Revised banking returns and disclosure templates for counterparty credit risk framework

Banking Policy Department
Our Ref: B1/15C, B9/75C
B9/130C, B9/143C,
S4/3C, CB/POL/4/5/34
4 June 2021
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Revised banking returns and disclosure templates/tables for implementation of revised counterparty credit risk framework, etc. I am writing to inform you that, following recent industry consultations, we have finalised (as enclosed) the revisions to the template and completion instructions (“CIs”) of the Return of Leverage Ratio (Form MA(BS)27), the CIs of the Return of Stable Funding Position of an Authorized Institution (Form MA(BS)26) 1 and the Return of Large Exposures (Form MA(BS)28), and the relevant disclosure templates. Key changes to the current version in use are highlighted for ease of reference. 2

The electronic files for the revised template (for Form MA(BS)27) and the revised CIs (for Form MA(BS)26, Form MA(BS)27 and Form MA(BS)28) are available for downloading from the HKMA’s supervisory communication website (http://www.stet.iclnet.hk). Reporting institutions should submit the three Returns based on the revised CIs to the HKMA, via the STET system, starting from the position as of 30 June 2021. The revised disclosure templates (both English and Chinese versions) can be accessed through the “Key Functions – Banking Stability – Implementation of International Standards – Disclosure” icons on the HKMA’s public website (http://www.hkma.gov.hk) or through the Supervisory Communication Website (http://www.stet.iclnet.hk). These will apply to authorized institutions’

1 For Form MA(BS)26, the changes are consequential in nature which correspond to the revisions in the CIs of Form MA(BS)27 in relation to the treatment of securities financing transactions and cash variation margin. 2 Changes to the relevant disclosure templates and Form MA(BS)27 are marked, and those to the CIs of Form MA(BS)26, Form MA(BS)27 and Form MA(BS)28 are shaded in yellow (original deleted text is not shown).

2 disclosure related to any reporting period ending on or after 30 June 2021.
Please also note that to align with the upcoming revision to the submission deadline of the Return of Capital Adequacy Ratio (Form MA(BS)3) and some other returns, the submission deadline of the Return of Leverage Ratio (Form MA(BS)27) will be shortened from six weeks to one month commencing from the reporting position of 31 March 2022. 3 Should you have any questions regarding the technical aspects of the return templates or STET submission, please contact our STET helpdesk at 2878-1800. Yours faithfully, Daryl Ho Executive Director (Banking Policy) Encl cc: The Chairperson, The Hong Kong Association of Banks The Chairperson, The DTC Association FSTB (Attn: Ms Eureka Cheung)

3 Please refer to the HKMA’s letter of 16 November 2020 on “New Return of Consolidated Accounts and revised submission deadlines for selected returns” and Annex 5 to the letter for details.

Enclosure 1 - Completion Instructions - Return of Stable Funding Position of an Authorized Institution

MA(BS)26/P.1 (06/2021)
Completion Instructions
Return of Stable Funding Position of an Authorized Institution (MA(BS)26) INTRODUCTION

This document provides instructions for category 1 institutions and category 2A
institutions to calculate and report the Net Stable Funding Ratio (NSFR) and Core Funding Ratio (CFR) respectively by using Return MA(BS)26. The terms used in this document should be ascribed to the interpretations provided in the Banking (Liquidity) Rules (BLR) unless otherwise specified.
The Return consists of 3 Parts:
 Part 1 captures certain key information relating to the reporting institution’s NSFR or CFR during the quarterly reporting period.  Part 2 captures the details pertaining to the calculation of the NSFR on the quarter-end date. This Part should be completed by all category 1 institutions.  Part 3 captures the details pertaining to the calculation of the CFR on the quarterend date. This Part should be completed by all category 2A institutions. GENERAL INSTRUCTIONS Bases of Reporting
A reporting institution should complete this Return on one or more of the following
bases as the case may require –
 Hong Kong office basis for every reporting institution irrespective of its place of incorporation;  unconsolidated basis for a locally incorporated institution that is subject to rule 10(1)(b) of the BLR for the purpose of NSFR or CFR;  consolidated basis for a locally incorporated institution that is subject to rule 11(1) for the purpose of NSFR or CFR.

