CAO draft aims to integrate into Swiss law the finalized the BCBS Basel III framework.
Financial center will continue to benefit from good terms in international competition.
With the proposed amendment to the CAO, the capital coverage of riskier transactions will increase relative to lower risk ones, in line with the finalized Basel III standards.
Because of this more pronounced differentiation according to risk, consequences of the reform will not be the same for all banks.
Overall, capital requirements for banking sector (with the exception of large banks) will not be very different from the current requirements.
Interaction between standard measurement systems and internal systems is modified.
For calculation of capital requirements to be transparent, internationally comparable.
Banks using internal models leeway limited compared to applying standard approaches
Various regulations currently contained in circulars of SWI FINMA will be transferred to the CAO and certain articles of the latter will be adapted to current circumstances.
SWI FINMA
Recalled that to introduce final Basel III standards the Federal Council is adapting CAO.
So SWI FINMA is adapting associated implementation provisions via 5 new ordinances.
At the same time, SWI FINMA is repealing 5 out of 6 relevant circulars and is carrying out consultation on its ordinances; it will hold a hearing on issue on Oct. 25, 2022.
Ordinances on: Trading and Banking Book, Eligible Own Funds; Leverage Ratio and Operational Risks; Credit Risks; Market Risks and Disclosure of Risks and Own Funds and Principles of Corporate Governance.
Effectiveness
Consultation open until Oct. 25, 2022, extension reserved to allow consideration of possible publication, pre-deadline, of draft regulations from major jurisdictions.
CAO draft accompanied by explanatory memorandum, letter to cantons, organizations.
SWI FINMA ordinances also accompanied by note and information about a hearing.
The Federal Council’s own funds ordinance and associated SWI FINMA ordinances are scheduled to come into force on Jul. 1, 2024.
Sep. 2022 SWI SBA Position Paper
On Sep. 29, 2022, SWI SBA issued position paper on the Basel III Final consultation.
SWI SBA has two observations on Basel's III implementation in the mortgage market.
Supports its implementation in the mortgage market but the two years according to the applicable rules for the lower of cost or market principle should be adhered to.
The two years should also apply to the parallel concept of the original lending value.
Reduce the surcharges for rented residential properties to a risk-appropriate level.
For loan-to-value ratios of 60%-80%, the risk surcharge should be 5% instead of 15%.
Oct. 2022 SWI AFBS Contribution
On Oct. 24, 2022, SWI AFBS contributed to drafting of the SWI SBA comments regarding the regulation concerning Swiss implementation of Basel III standards.
The specific points of concern for SWI AFBS were capital adequacy for trade finance business and reporting obligations regarding the Swiss branch of a foreign-based bank.
Proposed inverting burden of proof, reporting obligation upon SWI FINMA's request.
Oct. 25, 2022 SWI SBA Comments
On Oct. 25, 2022, SWI SBA commented on the amendment of the own funds ordinance (CAO), the SWI FINMA ordinances for the Basel III Final implementation.
Concerns re competitiveness, real estate, mortgage market, group requirements.
Also, re definitions and questions of application, leverage ratio/central bank balances.
On Dec. 9, 2022, SWI SBA issued a position paper on the Basel III implementation.
Presentation of banking sector's assessment and demands in a more compact way.
Highlighted the need for authorities to maintain a level playing field internationally.
Nov. 2023 Amended CAO Adopted
On Nov. 29, 2023, SWI GVT adopted the amendment of the Own Funds Ordinance (CAO) for banks, transposing the final Basel III standards of the BCBS into Swiss Law.
The amended CAO will enter into force on Jan. 1, 2025 and no significant change in the total capital requirements will be expected for the general banking sector on average.
However, the capital requirements for UBS in particular are likely to be increased.
Amended CAO will limit the internal models' scope to determine capital requirements.
And will achieve a transparent and internationally comparable calculation of capital.
Australia, Japan and Canada have already amended their regulations; implementation in the EU and the United States is scheduled for Jan. 1 and Jul. 1, 2025 respectively.
SWI GVT will be informed on the status of global application by the end of Jul. 2024.
SWI SBA welcomed the CAO adoption but highlighted the considerable costs for banks.
SWI SBA planned to align its internal regulation with the CAO in the spring of 2024.
For competitiveness reasons, SWI GVT should reserve the right to postpone the planned entry into force in the event that implementation abroad would be delayed.
In Mar. 2024, SWI FINMA issued ordinances implementing Basel III, see #206530.
In Mar. 2024, SWI SBA updated self-regulation on mortgage lending, see #206542.
In Jun. 2024, SWI GVT confirmed Basel III implemented Jan. 1, 2025 see #217181.
