Implementation of the final Basel III package from 1 January 2025

Basel III is a comprehensive reform package of the international Basel Committee on Banking Supervision (BCBS), which aims in particular to strengthen the solvency and liquidity of banks. The BCBS adopted the final framework in December 2017 and supplemented it in February 2019 with a revised minimum standard for market risk. Among other things, it stipulates that higher-risk areas of a bank's business must be backed by more capital, while lower-risk areas must be backed by less capital. 

The implementation of the international standard into Swiss law was developed by a national working group consisting of representatives of the authorities, the Swiss National Bank and the industry. In addition to the amendments to the Capital Adequacy Ordinance, implementing provisions were issued in new FINMA ordinances and circulars were amended. The Swiss Bankers Association's guidelines on minimum standards have also been revised in line with the new legal requirements. 

Which banks are affected? 

The new rules bring changes for all types of risk. The respective standardised approaches for credit, market and operational risk have been revised. This means that all banks are affected, regardless of their business model. 

Banks in the small bank regime are also required to analyse and implement the impact of the revised guidelines on minimum requirements for mortgage financing and the guidelines on the review, valuation and settlement of mortgage-backed loans.  

What are the main changes? 

Due to their scope and complexity, the following key changes should be addressed in a cross-functional project: 

• Credit risk: The revised Credit Risk Standardised Approach is designed to increase granularity and risk sensitivity and reduce reliance on external rating agencies. In particular, there are significant changes in the area of mortgages. The differentiation between residential/commercial property and owner-occupied/rental property is becoming more important due to the new risk weighting. The relevant guidelines of the Swiss Bankers Association have also been revised and adapted and must be implemented by all banks. 
• Market risk: The introduction of a new standardised approach to market risk includes greater consideration of risk sensitivities and a flat-rate default risk charge. The existing standardised approach will continue to be available in Switzerland in the form of a simplified standardised approach, as will the previous de minimis approach, which has also been adapted. 
• Operational risk: The redesigned Standardised Approach (SMA) replaces all previous approaches to ensure a more standardised and risk-sensitive treatment. The SMA is based on two key factors: a measure of the size of the business (Business Indicator Component, BIC) and a measure of the bank's historical losses (Internal Loss Multiplier, ILM). 
• Eligible capital: There will be a clearer definition of eligible capital to ensure that banks hold sufficient and high quality capital.  

Effective preparation and implementation measures 

Optimal implementation of the Basel III requirements provides opportunities for banks in a number of areas and involves the entire bank. The choice of calculation approaches, the adaptation of processes and reporting need to be carefully planned and optimised. 

Here are some of the aspects that need to be considered, and we are happy to help. 

1. Initial assessment and gap analysis 

• Analyse current systems and processes 
• Identificate gaps and action required to meet the new requirements 

2. Development of an adaptation plan 

• Create a detailed plan for implementing the required changes 
• Prioritise actions based on urgency and impact on compliance  

3. Implementation 

• Adapte calculations and reconciliations and processes 
• Advice on the new requirements in the areas of credit risk, market risk (FRTB), including the de minimis approach, and operational risk 

4. Training and education 

• Provide training to staff on the new rules and their implications 
• Provide training materials and resources

5. Auditing and testing 

• Conducting internal tests and audits to ensure compliance
• Preparing for external reviews and audits 

Are you on the home straight with your internal bank-wide project? Forvis Mazars can provide a neutral perspective on the project status and support you with human resources, expertise and experience. We are your point of contact for questions and issues that arise during implementation. 

Conclusion 

The new requirements bring with them a host of changes. In particular, they may mean the introduction of new processes, additional data collection and adjustments to existing databases. Internal reporting will also be affected. The scope, complexity and far-reaching effects place high demands on the bank's internal project. 

Contact us!