MA(BS)26/P.2 (06/2021)
Reporting frequency and submission timeline
4. A reporting institution should submit this Return (with a separate copy for each
applicable reporting basis) to the HKMA quarterly according to the following timelines:
For the quarter ended on –
31 March 30 June 30 September 31 December
Submission timeline for –

Hong Kong office basis 30 April 31 July 31 October 31 January of the
following year
Unconsolidated basis and
consolidated basis
6 weeks immediately after the end of each quarter If the submission timeline does not fall on a working day, it will be deferred to the immediately following working day. Valuation of assets, liabilities and off-balance sheet items

For the calculation of the NSFR or CFR:
 the value of a derivative contract should be measured at replacement cost as defined in rule 54(1);  other on-balance sheet assets and liabilities (including capital) should be measured in the following ways –

marketable assets should be measured by fair value irrespective of the
applicable accounting standards;
assets that are not marketable and liabilities 1
should be measured by book value (including any accrued interest 2 where applicable) according to the applicable accounting standards; and

1
In this document, the meaning of “liability” includes capital unless otherwise specified. 2 “Accrued interest” means the amount of interest accrued on an asset or liability up to the Return’s position date. In general, accrued interest and the underlying asset or liability should be reported under the same item. Whether accrued interest and the underlying asset or liability can be reported under the same time bucket will depend on the timing of interest receipt or payment. For example, if an institution has granted a loan that has a remaining term to maturity of 12 months while the interest accrued on the loan will be payable to the institution in one month, that amount of accrued interest should be reported under the time bucket of “< 6 months or repayable on demand”, whilst the loan should be reported under the time bucket of “12 months or more”.

MA(BS)26/P.3 (06/2021)
 off-balance sheet obligations should be measured according to the contracted amount of an obligation or, in the case of an undrawn or partially drawn facility, the undrawn amount. The valuation should be based on the “trade-date approach”.
6. To avoid doubt, forward deposit or forward loan (including forward placements with
any counterparties) should be included in the calculation of the NSFR or CFR as soon as the reporting institution enters into the relevant transaction. For example, if the institution enters into a forward interbank placement transaction on 31 December 2018 and the placement will mature on 31 December 2019, the institution should include the placement in the calculation of its NSFR (or CFR) at the position of 31 December 2018. The placement should be reported according to its final maturity date (31 January 2019), which would fall under the time bucket of “12 months or more”. Reporting currencies
7. The figures to be reported in this Return should be rounded up to the nearest thousand
in Hong Kong dollars (HKD), or HKD equivalent in the case of foreign currency items. The closing middle market T/T rates prevailing at the close of business on the position date should be used for conversion purposes. Determination of “remaining term to maturity”
8. For determining the “remaining term to maturity”, reference should be made primarily
to the contractual term to maturity of the item unless otherwise specified (Ref: NSFR FAQ 20). Example of date count: If an institution calculates its NSFR (or CFR) for the position of 31 December 2018, an asset or liability item maturing between 30 June 2019 and 30 December 2019 (both days inclusive) should be reported as having a remaining term to maturity of 6 months to less than 12 months. An item maturing on 31 December 2019 should be reported as having remaining term to maturity of 12 months or more.
9. If an asset or liability item will mature by instalments (e.g. instalment loan, or debt
securities or capital instruments that will be redeemed in phases), it should be reported according to the remaining term to maturity of each instalment. (Ref: NSFR FAQ 25)
10. If a reporting item is embedded with options that may alter its maturity date, determine
the remaining term to maturity as follows:
 For an ASF or ACF item that is callable –

