BCB published two consultation papers setting out certain credit risk and market risk requirements under the Basel III framework. One consultation proposes a resolution that amends the procedures for calculation of capital requirements for the standardized approach to credit risk exposures. The consultation period ends on February 23, 2021 and the associated final BCB resolution is expected to take effect on January 01, 2022. The other consultation relates to changes to certain aspects of the regulatory framework for market risk, based on the Fundamental Review of the Trading Book (FRTB) under Basel III. The consultation period for this proposal ends on February 09, 2021 and the associated regulatory changes are expected to come into force on January 01, 2022.
The new framework for the standardized approach for credit risk is expected to be more robust and risk-sensitive. The proposal increases the granularity of the weights applicable to exposures, bringing refinements in the differentiation in credit risk. The consultation introduces BCBS recommendations related to the Basel III framework, as published in December 2017. The proposal is addressed to financial institutions classified in Segments 1 (S1) to 4 (S4). All institutions included in these segments currently opt for the standardized approach for credit risk. This new resolution will replace the BCB Circular No. 3,644 dated March 04, 2013, upon finalization.
Additionally, the consultation on market risk framework represents the first phase—out of the four expected phases—of the process of reviewing the prudential standard for determining the capital requirements related to market risk. The first phase consultation covers requirements for the risk management process, including improvements in governance and the identification of financial instruments classified in the trading portfolio. According to the proposals in the consultation, the requirements in the first phase will come into force on January 01, 2022, through amendments to the Resolution 4,557 of February 23, 2017 and through the publication of a new rule that will replace the Circular No. 3,354 dated June 27, 2007.
Related Links (in Portuguese)
- Press Release
- Consultation on Credit Risk (PDF)
- First Phase Consultation on Market Risk (PDF)
- Consultations Page
Comment Due Date: February 23, 2021/February 09, 2021
Keywords: Americas, Brazil, Banking, Basel, Credit Risk, Market Risk, Standardized Approach, FRTB, Regulatory Capital, Financial Instruments, Trading Book, BCB
Previous ArticleBCBS Report Examines Progress in Implementation of Basel III Reforms
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.