Consultation Paper - Amendments to the Standardised Approach to Measuring Credit Risk Capital Charges for Banks

Summary

This is a BMA consultation paper proposing to adopt the Basel III revised standardised approach (RSA) for calculating credit risk capital charges, replacing the credit risk provisions of the Authority's 2008 Basel II framework (paragraphs 24 to 159 and annexes 2.7 to 2.14). It sets out proposed risk-weighting rules for a wide range of exposure types and invites industry feedback before the rules are finalised and incorporated into the Authority's Basel III for Bermuda Banks Final Rule.

• Scope of proposed changes: New due diligence requirements and revised risk-weighting tables for exposures to sovereigns, public sector entities, multilateral development banks, banks, securities firms, covered bonds, corporates (including specialised lending and CSMEs), subordinated debt and equity, retail, real estate, securitisations, past-due loans, off-balance-sheet items, and credit risk mitigation (CRM).
• National discretion: The Authority proposes to largely follow the Basel RSA but apply national discretion for real estate exposures to better reflect Bermuda's local market.
• Implementation timing: Basel's global implementation date moved from 1 January 2022 to 1 January 2023 due to COVID-19; the Authority states it will work with industry to set an appropriate Bermuda implementation date given the scope of changes.
• Consultation process: Industry and stakeholders are invited to submit comments on the proposals by email to banking@bma.bm by close of business on 19 August 2022.

As a consultation paper, the document does not itself create binding rules; the proposed due diligence and risk-weighting requirements will only take effect once finalised in the Authority's Basel III for Bermuda Banks Final Rule. The only immediate action required of readers is to respond to the consultation by the stated deadline if they wish to influence the final rules.

Key obligations

• Industry and stakeholders wishing to comment must submit feedback on the proposals to banking@bma.bm by close of business on 19 August 2022.
• Once finalised, banks will be required to perform ongoing due diligence on counterparties' risk profiles at origination and at least annually, and to be able to demonstrate this analysis to the Authority.
• Once finalised, banks must apply the revised risk-weighting methodology (including enhanced due diligence for unrated CSMEs and specialised lending classifications) in place of the current Basel II credit risk capital charge calculation.

Applies to

banks

Deadlines

• 19 August 2022: Deadline for industry and stakeholders to submit comments on the consultation paper to banking@bma.bm.
• 1 January 2023: Basel's revised implementation date for the standardised approach for credit risk (originally 1 January 2022); the Authority will separately determine Bermuda's implementation date with industry input.