MA(BS)26/P.4 (06/2021)

at the option of the reporting institution – assume the option would be
exercised if the market has such an expectation or if the otherwise may cause reputational concerns; 3
at the option of a person other than the institution – assume the option
would be exercised.
4
(Ref: Rules 65(6) and 77(6))
 For an ASF or ACF item that is extendable –
at the option of the reporting institution – assume the option would not be
exercised if the market has such an expectation or if the otherwise may cause reputational concerns;
at the option of a person other than the institution – assume the option
would not be exercised.
(Ref: NSFR FAQ 27)
 For an RSF or RCF item that is extendable –
at the option of the reporting institution – assume the option would be
exercised if the market has such an expectation or if the otherwise may cause reputational concerns 5
at the option of a person other than the institution – assume the option
would be exercised.
6
(Ref: Rules 68(5) and 80(5))
 For an RSF item that is callable–
at the option of the reporting institution – assume the option would not be
exercised if the market has such an expectation or if the otherwise may cause reputational concerns;

3 For example, debt securities issued by the institution, which can be redeemed early at the option of the institution. 4 For example, deposits taken by the institution, where the timing of deposit withdrawal is determined at the option of depositors. 5 For example, an institution’s nostro balance placed at another bank, where the timing of withdrawing or using the balance is determined at the option of the institution. 6 For example, non-maturity loan granted by an institution. Please refer to the specified instructions provided in paragraphs 58 and 59 for the reporting of non-maturity loans.

MA(BS)26/P.5 (06/2021)

at the option of a person other than the institution – assume the option
would not be exercised.
No double counting of reported items

No asset or liability can be double counted in the calculation of the NSFR or CFR. To
avoid double-counting, the reporting institution should adopt the following reporting approach unless otherwise specified:
 if a liability can be covered by more than one ASF or ACF item, report that liability under the item that is subject to a lower ASF or ACF factor; and  if an asset or off-balance sheet obligation can be covered by more than one RSF or RCF item, report that asset or obligation under the item that is subject to a higher RSF or RCF factor. SPECIFIC INSTRUCTIONS
PART 1: SUMMARY CERTIFICATE
Category 1 institutions and category 2A institutions must complete Section (I) and
Section (II) of this Part respectively.
(I) Reporting of NSFR shortfall by category 1 institutions
In this Section, a category 1 institution should report in item 1 whether self-rectification
under rule 8B has become applicable during the quarter. If the answer is “yes”, complete sub-items 2(a) to (d). For sub-items 2(c) and (d), if self-rectification was still in force on the quarter-end reporting date, insert “N/A”. (II) Reporting of average CFR by category 2A institutions
In this Section, a category 2A institution should report item 1 “Average ACF” and item
2 “Average RCF” for each calendar month during the quarter. The two items should be calculated by dividing the sum of the weighted amounts of ACF, or the sum of the weighted amounts of RCF, as the case may be, maintained by the reporting institution at the close of business on each working day during the reporting calendar month, by the number of working days during that month. If the institution has been approved by the HKMA to calculate its average CFR on the basis of specified days during a calendar month, it should calculate the average ACF and RCF by dividing the sum of the weighted amounts of ACF, or the sum of the weighted amounts of RCF, as the case

MA(BS)26/P.6 (06/2021) may be, maintained by the institution at the close of business on each of the specified days during the reporting month by the number of such specified days during that month. If any such specified day is a public holiday, the immediately preceding working day should be taken for the purposes of such calculation. Item 3 “Average CFR” will be generated automatically from that reported by the reporting institution in items 1 and 2.

MA(BS)26/P.7 (06/2021)
PART 2: NET STABLE FUNDING RATIO
General requirements for NSFR
Interdependent assets and liabilities
15. A category 1 institution must not treat any pair of asset and liability as “interdependent”
unless –
(a) in the case of a note-issuing bank, it can recognise “certificates of indebtedness” held and “legal tender notes” issued as “interdependent”; (b) in other cases, that permission for treating such asset and liability as interdependent under rule 70(1) has been given by the HKMA. If the HKMA has given permission for treating a pair of asset and liability as interdependent, a category 1 institution can treat the weighted amounts of both the asset and liability in the pair as $0, and must report the aggregate value and other required information of the interdependent asset and liability in Annex 4. The HKMA will grant permission to treat any pair of asset and liability as interdependent only if the criteria set out in rule 70(2) are fully met. In making the decision, the HKMA will also consider whether perverse incentives and unintended consequences are being created. For example, the HKMA will not grant permission if it is of the view that the asset and liability pair is structured with the primary objective to circumvent the NSFR requirement, or if the asset and liability pair still poses considerable funding risk to the institution. As noted in NSFR FAQ 9, derivative assets and derivative liabilities do not qualify for the treatment of interdependent assets and liabilities. A category 1 institution should preliminarily discuss its case with the HKMA before submitting any formal application for permission to treat any pair of asset and liability as interdependent. If the HKMA considers that there may be a case for treating the asset and liability pair as interdependent, the institution will be asked to submit a formal application for permission, supported by a comprehensive assessment conducted independently by its compliance department to demonstrate that the criteria set out in rule 70(2) are satisfied fully on a contractual basis.

