The Monetary Authority of Singapore (the “MAS”) has revised Notice 637 on Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore (“MAS Notice 637”) to implement the Basel III leverage ratio disclosure requirements issued by the Basel Committee on Banking Supervision (the “BCBS”).

The revisions will take effect on 1 January 2015, in line with the BCBS’ timeline for implementation of the leverage ratio disclosure requirements. The revisions will enhance the transparency and comparability of disclosures relating to the composition of leverage ratio across banks.

Background

From 6 August 2014 to 5 September 2014, the MAS conducted a public consultation on proposed amendments to MAS Notice 637.

On 14 October 2014, the MAS issued its Response to the feedback received. The revised MAS Notice 637 was issued on the same day.

Scope of revisions

The objective of the leverage ratio is to complement the existing risk-based capital framework by a non-risk based measure that limits the build-up of leverage in the banking sector. The minimum leverage ratio will be decided and announced at a later date, as the BCBS is monitoring and assessing the appropriate calibration of the ratio for internationally active banks.

The MAS has also made other revisions to enhance the clarity of the capital rules, which will also be implemented from 1 January 2015. Leverage ratio supervisory reporting requirements will be implemented from 31 December 2015.

The Response includes the MAS’ comments in relation to feedback received during the public consultation which clarifies the amendments to MAS Notice 637.

In relation to centrally cleared derivatives, the MAS clarified that a reporting bank may exclude qualifying central counterparty (“CCP”) trade exposures to a qualifying CCP from the calculation of its derivative exposure measure if the reporting bank is not, based on the contractual arrangements with the client, obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the qualifying CCP defaults.

The MAS also clarified the treatment of centrally cleared affiliate exposures to derivatives, referring to paragraphs 1.2 to 1.4 of Annex A of Notice 637 relating to the calculation of the leverage ratio.

The Response also notes that the MAS will monitor the developments at the BCBS on the incorporation of the Standardised Approach for measuring Counterparty Credit Risk into the leverage ratio framework when considering revisions to the calculation of potential future exposures of derivative transactions.

Reference materials

The Response is available on the MAS website www.mas.gov.sg by clicking here.