Implications of Basel IV on Business
ComplianceFinanceSeptember 16, 2020

Wolters Kluwer outlines business implications of Basel IV in new research

By: Xavier Dubois

Upcoming Basel IV regulation will have a revolutionary effect on banks that goes far beyond risk assessments. That’s according to Wolters Kluwer’s Finance, Risk & Regulatory Reporting (FRR) business, which outlines the challenges and implementation strategies in a new digital report featuring five research articles.

Under the timetable set by the Basel Committee on Banking Supervision (BCBS), a five-year implementation period for Basel IV is due to begin on January 1, 2023. How banks and supervisory authorities are using the time until then varies from one jurisdiction to another. Many executives, however, wherever they are, have similar concerns about the measures required to plan and implement Basel IV, and for good reason. The scope of the new rules is enormous and not just a matter of risk assessments. They will force banks to increase their capital levels and may require wholesale adjustments to their businesses, as revealed in the new research. What’s more, the rules are likely to influence banks’ thinking on all risk areas – whether it’s credit risk, market risk or operational risk, as well as liquidity levels.

Compliance “at all times” will be key for banks implementing Basel IV. Regulators will expect larger banks to provide a comprehensive risk assessment within a few hours. Smaller firms, such as local savings banks, will have a few days or weeks. All institutions, regardless of size, are urged to examine their existing system to assess its viability over the long haul and this should be a priority in the run-up to the Basel IV deadline, the research notes.

Banks are expected under the current Basel framework to provide a risk profile at the time of assessment – a snapshot of the present situation. Basel IV will require them to estimate their capital and liquidity profile several weeks ahead by employing technology for scenario modeling, forecasts and projections.

“In the past, you could just say ‘tomorrow is another day,’ but not any longer,” says Xavier Dubois, Product Management Director, EMEA at Wolters Kluwer FRR and one of the authors of the research. “Now you will need to have projection capabilities and be able to anticipate. Many of the requirements under Basel IV are close to being finalized by regulators in Europe, the Middle East, Africa and Asia-Pacific, allowing banks to get a head start on implementation. Guidance on interest rate risk in the banking book (IRRBB) and the fundamental review of the trading book (FRTB) are a good place to begin. American regulators, by contrast, have defined very little of these to date.”

It is worth remembering, though, that the new requirements will involve pulling together all the data on exposures, reaching an aggregate view of market prices and liquidity, and making internal assessments of areas such as internal ratings. These are the sort of considerations banks will need to take into account.

To help with these and the vast array of other considerations, Wolters Kluwer FRR clients are implementing OneSumX for Basel - an end-to-end solution encompassing finance, risk and regulatory reporting. With OneSumX for Basel firms receive a full, end-to-end Basel IV process from data integrity and lineage, through to finance and risk management, and into regulatory calculators and reporting. Using this solution firms can also integrate finance and risk applications to combine prudential consolidation with risk metrics and regulatory content.

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