Featured Product

    BCBS Reports Review Margining Practices and NSFR & LEX Rules in Japan

    September 29, 2022

    The Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO) published a report that reviews margining practices across jurisdictions and recommends further policy work in certain areas. BCBS also updated the handbook for jurisdictional assessments and published a report assessing the implementation, in Japan, of the global Basel standards on net stable funding ratio (NSFR) and large exposures (LEX). The respective Japanese authority is working to address certain deviations found in the large exposures framework and intends to request a revision to the assessment grade post this work.

    The report on margining practices looks at margin calls during the high market volatility in March 2020 and April 2020, reviews margin practices transparency, predictability, and volatility across various jurisdictions and markets, and examines liquidity preparedness of market participants to meet margin calls. The report feeds into the Financial Stability Board's work program to enhance the resilience of the non-bank financial intermediation sector. The report finds that, during the period of high volatility, initial margin requirements for centrally cleared markets increased significantly and varied substantially across, and within, asset classes. However, initial margin requirements on non-centrally cleared derivatives remained relatively stable during the stress period. Based on the analyses, the report identifies the following six areas for further policy work:

    • Increasing transparency in centrally cleared markets. The proposed work includes exploring consistent metrics and disclosures on procyclicality, responsiveness to volatility, and model performance. The work should consider good practices with respect to the provision of tools and simulators, and the role that disclosure of modeling choices by individual central counterparties could have in enhancing the understanding of, and comparisons among, the central counterparty model behavior. The work should also include exploration of improvements to the existing expectations for disclosures both to the clearing members and the public.
    • Enhancing liquidity preparedness of market participants and liquidity disclosures. Additional international work could identify ways to further enhance liquidity preparedness, including appropriate liquidity measures in the non-bank financial intermediation sector. Focus could also be on ways that clearing members can encourage and facilitate greater liquidity preparedness of clients. This involves analysis of the non-bank financial intermediation sector liquidity arrangements and intermediaries’ provision of liquidity to clients and an analysis of the effectiveness of those arrangements during periods of extreme stress or volatility.
    • Identifying data gaps in regulatory reporting. The proposed work includes identifying gaps in regulatory data at the jurisdictional level, to provide a more comprehensive picture of the preparedness of market participants for margin requirements. This work could consider what additional regulatory disclosures or data points could provide authorities with a fuller picture of the non-bank financial intermediation sector preparedness and intermediaries’ provision of liquidity to clients.
    • Streamlining variation margin processes in centrally and non-centrally cleared markets. The work is proposed to consider ways to foster preparedness of market participants for the large variation margin calls that can occur during market stress through efficient collection and distribution of variation margin and other means. Work is also proposed to identify good practices for variation margin collection and distribution by central counterparties.
    • Evaluating responsiveness of centrally cleared initial margin models to market stresses. The work is proposed to understand the degree and nature of responsiveness of central counterparty margin models to volatility and other market stresses and to explore ways to analyze, compare, and set baseline expectations on procyclicality. Work could also review initial margin levels in "non-stress" times, including a review of the effectiveness of tools that lessen the procyclicality of margin models and the consistency of their use.
    • Evaluating responsiveness of non-centrally cleared initial margin models to market stresses. The work includes looking into the timeliness of mechanisms for taking into account stress periods in the calibration of internal models as well as the timely remediation of initial margin shortfalls and the level of disclosure regarding the performance of non-centrally cleared initial margin models.

    The reports on implementation of NSFR and large exposures framework find the respective Japanese regulations to be compliant and largely compliant with the Basel Committee's NSFR standard and large exposures framework, respectively. As of June 30, 2022, the NSFR regulations in Japan have been assessed as compliant with the Basel NSFR standard. Three out of the four components of the Basel NSFR standard have been assessed as Compliant for the criteria of scope, minimum requirements and application issues, available stable funding, and disclosure requirements while the required stable funding component has been assessed as Largely Compliant. Meanwhile, the large exposures regulations in Japan have been assessed as Largely Compliant with the Basel large exposures framework. This is one notch below the highest overall grade of Compliant. This is because two of the three components have been assessed as Largely Compliant and these components are the scope and definitions and the value of exposures. One component that has been assessed as Compliant is the minimum requirements and transitional arrangements). In response, the Japanese Financial Services Agency (JFSA) is working to revise the large exposure rules in Japan to address the findings of the Basel Committee Assessment Team, with the changes are expected to be finalized by the end of 2022. JFSA intends to request that the assessment grade be revised in a timely manner once this process is finalized.

    The handbook for jurisdictional assessments was also updated recently. The handbook describes the methodology of the Basel Committee to assess the completeness and consistency of domestic prudential regulations with the Basel framework. These assessments are conducted as part of the Regulatory Consistency Assessment Program (RCAP) of the Basel Committee. The Handbook is designed to be a flexible compendium, with its guidance and principles being revised or elaborated further as the RCAP evolves. This updated version of the Handbook reflects the outcome of the strategic review by the Basel Committee of its RCAP and aims to enhance the effectiveness and efficiency of the program.


    Related Links



    Keywords: International, Japan, Banking, Securities, Initial Margin, Variation Margin, NBFI, Derivatives, Basel, NSFR, Large Exposures, RCAP, Liquidity Risk, CPMI, IOSCO, BCBS

    Featured Experts
    Related Articles

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News

    ISSB Standards May Become Effective from January 2024

    The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.

    February 17, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8792