Basel II and Basel III
Basel II and Basel III: overview
In 2006 the Basel Committee on Banking Supervision (“Basel Committee”) issued a document “International Convergence of Capital Measurement and Capital Standards”. The Isle of Man implemented this capital framework, known as Basel II, for banks incorporated in the Island, in 2008.
Since 2008 the Basel Committee worked to revise Basel II to strengthen the framework and address lessons of the financial crisis. This work resulted in a number of documents being issued that revise Basel II or establish new international standards regarding the financial wellbeing of international banks. Collectively, this initiative is described by the Basel Committee as “Basel III”, and it encompasses both capital adequacy and liquidity measures, and also a range of other matters, including systemic importance and interest rate risk in the banking book.
The Basel Committee describes "Basel III" as a comprehensive set of reform measures, to strengthen the regulation, supervision and risk management of the banking sector.
These measures aim to:
- improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source;
- improve risk management and governance; and
- strengthen banks' transparency and disclosures.
The reforms target:
- bank-level, or micro-prudential, regulation, which will help raise the resilience of individual banking institutions to periods of stress; and
- macro-prudential, system wide risks that can build up across the banking sector as well as the pro-cyclical amplification of these risks over time.
Basel III: implementation in the Isle of Man
Regulators are implementing Basel III in many jurisdictions. In the Isle of Man a flexible approach to rolling out key elements of Basel III, most relevant to the Island’s banking sector, has been adopted.
As part of its work the Authority worked with the Jersey Financial Services Commission and Guernsey Financial Services Commission (the “Tri-Party Group”) to produce a set of discussion papers (“DPs”) that were issued to banks in the Crown Dependencies. These DPs initially covered a general approach, followed by more detailed specific proposals on key elements of Basel III.
Further, Isle of Man specific implementation proposals have been, and continue to be, subject to local consultation.
A summary of all papers, and any related information issued to date, is shown below.
General Papers
Tri-Party Discussion Papers
Capital Adequacy
Tri-Party Discussion Papers
- DP “Basel III: Capital Adequacy”, December 2013
- Feedback on the Basel III Capital Adequacy DP, December 2014
- DP “Basel III Leverage Ratio”, June 2014
- Feedback on the Basel III Leverage Ratio DP, December 2014
Authority Consultation Papers and associated information
- CP “Basel III: Capital Adequacy and Leverage”, issued July 2015
- Feedback on CP “Basel III: Capital Adequacy and Leverage”, issued December 2015
- Briefing to banks on new capital rules, issued February 2017
- New reporting forms (extracts) and completion notes (extracts), issued February 2017
Final rules and reporting
New capital rules came into effect on 1 July 2017 and are contained in the Financial Services Rule Book. The final reporting forms and associated guidance can be found here
Liquidity
Tri-Party Discussion Papers
- DP “Basel III: Liquidity”, issued July 2015
- Feedback on the Basel III Liquidity DP, issued February 2016
Authority Consultation Papers and associated information
The Authority is planning to issue a consultation paper during 2018.