Both the revised leverage ratio treatment of client cleared derivatives and the revised disclosure requirements will come into effect in Hong Kong on 1 January 2022, in line with the BCBS timetable.
The HKMA (Hong Kong Monetary Authority) has asked authorised institutions to start preparing their systems for the revised leverage ratio treatment of client cleared derivatives, and the additional disclosure requirements.
Last month, the BCBS (Basel Committee on Banking Supervision) finalised revisions to the leverage ratio to align the measurement of client cleared derivatives with the standardised approach to measuring counterparty credit risk exposures (SA-CCR).
The new treatment allows both cash and non-cash forms of segregated initial margin and cash and non-cash variation margin received from a client to offset the replacement cost and potential future exposure for client cleared derivatives only.
The BCBS also revised the leverage ratio disclosure requirements, specifying an additional obligation for banks to disclose their daily average values of securities financing transactions, in addition to the quarter-end values already being disclosed.
“A comparison of the two sets of values will allow market participants to better assess banks’ actual leverage throughout the reporting period,” the HKMA said, adding that it helps to address BCBS concerns regarding potential ‘window-dressing’ by banks, i.e. temporary reductions in transaction volumes around reference dates to artificially elevate leverage ratios reported.
The HKMA says both the revised leverage ratio treatment of client cleared derivatives and the revised disclosure requirements will come into effect in Hong Kong on 1 January 2022, in line with the BCBS timetable.
“AIs are strongly recommended to familiarise themselves with the new requirements and prepare for any system changes that may be necessary for their implementation in Hong Kong,” it said in a circular.
The HKMA will consult the industry on implementation proposals in due course.