April 22, 2022

Industry Groups Recommend Reconsideration of the SA-CCR Standard

In a joint letter to the Basel Committee on Banking Supervision, ISDA, the Institute of International Finance, and the Global Financial Markets Association, among others, requested reconsideration of the 2014 standardized approach for measuring counterparty credit risk exposures ("SA-CCR").

The groups credited the adoption of the SA-CCR standard as "a more risk sensitive approach for calculating exposure at default for counterparty credit risk" than the "Current Exposure Method," but said that parts of the SA-CCR standard "result in excessive risk exposures with associated impact on capital and end-user costs."

The industry associations requested reconsideration of the SA-CCR standard to reflect "structural changes in the derivatives market and the overall regulatory framework since 2014." The groups recommended:

  • a more holistic review of SA-CCR across jurisdictions;

  • modifications to reflect initial margin (now required in many uncleared derivatives) as a key risk mitigant;

  • development of SA-CCR to accommodate exposures to digital assets;

  • recognition of netting benefits between derivatives and securities financing transactions, particularly given ISDA's development of a new master netting agreement across such transactions; and

  • changes that move away from an "overly conservative calibration," which may have a disproportionate impact on markets and increase costs to end users.

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