Implementation of Basel II/III, Phase I

CENTRAL BANK OF TRINIDAD & TOBAGO Eric Williams Plaza, Independence Square, Port-of-Spain, Trinidad, Trinidad and Tobago Postal Address: P.O. Box 1250 Telephone: (868) 625-4835; 4921; 5028; Fax: (868) 627-4696 E-Mail Address: info@central-bank.org.tt Website: www.central-bank.org.tt

June 29, 2015

CIRCULAR LETTER TO ALL FINANCIAL INSTITUTIONS LICENSED UNDER THE FINANCIAL INSTITUTIONS ACT, 2008

REF: CB-OIFI-1491/2015

IMPLEMENTATION OF BASEL II/III, PHASE I

In November 2014, the Central Bank of Trinidad and Tobago (Central Bank) held an information session to present an overview of the proposals for the implementation of Basel II/III. At that initial presentation, Phase 1 of this process was scheduled to be completed by December 2015 and would have introduced the following:

• the Standardized Approach for Credit Risk under Basel II;
• the Standardized Approach for Operational Risk under Basel II;
• a higher minimum Tier 1 Capital Ratio;
• a minimum Common Equity Tier 1 Ratio;
• an increased minimum capital adequacy ratio to 10%; and
• a higher minimum capital adequacy ratio of 12% for banks that are deemed systemically important.

Subsequently in December 2014, a proposal document was issued to the industry requesting comments by February 2015. Review of all submissions has been completed and you will be notified when the relevant responses are placed on the Bank's website. Additionally, we advise that the timeline for implementation of the Basel II/III proposals has been revised and the key milestones are outlined in the attached Project Plan.

Following consultation with the Bankers Association of Trinidad and Tobago (BATT), the Central Bank has established a Technical Working Group (TWG). The TWG comprises representatives from both organizations and includes two non-bank financial institutions. Further, we have retained a Basel II subject matter expert to assist with the implementation of this project and she will attend meetings of the TWG as necessary.

One of the key objectives of the TWG is to produce a revised Capital Adequacy Reporting template (CapAd template). The Central Bank proposes to provide feedback to the industry on the CapAd template in the following three stages:

1. Stage I – Issue of draft CapAd template to the Technical Working Group for review by July 13, 2015;
2. Stage II – Issue of draft CapAd template, instructions and example of validation codes to the industry for comment in the first week of September 2015; and
3. Stage III – Commencement of Quantitative Impact Study and issue of final CapAd template, instructions and validation codes to the industry in January 2016.

You are advised that the Central Bank will conduct training sessions on the final CapAd template at the time of rollout and you will be informed of the dates of the training sessions in

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subsequent communication. In the interim, please direct any queries on the Implementation Plan or related issues to the following:

Mr. Kendall Cuffy Assistant Manager Policy and Market Conduct Unit Financial Institutions Supervision Department Central Bank of Trinidad and Tobago 72, Independence Square, PORT OF SPAIN

The Central Bank is committed to working with the industry to ensure that institutions are adequately prepared to implement the Basel II/III proposals by the proposed date. In this regard, we look forward to your continued cooperation and commitment of resources to ensure an effective transition to Basel II/III.

Please be guided accordingly.

Yours sincerely

[Signature]

Carl Hiralal INSPECTOR OF FINANCIAL INSTITUTIONS

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