MA(BS)26/P.8 (06/2021)
Securities financing transactions
16. Securities financing transactions should be treated as follows (Ref: NSFR standard 32
and NSFR FAQ 5.1):
(a) NSFR treatment of collateral received in a secured lending (e.g. reverse repo and securities borrowing) transaction is determined by the collateral’s balance sheet and accounting treatments, which should generally result in institutions excluding, from their assets, securities which they have received or borrowed in secured lending transactions where they do not have beneficial ownership and keep off-balance sheet. In this case, there is no NSFR treatment for the collateral. If, however, the collateral received is kept on-balance sheet, such collateral should receive an RSF factor according to its characteristics (the asset type, its term, issuers etc.) (b) Institutions should include in their assets securities they have posted or lent in secured funding (e.g. repo and securities lending) transactions where they retain beneficial ownership. Where institutions have encumbered securities in secured funding transactions, but have retained beneficial ownership and those assets remain on the institution’s balance sheet, the institution should apply the appropriate RSF factor to the encumbered securities. (c) In a secured lending transaction where the collateral received does not appear on the institution’s balance sheet, and it has been re-hypothecated or sold outright, since the liquidation of the on-balance sheet cash receivable related to the original secured lending transaction is contingent on the return of collateral that is no longer held by the institution, the receivable should be considered as encumbered and reported in Annex 3:

If the collateral received has been re-hypothecated, the receivable related
to the original secured lending transaction should be considered encumbered for the term of the re-hypothecation of the collateral.
If the collateral received has been sold outright, thereby creating a short
position, the receivable related to the original secured lending transaction should be considered encumbered for the term of the residual maturity of the secured lending transaction. (d) In a secured lending transactions where the collateral received appears on the institution’s balance sheet:

MA(BS)26/P.9 (06/2021)

If the collateral has been re-hypothecated, the collateral should be treated
as encumbered for the term of the re-hypothecation of the collateral.
If the collateral has been sold outright, thereby creating a short position,
but the cash receivable under the original secured lending transaction remains on the institution’s balance sheet under the applicable accounting standards, the receivable should be considered encumbered for the term of the residual maturity of the secured lending transaction.

If the reporting institution has entered into more than one securities financing
transaction (e.g. repo or reverse repo transaction) with a counterparty that are covered by a bilateral netting agreement that meets the conditions specified in the second bullet in paragraph 10.3(b)(iii) of the Completion Instructions for the Return of Leverage Ratio (MA(BS)27), 7 the funding provided and received by the institution arising from those securities financing transactions may be reported on a net basis (Ref: NSFR FAQ 5).
If an asset (e.g. loan) is partially secured by “recognized collateral”8
and is eligible to be separated into two portions for receiving different levels of risk-weights 9 pursuant

