The Basel Committee on Banking Supervision (BCBS) finalized standards for the voluntary disclosure of sovereign exposures and revised the market risk disclosure requirements to reflect changes to the minimum capital requirements for market risk, which were published in January 2019. The revised disclosure standards reflect changes related to the "traffic light" approach for capital requirements and simplified standardized approach, along with the other changes in the market risk standards. The revised market risk disclosure requirements shall come into effect on January 01, 2023.
Changes to market risk disclosure requirements
The revised market risk standard introduced a "traffic light" approach for capital requirements as a consequence of the outcome of the profit and loss attribution test for banks using the internal models approach. The consequence of failing the profit and loss attribution test has been revised from the former binary passor-fail outcome to a three-tiered “traffic light” approach with an intermediate “amber zone.” Another significant change is the introduction of the simplified standardized approach as an alternative way of calculating capital requirements for market risk. For banks that have relatively small or non-complex trading portfolios, the simplified standardized approach—a recalibrated version of the Basel 2.5 market risk standardized approach—may be used by banks in lieu of use of the “full” standardized approach, subject to supervisory approval. BCBS also revised following tables and templates to reflect the changes to the market risk framework:
- Table MRA on general qualitative disclosure requirements related to market risk
- Template MR1 on market risk under the standardized approach
- Table MRB on qualitative disclosures for banks using the internal models approach
- Table MRC on the structure of desks for banks using the internal models approach
- Template MR2 on market risk internal models approach
- Template MR3 on risk-weighted assets (RWA) flow statements of market risk for trading desks under the internal models approach
- Template MR4 on market risk under the simplified standardized approach
Voluntary Disclosure Standards for Sovereign Exposures
The voluntary disclosure standards comprise three templates (Templates SOV1, SOV2, and SOV3) covering disclosure of sovereign exposures and risk-weighted assets by jurisdictional breakdown, currency breakdown, and according to the accounting classification of the exposures. Consultation on these templates took place in November 2019. Since there is no consensus to make any changes to the regulatory treatment of sovereign exposures, these disclosure templates would be voluntary in nature, with jurisdictions free to decide whether to require their banks to implement them. Annex to the document on voluntary disclosure of sovereign exposures sets out the final version of the new chapter of the consolidated Basel Framework that contains the full finalized disclosure templates. The implementation of these templates are only mandatory when required by national supervisors. Since these disclosures are voluntary at the jurisdictional level, the final document does not refer to a required implementation date. Rather, it points out that the definitions used in the templates are consistent with the Basel framework, which is to be effective as of January 01, 2023.
- Press Release
- Revisions to Market Risk Disclosure Requirements (PDF)
- Market Risk Requirements, January 2019
- Voluntary Disclosure of Sovereign Exposures (PDF)
- Consultation on Voluntary Disclosure Standards, November 2019 (PDF)
Effective Date: January 01, 2023
Keywords: International, Banking, Market Risk, Basel, Disclosures, Regulatory Capital, Standardized Approach, Simplified Standardized Approach, Pillar 3, Sovereign Exposures, BCBS
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
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.
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.
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.
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.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
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.