Asia

Deferral of Basel III implementation and HKMA’s supervisory actions in response to COVID-19

The Hong Kong Monetary Authority (HKMA) has issued a circular announcing that it will defer the implementation of the Basel III final reform package,^[1] in line with the revised timeline announced by the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS).

The Basel III final reform package will be deferred for one year, extending the implementation date to 1 January 2023, in order to provide banks and regulators with additional operational capacity to commit resources to responding to the immediate financial stability priorities resulting from the impact of the COVID-19 pandemic.

The Basel III final reform package will be deferred as follows:

Revised frameworks on credit risk, operational risk, output floor and leverage ratio: the target implementation of these frameworks and their associated disclosure requirements will be deferred by one year until 1 January 2023;
Revised market risk framework: locally incorporated authorized institutions (AIs) will be required to implement the new market risk framework for reporting purposes by 1 January 2023, and the local implementation of the actual capital requirements based on the new framework will be no earlier than 1 January 2023. The timing will take into account the implementation progress observed in major jurisdictions; and
Revised credit valuation adjustment (CVA) framework: the local implementation of this framework will be aligned with the revised market risk framework and follow the timelines used for both reporting and implementation of the CVA capital requirements.

The deferral of the Basel III final reform package is one of a number of steps the HKMA has taken to lessen the impact of the COVID-19 outbreak on the Hong Kong economy and the local banking sector. The HKMA has also encouraged AIs to introduce measures to help tide their customers over in this period of uncertainty through forums such as the Banking Sector SME Lending Coordination Mechanism, and has provided guidance to ensure relief measures are rapidly rolled out. This is part of a global effort by regulators to address the challenges brought by the COVID-19 outbreak.

[1] The Basel III reform package includes the BCBS standards “Minimum capital requirements for market risk” of January 2019, “Basel III: Finalising post-crisis reforms” of December 2017, and “Pillar 3 disclosure requirements – updated framework” of December 2018.