7
The required conditions are –

the relevant securities financing transactions have the same explicit final settlement date; in particular,
transactions with no explicit end date but which can be unwound at any time by either party to the transaction are not eligible;
the right to set off the amount owed to the counterparty with the amount owed by the counterparty is
legally enforceable both currently in the normal course of business and in the event of the counterparty’s (i) default; (ii) insolvency; or (iii) bankruptcy; and
the counterparties intend to settle net, settle simultaneously, or the transactions are subject to a settlement
mechanism that results in the functional equivalent of net settlement, that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date. To achieve such equivalence, both transactions are settled through the same settlement system and the settlement arrangements are supported by cash and/or intra-day credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day, and any issues arising from the securities legs of the securities financing transactions do not interfere with the completion of the net settlement of the cash receivables and payables. In particular, this latter condition means that the failure of any single securities transaction in the settlement mechanism may delay settlement of only the matching cash leg or create an obligation to the settlement mechanism, supported by an associated credit facility. If there is a failure of the securities leg of a transaction in such a mechanism at the end of the window for settlement in the settlement mechanism, then this transaction and its matching cash leg must be split out from the netting set and treated gross. It should be noted that the above conditions are not the same as those governing the netting of derivative transactions under a “valid bilateral netting agreement”. 8 Please refer to section 77 of the BCR for the meaning of “recognized collateral”. 9 For NSFR purposes, if a reference is made to the “risk-weight” of an asset, the risk-weight must be determined by the reporting institution according to the standardized (credit risk) approach provided in the

MA(BS)26/P.10 (06/2021) to Part 4 of the Banking (Capital) Rules (BCR), the asset can also be separated into two portions to receive different levels of RSF factors for NSFR purposes. If the asset will mature by instalments, it can be separated into two portions as if the portion containing instalments maturing later were secured fully while the other portion containing instalments maturing sooner should be treated as if this portion were unsecured. This treatment is subject to the condition that the collateral is contractually pledged to the reporting institution throughout the remaining term to maturity of the asset (Ref: Basel QIS FAQ 40 10). If the asset cannot be treated separately under the BCR (e.g. the relevant criteria are not met fully), apply the higher RSF factor to the whole asset. (Ref:
NSFR FAQ 6)
Specific requirements for NSFR
Section (I): Available Stable Funding (ASF)
Item 1. Capital
19. If the reporting institution is incorporated in Hong Kong (hence subject to the HKMA’s
capital adequacy requirements), follow the instructions below. Otherwise, report “0” in this item. 11 (a) Tier 1 capital (before regulatory adjustments)
20. Report the book value of Tier 1 capital (before regulatory adjustments), which covers
CET1 capital (before regulatory adjustments) and Additional Tier 1 capital (before regulatory adjustments).

BCR, irrespective of whether the institution is actually using this approach to calculate its credit risk exposures for regulatory capital purposes. (Ref: NSFR FAQ 28) 10 http://www.bis.org/bcbs/qis/biiiimplmonifaq_sep17.pdf 11 To calculate the NSFR (or CFR) on the Hong Kong office basis and unconsolidated basis, the reporting institution should report sub-item (a) Tier 1 capital (before regulatory adjustments) and sub-item (b) Tier 2 capital (before regulatory adjustments) on the solo basis (or solo-consolidated basis where applicable) as defined in section 2(1) of the BCR. For the calculation of the NSFR (or CFR) on a consolidated basis that may not be the same as the consolidated basis for the regulatory capital purposes, the reporting institution should report these two sub-items according to the consolidated basis for the regulatory capital purposes. Any capital arising from an associated entity that is not consolidated for regulatory capital purposes should not be reported under sub-item (a) or (b). Such capital should be reported under sub-item (d).

MA(BS)26/P.11 (06/2021)
(b) Tier 2 capital (before regulatory adjustments)
21. Report the book value of Tier 2 capital (before regulatory adjustments) under
appropriate columns according to the remaining terms to maturity. To avoid doubt,  collective provisions 12 and Tier 2 capital instruments without specified terms to maturity should be reported under the column of “No specified term to maturity”. For the collective provisions, report the total amount set aside by the institution in its financial accounts. Disregard the limit of 1.25% under the STC Approach or 0.6% under the IRB Approach specified in section 42 of the BCR;  regulatory reserves should not be included in the reporting of Tier 2 capital (before regulatory adjustments), as such reserves are not deducted in the calculation of Tier 1 Capital (before regulatory adjustments); and  capital instruments that will be phased out for regulatory capital purposes after completion of the transitional arrangements as referred to in section 5 of
Schedule 4H to the BCR should not be included in sub-item (a) or (b) above
(Ref: NSFR standard footnote 8). However, these capital instruments may be reported under sub-item (c) or (d) where appropriate. (c) minority interests not covered by sub-item (a) or (b)
22. Report the book value of minority interests not covered by sub-item (a) or (b). If there
is any minority interest that has a specified term to maturity, report it under the relevant column. Otherwise, report under the column of “No specified term to maturity”. (Ref: NSFR standard paragraph 25(b)) (d) capital instruments not covered by sub-item (a), (b) or (c)
23. Report the book value of any other capital instruments not covered by sub-item (a), (b)
or (c). For example, capital instruments not meeting the criteria set out in Schedules 4A, 4B and 4C (hence not qualified for recognition as CET1 capital, Additional Tier 1 capital or Tier 2 capital) should be reported under this sub-item according to the instruments’ remaining terms to maturity. Item 2. Debt securities or prescribed instruments issued by the institution

