Basel III feedback paper (2024-10-01)

Summary

This is a JFSC feedback paper responding to two 2024 consultations on implementing Basel III in Jersey (the Prudential Roadmap and the quick wins proposals). It confirms the JFSC will proceed with the Roadmap timeline largely as proposed, while revising several quick wins proposals in light of industry feedback from Jersey Incorporated Banks (JIBs) and the Jersey Bankers Association.

• Capital minima and buffers: From 1 January 2025, capital minima will align with the Basel Framework (CET1 4.5%, Tier 1 6%, Total 8%) and a 2.5% capital conservation buffer will be introduced, reducing headline minima but increasing the effective buffer requirement; the Banking Code, Pillar 2 guidance and prudential reporting guidance will be revised accordingly.
• Liquidity coverage ratio (LCR): PSE-issued or guaranteed securities (even from financial institutions, if not bank-regulated and having a public remit) will be eligible as HQLA, including in Level 2B; eligible MDB list will widen; short-term government Bills get 6 months grace as Level 1 HQLA after a sovereign downgrade below AA-, and USD/GBP government bonds and Fed/BoE central bank reserves will remain eligible Level 1 HQLA at all times.
• Large exposures: New PSE concession limit approvals will be permitted (capped at the lower of 50% of the sovereign concession limit or 50% of capital); a separate concession limit framework (up to twice current country limits) will be created for short-term government Bills and central bank reserves, extended to MDBs and supranationals; reverse repo exposures may optionally be reduced by collateral received, but with a corresponding collateral exposure recognised.
• Further consultations planned: Consultations on large exposures, operational risk and credit risk are planned for Q4 2024, on systemic importance for H1 2025, and on prudential reporting and liquidity matters for H1/H2 2025, following stakeholder workshops and engagement with JIBs.

The JFSC will publish final documentation and finalised minima/buffer requirements to JIBs by the end of October 2024, with the revised capital, LCR and large exposures requirements taking effect from 1 January 2025.

Key obligations

• JIBs must meet revised capital minima (CET1 4.5%, Tier 1 6%, Total 8%) plus a 2.5% capital conservation buffer from 1 January 2025.
• The capital conservation buffer must be met such that CET1, Tier 1 and total capital each exceed their respective minima by at least 2.5%, not merely total capital in aggregate.
• Outside stress periods, banks must notify the JFSC of their plans to restore capital above the buffer if capital falls below the buffer.
• Reverse repo exposure reductions for collateral received must be accompanied by recognition of an exposure to the collateral provided, equal to the reduction.
• PSE and short-term exposure concession limit approvals must not ordinarily exceed the lower of 50% of the sovereign concession limit or 50% of capital.
• Short-term government Bills used for concession limit and HQLA purposes must be assessed on an original maturity basis (under 1 year).

Applies to

Jersey Incorporated Banks (JIBs), deposit-taking businesses, Jersey Resolution Authority (indirectly, via MREL timeline)

Deadlines

• end of October 2024: JFSC will publish final documentation on the quick wins and provide JIBs with finalised capital minima and buffer requirements.
• 1 January 2025: Revised capital minima, capital conservation buffer, LCR (HQLA) changes and large exposures changes take effect.
• Q4 2024: Planned consultation on large exposures, operational risk and credit risk, following JIB workshops.
• H1 2025: Planned formal consultation on systemic importance, including the systemic risk buffer.
• H2 2025: Planned consultation on prudential reporting, informed by feedback received.
• H1 2025: Planned consultation on liquidity matters under the Basel III Roadmap.
• H2 2027 (with transition flexibility from H2 2026): Target implementation timeline for the broader Basel III Prudential Roadmap in Jersey.