Financial Intermediation Institutions - Treatment of Bilateral Netting Framework Agreements - Counterparty Risk and Credit Valuation Adjustments

Montevideo, October 16, 2025 Ref: FINANCIAL INTERMEDIATION INSTITUTIONS - Treatment of bilateral netting framework agreements - Counterparty risk and credit valuation adjustments.

The market is informed that the Superintendency of Financial Services adopted the following resolution on October 13, 2025:

JUAN PEDRO CANTERA Superintendent of Financial Services

2024-50-1-01985 Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy

CIRCULAR N° 2488

SUPERINTENDENCY OF FINANCIAL SERVICES – RESOLUTION SUPERINTENDENCY OF FINANCIAL SERVICES

VISTO: Resolution of the Superintendency of Financial Services RR-SSF-2025-258 of June 5, 2025.

RESULTING FROM:

I) That through the Resolution referred to in the VISTO, a response was given to the Private Banks Association of Uruguay (ABPU) regarding the doubts it raised in relation to Circular No. 2468 of December 30, 2024, which introduced changes in Article 161 of the Compilation of Regulations and Control of the Financial System (RNRCSF) referring to the calculation of the credit risk equivalent of financial derivative instruments, admitting the possibility of bilaterally netting operations with derivatives.

II) That in Consideration VI) of the aforementioned Resolution, it is indicated that, in order to clarify the criteria that must be adopted, adjustments to the Compilation of Regulations and Control of the Financial System will be made, which will be communicated via Circular.

III) That what is established in Consideration II) of said Resolution regarding the criterion to be considered for the calculation of the credit risk cap was already contemplated in RR-SSF-2025-402 dated August 19, 2025, communicated through Circular No. 2485 of August 21, 2025.

IV) That the adjustments referred to in Considerations III) to V) remain to be carried out, relating to the capital requirement for counterparty risk and the capital requirement for credit valuation adjustment risk, as well as to correct an error in the calculation formula for the credit equivalent of linear financial derivative instruments and purchased call options established in the aforementioned Circular No. 2468 of December 30, 2024.

CONSIDERING:

I) That for the calculation of the capital requirement for counterparty risk (8% of the credit risk-weighted credit equivalent of instruments), it is necessary to clarify that in the case where under a bilateral netting framework agreement contracts with different maturities with the financial sector are included, the weight to be used will be the one corresponding to the operation with the longest maturity.

II) That, for the calculation of the capital requirement for credit valuation adjustment risk, it is appropriate to include a specific criterion for the case of agreements entered into under a bilateral netting framework agreement.

III) That it is appropriate to adjust the calculation formula for the credit equivalent of linear financial derivative instruments and purchased call options that was established in Circular No. 2468 of December 30, 2024, which suffered an error due to the omission of a parenthesis.

ATTENTIVE: To what is established in letter A) of Article 38 of Law No. 16.696 of March 30, 1995, as amended by Article 2 of Law No. 20.345 of September 19, 2024, to the reports issued by this Superintendency of Financial Services, the opinion of the Advisory Committee on Standards referred to in Article 84 of the Administrative Regulation of the Central Bank of Uruguay in its Act 2025/7, and the background in file 2025-50-1-01985.

IT IS RESOLVED:

1. SUBSTITUTE in Chapter II – Minimum Net Equity Liability, of Title II – Equity Liability, of Book II – Stability and Solvency, Articles 160.2, 161, and 161.1 with the following:

ARTICLE 160.2 (CAPITAL REQUIREMENT FOR COUNTERPARTY CREDIT RISK). The capital requirement for counterparty credit risk applies to linear financial derivative instruments and purchased options and securities lending (even those subject to capital requirements for market risk), as well as assets arising from pending settlement operations that involve the exchange of securities, gold, and foreign currency for cash. When the institution has fund shares in investment funds that are part of the trading portfolio according to what is established in Article 162, the assets subject to counterparty risk in which the fund invests will be treated as if they were direct exposures, taking into account the share that the institution holds in the total investment fund. These assets will be considered together with the other exposures maintained by the institution and, for the purpose of calculating the capital requirement, what is established in this article will apply.