12 In line with the capital treatment, the provisions made by the reporting institution at “Stage 1” and “Stage 2” under HKFRS9 are regarded as “collective provisions”. For NSFR and CFR purposes, these provisions are included in the calculation of “Tier 2 capital instruments (before regulatory adjustments)” by a locally incorporated institution. In the case of an overseas-incorporated institution’s Hong Kong branch, please refer to paragraph 37.

MA(BS)26/P.12 (06/2021)
24. Report the book value of outstanding debt securities and prescribed instruments issued
by the reporting institution according to their remaining terms to maturity. To avoid doubt, debt securities and prescribed instruments issued and held by the institution (or the institution’s overseas branch or specified associated entities included in the calculation of NSFR on an unconsolidated or consolidated basis) should be reported under item 11 (if not derecognised under the applicable accounting standard). Item 3. Retail deposits
25. Report the book value of stable retail deposits under sub-item (a). Such deposits may
include both demand deposits and term deposits that fall within the definition of “stable retail deposits” under rule 39 13 (Ref: NSFR FAQ 22). Other retail deposits (including demand deposits and term deposits taken from retail customers but not recognised as “stable”) should be reported under sub-item (b).
26. For completing this item, deposits withdrawable on demand (hence without a specified
term to maturity) should be reported under the column of “< 6 months or repayable on demand”. Term deposits should be reported according to the contractual remaining terms to maturity. If, however, a term deposit may be withdrawn before the maturity date without entailing a withdrawal penalty significantly greater than the loss of interest accrued on the deposits 14, that deposit should be reported under the column of “<6 months or repayable on demand”.
27. For compliance with rule 64, if a category 1 institution incorporated in Hong Kong has
any overseas branch or overseas-incorporated associated entity that takes retail deposits in a host country and the requirements applicable to the relevant deposits under the host country’s NSFR framework are different from (but not less stringent than) the requirements set out in the BLR, the institution should, for the calculation of its NSFR on the unconsolidated basis or consolidated basis covering the branch or entity, apply the host country’s requirements to account for the relevant deposits. For example, whether the relevant deposits should be classified as “stable retail deposit” (hence covered by item 3(a) instead of item 3(b)) would be determined according to the host country’s classification criteria. For example, if the institution has the following retail deposit positions and the retail deposits taken by its overseas operation are subject to a

13 The definition of “stable retail deposit” provided in rule 39 has been amended such that term deposits taken from retail customers having a remaining term beyond 30 days may also be recognised as “stable retail deposits” under both the NSFR and LCR, provided that the other criteria for this class of deposits are met fully. 14 See the HKMA’s guidance provided in paragraphs 5.8.12 to 5.8.14 of Supervisory Policy Manual (SPM) module LM-1.

