MAS joins other regulators in delaying Basel's trading risk rules

Singapore

IN line with regulators of some other economies, the Monetary Authority of Singapore (MAS) has reportedly told lenders here that the implementation of global rules to tackle trading risks could be delayed beyond the initial start date of end-2019, Reuters reported this week, citing two unnamed sources.

According to the wire agency, MAS informed the banks of the delay to the "fundamental review of the trading book", or FRTB, in a letter last month. FRTB is in effect meant to ensure that the way in which the trading portfolio of banks is assessed for risks is consistent across jurisdictions.

In trying to address the damaging problems that emerged from the financial crisis nearly 10 years ago, the Basel Committee on Banking Supervision (BCBS) looked to tighten the limits between trading and banking books, in such a way that banks would find it difficult to profit from arbitrage between the two books that are backed by different amounts of capital.

FRTB would also apply a more conservative benchmark to assess the value of a trading asset by accounting for tail-risk, market liquidity and stressed correlations.

The change in rules could translate to an estimated 40 per cent weighted-average increase in total market-risk capital requirements from current levels, said an EY report in early 2016. To be clear, the final increase for each bank will vary depending on how its trading portfolio is constituted.

But this comes as the European Commission has proposed to extend the FRTB deadline, while the US Treasury has recommended delaying FRTB.

The Australian Prudential Regulation Authority has said it would likely see the rules come into force in 2021. The Hong Kong Monetary Authority (HKMA), meanwhile, has said the FRTB rules would be implemented only as early as Jan 1, 2020. In a publicly released letter in June, HKMA said a number of practical implementation questions have arisen given the "high complexity" of the new standards.

"These questions involve certain issues of fundamental relevance, hence a need for potential amendments of the standards rather than merely technical clarifications. Thus, it is becoming increasingly challenging for jurisdictions to implement the new standards in accordance with the BCBS timeline," HKMA said.

A spokeswoman for MAS told The Business Times that MAS is committed to a full implementation of the Basel III reforms. "In determining the implementation timeline, MAS will consider factors such as the state of global implementation guidance, the industry's readiness and implementation progress in other jurisdictions."

It is understood banks around the world are expected to report under the new standards by Dec 31, 2019. National supervisors are expected to issue final regulations by January 2019.

Reuters cited a source saying there was no sign of FRTB being ditched outright. The source added that since capital for trading books is a small proportion of a bank's total buffer, a delay in FRTB does not materially affect the bigger capital assessment of the banking sector.