The Chile Financial Market Commission (CMF) issued amendments to its Basel III Pillar 2 supervisory framework, updating Chapter 21-13 of the Updated Compilation for Banking Regulations to refine how it determines bank-specific additional capital requirements where risks are not sufficiently covered by Pillar 1. The package is designed to facilitate supervisory processes and clarify aspects of capital assessment and risk determination following several effective equity assessment cycles. Key changes include revisions to Annex 1 on banking book market risk, allowing more complete coverage tailored to a bank’s situation and updating the computation of interest and value metrics (∆NII and ∆EVE), the definition of prioritised banks, modelling expectations, and reporting of prepayment flows for fixed-rate loans exposed to prepayment risk. The amendments also limit the length of the Effective Equity Self-Assessment Report, adjust Annex 3 and require submission in Excel format, clarify how internal effective equity targets relate to potential CMF requirements under Article 66 Quinquies of the General Banking Act (including CMF suggestions on target amounts), improve inherent risk profile definitions, and correct a reference on the periodicity of financial statements used to report additional capital requirement levels; Pillar 2 requirements continue to be set case-by-case by a reasoned resolution, subject to a CMF Board supermajority and capped at 4 percent of net risk-weighted assets. The CMF further details how it will apply Annex 1, including its process for identifying prioritised banks and the approach to capital allocations and requirements for banking book market risk, with banks’ own estimations positioned as a key input. Annex 1 changes take effect for the November 2025 reporting cycle (due in December 2025), while the remaining amendments enter into force with the Effective Equity Self-Assessment Report due in April 2027; the rulemaking follows consultations run from December 12, 2023 to March 15, 2024 and from October 11 to November 8, 2024.
Chile Financial Market Commission 2025-07-10
Chile Financial Market Commission amends Basel III Pillar 2 rules for additional bank capital requirements
The Chile Financial Market Commission has amended its Basel III Pillar 2 framework to refine bank-specific additional capital requirements where risks are not covered by Pillar 1. Key updates include revisions to Annex 1 on banking book market risk, adjustments to capital assessment metrics, and changes to reporting requirements. These amendments aim to enhance supervisory processes and clarify capital and risk assessment, with phased implementation starting November 2025.