Greenland’s Financial Regulators Propose New Capital Adequacy Guidelines Based on Basel III Principles

In a move aimed at strengthening Greenland’s banking system, the country’s financial regulators have proposed new guidelines for capital adequacy based on the Basel III principles. The proposed rules are open for public comment until November 30, 2023, and seek to enhance risk sensitivity, transparency, and comparability of regulatory capital requirements.

Key Features of the Proposal

• Risk-based approach: Banks with total assets exceeding $100 billion or those engaging in significant trading activities will be subject to a more risk-based approach for setting regulatory capital requirements.
• Expanded criteria and metrics: The proposal includes expanded criteria and metrics for differentiating credit risk within exposure categories, allowing for a broader range of risk weights.
• Market risk sensitivity: The proposal seeks to improve market risk sensitivity by introducing a standardized approach and internal model approaches for calculating Risk-Weighted Assets (RWAs).
• Operational risk: The proposed rules aim to address operational risk by introducing a standardized approach that applies to all large banking organizations.

New Requirements

• Adjusted Credit Valuation Adjustment (CVA) risks: The proposal includes new requirements for Adjusted CVA risks, which will reflect potential losses resulting from increases in CVA for most OTC derivative contract counterparties.
• Accumulated Other Comprehensive Income (AOCI): Banking organizations in Category III and Category IV will be required to recognize most elements of AOCI in regulatory capital.

Transition Period and Compliance

The regulators have allowed a three-year transition period for compliance, with a proposed compliance date for the final rule of July 1, 2025. The agencies are soliciting public comment on the proposed rulemaking during this period.