SARB Updates Address Aspects of IRRBB, LCR, and Cyber Risk Rules
The South African Reserve Bank (SARB) launched a consultation, which ends on January 06, 2023, on revisions to certain aspects of the framework for bank exposures to interest rate risk in the banking book (IRRBB) and published a directive addressing national discretions related to the liquidity coverage ratio. Another consultation, for which comments are being sought until February 28, 2023, relates to the standard on cybersecurity and cyber resilience requirements. The proposed standard stipulates that a financial institution must notify the responsible authority, in the form and manner determined by the Authorities, after classifying a cyber incident or an information security compromise event as a material incident.
The Prudential Authority of SARB proposed Directive on IRRBB covers certain reporting requirements and instructions related to the completion of the form BA330. As a result of an earlier consultation, the Prudential Authority has decided to delete the detailed instructions for the completion of the form BA330 from regulation 30(10) of the proposed amendments to the Regulations and to insert an enabling provision that allows the Prudential Authority to issue a Directive in terms of section 6(6) of the Banks Act 1990 to specify the detailed instructions for the completion of the form BA330. Deleting the instructions from the Regulations and issuing the instructions as this Directive allows for further amendments without requiring amendments to the Regulations. The recent Draft Directive states that Regulation 30 of the Regulations, as amended to incorporate the updated IRRBB standards, shall be applied by banks only on a solo basis until IRRBB Public Disclosure requirements come into effect, from January 01, 2024, when Regulation 30 of the Regulations shall be applicable on both a solo and group consolidated basis.
The Prudential Authority also issued Directive 11/2022 to communicate to the industry the decisions related to national discretion items to be applied by banks in the calculation of the liquidity coverage ratio (LCR). Among others, the Directive stipulates the following requirements:
- Banks must include their statutory cash reserves as envisaged in Regulation 27(2) of the Regulations as Level 1 high-quality liquid assets (Level 1 HQLA)
- With respect to the haircuts on level 1 HQLA, the Prudential Authority regards it as appropriate at this stage not to impose haircuts on South African level 1 HQLA.
- In the case of equities, the Prudential Authority shall only consider equities listed on the Johannesburg Stock Exchange's (JSE) main exchange and included in the Top 40 Index for inclusion as level 2B HQLA.
- The Prudential Authority has decided to permit foreign-currency denominated level 1 HQLA to be kept for LCR compliance in the local currency, that is, to cover domestic currency net cash outflows until December 31, 2023.
- Banks must apply a 10% run-off factor for less-stable retail deposits. The run-off factor for all retail term deposits with a residual maturity or notice period greater than 30 days shall be 3%.
Keywords: Middle East and Africa, South Africa, Banking, LCR, Basel, Reporting, IRRBB, Cyber Risk, Liquidity Risk, Regtech, BA330, SARB
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