is because testing is not done on critical assets because of the perceived associated risk and the testing is not done based on current and specific threats. identifying this lacuna, bank of england introduced cbest. cbest is a framework that brings together cyber intelligence service providers, penetration testing companies and financial institutions to deliver customised, intelligence - led cyber security tests in a controlled environment. the tests conducted by identified penetration testing companies replicate real world scenarios taking into account intelligence on cyber risks provided by the cyber intelligence service providers. further the tests are conducted on critical systems and essential services. this ensures that the critical infrastructures of financial institutions are tested with scenarios that are most relevant and which they are most likely to face in case of a real attack. use of swift - mirs as a disaster recovery system for rtgs 18. unlike many other countries including india which maintain more than two sites for their rtgs system, the rtgs system in uk has two sites. boe decided against investing in a fully operational third site as it was felt that the risk of losing both sites at once, though of critical impact, is very low probability. further, in their perception, having a third site which replicates the technology platform of the first and second sites does not fully address all risks. a successful breach of one site would almost certainly lead to a breach of the second or third sites if they were exact duplicates. as an alternative, boe considered the swift mirs initiative. the swift market infrastructure resilience service ( mirs ) is a generic rtgs platform developed and hosted by swift. the generic rtgs system could be used by bank of england ( or any central bank ) in the event that all their sites are lost. the bank would continue to run the business operation, while swift technically operates mirs. apart from offering an additional contingency option, mirs increases operational resilience in two key ways. first, it will be technically operated from outside the united kingdom, so bringing greater geographic diversity to the sites hosting the infrastructure. and second, mirs achieves technical diversity as it will be based on a different technology platform. this addresses a problem common in contingency arrangements that sites share software and hardware configurations and so are susceptible to the same risks. the way forward 19. the uncomfortable truth all of us need to come to terms with is that cyber crime is here to stay. crime and money are often linked. hence the financial sector remains most vulnerable in an inter -

the amount of common equity to 4. 5 % of assets by january 2019 from the 2 % requirement under basel ii. the new minimum for tier 1 capital has now been raised to 6 %. the innovative elements of the basel iii requirements include additional layers of capital in form of the capital conservation buffer and countercyclical capital buffer, minimum liquidity requirements in the form of short term liquidity coverage ratio ( lcr ) and long term structural net stable funding ratio ( nsfr ), a leverage ratio as a back - stop to the risk based capital framework and additional proposals for the global systemically important banks ( g - sibs ). the capital conservation buffer is prescribed as 2. 5 % of common equity in addition to the 4. 5 % minimum requirement bringing the total common equity requirements to 7 % which if breached would restrict pay - outs of earnings to help protect the minimum common equity requirement. the capital buffer can be used to absorb losses during periods of financial and economic stress. the countercyclical capital buffer entails common equity or other fully loss absorbing capital in the range of 0 % – 2. 5 % to be implemented according to national circumstances and kicks in when credit to gdp ratio deviates significantly from the trend. the paradigm changing approach to risk management under basel iii is introducing macro - prudential regulations to deal with systemic risk. the crisis brought home the point that even while individual financial institutions are strong, when each of them act to preserve its own interests, these actions could lead to instability of the system. 10. an internationally harmonised leverage ratio has been introduced as a simple back - stop facility to complement the risk based capital framework in order to contain build - up of excessive leverage in the system and comprises of 3 % loss absorbing capital relative to all of a bank ’ s assets, including off - balance sheet assets without risk weighting. certain enhancements have also been introduced to the basel ii framework by raising standards for the supervisory review process and public disclosures under pillar 2 and 3, together with additional guidance in the areas of sound valuation practices, stress testing, liquidity risk management, corporate governance and compensation. the liquidity requirements include a minimum liquidity coverage ratio ( lcr ) intended to provide enough cash to cover funding needs over a 30 - day period of stress. as such under lcr, the banks will be required to hold a buffer of high - quality liquid assets sufficient to deal with cash outflows encountered in acute short - term stress scenario