HKMA published the interim guidelines for reporting of alternative reference rates in relation to the returns on interest rate risk. The interim reporting guidelines have been issued for returns MA(BS)12A on interest rate risk in the banking book (IRRBB), MA(BS)12B on supplementary information for IRRBB, and MA(BS)12 on interest rate risk exposures (for IRRBB-exempted authorized institutions), given the evolution of new alternative reference rate conventions resulting from the progressing interest rate benchmark reform. In addition, HKMA will soon update the Supervisory Policy Manual module IR-1 on IRRBB and the completion instructions for the relevant returns to comprehensively reflect the changes.
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
Previous ArticleDNB Publishes Several Regulatory Updates for Banks in March 2021
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.