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    SARB Proposes Final Basel Rules, Issues STC Securitization Directive

    September 30, 2022

    The Prudential Authority (PA), which was established under the auspices of the South African Reserve Bank (SARB), is proposing to amend banking regulations to incorporate the remaining components of the final Basel III post-crisis regulatory reforms issued by the Basel Committee. The appendices to the consultation contain the associated revised draft reporting templates and instructions for the banking sector. SARB also published a proposed Directive on completion of the quarterly operational risk form BA 400 that addresses conditions for banks to comply with in relation to the standardized approach; these conditions become effective from the implementation date of the proposed amended Regulations—that is, from January 01, 2024 onward. The comment period for these proposals ends on October 21, 2022. Also published was a guidance note (Guidance Note 11/2022) on completion and submission of the quarterly operational risk form BA 410 and a Directive (Directive 10/2022) on the criteria for identifying simple, transparent, and comparable (STC) term and short- term securitizations.

    The Proposed Directive on the final Basel III regulatory reforms covers the standardized and the internal ratings-based (IRB) approaches for credit risk, the new standardized approach for operational risk, the revised exposure definition of the leverage ratio framework, and the requirements for the output floor calculations. The Basel Ill reforms replace the existing Basel II floor with a floor based on the revised Basel Ill standardized approaches. The proposed reporting templates include Forms BA 200 and 210 (monthly and quarterly forms on credit risk approaches data); BA 400, 410, and 420 (operational risk data collection); and BA 700 (capital adequacy and leverage). As per the proposal, in terms of the Basel Ill post-crisis regulatory reforms and the related required output floor calculation from the Basel Committee, banks must calculate their risk-weighted assets as the higher of:

    • total risk-weighted assets calculated using the approaches that the bank has supervisory approval to use in accordance with the Basel capital framework (including both standardized and internal model-based approaches)
    • a specified percentage of the total risk-weighted assets calculated using only the standardized approaches phased in over a specified period, commencing from the effective date of the rules up to January 01, 2028

    Since it has been decided to implement the proposed amendments to the Regulations in South Africa with effect from January 01, 2024, instead of the internationally agreed implementation date of January 01, 2023, as set out in Guidance Note 4 of 2022, and not to deviate from the respective internationally agreed phase-in percentages related to the output floor calculation during the period 2024 to 2028, South Africa will commence with a phase-in output floor percentage of 55% on January 01, 2024. In addition, at national discretion, supervisors may cap the increase in a bank's total risk-weighted exposure that results from the application of the output floor during its phase-in period. The transitional cap on the increase in risk-weighted exposure is set at 25% of a bank's risk-weighted exposure before the application of the floor. If a supervisor uses this discretion, a bank's risk-weighted exposure will effectively be capped at 1.25 times the internally calculated  risk-weighted exposure during that time. 

     

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    Keywords: Middle East And Africa, South Africa, Banking, Basel, Reporting, STC Securitization, Leverage Ratio, Output Floor, Credit Risk, Operational Risk, Regulatory Capital, SARB

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