The latest Basel II legislation is the subject for a new handbook released by the Bermuda Monetary Authority (BMA).

The BMA has published 'Revised Framework for Regulatory Capital Assessment' yesterday, which sets out in a single policy document the final rules for implementation in Bermuda of Pillars 1 and 2 of the Basel II Capital Accord.

The new framework comes into effect in January next year.

The Authority has also published the reporting forms and guidance notes that institutions covered by the new framework must use to calculate and report their Pillar I capital requirement.

The Basel II Accord sets new global standards for capital adequacy for the banking sector using an approach that is more risk-sensitive than its predecessor (Basel I) and which has built-in incentives for institutions to improve their risk management.

The BMA has been working with the industry over the past two years to prepare for implementation of Basel II. While aimed primarily at banks, the new framework will also apply to some investment firms.

"The enhanced rules and standards should further serve to strengthen the soundness and stability of Bermuda's financial system and are consistent with the Authority's stated objective of maintaining a regulatory environment that is risk-based, proportionate and fully in line with international standards," said Graeme Dargie, the BMA's director of banking, trust, and investment.

"The handbook brings together in one document all the different elements of the new framework, including the detailed methodology for calculating minimum base capital requirements under Pillar 1 and the approach the Authority is adopting for supervisory review under Pillar 2.

The revised framework for Bermuda includes a range of options of increasing sophistication for determining the capital requirements for credit risk and operational risk within institutions.