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U.K. Groups Question CEBS Guidelines

By Staff Writer

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LONDON (HedgeWorld.com)–Four London-based investment-industry groups have sent a joint comment to the Committee of European Banking Supervisors, critiquing its newly published guidelines on the application of the supervisory review process under “pillar 2″ of the Basel II capital framework.

The three Basel pillars are: the close alignment of minimum capital requirements with institutions’ actual risks, the supervisory review of institutions’ internal assessments of their overall risks and capital adequacy, and enhancement of the degree of transparency of an institutions’ public reporting. What is at stake in the new document, issued Feb. 16 by the International Swaps and Derivatives Association, the London Investment Banking Association, the British Bankers’ Association, and the European Securitisation Forum, is the second pillar, on the review of internal risk assessments.

The CEBS, taking account of comments on an earlier draft, amended its guidelines last month in the following respects:

oRevised the internal governance section of the guidelines, including the definition of “management body”;

oClarified the scope of application of the guidelines and the framework for coordination between consolidating supervisors and host supervisors on the supervisory review process; and

oStressed the importance of the concept of proportionality throughout the guidelines.

The guidelines are for the benefit of banking supervisors in the various nations of the European Union.

The four members of this coalition are concerned that the CEBS guidance has “disappointingly gone in the wrong direction in terms of level of detail.” There is, they believe, too much of it, especially since the Basel Accord itself showed deliberate restraint in its discussion of the validation and assessment of the advanced measurement approach (AMA)–i.e., a principles-based approach rather than the mandating of details.

“Industry considers that too detailed requirements are inappropriate as they will be unable to adapt [to the] innovative nature of the market and the diversity of structures available. This is particularly true of the sections [of the guidance] dealing with significant risk transfer,” the groups’ critique stated.

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Contact Bob Keane with questions or comments at [email protected].