HKMA published a circular, addressed to authorized institutions, on the application of the Basel Committee guidance on certain COVID-related measures. The Basel Committee issued its guidance on March 27, 2020 and April 03, 2020 with the aim to alleviate the impact of COVID-19 on the global banking system. The related Basel Committee guidance and this HKMA circular provide clarifications regarding the regulatory capital treatment of loan guarantee measures, the provisioning of expected credit losses (ECLs) under HKFRS/IFRS 9, and the timeline for implementing margin requirements for non-centrally cleared OTC derivatives.
To ensure that authorized institutions reflect the risk-reducing effect of the extraordinary support measures related to COVID when calculating their regulatory capital requirements, HKMA has published several technical clarifications, which are enclosed as an Annex to this circular. These clarifications address the reporting requirements as well as the capital treatment of the associated loans under the standardized credit risk approach and the internal ratings-based approach. In this circular, HKMA also announced that it will defer the final two implementation phases of margin requirements for non-centrally cleared OTC derivatives by an additional year. With this extension, the final implementation phase will start on September 01, 2022, at which point the covered entities with an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives greater than HKD 60 billion will be subject to the requirements. As an intermediate step, from September 01, 2021, covered entities with an AANA of non-centrally cleared OTC derivatives greater than HKD 375 billion will be subject to the requirements.
With respect to the ECL provisioning, HKMA expects institutions to continue to apply the relevant ECL frameworks for accounting purposes. HKMA expects ECL estimates to reflect the mitigating effect of the significant economic support and payment relief measures put in place by public authorities and the banking sector. The provision of relief measures to borrowers should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement. Additionally, institutions are expected to exercise informed judgment and to use the flexibility inherent in HKFRS/IFRS 9, for example, to give due consideration to long-term economic trends in estimating ECL. Finally, HKMA highlighted that it will continue to monitor the banking and supervisory implications of COVID-19 outbreak and coordinate with the BCBS and other relevant standard-setting bodies on responses to the pandemic.
Keywords: Asia Pacific, Hong Kong, Banking, COVID-19, Margin Requirements, OTC Derivatives, IFRS 9, HKFRS 9, Basel, Loan Guarantee, Loan Moratorium, Credit Risk, Regulatory Capital, HKMA
Previous ArticleESMA Responds to IASB Consultation on Interest Rate Benchmark Reform
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.