MA(BS)26/P.13 (06/2021) set of ASF factors that is more stringent than that prescribed in the BLR, the institution should complete item 3 in the following way:
Retail deposits taken by HK office (classified according to BLR) < 6 months or repayable on demand 6 months to <12 months 12 months or more No specified term to maturity ASF factor under BLR Weighted amount (a) stable retail deposits 1,000 900 800 90% 95% 100% 2555 (b) retail deposits not covered by sub-item (a) 2,000 1800 1600 90% 90% 100% 5110 Retail deposits taken by overseas operation (classified according to host country’s requirements) < 6 months or repayable on demand 6 months to <12 months 12 months or more No specified term to maturity ASF factor in host country Weighted amount (a) stable retail deposits 500 400 300 80% 90% 100% 1060 (b) retail deposits not covered by sub-item (a) 250 200 150 70% 80% 100% 485
3. Retail deposits < 6 months or
repayable on demand
6 months to
<12 months
12 months or more
No specified term to maturity
ASF factor (insert N/A for each cell)
Weighted amount
(a) stable retail deposits 1,500 1,300 1,100 N/A 3,615 (b) retail deposits not covered by sub-item (a) 2,250 2,000 1,750 N/A 5,595 Item 4. Small business funding
28. Complete this item in a manner similar to item 3.
Item 5. Operational deposits
29. Report the book value of operational deposits taken by the reporting institution. An
operational deposit without a specified term to maturity should be reported under the column of “<6 months or repayable on demand”. If an operational deposit has a specified term to maturity, report that deposit under the appropriate column. Item 6. Funding (other than operational deposits) provided to the institution
30. Report the book value of funding (other than operational deposits) provided to the
institution by the specified types of counterparties.
31. Report under sub-item (a) funding provided by corporates (other than small business
customers), sovereigns, multilateral development banks, national development banks 15 and public sector entities.

15 Pursuant to rule 59(1), “national development bank” (NDB) means an entity specified in Schedule 7 of BLR or specified by the relevant banking supervisory authority of a place outside Hong Kong. While the HKMA has not yet specified any entity as an NDB in Schedule 7, we will keep under review the need to make such specifications. For reporting funding received from overseas NDBs, category 1 institutions should verify if their funding counterparties have been specified as NDBs by the relevant overseas banking supervisory authorities for NSFR calculation purposes.

MA(BS)26/P.14 (06/2021)
32. Report under sub-item (b) funding provided to the institution by the HKMA or central
banks.
33. Funding provided by financial institutions and other entities not covered by sub-item
(a) or (b) should be reported under sub-item (c). According to NSFR FAQ 2, “financial institutions” for the application of the NSFR standard include banks, securities firms, insurance companies, fiduciaries (defined in this context as a legal entity that is authorised to manage assets on behalf of a third party, including asset management entities such as pension funds and other collective investment vehicles) and beneficiaries (defined in this context as a legal entity that receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust or other contract). Item 7. Funding provided to the institution not covered by items 1 to 6
34. Report the book value of funding provided to the reporting institution but not covered
by items 1 to 6, if any.
35. In the case of an overseas-incorporated institution, the earnings of its Hong Kong
branch should also be covered by this item. Report the earnings according to the earliest possible date on which such earnings may cease to be retained at the branch. For example, earnings retained at the branch for a specified period should be reported under the appropriate column. If the earnings may be transferred out of the branch (e.g. to its head office) on demand, report the earnings under the column of “< 6 months or repayable on demand”. If the transfer is subject to a specified period of advance notice, report the earnings according to the specified period of advance notice. If the earliest possible date of transfer cannot be determined practically (e.g. the transfer is subject to an advance notice period but the notice period has not been specified), report the earnings under the column of “no specified term to maturity”.
36. If a foreign bank branch is incurring a loss, follow the above instruction to report the
loss, which should be presented with a negative figure.
37. Collective provisions set aside by an overseas-incorporated institution’s Hong Kong
branch can also be reported under this item (under the time bucket of “12 months or more”). Item 8. Deferred tax liabilities
38. For a deferred tax liability that has no specified term to maturity, report the item
according to rule 65(4) as follows:

MA(BS)26/P.15 (06/2021)
 if the earliest possible realisation of the liability is in less than 6 months, the liability is to be treated as having a remaining term to maturity of less than 6 months or being repayable on demand;  if the earliest possible realisation of the liability is in less than 12 months but not less than 6 months, the liability is to be treated as having a remaining term to maturity of 6 months to less than 12 months; or  if the earliest possible realisation of the liability is in not less than 12 months, the liability is to be treated as having a remaining term to maturity of 12 months or more.
39. If the institution cannot determine the earliest possible realisation date of a deferred tax
liability, report the liability under the column of “< 6 months or repayable on demand”. Item 9. Net derivative liabilities
40. Complete Annex 1, which will generate a figure for this item.
Item 10. Trade-date payables
41. Report the book value of trade-date payables according to the definition of such
payables provided in rule 54(1).
Item 11. Liabilities not covered by items 1 to 10
42. Report the value of other on-balance sheet liabilities not covered by items 1 to 10. For
example, operating expenses payable by the institution should be covered by this item.

