HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions. The module sets out minimum standards that HKMA expects authorized institutions to adopt in relation to margin and other risk mitigation techniques for non-centrally cleared OTC derivatives transactions. The consultation is open until June 25, 2020.
Margin standards for non-centrally cleared OTC derivatives are designed to reduce counterparty credit risk and limit contagion by ensuring that collateral is available to offset losses following the default of a derivatives counterparty. Exchanging margin also helps to internalize the cost of risk-taking, thus creating an incentive for counterparties not to take on excessive risk when entering into derivatives transactions. On an aggregate level, margin requirements help to reduce contagion and spillover effects when a major market participant defaults, thus reducing systemic risk. The risk mitigation standards for non-centrally cleared OTC derivatives encourage the adoption of sound risk mitigation techniques to promote legal certainty over the terms of non-centrally cleared OTC derivatives transactions, to foster effective management of counterparty credit risk and to facilitate timely resolution of disputes.
Comment Due Date: June 25, 2020
Keywords: Asia Pacific, Hong Kong, Banking, Securities, Supervisory Policy Manual, OTC Derivatives, Counterparty Credit Risk, Variation Margin, Initial Margin, HKMA
Previous ArticlePRA Finalizes Policy on Supervisory Approach for Insurance SPVs
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.