Consultation on amendments to Capital Adequacy Ordinance

Bern, 13.06.2016 - Today, the Federal Department of Finance (FDF) initiated a consultation on amending the Capital Adequacy Ordinance. With the revision, two additions to the Basel III international framework should be implemented, thereby making the capital adequacy requirements for derivatives and fund units held in the banking book more sensitive to risk. The consultation will last until 15 September 2016.

The revision was prepared by a national working group in 2015 and it has already been partly tested on a trial basis with individual banks in an impact study carried out by the Swiss Financial Market Supervisory Authority (FINMA). It will implement two additions to the Basel III international framework.

Derivatives

The calculation methods for the capital adequacy requirements for derivatives are outdated, particularly because they do not distinguish between secured and unsecured derivatives. Moreover, despite its name, the current standardised method is not used by any institution in Switzerland. Consequently, the Basel Committee on Banking Supervision published a new standardised approach for measuring counterparty credit risk exposures (SA-CCR) in March 2014.

Fund units

It was noted in the case of fund units held in the banking book that very high securitisation positions to be underpinned with equity capital were packed into "funds" in order to apply the lower capital rules applicable for fund units. The international consistency of the capital adequacy requirements originating from Basel II should be improved with the new rules of December 2013 issued by the Basel Committee on Banking Supervision, and possibilities for circumvention should be prevented.

Simplifications

The technical implementation of the new international approaches will entail additional work for many banks. This work and the repercussions for the resulting capital should be offset by the simplifications developed by FINMA for small and medium-sized institutions, which account for approximately 90% of the entire bank population. The changes should enter into force on 1 January 2017, and a six-month period is envisaged before complete implementation from 1 July 2017.

Address for enquiries

Roland Meier, Media Spokesperson FDF
Tel. +41 58 462 60 86, roland.meier@gs-efd.admin.ch