Basel III

Basel III: international regulatory framework for banks

 

Overview

Basel III is an internationally agreed set of measures and standards developed and issued by the international standard setting body, the Basel Committee on Banking Supervision (Basel Committee).  It expanded upon and replaced Basel II.  The various Basel III reforms were brought together in 2019 into one consolidated set of standards, collectively referred to as the Basel Framework. 

Implementation of the components of the Basel Framework, at a consolidated level for internationally active banks, was between December 2019 to January 2023.

In summary, the Basel Framework consists of:

  • prudential standards covering bank capital adequacy, bank liquidity, and large exposures, and elements of interest rate risk;
  • risk management and supervisory review processes;
  • disclosure requirements (market discipline); and
  • an approach to identifying and supervising systemically important banks.

Underpinning the above are ‘core principles for effective banking supervision’ (last updated April 2024), which provide a comprehensive standard for establishing a sound foundation for the regulation, supervision, governance and risk management of the banking sector.

 

Implementation in the Isle of Man

In the Isle of Man, a flexible approach to rolling out the key components, most relevant to the Island’s banking sector, has been adopted.  One of our main priorities is to make sure any implementation is done efficiently and effectively and with full and open consultation.

The key components of the Basel Framework are set out in the table below, together with a summary of the implementation status.

 

Core component

Secondary component

Implementation status

Capital adequacy (pillar 1 – capital)

Quality and level of capital

Implemented July 2017

Capital adequacy (pillar 1 – risk coverage)

Revisions to standardised approach

To be considered (currently Basel II framework)

Constraints on use of internal models (including regulatory floors)

No current plans (no banks use models for regulatory capital purposes)

Revisions to counterparty credit risk

To be considered (currently Basel II framework)

Revisions to securitisations

To be considered (currently Basel II framework)

Exposures to central counterparties and funds

To be considered (currently Basel II framework)

Capital adequacy (pillar 1 – leverage)

Non-risk-based leverage ratio (backstop)

Implemented July 2017 (as a monitoring measure)
 

Liquidity

Liquidity coverage ratio (LCR)

Roadmap published Oct 2024, implementation 2025-26

Net stable funding ratio (NSFR)

Roadmap published Oct 2024, implementation 2025-26

Liquidity monitoring metrics

Roadmap published Oct 2024, implementation 2025-26

Sound principles for management and supervision (regulatory guidance)

Roadmap published Oct 2024, implementation 2025-26 (also see “risk management and supervision”)
 

Large exposures

Updated large exposures regime

To be considered (a large exposures regime and reporting requirement is in place)
 

Risk management and supervision (pillar 2)

Supplemental Pillar 2 requirements

Pillar 2 guidance is in place (ICAAP), last updated April 2024 - to be considered further as part of the liquidity implementation plan

Interest rate risk in the banking book (enhanced guidance, updated standardised approach)

To be considered, noting an existing framework and guidance is in place
 

Disclosure (market discipline – pillar 3)

Revised pillar 3 disclosure requirements

To be considered – pillar 3 was not adopted as part of Basel II implementation
 

Systemically important banks (SIBs)

Framework for domestic SIBs

Implemented June 2017, refreshed November 2023

 

 

October 2024 - Liquidity

The Authority published an implementation plan in respect of introducing updated liquidity requirements for banks, which can be found here.

 

Systemically important banks

The Authority introduced a framework for domestic systemically important banks in June 2017 and periodically reviews this to make sure it remains appropriate.  Further information is available here.

 

Earlier Basel III papers (pre-2018)

Tri-party discussion papers, issued jointly with the Crown Dependency counterparts.

Authority consultation papers and associated information