Featured Product

    SARB on Calculation of Derivative Exposure to Determine Leverage Ratio

    December 08, 2020

    SARB published a Directive (D7/2020) that specifies requirements for the calculation of derivative exposure amount for determining the leverage ratio. The SARB Prudential Authority had earlier proposed amendments to the Regulations relating to Banks (Regulations) to replace the current exposure method with the standardized approach for measuring counterparty credit risk exposures (SA-CCR) for calculating the relevant amount related to a bank’s derivative exposures for risk-based capital requirements. These proposed changes require the Prudential Authority to specify requirements for the calculation of the derivative exposures for the purposes of determining the leverage ratio. Banks must comply with this Directive simultaneously with the implementation of the amended Regulations that incorporate the SA-CCR methodology.

    Regulation 38(15) of the Regulations requires banks to determine the leverage ratio to supplement the relevant risk-based capital requirements of banks. This includes the calculation of the qualifying tier 1 capital and reserve funds and the exposure measure. BCBS published the final framework for SA-CCR in March 2014. The SA-CCR is a new method of calculating exposure at default for counterparty credit risk, which arises from over the counter derivatives, exchange-traded derivatives, and long-settlement transactions. In accordance with the provisions of section 6(6) of the Banks Act, 1990, banks are hereby directed to calculate exposures associated with all derivative transactions, including where a bank sells protection using a credit derivative, through the application of the formula specified in the Directive (D7/2020). 

    In case of a derivative exposure covered by an eligible bilateral netting contract or agreement that complies with the relevant requirements specified in regulation 23(18)(b) of the amended Regulations that incorporated the requirements related to the SA-CCR, a bank shall calculate its exposure in respect of the relevant set of derivative exposures covered by the said contract or agreement as the sum of the net mark-to-market replacement cost, plus the potential future exposure. For derivative transactions not covered by an eligible bilateral netting contract or an agreement as specified in regulation 23(18)(b) of the amended Regulations that incorporated the requirements related to SA-CCR, the amount to be included in the leverage ratio exposure measure must be determined separately for each transaction. The Directive also specifies requirements related to collateral, cash variation margin, bank as a clearing member, and written credit derivative.

     

    Related Links

    Keywords: Middle East and Africa, South Africa, Banking, Leverage Ratio, Basel, Derivatives, SA-CCR, Counterparty Credit Risk, SARB

    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    HKMA Announces Launch of Data Repository on Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) announced that the Green and Sustainable Finance (GSF) Cross-Agency Steering Group has launched the information and data repositories and outlined the progress made in advancing the development of green and sustainable finance in Hong Kong.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    NGFS Report on Integration of G-Cubed Model into NGFS Scenarios

    The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8301