With respect to linear financial derivative instruments and purchased options accounted for in the assets and liabilities, according to the individual balance sheet prepared in accordance with what is established in Article 507, the capital requirement for counterparty credit risk is the sum of:

• The capital requirement for counterparty risk. This requirement will be equal to 8% of the credit risk-weighted credit equivalent of said instruments. For retail banks referred to in letter b) of Article 1 and retail financial intermediation cooperatives referred to in letter g) of said Article, this requirement will be equivalent to 12%. For investment banks, the percentage will be 15%. The credit equivalent will be determined as established in Article 161. For the purposes of weighting, what is established in Article 160.1 will be considered depending on who the counterparty is. In the case where under a bilateral netting framework agreement contracts with different maturities with the financial sector are included, the weight to be used will be the one corresponding to the operation with the longest maturity.

• The capital requirement for credit valuation adjustment risk, which will be determined as established in Article 161.1.

For securities lending arising from the individual balance sheet prepared in accordance with what is established in Article 507, the capital requirement for counterparty credit risk is 8% of the credit risk-weighted asset according to what is established in Article 160.1 depending on who the counterparty is. For retail banks referred to in letter b) of Article 1 and retail financial intermediation cooperatives referred to in letter g) of said Article, this requirement will be equivalent to 12%. For investment banks, the percentage will be 15%.

The capital requirement for counterparty credit risk of pending settlement operations will be determined as established in Article 160.3.

ARTICLE 161 (CREDIT EQUIVALENT OF LINEAR FINANCIAL DERIVATIVE INSTRUMENTS AND PURCHASED CALL OPTIONS).

1. General Criterion The credit equivalent of linear financial derivative instruments and purchased options will be calculated – following the current exposure method – as the maximum between the fair value of the financial instrument and zero, plus an additional amount. This additional amount will be determined by applying a conversion factor – which will depend on the underlying and the residual maturity of the instrument – to the notional amount of the contract. In this framework, the credit equivalent of instrument-i will be given by:

Credit Equivalent_i = Max(FV_i, 0) + (CEF_i * Notional_i)

Where,

• CE_i = credit equivalent of instrument-i.
• FV_i = fair value of instrument-i.
• AD_i = additional amount corresponding to instrument-i.
• CEF_i = conversion factor applicable to the notional amount of instrument-i.
• Notional_i = notional amount of instrument-i.

The applicable conversion factor CEF_i, in each case, will be determined according to Table 1.

Table 1:

Residual Maturity (x) in years	Conversion Factor (%)
Interest Rates	Currency 1 (*)
x ≤ 1	0
1 < x ≤ 5	0.5
x > 5	1.5

(*) Criterion 1 = both currencies from countries with rating ≥ AA, euro or gold. (**) Criterion 2 = at least one currency does not correspond to countries with rating ≥ AA, euro or gold.

The following considerations must be taken into account: a. Instruments traded on stock exchanges subject to daily settlement: CEF_i = 0. b. Interest rate swap contracts in the same currency and those that obligate daily settlement of market value adjustments: CEF_i = 0. c. Contracts with capital amortization on different dates: the additional amount will correspond to the sum of each amortization amount weighted by the conversion factor corresponding to the residual term of each of those amortizations. d. Contracts that establish the obligation to settle on certain dates the market value adjustment that has accumulated during a specific period: it is considered as a contract with a maturity equal to the date of the next settlement. e. Contracts containing a clause that grants the institution the option to terminate it on a specific date and the right to receive or pay in full the accumulated market value adjustment up to that date: it is considered as a contract with a maturity equal to the period remaining until the next date on which that right can be exercised. f. When the institution has fund shares in investment funds that are part of the trading portfolio according to what is established in Article 162, the linear financial derivative instruments and purchased options in which the fund invests will be treated as if they were direct exposures, taking into account the share that the institution holds in the total investment fund. These instruments will be considered together with the other exposures maintained by the institution and, for the purpose of calculating the credit equivalent, what is established in this article will apply.

2. Specific Criterion: Bilateral Netting Framework Agreements When a set of contracts, with the same counterparty, have been entered into under a bilateral netting framework agreement – those recognized by the Superintendency of Financial Services in the instructions issued – the mitigating effect on counterparty risk can be taken into account in the calculation of the credit equivalent.

