On Apr. 22, HKMA proposed updated supplementary guidance.
HKMA proposed updated and expanded supplementary guidance, to reflect the revised credit risk framework under the Banking (capital) (amendment) rules 2023 (BCAR).
Enclosed Q&A on Banking (capital) rules in respect of credit risk framework.
Follows HK GVT Dec. 2023 gazetted rules regarding Basel III final package, #196408.
Also follows HKMA May 2023 proposed changes to banking (capital) rules, #174525.
Updates
Clarify due diligence requirements, similar to those set out in SPM modules on credit risk management; whether institutions should assess climate-related financial risks.
Seeks comments on questions 1 and 3 of chapter 3 on STC approach, on implementing the due diligence requirements set out in Basel Framework CRE20.4 to 20.6.
Added question on conditions that must be met in order for a covered bond to be classified as an eligible covered bond; classification of high quality project finance.
Added questions in chapter 4 on IRB approach, re application for approval to use IRB approach, adoption of IRB approach, classification of exposures, and default criteria.
Added question in chapter 5 on counterparty credit risk, re haircut floors for securities financing transactions (SFTs), removed question on credit valuation adjustment (CVA).
Effectiveness
Consultation closing date is May 21, 2024.
In Nov. 2024, HKMA proposed revisions to guidance re IRB approach, see #236252.
Dec. 2024 Guidance Finalized
On Dec. 13, 2024, HKMA issued Supplementary guidance on the revised credit risk framework, for consistent application of the revised framework introduced by BCAR.
Chapter II contains guidance on administrative arrangement for ECAI nomination under revised framework; chapter III and chapter IV compile HKMA responses to comments.
Chapter V is an updated version of guidance on counterparty credit risk capital standard issued by HKMA in 2021, reflecting revised capital requirements introduced by BCAR.
Chapter VI is essentially the implementation guidance on securitization framework, with updates to subsection references to section 230 of the Banking (capital) rules.
Chapters III, IV and V also incorporate clarifications made in light of enquires received from institutions, and certain Basel requirements that have not been included in BCAR.
