Technical Amendment - Hedging of counterparty credit risk exposures
AI Analysis
The Basel Committee has finalized a technical amendment to the Basel Framework clarifying how banks should treat guarantees and credit derivatives used to hedge counterparty credit risk on derivative exposures. The change matters because it affects exposure measurement and capital treatment under SA-CCR and the internal models method, especially where protection is fixed, capped, or only partially covers the exposure.
Key dates
- 2024-11-27
- The technical amendment was published for consultation
- 2025-01-31 Deadline
- Comment deadline on the consultation version
- 2025-10-28
- The BIS page reflects the final consolidated standard
- 2028-11-01 Deadline
- Committee members agreed to implement the revised standard by this date at the latest
Suggested considerations
- Compliance teams may wish to identify derivative portfolios where fixed or capped guarantees or credit derivatives are used as CCR hedges under SA-CCR or IMM.
- Firms should consider reviewing capital calculation logic and documentation for protected and unprotected exposure portions to confirm the final Basel treatment is reflected.
- Banks may wish to assess whether any legacy policy, model, or reporting language still references the consultation version and needs updating ahead of implementation.
- Risk and capital teams should consider whether exclusions for securities financing transactions and securitisation exposures are correctly applied in governance, procedures, and systems.
What changed
The amendment clarifies the treatment of guarantees and credit derivatives that hedge counterparty credit risk of derivative exposures subject to the standardized approach to counterparty credit risk or the internal models method. The Basel text indicates the final standard aligns the treatment of fixed or capped protection more closely with the treatment of eligible collateral and residual risk to the original counterparty. It also states that the amendment was adjusted from the consultation version to reflect stakeholder feedback and that it is now integrated into the consolidated Basel Framework. The available material does not provide the full operational formulae in the BIS news item, but the PDF indicates the scope is limited to derivative exposures under SA-CCR or IMM and excludes s
Compliance impact
The impact is moderate to high for banks with material derivative CCR portfolios because the amendment changes how certain hedges are recognized in capital calculations. The regulator describes the change as technical rather than substantial, but it is still a binding Basel Framework adjustment that firms will need to implement consistently to avoid misstatement of CCR capital requirements.
Who is affected
Related regulations
References
AI-generated analysis. May contain errors or omissions — verify with the original BIS source before acting. Full disclaimer.
What the BIS said
This document sets out a technical amendment to the Basel Framework. The amendment relates to the circumstance where a bank uses a guarantee or credit derivative to hedge the counterparty credit risk (CCR) of a derivative exposure subject to the standardised approach to counterparty credit risk or the internal models…
Extract from BIS . Read the full notice at the source for the authoritative text.