Basel III: immediate implementation (quick wins) (2024-04-18)

Summary

This is a JFSC consultation paper seeking feedback on implementing a set of Basel III 'quick win' reforms originally proposed in the JFSC's June 2021 Basel III position paper. It directly affects Jersey Incorporated Banks (JIBs) and proposes revisions to the deposit taking business code of practice, prudential reporting guidance, and Pillar 2 and concession limits guidance notes. The changes are proposed to take effect from 1 January 2025, with further Basel III elements to follow under a separate roadmap.

• Capital minima and buffers: Aligns capital minima with the Basel Framework, reduces CET1 minima by 4%, tier 1 by 2.5% and total capital by 2%, while introducing a capital conservation buffer of at least 2.5% (an overall net reduction of 0.5%); transitional levels to be communicated to JIBs via a revised conditions notification.
• LCR changes: Allows certain Public Sector Entity securities to count as High Quality Liquid Assets, widens eligible top tier Multilateral Development Banks, and permits short term UK or US government Bills to remain in level 1 HQLA for six months following a ratings downgrade below AA-.
• Large exposures changes: Permits approved PSE concession limits (capped at the lower of 50% of the sovereign concession limit or 50% of capital), creates a separate concession limit framework for short term government Bills and central bank reserves, widens the sovereign concession regime to MDBs and supranationals, and allows (but does not require) reverse repo exposures to be reduced by collateral received.
• Deferred items: Systemic importance, Leverage Ratio, trading book, market risk, counterparty credit risk and NSFR proposals are not being progressed now and are deferred to later consultations under the Basel III prudential roadmap, expected H1 2025 and beyond.

The consultation poses four specific questions on the capital minima and buffers proposal, the transitional approach, the LCR proposals, and the large exposures proposals. Comments are invited from JIBs and the Jersey Bankers Association, with feedback and final documentation expected in Q3 2024.

Key obligations

• Jersey Incorporated Banks (JIBs) and interested parties should submit written comments on the consultation proposals by 30 June 2024
• JIBs should review and respond to the four consultation questions on capital minima/buffers, transitional approach, LCR, and large exposures proposals
• If the proposals proceed, JIBs will need to comply with revised capital minima, capital conservation buffer, LCR, and large exposures/concession limit rules from the proposed effective date of 1 January 2025

Applies to

Jersey Incorporated Banks (JIBs), Jersey Bankers Association (JBA)

Deadlines

• 30 June 2024: Deadline for submitting comments on the consultation paper
• Q3 2024: JFSC aims to publish feedback and final documentation
• 1 January 2025: Proposed effective date for the revised capital minima, buffers, LCR and large exposures changes
• H1 2025: Consideration of systemic importance and further LCR refinements to be consulted on
• H2 2024: Further consultation on large exposures to follow, per the roadmap
• H1 2026: Consequential changes to Pillar 2 and prudential reporting for large exposures to be consulted on
• H2 2026: Transition to Basel III large exposures rules