Full, timely and consistent implementation of Basel III is fundamental to a sound and properly functioning banking system that is able to support economic recovery and growth on a sustainable basis. Consistent implementation of Basel standards will also foster a level playing field for internationally active banks. In December 2017, the Group of Central Bank Governors and Heads of Supervision, which is the Basel Committee's oversight body, endorsed the finalisation of Basel III reforms that will take effect from 1 January 2022 and will be phased in over five years.

The FSB has designated Basel III as one of the priority areas for implementation monitoring. The task of regular monitoring and reporting in this area is carried out by the Basel Committee on Banking Supervision (BCBS). To monitor progress and assess the implementation of Basel III and its outcomes, the BCBS established the Regulatory Consistency Assessment Programme (RCAP) in 2012.

The FSB published in November 2018 its fourth annual reporton the implementation and effects of the G20 financial regulatory reforms. Below is an extract from this report on the status of implementation of Basel III.

Regulatory adoption of several core Basel III elements has generally been timely to date.

  • All 24 FSB jurisdictions have the core elements of the Basel III risk-based capital and liquidity (Liquidity Coverage Ratio (LCR)) rules in force.

  • Final rules on higher loss absorbency requirements for global systemically important banks (G-SIBs) are in force in all jurisdictions that have G-SIBs headquartered in them. Final rules on the assessment methodology and higher loss absorbency requirements for domestic systemically important banks (D-SIBs) are in force in 23 jurisdictions.

However, challenges remain on the timely adoption of some other Basel III standards.

  • Notwithstanding progress since last year, more work is needed in implementing the leverage ratio1 and the Net Stable Funding Ratio (NSFR), which came into force in January 2018 (Graph 2). The leverage ratio is now in force in 15 jurisdictions; 11 jurisdictions have final rules in force for the NSFR, while another 11 have published draft or final rules.

Implementation efforts continue on the leverage ratio and the NSFR

  • Jurisdictions have not yet fully adopted revised standards whose implementation deadline has passed, and progress since last year is limited. These are: the standardised approach for counterparty credit risk exposures (six FSB jurisdictions have final rules in place); capital requirements for bank exposures to central counterparties (six jurisdictions) and equity investments in funds (nine jurisdictions); margin requirements for non-centrally cleared derivatives (fifteen jurisdictions); and the revised Pillar 3 framework (ten jurisdictions).

  • Jurisdictions continue to strive to implement other Basel III standards whose implementation deadline is within a year. These include the supervisory framework for measuring and controlling large exposures, the standard for interest rate risk in the banking book and the requirements for TLAC holdings and disclosure.

  • Delayed implementation may have implications for a level playing field, and puts unnecessary pressure on those jurisdictions that have implemented the standards based on the agreed timelines. The reported reasons for implementation delays are: concerns over the pace of implementation in other jurisdictions (affecting the level playing field); the complexity of the standards (or difficulties in interpreting and transposing them into domestic rules); and operational challenges for banks (e.g. IT issues).

  • Jurisdictions should lead by example and implement these reforms as per the agreed timelines. The BCBS is monitoring closely the implementation of the reforms and will consider additional measures to improve implementation timeliness.

The consistency of implementation with some Basel standards should be further improved.

  • Risk-based capital framework – BCBS has assessed all FSB jurisdictions (Graph 3).2

    • Eighteen (representing 68% of the market) were found to be compliant or largely compliant with risk-based capital rules; and

    • The six EU members of the FSB (assessed as a single jurisdiction, representing 32% of the market) were found to be materially non-compliant. In their March 2018 follow-up reporting, these members did not report actions to address identified deviations.

  • Liquidity coverage ratio – all FSB jurisdictions have been assessed by the BCBS and were found to be compliant (16) or largely compliant (8) with the LCR.

Consistency with Basel III risk-based capital rules should be further improved

  • G-SIB and D-SIB standards – Ten of the eleven FSB jurisdictions that are home to G-SIBs were found by the BCBS to be compliant with G-SIB standards.3 The D-SIB frameworks in these jurisdictions were also found to be broadly aligned with the D-SIB principles.

  • Net stable funding ratio and large exposures framework. The BCBS has begun to assess the consistency of implementation of the NSFR and the large exposures framework. The first FSB jurisdiction assessed was found to be compliant with both standards. All jurisdictions are expected to be assessed by end 2020.

Status of implementation

View status of implementation of reforms in priority areas by FSB jurisdictions as reported in the latest FSB annual report to G20 (as of November 2018)

For further information, see the latest BCBS report to G20 Leaders on implementation of Basel standards (as of November 2018).

1 Based on the existing (2014) exposure definition. Implementation based on the revised exposure definition, agreed in December 2017, is due by 2022.

2 The most material inconsistencies relate to internal models for credit risk, counterparty credit risk and securitisation, and the definition of capital.

3 Canada’s G-SIB standards have not been assessed since it only became home to a G-SIB with the 2017 G-SIB designation.