The move towards a standardised approach
for measuring counterparty credit risk exposures (SA-CCR) does
not adequately reflect the risk-reducing impact of margin,
market sources have told IFLR.
According to Sahir Akbar, director
of prudential regulation at the Association for Financial
Markets in Europe (Afme), the approach is too conservative in
its calibration, which increases the capital charge
"It doesn’t just impact counterparty credit
risk, but also feeds into elements of regulatory capital,
including in the large exposures framework where the impact is
significant," he said.
The new standardised approach for
measuring counterparty credit risk exposures began on January 1
2017 and replaces all alternative approaches for
over-the-counter derivatives, long settlement transactions and
exchange-traded derivatives. This follows the standardised
method (SM), which began in 2005, and the current exposure
method (CEM), in 1995.
Some criticised CEM for not differentiating between margined
and unmargined transactions and the flawed...