European Commission publishes public consultation on Basel III reforms

On Friday 11 August the European Commission published a public consultation document in “Implementing the final Basel III reforms in the EU”. This follows specific recommendations given by the EBA in its policy advice that was published by the on 5 August.

The consultation document structure and focus closely follows that of the EBA. It includes a mixture of SMA specific topics and areas of operational risk which are not covered by the Basel SA and may require existing requirements to be amended. This includes:

SMA topics

• Discretion to set the ILM equal to 1
• Discretion to increase the loss data threshold to EUR 100,000
• Discretion to use the ILM for bucket 1 institutions
• Discretion to request institutions to use less than five years when the ILM is greater than 1 
• Exclusion of certain operational risk loss events

Other operational risk topics 

• Additional binding requirements on the processes and procedures for loss data collection, quality and type of data that should be collected
• Views on requiring the inclusion of internal loss data, scenarios, external loss data and key risk indicators in the ICAAP for operational risk
• Using FINREP templates as a reference for a harmonised identification of BIC (business indicator component of SMA) items

Comments

Much of the consultation focuses on the use of the ILM within the calculation, confirming the recommendations made by the EBA for  including loss data within the formula, but allowing some flexibility.

This adds to the building sense that over the next few years there will be a strong supervisory focus on the process of loss data collection and the ability of firms to demonstrate that data is of high quality.

Next steps

ORX is planning on asking its EU-based members how to best support their responses to this consultation. This could include dialogue to understand how other institutions plan to respond or a combined response on behalf of our membership. If you'd like to know more about this, please contact us.