BCBS Basel III update shows little progress

Widespread progress yet to be seen on the implementation of Basel III for operational risk

On 6 July, the Basel Committee for Banking Standard (BCBS) published its Eighteenth progress report on adoption of the Basel regulatory framework. The report sets out “the adoption status of Basel III standards for each of the BCBS member jurisdictions as of end-May 2020”, and confirms that very few jurisdictions have formally made progress on their implementation of the revised operational risk framework. This follows an announcement in March of a formal deferral of the Basel III implementation by 1 year to January 2023.

Only Australia and Korea have published rules so far

Within the set of BCBS members, only two jurisdictions, Australia and Korea, have published final rules for the Basel III revised operational risk framework, an increase of 2 from the previous assessment published in September 2019. As previously reported, Australia published a final rule last year, and more recently Korea issued its final rule in April 2020. Both of these will come into force from January 2023.

Russia and Indonesia issue draft regulation

Furthermore, only an additional two jurisdictions – Indonesia and Russia – have issued draft regulation. In Indonesia, a consultative paper was released in June 2018. And, in Russia draft regulation was issued for public comment in March 2020, with a rapid implementation during the second half of 2020. From this, it appears that loss data will be included within the SMA calculation in Russia.

No change in other jurisdictions

For all other jurisdictions, including the EU and US, the paper simply reports a BCBS deadline of January 2023 but that draft regulation is not published. It remains to be seen what, if any, the impact of coronavirus and the increased regulatory focus on operational resilience will have on the way that the revised capital framework is implemented.

It is worth noting, however, that operational risk is not alone, and a similarly low level of progress is reported for the revisions within the standardised and internal rating-based approaches for credit risk, and those for market risk. Like operational risk, each of these has a BCBS implementation deadline of January 2023.