UK banks lead peers in preparation for global Basel rules – but costs are mounting
UK banks are leading their global rivals in the implementation of the latest update to international banking standards, according to new research.
According to new EY research, all of the UK banks surveyed have put measures in place to comply with the new rules, known as the Basel III reforms. This compared to only 61 per cent of European banks and 57 per cent of US banks.
The Basel reforms are the global regulatory overhaul undertaken in the wake of the 2008 financial crisis, which set new minimum standards for liquidity and capital requirements. The latest update to those rules, set by the Bank of International Settlements, are set to come into effect in January 2025.
UK banks, however, reported huge costs as a result of complying with the incoming changes.
Half of UK banks surveyed suggested the total costs could be in the range of $100m-$200m. In contrast, 76 per cent of European banks expected the total cost to be under $10m.
The increased costs faced by UK banks reflects the fact that UK regulators have more closely aligned with the Basel regulations, while other jurisdictions have watered down the proposals.
Nigel Moden, EMEIA Banking & Capital Markets Leader at EY, commented: “Differing local market rules and regulatory standards have an impact on implementation, including cost.
“That said, it’s important to note that UK banks who responded to the survey are both bigger and started to implement Basel III rules earlier than many other markets, so are further ahead on the journey and have had longer to incur costs,” he continued.
One of the most important aspects in the reforms is the ‘output floor’, which sets a lower bound on the capital a bank must hold even if internal calculations would point to a lower level.
EY found that 83 per cent of UK banks and 67 per cent of European banks said they had not worked out an approach to allocating the capital impact of this floor.
Banks also identified the quality and availability of data to enable compliance with the regulations as an issue. Some 60 per cent of UK banks said this was the most significant challenge to delivering the reforms, while a third of European banks did.