HKMA Updates Supervisory Policy Module on OTC Derivatives Transactions
HKMA announced updates to the Supervisory Policy Manual (SPM) module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions. The SPM module CR-G-14 outlines the HKMA approach for determining the comparability of a jurisdiction’s margin and risk mitigation standards with the provisions set out in the module. The updates relate to the comparability of the UK standards after Brexit and to the recent statement published by BCBS and IOSCO on the final implementation phases of the margin requirements.
Comparability of the UK standards after Brexit
Under the substituted compliance treatment in the module, the margin and risk mitigation standards of the Working Group on Margin Requirements (WGMR) member jurisdictions are deemed to be comparable from the day the respective standards have entered into force in those jurisdictions. Footnote 24 of SPM module CR-G-14 lists the jurisdictions deemed comparable by referring to EU and all non-EU WGMR member jurisdictions. This wording would currently not cover the UK after its planned withdrawal from EU. It is, however, the intention of HKMA to maintain UK’s status as a deemed-comparable jurisdiction in the context of SPM module CR-G-14, independent of its EU membership status. Footnote 24 would, therefore, be revised to specifically cover UK once it withdraws from EU.
Clarifications on the final implementation phases for margin requirements
BCBS and IOSCO issued a joint statement on March 05, 2019, providing two clarifications with respect to the their framework for margin requirements for non-centrally cleared derivatives. Regarding the remaining phases of implementation of the framework in 2019 and 2020, initial margin requirements will apply to a large number of entities for the first time, potentially involving documentation and custodial and operational arrangements. BCBS and IOSCO clarify that the framework does not specify documentation, custodial, or operational requirements if the bilateral initial margin amount does not exceed the framework's EUR 50 million initial margin threshold.
The above clarifications provided by BCBS and IOSCO are applicable in the context of SPM module CR-G-14. Genuine amendments to the existing derivatives contracts that are made to give effect to interest rate benchmark reforms will not be considered new contracts from the perspective of the HKMA margin requirements. In addition, SPM module CR-G-14 does not specify a requirement for initial margin documentation and custodial or other related operational arrangements that must be in place before a covered entity crosses the HKD 375 million initial margin threshold. Covered entities should, however, take necessary steps to prepare the documentation and other related arrangements well enough in advance to be in a position to exchange initial margin when the threshold is exceeded and to protect exchanged initial margin with proper custodial arrangements. HKMA, in coordination with other BCBS and IOSCO members, will continue to monitor the effect of meeting the final stage of phase-in of the margin requirements.
Keywords: Asia Pacific, Europe, EU, UK, Hong Kong, Banking, Securities, SPM Module CR-G-14, Brexit, Margin Requirements, Interest Rate Risk, OTC Derivatives, HKMA
Previous Article
EIOPA Requests Data on LTG Measures from Insurers Under Solvency IIRelated Articles
|
News
US Agencies Adopt Rule to Exclude Community Banks from Volcker RuleUS Agencies (CFTC, FDIC, FED, OCC, and SEC) adopted a final rule to exclude community banks from the Volcker Rule, in line with amendments to certain sections of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.
July 22, 2019
WebPage
Regulatory News
|
|
News
US Agencies Adopt Amendments to Simplify Regulatory Capital RulesUS Agencies (FDIC, FED, and OCC) adopted a final rule that reduces regulatory burden by simplifying several requirements in the regulatory capital rules for banks.
July 22, 2019
WebPage
Regulatory News
|
|
News
IA of Hong Kong Delegates Inspection and Investigation Powers to HKMAHKMA and IA of Hong Kong jointly issued a statement announcing the delegation of the inspection and investigation powers of IA to HKMA, pursuant to the statutory regulatory regime for insurance intermediaries under the Insurance Ordinance.
July 19, 2019
WebPage
Regulatory News
|
|
News
FSB Extends Implementation Timeline for Policy Recommendations on SFTsFSB announced adjustments to the implementation timelines for its recommendations on securities financing transactions (SFTs), specifically those related to the minimum haircut standards for non-centrally cleared SFTs.
July 19, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: Third Update for July 2019EBA published answers to six questions under the Single Rulebook question and answer (Q&A) tool this week.
July 19, 2019
WebPage
Regulatory News
|
|
News
EBA Report Assesses Regulatory Framework for Fintech ActivitiesEBA published the findings of its analysis on the regulatory framework applicable to fintech firms when accessing the market.
July 18, 2019
WebPage
Regulatory News
|
|
News
OSFI Revises Capital Requirements for Operational Risk for BanksOSFI is revising its capital requirements for operational risk, in line with the final Basel III revisions published by BCBS in December 2017.
July 18, 2019
WebPage
Regulatory News
|
|
News
OSFI Consults on Revised Principles for Management of Liquidity RiskOSFI proposed revisions to Guideline B-6 on the principles for the management of liquidity risk.
July 18, 2019
WebPage
Regulatory News
|
|
News
ESMA Guidance on Disclosures for Credit Rating Sustainability IssuesESMA published the technical advice on sustainability considerations in the credit rating market, along with the final guidelines on disclosure requirements applicable to credit ratings.
July 18, 2019
WebPage
Regulatory News
|
|
News
FASB Issues Q&A on Estimation of Expected Credit Losses by FirmsFASB issued a second question-and-answer (Q&A) document that addresses more than a dozen frequently asked questions related to the Accounting Standards Update No. 2016-13 titled “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
July 17, 2019
WebPage
Regulatory News
|
