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Suppose that a bank (or any regulated body) wants to sell and ETF, replicating some index. Does that replicator have to adhere to the Basel accords?

Similarly, if a bank (or any regulated body) wants to use an index replicator internally, do they have to prove they have the capital requirements to bailout their positions in it?

Guess: I guess the answer to both questions is yes, but I'm not that familiar with Basel I,II, and FRTB.

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  • $\begingroup$ I believe that Basel Accords are not directly imposed on banks. Instead they are global recommendations. But in practice, all national financial regulators (e.g. FCA in UK) adopt Basel guidelines as minimum standards. Regulation does change across borders since national regulators can impose stricter or different rules to Basel. Also areas that are not covered by Basel might still have regulations, e.g. VCTs are special tax investment vehicles in UK covered by specific rules. ETFs will have rules put in place by the national regulator, and by the exchange trading them too. $\endgroup$ – Attack68 Feb 21 at 13:39
  • $\begingroup$ Right, so ETFs sold by a bank are subject to regulatory requirements then? (Seems obvious, but I need to check ) $\endgroup$ – AIM_BLB Feb 21 at 13:40
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    $\begingroup$ As a financial security or risk exposure they will be subject to some form of capital requirement and liquidity requirements as per any other bank asset/liability. $\endgroup$ – Attack68 Feb 21 at 13:44
  • $\begingroup$ Perfect, and is possible, where can I find this written specifically in the Basel accord? (I would need to cite this reference if possible). $\endgroup$ – AIM_BLB Feb 21 at 13:49
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    $\begingroup$ if you go here: bis.org/bcbs/basel3/compilation.htm, and look at 14 Jan 2016, if you look here bis.org/bcbs/publ/d457_inbrief.pdf it says there is a revised market standard in Jan 2019. But anyway this is just capital requirements for market risk, there will possibly be other capital requirements $\endgroup$ – Attack68 Feb 21 at 14:01
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I believe that Basel Accords are not directly imposed on banks. Instead they are global recommendations. But in practice, all national financial regulators (e.g. FCA in UK) adopt Basel guidelines as minimum standards. Regulation does change across borders since national regulators can impose stricter or different rules to Basel. Also areas that are not covered by Basel might still have regulations, e.g. VCTs are special tax investment vehicles in UK covered by specific rules. ETFs will have rules put in place by the national regulator, and by the exchange trading them too.

As a financial security or risk exposure they will be subject to some form of capital requirement and liquidity requirements as per any other bank asset/liability.

If you go here: bis.org/bcbs/basel3/compilation.htm, and look at 14 Jan 2016, if you look here bis.org/bcbs/publ/d457_inbrief.pdf it says there is a revised market standard in Jan 2019. But anyway this is just capital requirements for market risk, there will possibly be other capital requirements

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  • $\begingroup$ Awesome answer! Thanks Attack68 :) $\endgroup$ – AIM_BLB Feb 21 at 14:42

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