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    HKMA Plans to Consult on Revisions to CVA Framework Later This Year

    July 14, 2020

    HKMA announced that the local implementation of the capital requirements based on the new credit valuation adjustment (CVA) framework recently issued by BCBS will be no earlier than January 01, 2023. Its timing will take into account the implementation progress observed in major jurisdictions. HKMA expects to closely follow the BCBS CVA risk framework for the implementation of local standards and plans to issue a consultation paper later this year.

    BCBS has issued the targeted revisions to the CVA risk framework on July 08, 2020. The revised framework replaces an earlier version of the framework originally published as part of the Basel III reform package in December 2017. The revised version includes a set of targeted revisions to the earlier standards. It takes into account extensive feedback received on a consultative document issued by  BCBS in November 2019, which aims to align the relevant parts of the CVA risk framework with the final market risk standards. Key targeted revisions to the CVA risk framework include:

    • Adjustments to certain risk-weights in both the standardized approach and the basic approach to align with the revised market risk framework
    • Introduction of new index buckets and revision of the aggregation formula in the standardized approach, to align with the revised market risk framework
    • Alternations to the scope of the CVA risk framework by excluding some securities financing transactions where the CVA risk stemming from such positions is not material
    • Revision of the overall calibration of the CVA risk framework by reducing the aggregate multiplier in the standardized approach and introducing a similar scalar for the basic approach

    Keywords: Asia Pacific, Hong Kong, Banking, Basel, CVA Risk, Regulatory Capital, Credit Valuation Adjustment, Market Risk, FRTB, HKMA

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