Handbook for Regulatory Consistency Assessment Programme (RCAP) jurisdictional assessments published by the Basel Committee

17 March 2016, Bachir El Nakib (CAMS) Senior Consultant Compliance Alert LLC


Handbook for Regulatory Consistency Assessment Programme (RCAP) jurisdictional assessments published by the Basel Committee

17 March 2016

Press release

The Basel Committee on Banking Supervision has today published the Handbook for Jurisdictional Assessments, which describes the guidance, principles and processes for assessing compliance with Basel standards under the Regulatory Consistency Assessment Programme (RCAP). The Committee believes that full and consistent implementation of its standards will strengthen the resilience of the banking system, improve market confidence in regulatory ratios and promote a level playing field.

The RCAP assesses the consistency and completeness of a jurisdiction's capital and liquidity rules against the globally agreed Basel standards and describes the significance of any deviations. The programme is sufficiently general to accommodate differences in structural and institutional factors across jurisdictions. The RCAP Handbook presents a general framework as well as specific processes and procedures for assessing a jurisdiction's regulatory framework for (i) risk-based capital standards, (ii) the Liquidity Coverage Ratio (LCR) and (iii) global systemically important banks (G-SIBs). The Committee has gained valuable experience since it began conducting jurisdictional assessments in 2012 that has led to enhancements to the RCAP methodology set out in the Handbook.

The Basel Committee also published today RCAP Questionnaires that cover, in addition to the risk-based capital standardsLCR and theRevised Pillar 3 disclosure requirements. These self-assessments of a jurisdiction's rules are the starting point for an RCAP. The questionnaires support Basel Committee member jurisdictions, and other regulators and supervisors, to check and improve the alignment of their domestic regulations with the corresponding Basel standards.

Establishment of the RCAP Assessment Teams Capital and LCR framework The initial selection of the RCAP Team Leader (TL) is done by the PRB, taking into account any recommendation from the Committee’s Head of Basel III Implementation. The Secretariat, in consultation with the TL, designates an Assessment Team (AT). Once the team is selected, it is formally approved by the PRB. The size and composition of the team depends upon the scope of the assessment and the assessed jurisdiction. Teams are selected with a view mainly to (i) obtaining high-quality expertise to cover all components of the Basel capital and LCR framework; (ii) ensuring that selected members can work both as primary and secondary reviewers within the team (ensuring “four eyes” for each assessed component); and (iii) achieving appropriate geographic diversity and language skills. In forming the team, the PRB ensures that the assessment teams and review teams are independent from the assessed jurisdiction, so as to avoid potential conflicts of interest.

Off-site assessment phase A process for rigorous off-site review is based on work undertaken by primary and secondary assessors. As a general RCAP practice, the primary assessor identifies those parts of the domestic rules that are clearly compliant with the Basel standards while seeking to identify, without further evaluation, those parts that are super-equivalent, and to reserve for further consideration those parts that may be sub-equivalent. The second assessor’s task is to look at the sub-equivalent list, and consider whether any of the initial items should be removed. 

On-site assessment phase As a general principle, on-site reviews are expected to be conducted as part of the assessment process of risk-based capital and LCR standards. On-site reviews provide the best opportunity to ensure the correct understanding of issues related to the adoption and implementation of Basel III identified during the offsite review, through face-to-face exchanges with relevant experts and the senior authorities responsible for the transposition of Basel III into domestic regulations

Follow-up of RCAP jurisdictional reports The Basel Committee has established a system to keep abreast of the continuing efforts by its members to implement Basel III standards. The aim is to provide some continuity between assessments as well as to serve as a foundation for targeted implementation follow-up. Further, this improves the quality of reporting to stakeholders on actual progress with implementation of the Basel framework. Above all, the process is intended to help member jurisdictions to systematise and communicate their own monitoring efforts at the national level. The issues for follow-up RCAP assessments are listed in the jurisdictional reports and limited to the deviations that have a material or a potentially material impact. Follow-up assessments focus on reassessing the materiality of these deviations and assessing any rectifications or amendments undertaken by the jurisdiction following the publication of the assessment report. Findings that relate to domestic implementation issues are not in the scope of follow-up assessments.

