Featured Product

    BNM Consults on Basel Requirements, Issues Business Continuity Policy

    December 19, 2022

    The Bank Negara Malaysia (BNM) proposed the capital requirements on financial institutions’ exposures to central counterparties (CCPs) under the Basel III capital adequacy framework, with the comment period ending on February 17, 2023. BNM also published a policy document on business continuity management for various financial institutions and proposed requirements for the application of hajah (need) and darurah (dire necessity) by Islamic financial institutions in carrying out Islamic banking and insurance business. The comment period for the exposure draft on hajah and darurah ends on February 28, 2023.

    The proposed framework on CCP exposures under Basel III requires financial institutions to capitalize their trade and default fund exposures to CCPs, where the capital requirements are differentiated based on qualifying CCP (QCCP) and non-qualifying CCP. The requirements in this policy document shall apply to financial institutions’ exposures to CCP arising from over-the-counter (OTC) derivatives transactions, exchange-traded derivatives transactions, securities financing transactions, and long settlement transactions. The proposed policy document is part of the Capital Adequacy Framework and will come into effect no earlier than [July 01, 2023]. Taking into the account the implementation roadmap of the overall Basel III regulatory reforms, BNM is proposing the following transitional arrangements:

    • The exposure value will be calculated based on the existing method to calculate counterparty credit risk capital, namely the Current Exposure Method (CEM) as set out in the risk weighted assets treatment of the Capital Adequacy Framework. The CEM will be replaced by the Standardized 
      Approach to Counterparty Credit Risk (SA-CCR) framework when the latter is finalized by BNM. Financial institutions will be given sufficient time to prepare for the implementation of SA-CCR
    • A standardized 2% risk-weight will be applied for the computation of capital requirements for the default fund exposures to Bursa Malaysia Derivatives Clearing Berhad (BMDC). This will be replaced by the full-fledged approach stipulated in paragraph 10 after the SA-CCR comes into effect. For default fund exposures to other QCCPs, financial institutions shall apply the full-fledged approach specified in paragraph 10 on the effective date of this policy document.

    The exposure draft on hajah and darurah sets out the proposed requirements and expectations for the application of hajah (need) and darurah (dire necessity) by Islamic financial institutions in carrying out Islamic banking and takaful business. Hajah and darurah concepts have been applied in Islamic financial business to address hardship or difficulties in executing financial transactions or arrangements based on Shariah principles. The application of hajah and darurah arises during unfavorable circumstances or distress situations facing an Islamic financial institution to prevent harm (mafsadah) and ultimately attain benefit (maslahah). The exposure draft aims to seek feedback from Islamic financial institutions on the following:

    • Parameters of hajah and darurah and their scope of application
    • Requirements relating to responsibilities of the board, Shariah committee, senior management, and control functions of the Islamic financial institutions in ensuring a comprehensive and robust assessment as well as effective implementation of the application of hajah and darurah
    • Requirements and policy guidance relating to the processes and procedures that facilitate Shariah deliberation and decision-making concerning hajah and darurah in the Islamic financial institutions

    The policy on business continuity management aims to facilitate the development and implementation of a robust business continuity management framework; it also aims to facilitate policies and processes by financial institutions, which are integrated with their overall risk appetite and reinforce sound risk management practices. Another aim is to strengthen the capacity and preparedness of financial institutions to respond and recover from operational disruptions and to preserve the continuity of critical business functions and essential services within a specified timeframe in the event of an operational disruption. The policy applies to all financial institutions and will come into effect on December 19, 2023, with the exception of the requirement on the testing of disaster recovery plan as specified in paragraph 9.48, which comes into effect on December 19, 2025. A financial institution is permitted to implement requirements in paragraph 9.48 earlier than December 19, 2025. The policy document is accompanied by a post-consultation feedback statement and two attachments in the form of templates—Level of Disruption (LoD) Reporting Form for non-cyber incidents and Cyber Incident Scoring System (CISS) Form for cyber incidents.


    Related Links


    Keywords: Asia Pacific, Malaysia, Banking, Business Continuity, Operational Risk, Islamic Banking, Basel, Regulatory Capital, OTC Derivatives, Operational Resilience, Cyber Risk, Cyber Incident Reporting, SA CCR, Regtech, BNM

    Featured Experts
    Related Articles

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697