Featured Product

    ISDA, SIFMA, ABA, BPI, and FIA Submit Comments on Proposed SA-CCR

    March 18, 2019

    ISDA, Securities Industry and Financial Markets Association (SIFMA), American Bankers Association (ABA), Bank Policy Institute (BPI), and Futures Industry Association (FIA) submitted comments regarding the proposed rule issued by US Agencies (FDIC, FED, and OCC) to implement the standardized approach for counterparty credit risk (SA-CCR) as a replacement for the current exposure method (CEM) in the U.S. capital rules. The Associations generally support the move from CEM to a more risk-based measure and believe that an appropriately calibrated version of SA-CCR would be a major improvement.

    The comment letter, however, expresses concerns with the impact of the proposal on the derivatives market, particularly equity and commodity derivatives. In the case of commodities, the proposal goes beyond the global standards set by BCBS and would result in a higher capital charge. This would create an uneven playing field for market participants across jurisdictions and adversely impact the ability of commercial end-users to hedge risk. Data collected by the Associations indicate the proposal would result in a 50% increase in risk-weighted assets for transactions with commercial end users when compared to CEM.

    As laid out in the comment letter, the Associations’ data diverges significantly from the data used and cited by the US Agencies in the proposed rule. However, the Associations’ data show that exposure at default would remain flat and counterparty credit risk default risk-weighted assets would increase by 30% when compared to CEM. In their letter, the Associations note that this divergence warrants further analysis to avoid negative impact on the liquidity and functioning of capital markets. Based on the new data, the Associations specifically urge the US Agencies to:

    • Reconsider the calibration for commodity and equity derivatives by recalibrating the supervisory factors of the proposal. Based on data collected by the Associations, supervisory factors of the proposal would result in a 70% increase in risk-weighted assets for commodity derivatives and a 75% increase in risk-weighted assets for equity derivatives when compared to CEM. If recalibration is not feasible, the Associations urge the US Agencies to, at a minimum, revert to the supervisory factors for commodity derivatives in the BCBS standards. 
    • Provide a more risk-sensitive treatment of initial margin that accounts for initial margin as a mitigant to counterparty credit exposure.
    • Reconsider the application and calibration of the alpha factor to avoid overstating the risk of derivatives.
    • Avoid any disproportional impact on the cost of doing business for commercial end-users that may result from reduced hedging.
    • Allow for netting of all transactions covered by an agreement that satisfies the requirements for qualifying master netting agreements under the existing U.S. capital rules.
    • Ensure SA-CCR does not negatively impact client clearing.

    The Associations have raised a number of these concerns in connection with the BCBS standards for SA-CCR and in response to the implementation of SA-CCR outside the U.S. The comment letter urges the US Agencies to address these issues in their final rulemaking and coordinate with their non-U.S. counterparts at the Basel level to ensure global consistency. 

     

    Related Links

    Keywords: International, Americas, US, Banking, Securities, Basel III, SA-CCR, Risk-Weighted Assets, CEM, Standardized Approach, Regulatory Capital, OTC Derivative, US Agencies, ISDA

    Featured Experts
    Related Articles
    News

    HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration

    The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.

    July 29, 2021 WebPage Regulatory News
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    ECB Study Assesses Impact of Basel III Finalization Package

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.

    July 26, 2021 WebPage Regulatory News
    News

    ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading

    The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

    July 26, 2021 WebPage Regulatory News
    News

    PRA Updates Remuneration Policy Statement Templates and Tables

    The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.

    July 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7307