Basel III Prudential Roadmap: Advanced approaches, systemic importance, the Net Stable Funding Ratio and the leverage ratio
Basel III Prudential Roadmap: Advanced approaches, systemic importance, the Net Stable Funding Ratio and the leverage ratioExecutive summary
This consultation is part of our work on the implementation of the Basel Framework, as set out in Section 2.1 ‘Background’.
It focuses on:
- advanced approaches and the output floor
- systemic importance and the related proposals concerning the leverage ratio and the Net Stable Funding Ratio (NSFR)
The remaining elements (including market risk / trading book rules and large exposures rules) will be consulted on in Q4 2025, as per the revised roadmap.
Responding to the UK delay
In January 2025, the UK announced a delay to its implementation to 1 January 2027.
More recently, the Prudential Regulation Authority (PRA) consulted (in CP 17/25) on delaying the implementation of revised rules for the internal model approach to 1 January 2028 (relevant to banks with Trading Books).
Section 3 of this paper sets out our high-level response, including a revised Roadmap. We will
- delay our transitional window by six months to align with the UK implementation date of 1 January 2027
- reduce our one-year transitional period by six months, meaning that our final “go live” implementation date of 1 July 2027 will remain unchanged
- accommodate the need for a further rules consultation in Q4 2025, principally to address delays to PRA consultations on Trading Book rules and Large Exposures. This would allow time for the PRA position to be clearer but still achieve clarity on our rule proposals being delivered this year
- delay until H1 2026 the planned work on Pillar 2 and the Prudential Return to allow for this additional consultation and in line with our delayed transition date
Advanced approaches
We intend to closely follow the PRA’s near-final rulebook, published in September 2024 as part of the PRA’s policy statement PS9/24 Implementation of the Basel 3.1 standards near-final part 2 (PRA PS9/24). This aligns with our Basel III Prudential Roadmap (jerseyfsc.org) consultation (Roadmap Consultation), reflecting the positive feedback received during the consultation and bilateral dialogue. Detailed proposals are set out for advanced approaches to credit risk (Section 4) and specifically the output floor (Section 5).
The numerous changes to the UK rules, including limiting the use of advanced approaches and mandating minimum input floors, are broadly consistent with the Basel Framework. In particular, we will follow the PRA in excluding international subsidiaries from the scope of the output floor in cases where they are subject to the floor at consolidated level.
Feedback is sought on the detailed proposals, including the impact on the capital requirements of Jersey Incorporated Banks (JIBs), and on where simplifications or modifications are needed to address competitive disadvantages.
Systemic importance
For systemic importance (Section 6), the UK has implemented various regulations intended to address this. The Roadmap Consultation proposed differentiating highly systemic banks (where continuity of services is essential) from other banks.
We are proposing a simple model for identifying highly systemic banks based on their provision of banking services to Jersey retail customers and a range of measures, including systemic buffers, to counter the risks posed by such banks.
Leverage ratio and NSFR
For the leverage ratio (Section 7) and NSFR (Section 8), the UK rules were not amended as a result of Basel 3.1, although the UK changes made have consequential impacts. The Roadmap Consultation proposed that we would implement a UK-aligned approach in both cases, but carve out smaller, non-systemic banks with no material overseas operations.
The detailed proposals herein elaborate on this approach, and feedback is sought on whether it is preferable to revise the current Jersey framework to broadly align or instead replace it with a fully UK-aligned approach.
Who would be affected?
Most of the proposals in this CP only directly impact JIBs, except for the systemic importance (Section 6) proposals, which may also impact Jersey branches.
The implementation of the Basel Framework will indirectly impact the customers of banks in Jersey, whether it be our implementation or implementation by home countries with respect to branches.
Next steps
Following this consultation, we will publish feedback in Q4 2025, along with our near final draft documentation.
In line with the revised Roadmap, we will then:
- in Q4 2025, consult on the remaining Codes changes required to implement the Basel III rules, including Large Exposures, Trading Book, market risk, counterparty credit risk, securitisations and own funds
- in H1 2026, publish near-final Codes, to come into effect from 1 July 2027, with transitional provisions that enable earlier transitions from 1 January 2027
- in H1 2026, consult on changes to Pillar 2 and Prudential Reporting
- in H2 2026, implement changes to Pillar 2 and Prudential Reporting so that JIBs can transition in H1 2027
All JIBs must comply with the full new regime from H2 2027.