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    JFSA Issues Final Basel Rules, Proposes Guidance on Climate Risk

    The Financial Services Agency of Japan (JFSA) finalized amendments to the regulatory notices pertaining to Pillar 1 and Pillar 3 capital requirements to implement the final Basel III framework. Additionally, JFSA published the draft guidance on climate-related risk management and the draft order on over-the-counter (OTC) derivatives transactions.

    Below are the key highlights of the recent updates:

    • Post consultation, JFSA has finalized the amendments on operational risk capital requirements (March 2021), credit risk, credit valuation adjustment (CVA) risk, market risk capital requirements (September 2021), and leverage ratio requirements (October 2021). For internationally active financial institutions and non-internationally active financial institutions that use internal model-based approaches for measuring risks, the amendments will be applied from March 31, 2024. Also, for non-internationally active financial institutions that do not use internal model-based approaches for measuring risks, the amendments will be applied from March 31, 2025. Financial institutions that desire an early implementation on or after March 31, 2023 may do so by submitting a notification to JFSA.
    • JFSA also proposed the "Supervisory Guidance on Climate-related Risk Management and Client Engagement," in response to the recommendations prescribed in a report published by the Expert Panel on Sustainable Finance in June 2021. The draft guidance documents viewpoints of supervisory dialog regarding climate-related risk management of financial institutions; it also covers the engagement of financial institutions with the clients to support the clients’ responses to climate-related opportunities and risks, including possible approaches and case examples of client engagement. The guidance is non-binding and serves as a baseline for supervisory dialog between JFSA and financial institutions to promote better practices at financial institutions. The consultation is open until May 26, 2022.
    • JFSA proposed draft "Cabinet Office Order to Amend the Cabinet Office Order on Restrictions on Over-the-Counter Derivatives Transactions, etc." and the draft regulatory notice specifying cases concerning other inevitable grounds for not being able to provide trade information, such as data on centrally and/or non-centrally cleared trades. The proposal mainly intends to enhance the preservation and reporting items under the system of OTC derivatives transaction information to enable international data aggregation. JFSA is requesting comments until May 30, 2022. The proposal is based on publications on harmonization of critical OTC derivatives data elements, unique product identifies, and unique transaction identifier, by the Committee on Payments and Market Infrastructures under the Bank for International Settlements.

    Keywords: Asia Pacific, Japan, Banking, Basel, Pillar 1, Pillar 3, Regulatory Capital, Operational Risk, Market Risk, Credit Risk, CVA Risk, Leverage Ratio, OTC Derivatives, Climate Change Risk, ESG, Guidance, JFSA, Headline

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