In this framework, the credit equivalent of instruments-i with the same counterparty-j, under framework-j, will be calculated as:

CE_j = Max(FV_j, -Net_Collateral_j) + (CEF_j * Notional_j)

Where,

• CE_j = credit equivalent of agreement-j.
• FV_j = fair value of instrument-i.
• Net_Collateral_j = net collateral (collateral received from the counterparty net of collateral constituted by the institution in favor of the counterparty within the framework of agreement-j).
• AD_j = additional amount corresponding to agreement-j.
• AD_i = additional amount corresponding to instrument-i.
• CEF_i = conversion factor applicable to the notional amount of instrument-i.
• Notional_i = notional amount of instrument-i.
• NTGR_j = “net to gross ratio” corresponding to agreement-j.

The following instruments are admissible as collateral: (a) Cash and deposit certificates issued by local banks or banks from abroad rated in a category equal to or higher than AA- in national currency, foreign currency from countries rated in a category equal to or higher than AA- or in Euros. (b) Securities: (b.1) National public securities in national currency; (b.2) Non-national public securities rated in a category equal to or higher than AA- or equivalent issued by central governments and central banks.

Institutions must keep available to the Superintendency of Financial Services the documentation supporting the determination of the credit equivalent (in particular, the framework agreements that enable the calculation of the equivalent according to the specific case).

ARTICLE 161.1 (CAPITAL REQUIREMENT FOR COUNTERPARTY CREDIT RISK - CREDIT VALUATION ADJUSTMENTS). The capital requirement for the risk of adjustments in the market price valuation of the total of operations with derivatives with a counterparty applies to linear financial derivative instruments and options traded in over-the-counter markets. When the institution has fund shares in investment funds that are part of the trading portfolio according to what is established in Article 162, the linear financial derivative instruments and options traded in over-the-counter markets in which the fund invests will be treated as if they were direct exposures, taking into account the share that the institution holds in the total investment fund. These instruments will be considered together with the other exposures maintained by the institution and, for the purpose of calculating the capital requirement, what is established in this article will apply.

For these purposes, the capital requirement will be calculated according to the following formulas:

K_CVA = 0.5 * K_CVA_c

Where,

• K_CVA_c = capital requirement of counterparty-c

1. General Criterion

K_CVA_c = Σ_i (W_c * t_i * CE_i * DF_i)

Where,

• K_CVA_c = capital requirement of counterparty-c considered individually, based on the number of operations-i with counterparty-c
• W_c = volatility risk weight of the yield spread of counterparty-c, as indicated below:

Table 1:

Counterparty	Risk Rating	W_c (%)
A< >=BBB- or equivalent	< BBB- or equivalent
Sovereign issuers, including central banks	0.5	3
Multilateral Banks	1	4
Non-Financial National Public Sector	1.5	5
Non-Financial National Public Sector	2	4
National and Non-National Public and Private Financial Sector	5	12
Other sectors	6	14

To consider risk ratings, the criteria established in numeral 1 of Article 160.1 will apply.

• t_i = effective residual maturity - in years - of operation-i carried out with counterparty-c, calculated as the average of the t maturities that operation-i has weighted by the importance of each payment (CF) to be made at time t.
• CE_i = credit risk equivalent of counterparty of operation-i with counterparty-c arising from Article 161.
• DF_i = discount factor for operation-i with counterparty-c

2. Specific Criterion: Bilateral Netting Framework Agreements In the case of operations entered into under a bilateral netting framework agreement, the capital requirement of the agreement will be calculated as follows:

K_CVA_j = W_c * t_j * CE_j * DF_j

Where,

• K_CVA_j = capital requirement of each agreement
• W_c = volatility risk weight of the yield spread of counterparty-c, according to the preceding Table 1.
• t_j = effective maturity of the agreement, calculated as the weighted average maturity of the operations included in said agreement. The notional amount of each operation must be used to weight the maturity.
• CE_j = credit risk equivalent of counterparty of each agreement arising from Article 161.
• DF_j = discount factor of each agreement

2. VALIDITY: What is established in the preceding numeral will govern from January 1, 2026.

3. COMMUNICATE what has been resolved via Circular.

JUAN PEDRO CANTERA Superintendent of Financial Services

RR-SSF-2025-531 Date: 13/10/2025 10:42:39 Exp. 2024-50-1-01985 Publishable: Yes - Signatory: JUAN PEDRO CANTERA SECTION CIRCULAR N° 2488