Global Basel Committee bolsters rules for supervising banks

LONDON: The world’s forum for banking regulators on Thursday tightened up its rulebook to focus better on spotting risks from climate change, the rise of non-banks, and digitalisation of finance.

The Basel Committee on Banking Supervision, made up of banking regulators and central bankers from the G2O economies and other countries, last year set out proposals to revise its “core principles” for the first time since 2012.

Global bodies such as the International Monetary Fund check on a country’s compliance with these principles when assessing national financial sectors.

“The revised standard reflects changes to promote operational resilience, reinforce corporate governance and risk management practices, and address new and emerging risks, including the digitalisation of finance and climate-related financial risks,” the committee said in a statement.

The new standard emphasises that a bank’s board is responsible for ensuring that the business is sustainable, following bank failures in the United States and Switzerland last year.

It also introduces a new definition of climate-related financial risks to heighten focus on them.

The committee said it would be issuing a public consultation next week on new guidelines for banks on managing their risks from clients and other counterparties to “reflect the lessons learned from recent episodes of non-bank financial intermediation distress”.

Regulators are taking a closer look at the rapidly growing non-bank sector, which includes private equity, insurers and investment funds, in funnelling financing to companies, calling for much better data on risks and on links to lenders.

Earlier this week the Bank of England told lenders they need to better aggregate data on their exposures to private equity.

Basel said its new core standard reinstates references to aggregating related exposures.

“The supervisor determines that a bank’s information systems identify and aggregate on a timely basis exposures creating risk concentrations and large exposure to single counterparties or groups of connected counterparties and facilitate active management of such exposures,” the standard says.

The committee will also publish in May a report on the digitalisation of finance, and what this could mean for regulation.