EU law. The Commission began its work on amending CRR and CRD IV to transpose the revisions early last year. The Commission is expected to publish the draft legislation after a new College of Commissioners takes office in November. Early problems identified by European banking lobbies include the scope of the output floor (with the priority being to exclude EU-specific buffers) and the treatment of exposures to companies and small and medium-sized enterprises in the SA-CR revisions. Banks and others concerned about the impact of the revisions on trade finance should be making these concerns known to Commission policy-makers now and make the case for limited divergence.
IMO 2020 is almost upon us. Readers are well aware of the impending switch to 0.5 percent fuel mandated by Annex VI of MARPOL which will cause an anticipated drop in HSFO demand, the potential hazards of new untested LSFO blends, the concerns around scrubber operations, the debate over open loop versus closed loop, and the myriad of other risks associated with the impending regulatory change.