Basel II
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Description
The Cayman Island Monetary Authority (CIMA) has commenced the implementation of the Basel II Framework. The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy that seeks to improve on the existing Basel I rules by aligning regulatory capital requirements more closely to the underlying risks that banks face.
Purpose
The Framework is intended to promote a more forward looking approach to capital supervision that encourages banks to identify risks and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with advances in markets and risk management practices. A key objective of the revised Framework is to promote the adoption of stronger risk management practices by the banking industry.
Banks to Which Basel II Will Apply
Application of the Basel II Framework will apply to banks that are locally incorporated in the Cayman Islands (Category A and B banks), all home regulated banks and host regulated banks (subsidiaries of foreign banks), with or without a physical presence.
Branches of foreign banks operating the Cayman Islands, will not be required to maintain a separate capital requirement, and as such will be excluded from the local Basel II requirements. However, these foreign banks including the operations of the Cayman Islands branches must maintain the minimum capital adequacy requirements as stipulated by their home jurisdictions.
Implementation Phases
CIMA proposes to apply the Basel II Framework in two phases leveraging a practical measured approach.
First Phase
The first phase of the implementation will be completed by December 31, 2010 and will comprise the following Pillar 1 approaches:
· Credit Risk – Standardized
· Market Risk – Standardized
· Operational Risk – Basic Indicator Approach and The Standardized Approach
The first phase of the Basel II implementation will also include Pillar 2 – Supervisory Review Process and Pillar 3 - Market Discipline. However, given the scope of Pillar II and Pillar III and the possible impact to banks, CIMA proposes to implement them after the December 31, 2010.
Second Phase
The second phase of the CIMA Basel II implementation will be considered for implementation after 2012. It will include considering the implementation of advanced approaches, specifically Pillar 1 – Credit Risk – Advanced Approaches (IRB), Operations Risk – Advanced Measurement Approaches (AMA) and Market Risk – Internal Risk Management Models.
Industry Input
Since the majority of banks impacted by the application of the Basel II Framework are members of the Cayman Island Bankers Association (CIBA), CIMA has established a joint CIMA/CIBA Basel II Working Committee. The primary objective of the working committee is to provide banks and CIMA a forum for consultation, discussion and agreement on Basel II related issues. CIMA proposes to obtain the majority of feedback on Basel II related issues from the CIBA/CIMA Basel II Working Committee.
CIMA also proposes to communicate directly with those banks that are not members of CIBA or those banks that have principal agents that are not members of CIBA. However, these banks will not have the benefit of consultation or participation in discussions on Basel II issues with the majority of impacted banks. Banks wishing to participate in the CIBA consultations and discussions should contact CIBA directly.
Basel II Documents & Forms
Basel II and QPR Portal
Please click on the link to gain access to Banking portal for testing filing during the parallel run.
Basel II Training Videos
Windows Media Player Version 9 or Higher is required to play the videos.
Basel II Bank Industry Update Letter and Readiness Survey
Basel II Reporting and Quarterly Prudential Reporting (QPR)
The final Basel II and QPR forms should be reviewed in conjunction with the Guidance Notes for the Completion of the Basel II Forms and QPRs links below. Excel 2003, or higher and macros set to enabled, will be required to open, view and input data into the forms. Note: Once you open the Basel II Reporting and QPR forms document, you must complete the first sheet (titled "000. Cover Sheet") with the appropriate selections in order to see the particular forms that you are required to complete.
Latest Basel II & QPRs Form
Latest unlocked version of the Basel II & QPRs Form is also available should banks choose to incorporate formulae and other customisations to enhance their filing ability. Banks are reminded however that only the locked version obtained from the Authority’s website would be accepted by the bank portal as a valid submission.
Rules, Conditions and Guidelines on Minimum Capital Requirement (Pillar 1)
Basel II Route Map
Validation Rules
Taxonomies, Facts & Structure for XRBL
For banks with expertise in electronic reporting, XBRL is the preferred filing method as it allows the filer to provide large data submissions without having to navigate the Excel form. XBRL provides an easier path to automate the submission. In addition, XBRL allows filers to create their own private reports related to the submissions. However, filing submissions using XBRL requires that banks have expertise in the use of instance creation tools.
Background & Previous Documents
CIMA made the decision to implement the framework after a detailed assessment and impact study conducted with PricewaterhouseCoopers that included consultation with various stakeholders of the Cayman banking industry. To view a synopsis of the study, click: Summary of the Basel II Assessment and Impact Study in the Cayman Islands.
Follow the links below for further information: