EU prepares to implement Basel III

European Union (EU) institutions agreed to implement Basel III standards in the banking sector.

The European Council announced that it has agreed to amend EU banks’ capital liability regulations as part of alignment with the Basel III reform negotiated between member states and the European Parliament (EP).

Accordingly, the EU will complete the implementation of the Basel III regulatory reforms agreed at the global level.

Thus, the resilience of banks operating within the Union will be increased, and their supervision and risk management will be strengthened.

Banks will be given sufficient time to adapt to the base, which limits the variability in capital levels calculated using internal models.

Improvements will be made in the areas of credit and market risk and operational risk.

A harmonized framework will be established to assess the suitability of board members and key executives of financial institutions.

Rules to protect management independence in the sector will be changed. In this context, those who have worked in institutions that regulate and supervise the sector will have to wait for a certain period of time before taking positions in banks.

A temporary prudential regime will also be established for crypto assets.

Changes will be made in the rules to improve the management of banks’ environmental, social and corporate governance (ESG) risks.

The minimum conditions applicable to the branches of third country banks and the supervision of their activities in the EU will be harmonized.

The said agreement will enter into force after this stage is officially approved by the EP and member states.

Basel III standards were prepared to address the shortcomings of the sector after the 2007-2008 financial crisis. In this context, it is aimed to prevent possible new global crises by strengthening the financial structures of banks with the new capital and liquidity rules.