Principles for handling delays of an RCAP jurisdictional assessment report Since the adoption of the RCAP, there have been a limited number of situations in which a Committee discussion of a draft RCAP jurisdictional assessment report has been delayed beyond the scheduled expected timeframe to accommodate amendments in domestic regulations. The “scheduled expected timeframe” for completing the assessment and presenting the findings for a Committee discussion is the one agreed between the AT and the assessed jurisdiction in the Scoping Note. The tentative publication month for publication of the assessment report is made public on the Basel Committee’s implementation webpage and in the Basel III implementation progress reports to the G20. Ordinarily when there is no delay, follow-up on amendments that are made after the scheduled cutoff date should take place during the RCAP assessment follow-up programme. In these cases, such amendments do not affect the assessment findings. In exceptional cases, however, a small delay can materially improve the prudential outcome. The principles to be followed while handling any delay in the cutoff date or the date for submission of the assessment report to the Committee are set out below. 

Basel risk-based capital standards: scope, design and methodology of assessment 3.1 Scope The RCAP assessments of risk-based capital regulations cover the full scope of Basel standards, ie Basel II, 2.5 and III. The assessment covers 14 components (see below). These assessments cover all Committee member jurisdictions. The assessments are carried out with reference to Basel capital standards enumerated in Annex 4 and are based, whenever possible, on the final domestic regulations that are binding in nature. The following table contains the 14 key components of the Basel framework that are currently within the scope of risk-based RCAP jurisdictional assessments. Assessed jurisdictions receive a grade for each of these components individually as well as an overall grade

Assessment methodology The assessment methodology for capital standards has evolved over the past years. It deals with the classification of findings into quantifiable and non-quantifiable deviations, assessment of materiality and potential materiality of the deviations at the key component level, assignment of grades to key components, determination of an overall grade, and the identification and treatment of Basel provisions that are open to different interpretations. The general principles underlying the assessment methodology are the following: (i) The jurisdictional assessments focus on reviewing the content of domestic regulations. The assessment of compliance with the Basel rules is based on: • a comparison of domestic regulations with the international agreements to identify if all the required provisions of Basel III have been adopted (completeness of the regulations); and • notwithstanding the form of local requirements, whether there are any differences in substance between the domestic regulation and the Basel rules (consistency of the regulations). (ii) The assessment is not a “word for word” comparison. The objective is to ensure that substance of the every Basel provision exists somewhere in the domestic regulation. (iii) When a gap or difference is identified, a key driver for assessing compliance is its materiality and impact. The component grades and overall grade are based on the aggregate impact on the reported risk-based capital ratios or risk-weighted assets (RWA) of (i) all deviations that are considered currently or potentially material and (ii) all non-material deviations where the impact has been quantified. (iv) The assessment also seeks to clarify the rationale for any identified gaps and differences between the domestic provisions and the corresponding Basel rules, with a view to ensuring a firm understanding of the specificities and drivers of local implementation. This helps various stakeholders view the assessment in proper perspective. However, these elements are not taken into account when assessing compliance beyond the scope of national discretion already specified within Basel III. (v) Domestic measures that are stricter than the minimum Basel requirements are fully in line with the nature of the international agreements, which are intended to set minimum requirements, and are therefore considered as compliant. However, they are not considered as compensating for inconsistencies or gaps identified elsewhere, unless they fully and directly address the identified inconsistencies or gaps. (vi) Consistent with the scope of the jurisdictional assessments, the AT is not expected to verify the actual implementation at the ground level if a regulation is prima facie compliant with the Basel provision. (vii) A distinction can be made between assessment findings, such as deviations and gaps, and observations. Observations highlight certain special features of the regulatory implementation of the Basel standards in the assessed jurisdiction. Observations are presented separately in the assessment report for contextual and informational purposes. They do not indicate subequivalence, but are considered compliant with the Basel standard and do not have a bearing on the assessment outcome.


The Committee will continue to update the Handbook to reflect further refinements to the RCAP.

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