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Abu Dhabi, UAEWednesday 19 December 2018

Abu Dhabi Global Market proposes changes to banking risk rulebook

Financial free zone seeks to revise ‘prudential’ regime in line with global regulations

ADGM has focused heavily on the fintech space since opening its doors for business in late 2015. Mona Al Marzooqi / The National
ADGM has focused heavily on the fintech space since opening its doors for business in late 2015. Mona Al Marzooqi / The National

Abu Dhabi’s financial free zone, Abu Dhabi Global Market (ADGM), has published proposed changes to its banking regulatory framework, in an attempt to reduce the level of risk to which banking creditors are exposed.

ADGM’s Financial Services Regulatory Authority (FSRA) drafted a consultation paper inviting feedback from the market on the proposals to the so-called ‘prudential’ banking risk regime, the body said in a statement on Sunday.

Among the proposals are the introduction of capital requirements, including implementing a ‘countercyclical capital buffer’ to protect the sector against losses, a ‘credit valuation adjustment’ that takes into account the possibility of default by a party, and Central Counterparties frameworks – essentially, ‘stress tests’ to manage legal, credit, liquidity, operational and other risks.

Other proposals include the introduction of rules to allow certain capital instruments to absorb losses where one party becomes non-viable, the implementation of a ‘leverage ratio’ floor, leverage ratio and liquidity coverage ratio, to reduce the chances of a bank becoming over-leveraged, and new reporting requirements, among other changes to increase transparency in the sector.

ADGM said in a statement that the proposed changes were intended to bring the free zone’s regulatory framework in line with global banking requirements; specifically, the current regulatory prudential regime developed by the Basel Committee on Banking Supervision (BCBS).

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“This proposed revision is part of the FSRA’s commitment and ongoing efforts to maintain an internationally-recognised, transparent and robust prudential regime,” ADGM said.

The changes would form revisions to ADGM’s Prudential – Investment, Insurance Intermediation and Banking Rulebook (PRU). The market has until December 7 to respond.