On March 31, ISDA and the Association for Financial Markets in Europe (AFME) submitted a joint response to the HM Treasury (HMT) consultation on implementation of the Basel 3.1 standards.

The implementation of the Basel 3.1 standards in the UK is a necessary element of preserving financial stability and provides an opportunity to review the framework more holistically, ensuring it is appropriately calibrated and takes account of the specificities of the UK market. It is crucial that the Basel 3.1 framework is implemented in a risk-sensitive way that results in a robust UK banking sector that is effective in financing the wider economy.

Key points in the response include:

• Comments on HMT’s proposed exercise of the Section 3 revocation power: these cover specific articles, as well as broader recommendations for bringing clarity to the framework;
• Proposed changes to better operationalize the exemption for intragroup transactions from credit valuation adjustment capital requirements;
• Recommendations to rationalize equivalence arrangements in the UK Capital Requirements Regulation;
• A request that: 1) HMT creates a new equivalence regime for third countries, or alternatively amends the definition of covered bonds, in line with Basel, to allow non-UK issued bonds to be considered for preferential treatment; and 2) Export Credit Agencies (ECAs) classed as quasi-sovereign public sector entity ECAs are treated the same as those ECAs classed as sovereigns as permitted by the Basel standard;
• Recommendations for longer-term solutions to increase credit rating coverage; and
• A request that a dedicated list relating to equivalence is published by HMT in the case of recognized exchanges that can be assessed and expanded.