HKMA Consults on Market Risk Capital Requirements for Banks
HKMA published a consultation paper sets out its proposal for revising the current regulations on the market risk capital charges in the Banking (Capital) Rules (BCR). The consultation paper outlines the HKMA plans for implementing the revised market risk framework in Hong Kong, in line with the minimum capital requirements for market risk, which the Basel Committee published in January 2019. Comment period for the proposal ends on September 30, 2019. HKMA intends to implement the new standards by January 01, 2022, in line with the BCBS timeline. Locally incorporated authorized institutions would be required to start regulatory reporting based on the new standards from January 01, 2022, with the first regulatory reporting date being January 31, 2022.
The proposal covers the new Standardized Approach, the new Internal Models Approach, the Simplified Standardized Approach, requirements related to the boundary between the trading book and banking book, and details on the qualifying criteria for using de-minimis exemptions. All authorized institutions, except for those that are allowed to use the Simplified Standardized Approach or qualify for the de-minimis exemption, should calculate the capital charges using the Standardized Approach. Under the revised market risk framework, market risk is defined as the risk of losses arising from movements in market prices. The risks subject to market risk capital charges include interest rate risk, credit spread risk, equity risk, foreign exchange risk, commodities risk, and default risk for trading book instruments; in addition to the foreign exchange risk and commodities risk for banking book instruments. Although regular reporting will in principle take place only at intervals, an authorized institution is expected to:
- Manage its market risk in such a way that the capital charges are being met at any time. The authorized institution must not window-dress by showing systematically lower market risk positions on reporting dates.
- Maintain strict risk management systems to ensure that intra-day exposures are not excessive. If an authorized institution fails to meet the capital charges at any time, it should take immediate measures to rectify the situation.
Authorized institutions planning to adopt the Internal Models Approach with effect from January 01, 2022 should start discussing their implementation plans with their usual supervisory contact at the HKMA by December 2019 and inform the HKMA of such plans in writing by March 31, 2020. An implementation plan should at least include an outline of key characteristics of the internal models and clearly state the intended implementation timeline, the proposed trading desk structure, and the market risk exposures intended to be covered. Authorized institutions planning to adopt the Simplified Standardized Approach with effect from January 01, 2022 should submit a written application to their usual supervisory contact at HKMA by December 31 , 2020. HKMA will notify individual authorized institutions by January 29, 2021 whether they are considered eligible to use the Simplified Standardized Approach.
Comment Due Date: September 30, 2019
Keywords: Asia Pacific, Hong Kong, Banking, Market Risk, Regulatory Capital, Standardized Approach, Internal Model Approach, Simplified Standardized Approach, Basel III, Banking Capital Rules, HKMA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.