DE
The final Basel III standards will come into force in Switzerland on January 1, 2025, as announced in a recent press release from the Federal Department of Finance (FDF).
The amendment to the Capital Adequacy Ordinance (CAO) implements the final component of this comprehensive reform, which aims to make the banking system more resilient and enable a more transparent calculation of capital adequacy. The final Basel III standards bring significant innovations, particularly in the area of operational risks and loss data analysis. These reforms not only strengthen the stability of the Swiss financial center, but also promote a modern risk culture and create the basis for sustainable resilience in an increasingly digital financial environment.
Looking back: The development of Basel III
The Basel III reforms were developed in response to the 2008 financial crisis in order to eliminate weaknesses in the banking system. The aim was to tighten capital and liquidity requirements and minimize systemic risks. Since their introduction in 2010, the Basel III standards have been implemented in stages, with the final phase – postponed until 2025 due to the pandemic – concluding the reform process.
The most important changes in the final phase concern:
- Restriction of internal models: The use of internal models to calculate own funds is regulated by the introduction of an output floor. This means that capital requirements based on internal models may not be less than 72.5% of the standardized calculations.
- Standardized approaches for operational risks: The Standardized Measurement Approach (SMA) replaces the previous models and makes loss data a central element of the calculation. In future, capital requirements will be based more on the banks’ loss histories and business indicators.
These changes are intended to increase the transparency and stability of the banking system. At the same time, they will encourage banks to modernize their risk management systems and address systemic weaknesses in a targeted manner.
New requirements for loss data: Focus on operational risks
Operational risks have been an established part of the regulatory framework since Basel II, but the final Basel III standards, which will come into force from 2025, will significantly specify this area. Central to this is the recording and use of loss data (“loss events”), which form a crucial basis for calculating capital requirements in accordance with the new Standardized Measurement Approach (SMA).
The requirements for loss databases will therefore be significantly tightened by the final Basel III standards. In addition to recording historical loss events, the new standard also requires the proactive use of this data in risk management. This offers banks the opportunity to take preventative measures and systematically minimize recurring problems.
The following aspects in particular are coming into focus:
- Quality and scope: Banks must significantly expand their loss databases in order to record detailed information on financial effects, causes and accompanying measures.
- Uniform standards: Comparability and validity of the data are ensured by clear guidelines for collection and management.
- Integration of new risks: In addition to traditional loss data, new types of risks such as cyber risks and third-party problems are gaining in importance.
The final Basel III standards also require the consideration of cyber risks, which are becoming increasingly important in light of growing digitalization. FINMA emphasizes that such scenarios must be integrated into loss data and risk models.
Significance for the Swiss financial center
By amending the Capital Adequacy Ordinance, Switzerland is not only implementing international standards, but also strengthening the stability of its banking system. The Federal Department of Finance emphasizes that the changes are intended to increase transparency and promote the resilience of the financial centre. On average, there will be no significant changes to capital requirements. However, the requirements could increase for larger institutions, making targeted adjustments necessary.
While the new Basel III requirements will undoubtedly entail additional work for banks, they also offer opportunities to optimize systems and processes. In particular, they enable institutions to:
- Improved risk transparency: By systematically collecting and analyzing loss data, banks gain a clearer insight into their risk landscape. This strengthens their ability to take preventive measures and ensure long-term stability.
- Standardization and comparability: The new requirements create a basis for standardized calculation approaches, which meets both regulatory requirements and the expectations of international investors.
- Strategic resilience: The integration of new types of risk such as cyber attacks or third-party problems strengthens banks’ resilience to external shocks.
Recommended actions for banks
The final Basel III standards present banks with new challenges, but also offer them the opportunity to optimize their risk management and strengthen their resilience. As an integral part of the Swiss financial center, it is crucial not only to meet these requirements, but also to use them as an opportunity for strategic development. Banks should use the remaining time until implementation to align their systems and processes with the new requirements in a targeted manner. The following steps are of particular importance here:
- Checking the loss databases: Is all relevant data complete, of high quality and standardized? A robust database is essential in order to meet regulatory requirements and make well-founded decisions.
- Integration of new risks: Banks should ensure that cyber risks and third party issues are systematically integrated into their models. This requires close coordination between the risk management and IT departments.
- Raising awareness and training: Employees should be trained in the new requirements and prepared to use new tools. Regular workshops and training courses increase awareness of new risks.
- Technological adaptations: Investments in modern GRC (Governance, Risk, and Compliance) technology can create decisive competitive advantages. Tools such as the GRC Toolbox, which are specifically designed to record and analyze loss data, enable efficient implementation of regulatory requirements.
The Basel III standards are more than just a regulatory hurdle – they are an opportunity to actively shape the future of the banking system. If you would like to find out more about the new requirements or need support in adapting your processes, reach out to our experts.
