Abu Dhabi: The UAE Central Bank has announced the successful completion of the trial run of Basel II — a new capital adequacy standards system — and is now ready to start the actual implementation of the system.
Basel II specifies the process for determining minimum levels of capital to be held by banks, based on the risk of those assets, which is a key regulatory tool for ensuring stability in the financial system.
Basel II has a three pillar approach; "Pillar 1" calculates minimum capital requirements using more risk sensitive approaches than is currently applicable.
"Pillar 2" deals with higher risk management expectations, supported by greater scope for regulatory scrutiny.
Key issues covered include corporate governance, concentration risk, and remuneration practices amongst others.
"Pillar 3" involves reporting and market disclosures that enable investors, depositors and other stakeholders to gain a greater understanding of a particular bank's risk profile.
A phased introduction of Basel II has been adopted, with the standardised approach to be implemented immediately.
