HKMA Issues Interim Reporting Guidance for IRRBB Returns

To facilitate the regulatory reporting for the time being, HKMA has provided certain interim reporting guidelines for alternative reference rates that are expected to be in effect until the policy module IR-1 and the completion instructions for the relevant returns are updated. Interim reporting guidelines for MA(BS)12A and MA(BS)12B are as follows:

• For all floating rate interest rate-sensitive positions referencing to alternative rates that are overnight rates in nature, the business day immediately following the reporting date can be considered the “earliest interest repricing date” and the positions can be slotted into the corresponding time bands.
• Authorized institutions may continue to use the discounting factors derived based on the preexisting methodology (that is the methodology adopted on or before December 31, 2020) for the calculations of impact on economic value of equity.
• Accrued alternative reference rate interest should be reported according to item 13 under the Frequently Asked Questions for IRRBB reporting requirements.
• The alternative reference rate component of the coupon cash flows recorded by the reporting date should be slotted into the appropriate time band according to the next repricing date, that is the business day immediately following the reporting date.
• In case of insufficient implied interest rate volatility data for valuing alternative reference rate options in the market, alternative volatility estimates may be used instead.
• Authorized institutions may continue to apply the pre-existing methodologies for determining net interest income impacts and weighted average yields that were compliant with the policy module IR-1 and the completion instructions for MA(BS)12A/MA(BS)12B before December 31, 2020.
• Deviations from these interim reporting guidelines will be allowed for IRRBB reporting in the interim period if the alternative reporting can be demonstrated to be more sophisticated or more prudent.

Interim reporting guidelines for MA(BS)12 on interest rate risk exposures are as follows:

• For all variable rate interest-bearing positions referencing to alternative reference rates that are overnight rates in nature, the business day immediately following the reporting date can be considered the “earliest interest repricing date” and the positions can be slotted into the corresponding time bands.
• Deviations from the interim guideline above will be allowed for MA(BS)12 reporting in the interim period if the alternative reporting can be demonstrated to be more sophisticated or more prudent.

Keywords: Asia Pacific, Hong Kong, Banking, Reporting, Alternative Reference Rates, IRRBB, Interest Rate Risk, Interest Rate Benchmark, Benchmark Reforms, Basel, HKMA