Compliance with International Financial Regulations
Responding to the Finalized Basel III
Following the global financial crisis in 2008, the third installment of the Basel Accords, known as Basel III, was agreed upon by the Basel Committee on Banking Supervision (BCBS) for the purpose of raising capital adequacy ratio requirements and introducing leverage ratio and liquidity requirements. In Japan, this regulatory framework has been adopted in a phased manner since March 2013.
Later, an international agreement was reached on the "Finalized Basel III" in December 2017, which essentially aims to introduce a capital floor based on the standardized approaches and partially constrain the use of internally modelled approaches by banks when measuring risk assets to calculate their capital adequacy ratios.
The "Finalized Basel III" is required to be implemented starting from 2022. The SuMi TRUST Group will continue to develop a framework aimed at complying with the tighter capital requirements up ahead by, for example, using capital reserves to guarantee target levels and pushing ahead with appropriate profitability and portfolio management.
- Standardized Approach
Supervisory risk weight according to external credit ratings
- Foundation IRB Approach
Risk weight calculated based on banks' own estimates of probability of default (PD)
- Advanced IRB Approach
Risk weight calculated based on banks' own estimates of probability of default (PD) and loss given default (LGD)
In the case where 72.5%* of SA RWAs (Floor) is larger than internal model RWAs, Add-on RWAs are charged.
*As for the applicable multiplier of the floor, starting at 50% in 2022, it will be raised by 5% each year to 72.5% in 2027.
Stronger Regulations to Address Non-financial Risk
Regarding financial risks, BCBS made the agreement on Basel III as described above, and major frameworks for various liquidity risk regulations and Single Counterparty Credit Limit (SCCL) are close to being determined and although minor modifications of details are still needed, the hardest part is over.
With this background, international organizations and the financial authorities of each country are focusing on tightening and enhancing regulations on non-financial risk areas. Examples of non-financial risk areas include:
- Conduct risk management
- AML/CFT (Anti-Money Laundering and Countering the Financing of Terrorism)
- Subcontractor (third party) management
- Maintenance of important functions/strengthening business continuity framework of financial institutions
These areas are correlated and we are being required to strengthen regulations across areas, not only tightening management of our own conduct risk and cybersecurity, but also checking the management status of those of subcontractors and requiring them to establish a certain level of management framework.
There is no established method in place for the financial authorities or the financial industry to tighten these non-financial risk areas yet, and we are still in a stage where various proposals are being made. Some of the areas, such as cybersecurity, require continuous enhancement of regulations.
The Group, as a trust bank group entrusted with the investment and management of the assets of our clients, is committed to further strengthening and enhancing the framework of asset investment and management, while paying close attention to these global regulatory trends.
Framework for Compliance with International Financial Regulations
|Overall supervision||Corporate Planning Dept.(Global Business Management Office)|
|Capital adequacy ratio/Liquidity requirements||Risk Management Dept.
Financial Planning Dept.
|Extra-territorial application of laws Conduct risks||Compliance Dept. (Global Compliance Office)|
|Support for regulations for overseas bases||Global Business Planning and Coordination Dept.*
Global Markets Business Planning Dept.*
Fiduciary Business Planning Dept.*
Asset Management Business Planning Dept.
|Cybersecurity||Risk Management Dept.
IT & Business Process Planning Dept.
|Overseas Office Recovery & Resolution Planning||Corporate Planning Dept. (Corporate Information Office)
Risk Management Dept.
*SuMi TRUST Bank