The Basel Committee on Banking Supervision (Basel Committee) has issued a standards paper setting out its considerations for retaining the current regulatory treatment of accounting provisions for an interim period. It also sets out the transitional arrangements to take effect from 1 January 2018 and the corresponding Pillar 3 disclosure requirements, should individual jurisdictions choose to implement such transitional arrangements. However, it does not outline the Basel Committee’s considerations for the longer-term regulatory treatment of provisions as outlined in an earlier discussion paper published in October 2016.
In the standards paper the Basel Committee states that it has decided to retain the current regulatory treatment of provisions for an interim period during which jurisdictions would extend their existing approaches to categorising provisions as general provisions (GP) or specific provisions (SP) to provisions calculated under the applicable expected current loss (ECL) accounting model. The Basel Committee acknowledges that this approach is not expected to mitigate the existing varied practices across jurisdictions regarding the distinction between GP and SP as ECL accounting models are implemented.
The Basel Committee also states that as banks transition to ECL accounting models, an important issue is to define which, if any, portions of provisions should be regarded as SP and GP for regulatory purposes, pending on its determination of the appropriate longer-term regulatory treatment of provisions. As such a distinction between GP and SP does not exist under accounting frameworks, the Basel Committee recommends that regulatory authorities provide guidance, as appropriate, on how they intend to categorise ECL provisions as GP or SP in their jurisdiction to ensure consistency in this categorisation by the banks within their jurisdiction. The Basel Committee will compile these jurisdictional categorisation practices and share them among its members. The Basel Committee is also considering providing an overview of these practices to assist stakeholders in understanding how banks in individual jurisdictions are treating their accounting provisions for regulatory purposes.