Basel Committee publishes assessment reports on the implementation of its global standards in Mexico and Switzerland

The BCBS published assessment reports evaluating the implementation of its global standards in Mexico and Switzerland. The assessments are conducted as part of the Committee’s RCAP, a comprehensive initiative aimed at evaluating the adherence of member jurisdictions to Basel standards.
These assessment reports provide valuable insights into the regulatory frameworks of Mexico and Switzerland concerning NSFR, LEX, and LCR standards. The publication of such assessments underlines the Basel Committee’s commitment to ensuring regulatory consistency across member jurisdictions and promoting the effective implementation of global banking standards.
The assessment of Mexico reveals that the country is in compliance with the Basel Committee’s NSFR standard and the large exposures framework (NSFR & LEX). Furthermore, Mexico is found to be largely compliant with the LCR standard, as indicated in a follow-up assessment. This update builds upon the initial assessment published in 2015, which already deemed Mexico’s implementation of the LCR standard as compliant.
Turning to Switzerland, the Committee’s assessment reports confirm that Switzerland’s implementation of the NSFR standard and LEX framework is largely compliant with the global standards established by the Basel Committee. These findings contribute to the broader understanding of the regulatory landscape and adherence to international banking standards in Switzerland.
Focussing on Switzerland, two separate RCAP assessments (on NSFR Regulations as well as on Basel Large Exposures Regulations) have been released, both of which we would like to briefly present below:
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Regulatory Consistency Assessment Programme (RCAP): Assessment of Basel NSFR Regulations in Switzerland
The implementation of the Basel NSFR standard in Switzerland is governed by the Swiss Liquidity Ordinance and FINMA Circular 2015/2, effective from 1 July 2021. This regulatory framework is applicable to all banks in Switzerland, with specific concessions granted to medium-sized and small banks falling under Categories 4 and 5. Furthermore, the NSFR standard extends its application to securities firms subject to the Swiss Capital Adequacy Ordinance.
As of 31 October 2023, the assessment of NSFR regulations in Switzerland reveals a largely compliant status with the Basel NSFR standard. However, the overall grade falls one notch below the highest rating. The evaluation encompasses four key components: scope, minimum requirements, and application issues; disclosure requirements; ASF; and RSF. Among these, the former two components are deemed fully compliant, while the latter two, ASF and RSF, are assessed as largely compliant.
The ASF component’s grade is influenced significantly by a potentially material finding. Specifically, the treatment of deposits from vested benefits accounts and tied pension provisions as retail deposits is identified as a potential misalignment with the Basel standard. This deviation contributes to the largely compliant status of ASF. On the other hand, the RSF component’s grade is primarily impacted by a material finding related to the 0% RSF factor assigned to unencumbered Level 1 HQLA. The Basel standard, in contrast, assigns a 5% RSF factor to this category. In addition to these material findings, the assessment reveals five other findings that, while identified, are deemed not material. These non-material findings do not significantly affect the overall compliance assessment of NSFR regulations in Switzerland.
It is noteworthy that Swiss regulations, in one particular aspect, surpass the minimum Basel requirements, as detailed in Annex 5. However, in accordance with the methodology outlined in the RCAP Handbook for jurisdictional assessments, these more stringent rules are not considered mitigants when assessing overall or component-level compliance.
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Regulatory Consistency Assessment Programme (RCAP): Assessment of Basel Large Exposures Regulations in Switzerland
This analysis focuses on the assessment of the Basel LEX regulations in Switzerland under the RCAP. The implementation of LEX requirements in Switzerland primarily involves modifications to the Swiss CAO and FINMA Circular 2019/1, effective from 1 January 2019. These requirements are applicable to all banks in Switzerland, with specific concessions granted to certain small and medium-sized banks (Categories 4 and 5) and securities firms subject to the CAO.
As of 31 October 2023, the overall assessment of LEX regulations in Switzerland indicates a largely compliant status with the Basel LEX framework, positioned one notch below the highest overall grade. The assessment is based on three key components of the Basel LEX framework: scope and definitions, minimum requirements and transitional arrangements, and the value of exposures. These components are individually appraised as compliant, compliant, and largely compliant, respectively.
The overall grade is influenced by two potentially significant findings related to the definition of exposure values and 10 findings categorized as non-material. Notably, the Swiss regulations introduce exemptions in recognizing exposure to collateral issuers for repos on specified platforms endorsed by Swiss authorities, with only one such platform currently identified. Additionally, the Swiss regulations deviate from the Basel LEX framework by applying a 10% weight, below the 20% floor specified, to calculate the exposure value of Swiss covered bonds (Swiss Pfandbriefe). It is highlighted that, in one specific area, the Swiss regulations surpass the minimum requirements set by Basel (see Annex 4).
In adherence to the methodology outlined in the RCAP Handbook for jurisdictional assessments, the stricter rules, exceeding the Basel requirements, have not been considered as mitigants in the overall or component-level assessment of compliance. This underscores the commitment to a rigorous evaluation process and the importance of aligning with the established Basel LEX framework for regulatory consistency.