G4-2022 Revised Basel Implementation Dates

P O Box 427 Pretoria 0001 South Africa 370 Helen Joseph Street Pretoria 0002 +27 12 313 3911 / 0861 12 7272 www.resbank.co.za 1 Ref.: 15/8/2 G4/2022 To: All banks, branches of foreign institutions, controlling companies, eligible institutions and auditors of banks or controlling companies Guidance Note 4/2022 issued in terms of section 6(5) of the Banks Act 94 of 1990 Proposed implementation dates in respect of specified regulatory reforms Executive summary Following the global financial crisis that commenced in 2007, various international standard-setting bodies have agreed to put in place, among others, comprehensive measures, policies, regulations and reforms to promote financial stability as well as the safety and soundness of individual financial institutions. In this regard, the Basel Committee on Banking Supervision (Basel Committee) has issued various new or amended frameworks, standards or requirements for implementation by member jurisdictions. The outbreak of the coronavirus disease pandemic (Covid-19) had far-reaching consequences to date for, among others, financial markets and economies across the world. As such, governments have announced not only drastic measures to mitigate the risk of an uncontrollable spread of Covid-19, but also measures to protect financial markets and economies from suffering permanent damage. In addition, standard￾setting bodies of prudentially regulated institutions have announced comprehensive measures to mitigate the impact that the outbreak of Covid-19 has on preparations by regulators and institutions towards the implementation of the respective new or amended frameworks, standards or requirements. In this regard, some countries have confirmed via their respective websites the delayed implementation of the Basel III post-crisis reforms in their respective jurisdictions. Based upon, among others, industry requests received, quantitative impact studies, progress by member jurisdictions of the Basel Committee to implement the reforms, regulatory responses to the outbreak of Covid-19, and other matters related to implementation complexity, the Prudential Authority (PA) proposes to implement the outstanding regulatory reforms in South Africa on the dates set out in this Guidance Note.

2 This Guidance Note replaces Guidance Note 4 of 2021.

1. Introduction 1.1 Following the global financial crisis that commenced in 2007, various international standard-setting bodies have agreed to put in place, among others, comprehensive measures, policies, regulations and reforms to promote financial stability as well as the safety and soundness of individual financial institutions. 1.2 In this regard, the Basel Committee has issued, among others￾1.2.1 extensive enhancements to the Basel II framework in 2009, which have subsequently been implemented in South Africa with effect from 1 January 2012; 1.2.2 revisions to the Basel II market risk framework in 2009 and in 2011, which have subsequently been implemented in South Africa with effect from 1 January 2012; 1.2.3 the Basel III capital framework, originally published in December 2010 and updated in June 2011, which has subsequently been implemented in South Africa with effect from 1 January 2013; 1.2.4 the Basel III Liquidity Coverage Ratio framework, originally published in December2010 and updated in January 2013, which has subsequently been implemented in South Africa with effect from 1 January 2015; 1.2.5 the Basel III Net Stable Funding Ratio framework, originally published in December 2010 and updated in October 2014, which has subsequently been implemented in South Africa with effect from 1 January 2018; 1.2.6 the standardised approach for measuring counterparty credit risk exposures, originally published in March 2014, which has subsequently been implemented in South Africa with effect from 1 January 2021; 1.2.7 a capital standard for bank exposures to central counterparties, originally published in July 2012 and updated in April 2014, which has subsequently been implemented in South Africa with effect from 1 January 2021; 1.2.8 capital requirements for banks' equity investments in funds, originally published in December 2013, which has subsequently been implemented in South Africa with effect from 1 January 2021; 1.2.9 a revised supervisory framework for measuring and controlling large exposures, originally published in April 2014, which has subsequently been implemented in South Africa with effect from 1 April 2022; and 1.2.10 the total loss-absorbing capacity (TLAC) holdings standard, originally published in October 2016, which has subsequently been implemented in South Africa with effect from 1 April 2022. 1.3 In December 2017, the Basel Committee published the outstanding components of the Basel III post-crisis reform package. The revised Basel framework comprehensively addresses the shortcomings identified in the pre-crisis regulatory framework and provides a regulatory foundation for a resilient banking system that supports the real economy. 1.4 The outbreak of Covid-19 had far-reaching consequences to date for, among others, financial markets and economies across the world.

