On 30 July 2021, the Basel Committee on Banking Supervision (Basel Committee) and the World Bank (WB) published a report on an earlier joint global survey that focussed on proportionality in bank regulation and supervision. The survey involved 90 authorities, with a broad distribution across geographical regions and income groups.
The concept of proportionality is embedded in the work of the Basel Committee. Proportionality is also embedded in the Committee’s Core Principles for Effective Banking Supervision which, unlike the Basel framework, are universally applicable. In November 2019 the Basel Committee issued a statement providing important perspectives and direction for proportionate implementation. In light of the statement the WB and the Basel Committee undertook a joint global survey to facilitate greater understanding by all relevant stakeholders of the proportionality practices in different jurisdictions.
The report mentions the following key takeaways from the analysis of survey responses:
- Proportionate implementation is practised widely, across geographic regions and income groups. The use of proportionality is growing, as judged by respondents reporting future plans for proportionality. This is a work-in-progress but is also challenging for several jurisdictions.
- Importantly, proportionality is acknowledged by respondents as promoting banking stability, reducing unnecessary regulatory burden and compliance costs, and making effective use of scarce supervisory resources. Consistent with this, a significant proportion of respondents (67%) are planning to implement or revise their proportionate approaches. Respondents have also expressed a clear preference for implementing a limited set of Basel Committee standards.
- However, challenges remain for jurisdictions that have adopted or are considering adopting proportionality. These challenges are during the design of proportionate approach (e.g. how to define the tiering criteria, how to maintain a level playing field and how to avoid opportunities or regulatory arbitrage) and after proportionality is implemented (e.g. how to ensure financial positions are still comparable across banks and how to achieve net reduction in compliance costs and stress on supervisory resources and constraints).
- Implementation is motivated by factors other than risk profile or systemic relevance in some cases. For example, full or conservative set are implemented by jurisdictions seeking to obtain or retain correspondent banking relationships, meet the expectation of host jurisdiction supervisors or of rating agencies, regional pressure and peer pressure.