Core Principles for Effective Banking Supervision and Core Principles Methodology: Overview of comments received

Thirty-one comment letters were received from banks, industry associations, banking supervisory authorities, consulting firms, individual assessors and other stakeholders, in response to the April 2006 consultative papers on the Core Principles for Effective Banking Supervision and the Core Principles Methodology. The letters expressed broad support for the overall direction of the update. In many of these letters, commenters referred positively to the introduction of recent developments in risk management and supervision. Many also welcomed the incorporation of recent regulation and guidance issued by the Committee and other standard setters.

The April 2006 consultative papers were released after consultation with Regional Groups of Supervisors and other standard setting bodies. This overview covers only comments received during the public consultation process.

The following changes were among those introduced in response to the comments received:

• The introductory section on the treatment of Basel II has been renamed and modified to highlight that the updated Core Principles remain neutral regarding the implementation of Basel I or Basel II;

• To minimise the risk that credit unions and microfinance institutions will avoid any form of supervisory oversight, Core Principle 2 now requires non-banking financial institutions, which take deposits from the public, to be subject to a form of regulation commensurate with the type and size of their transactions;

• In Core Principle 3, it is now an Essential Criteria that the Board collectively, must have a sound knowledge of the activities the bank intends to pursue and the associated risks;

• Greater clarity and symmetry in some of the roles and responsibilities of home and host supervisors have been introduced into Core Principle number 25, and

• The Annex covering assessment reports by the International Monetary Fund and the World Bank has been amended to include new policies regarding the presentation of the assessment results in the "Report of the Observation of Standards and Codes" (ROSC).

Several commenters made proposals that were outside the current scope of the Basel Core Principles (BCP) framework. For example, it was suggested that the BCP should address issues such as consumer protection and education, or serve as a guide to enhance interaction, dialogue and constructive relationships between supervisors and the banking industry. Some commenters also suggested that the framework should serve to address some specific aspects of Basel II or particular issues arising from credit unions, microfinance institutions, or Financial and Offshore Centres. The mandate for the revision of the Core Principles clearly required that the framework should remain focused on minimum standards of banking supervision, as originally intended, and hence issues falling outside this area of focus were not taken on board.

Other commenters, meanwhile, made suggestions in the area of home-host coordination, risk-based supervision, reputational risk and contagion risk that would have taken the update beyond current BCBS guidance. Nevertheless, the feedback received during the consultation process has provided valuable insight into possible areas of future work by the Committee and/or the Core Principles Liaison Group.