FINMA will put a new circular on eligible capital into effect starting 1 January 2013 as well as revised circulars on capital planning, credit and market risk, disclosure and risk diversification. In doing so, the supervisory authority presents its implementing provisions on the recently revised Capital Adequacy Ordinance (CAO) regarding the implementation of the Basel III requirements and the "too big to fail" (TBTF) legislation.
Following the financial market crisis in 2008/2009, the new Basel III regulations were drawn up under the leadership of the Group of Governors and Heads of Supervision (GHOS) and the Basel Committee on Banking Supervision (BCBS). In line with these regulations, banks must hold more and qualitatively better capital. At the same time, the TBTF regime was drafted which sets out additional regulatory requirements for systemically important institutions. In order to implement the Basel III requirements and the new TBTF regime in Switzerland, FINMA is publishing today updated circulars as implementing provisions for the revised CAO which was adopted by the Federal Council in June 2012. The new circular and the aforementioned amended circulars will enter into force along with the CAO on 1 January 2013.
The implementing provisions set out in the FINMA circulars do not, nevertheless, put all the elements of the Basel III framework into practice. Still to be implemented are the detailed disclosure obligations for eligible capital decided recently by the Basel Committee, and the precise handling of credit risk exposure to central counterparties which has yet to be published. FINMA intends publishing its implementing provisions on these matters as soon as possible so that those Basel III elements can also come into force as of 1 January 2013.
Minimum changes compared with the consultation drafts
Integration of the Basel III international standards into the Swiss regulatory framework was conducted by an existing national working group whose representatives are from official bodies and the industry. The revised drafts of the circulars were therefore not unexpected for many market participants and have been broadly supported. Any adjustments have mostly involved editorial changes. Most reaction was triggered by the new circular on eligible capital (FINMA-RS 13/01). As this circular has absorbed the key content of FINMA-Circ. 08/34 "Core Capital – Banks", the latter has become redundant and will be repealed as of 1 January 2013.
Changes to other circulars
The newly defined capital categories in the CAO have resulted in amending the quality of capital specified in FINMA Circ. 11/2 "Capital buffer and capital planning – banks". The objections brought forward in the consultation claiming that the adjustments involved go beyond the ordinance in terms of tightening capital requirements were partly in FINMA's interests. Changes to FINMA Circ. 11/2 will also enter into force on 1 January 2013.
Moreover, FINMA is repealing FINMA Circular 08/9 "Supervision of large banks" as of 31 July 2012. It will not be replaced, since established supervisory practice and other regulations adequately cover its content. Its repeal does not in any way change the current supervisory practice with respect to the two large banks: no additional obligations will arise and those that exist will neither be amended nor abolished.
Tobias Lux, Media Spokesperson, phone +41 (0)31 327 91 71, firstname.lastname@example.org