TO ALL BANKS, BRANCHES OF FOREIGN BANKS AND MUTUAL BANKSBANKS ACT CIRCULAR 5/2002IMPLEMENTATION OF THE NEW BASEL ACCORDExecutive Summary The new Basel Capital Accord is expected to improve safety and soundness in the financial system, whilst providing an implementation challenge for banks. In order to meet the 2005 deadline of the Basel Committee on Banking Supervision ('Basel Committee'), implementation plans have to commence with immediate effect. In this regard, this Office has employed a dedicated resource responsible for implementing the new Accord. In addition, this Office proposes the formation of a strategic forum, on which banks and the auditing profession will be represented. The objective of the forum will be to discuss and deliberate, at a strategic level, the implications and implementation aspects of the new Accord. Nomination of a representative of your institution is also requested.1. IntroductionThe implementation of the new Basel Capital Accord ('new Accord') is expected to improve safety and soundness in the financial system by placing more emphasis on banks’ own internal controls and management, the supervisory review process and market discipline. All stakeholders are aware that implementation of the new Accord has far reaching implications, not only for banks, but also for bank supervisors. The Basel Committee announced in December 2001 that it intended releasing a third consultative paper during the course of this year, subsequent to completion of the impact assessment study currently under way. Accordingly, the Basel Committee did not announce a revised schedule for completion or implementation of the new Accord, and the date remains 2005.This Office is of the view that the sound basic framework of the new Accord will not materially be altered in the third consultative paper. Based on this premise, this Office considers it prudent to commence planning for the implementation of the new Accord in order to comply with the 2005 deadline. This Office will not only have to consider its own processes and systems, but will be required to give broad guidelines regarding the new Accord and associated implementation issues to banks.This Office is committed to working with all stakeholders in the implementation of the new Accord. Therefore, this circular is intended to be the first of many such communiqués to set the momentum in motion.2. Update on this Office’s position with regard to the implementation of the New AccordThe Registrar of Banks represents South Africa on various forums and subcommittees of the Basel Committee and makes a valuable contribution by taking the country-specific issues into account. This will ensure that the concerns of the South African banking sector are voiced and deliberated when the Basel Committee makes its decisions. In addition, this Office has also been and continues to be a facilitator of the various surveys and studies conducted by the Basel Committee. This Office endeavours to provide feedback in this regard when practically possible. With the 2005 deadline in mind, this Office is aware of the challenges lying ahead. Accordingly, this Office considers it prudent to commence the implementation process as soon as is practically possible. In this regard, this Office will intensify consultation with the Basel Committee and, in particular, with the Accord Implementation Group, created in December 2001.Furthermore, this Office has employed a dedicated resource, namely, Mr J T (Jay) Tikam, whose sole responsibility is the implementation of the new Accord. Mr Tikam also plays the role of liaison officer between this Office and all interested stakeholders regarding all aspects related to the new Accord. Accordingly, please direct all queries regarding the new Accord to this Office, at its postal address, via Mr Tikam, whose contact details are as follows:Telephone no.: (012) 313-4681Telefacsimile no.: (012) 313-3758E-mail address: Jay.Tikam@resbank.co.za In addition, Mr A J (Dries) Smal continues to be responsible for all regulatory aspects pertaining to the new Accord. Mr Smal’s