3 1.5 As such, governments have announced not only drastic measures to mitigate the risk of an uncontrollable spread of Covid-19, but also measures to protect financial markets and economies from suffering permanent damage. 1.6 In addition, standard-setting bodies of prudentially regulated institutions announced comprehensive measures to mitigate the impact that the outbreak of Covid-19 had on preparations by regulators and institutions for the implementation of the respective new or amended frameworks, standards or requirements. 1.7 In this regard, on 27 March 2020, the Basel Committee announced that its oversight body, the Group of Central Bank Governors and Heads of Supervision, had endorsed a set of measures to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of Covid-19 on the global banking system. The measures announced by the Basel Committee include a deferral of the implementation timeline of the outstanding Basel III standards, by one year. 1.8 In the meantime, some countries have confirmed via their respective websites the delayed implementation of the Basel III post-crisis reforms in their respective jurisdictions. 1.9 Based upon, among others, industry comments and requests, quantitative impact studies, progress by member jurisdictions of the Basel Committee to implement the reforms, regulatory responses to the outbreak of Covid-19, and other matters related to implementation complexity, the PA proposes a revision to the implementation dates of the outstanding regulatory reforms in South Africa as set out below. 1.10 This Guidance Note replaces Guidance Note 4 of 2021. 2. Proposed implementation dates 2.1 Based on the aforesaid, it has been decided to revise the proposed implementation dates in South Africa for specified regulatory reforms, as follows: Regulatory reform Proposed revised implementation date Interest rate risk in the banking book 1 January 2023 Interest rate risk in the banking book: Disclosure requirements 1 January 2024 Revisions to the securitisation framework 1 October 2022 Revised standardised approach for credit risk 1 January 2024 Revised internal ratings based approach for credit risk 1 January 2024 Revised operational risk framework 1 January 2024 Leverage ratio – revised exposure definition 1 January 2024

4 Regulatory reform Proposed revised implementation date Minimum capital requirements for market risk 1 January 2024 Revised credit valuation adjustment framework 1 January 2024 Output floor 1 January 2024: 55% 1 January 2025: 60% 1 January 2026: 65% 1 January 2027: 70% 1 January 2028: 72.5% 2.2 However, ultimately, amendments to the Regulations relating to Banks are promulgated by the Minister of Finance in terms of section 90 of the Banks Act, 1990, for implementation, only when the National Treasury and the Minister of Finance, as a minimum￾2.2.1 have concluded their own respective processes related to, for example, consideration of any relevant proposed amendments to legislation; and 2.2.2 are satisfied that a sufficiently robust consultation process has been followed in respect of the said proposed amendments to legislation. 2.3 As such, should any of the aforementioned proposed implementation dates need to be revised due to, for example, the nature and extent of comments received and/or the PA’s ongoing engagements with all relevant interested persons, including the National Treasury and the Minister of Finance, the PA will accordingly communicate the said revised proposed implementation dates. 2.4 Where applicable, parallel runs will commence at least three months prior to the relevant proposed implementation date, the relevant details of which will also be communicated by the PA in due course. 3. Statement of expected impact 3.1 In order to ensure adequate engagement and that the potential impact, costs and benefits of proposed amendments to the Regulations are duly considered and measured, the preparation of a statement of expected impact forms an integral part of the process of proposing amendments to the Regulations, with an invitation for all interested persons to submit their comments. 3.2 As part of the aforementioned processes, the PA engages all banks and other relevant persons on the respective reforms, in order to gather the necessary qualitative and quantitative information that the PA requires to determine or assess the potential impact of the proposed amendments to the Regulations, as well as to prepare the aforementioned statement of expected impact. 3.3 All comments received related to the potential impact, costs and benefits of the proposed amendments to the Regulations as well as the comments received in respect of the actual proposed amendments to the Regulations will be published on the website of the PA, unless a respondent specifically requests confidential treatment of such comments.

5 4. Acknowledgement of receipt 4.1 Kindly ensure that a copy of this guidance note is made available to your institution’s independent auditors. The attached acknowledgement of receipt, duly completed and signed by both the Chief Executive Officer of the institution and the said auditors, should be returned to the PA at the earliest convenience of the aforementioned signatories. Fundi Tshazibana CEO: Prudential Authority Date: Encl. 1 The previous guidance note issued was Guidance Note 3/2022, dated 11 March 2022.