MA(BS)26/P.16 (06/2021)
Section (II): Required Stable Funding (RSF)
(A) Unencumbered assets, off-balance sheet obligations and total derivative liabilities (before adjustments)
43. The assets covered by items 1 to 11 of this Section should be free from encumbrance
unless otherwise specified (see items 2 and 8). An asset is not free from encumbrance if the asset is pledged by the institution, either explicitly or implicitly, to secure, collateralise or provide credit enhancement to a transaction, or the asset is designated by the institution to cover specific expenses. Item 1. Currency notes and coins
44. Report the book value of currency notes and coins held by the institution. Such notes
and coins should be immediately available to meet the institution’s obligations. Item 2. Claims on the Monetary Authority for the account of the Exchange Fund or central banks
45. Report under sub-item (a) the book value of the reporting institution’s fund maintained
at the HKD CHATS Account. This sub-item also covers the institution’s reserves placed at a central bank (including the portion for meeting the central bank’s reserve requirement and any excess portion).
46. Report under sub-item (b) all other claims on the HKMA or central banks not covered
by sub-item (a), having a remaining term to maturity of less than 6 months or being repayable on demand (Ref: NSFR FAQ 19). For example, such claims may arise from short-term money market transactions or securities financing transactions conducted by the institution with the HKMA or central banks, or the institution’s holding of marketable debt securities issued by the HKMA or central banks where such securities have remaining terms to maturity of less than 6 months. Other debt securities issued by the HKMA or central banks with a maturity period of 6 months or more should be reported under item 3. (Ref: NSFR FAQ 1)
47. To avoid doubt, RMB funds placed at the institution’s RMB Fiduciary Account can be
reported under sub-item (b) if the funds are withdrawable on demand or within a period of less than 6 months.
48. Report under sub-item (c) the book value of loans (if any) provided to the HKMA or
central banks, having a remaining term to maturity of 6 months or more, or having no specified term to maturity (other than those repayable on demand that are covered by sub-item (a)). If a loan covered by this sub-item is subject to a risk-weight of 20% or

MA(BS)26/P.17 (06/2021) less under section 55(2) of the BCR, report it under sub-item (c)(i). Otherwise, report under sub-item (c)(ii). Item 3. Securities held by the institution (other than securities representing the institution’s claims covered by item 2(b))
49. Report under sub-items (a) to (c) the fair value of securities falling within the classes of
level 1 assets, level 2A assets and level 2B assets specified in Part 2 of Schedule 2 to the BLR.
50. Report under sub-item (d) any debt securities not covered by sub-item (a), (b) or (c).
Debt securities or prescribed instruments that are not marketable should be covered by this sub-item.
51. Report under sub-item (e) the fair value of listed equities not covered by sub-item (c)
held by the institution. To avoid doubt, listed derivative products (such as exchangetraded futures, options and warrants) should not be covered by this item, but by Annex 1.
52. The reporting of securities long and short positions under item 3 should depend on the
applicable accounting standards. For example, if an institution is required under the accounting standards to recognise its securities long position as its on-balance sheet asset on a gross basis, it should also report its securities holding position on a gross basis under this item. Securities holding position should not be reported on a net long basis under this item, unless this is allowed under the applicable accounting standards. Item 4. Physical traded commodities held by the institution
53. Report the fair value of physical traded commodities (e.g. gold) held by the reporting
institution. Commodity-related derivative contracts should not be covered by this item, but by Annex 1. Item 5. Operational deposits placed by the institution at other financial institutions
54. Report the book value of operational deposits placed by the reporting institution at other
financial institutions. If an operational deposit covered by this item is repayable on demand or has a specified term to maturity, report it under the appropriate column. Otherwise, report it under the column of “No specified term to maturity”.

MA(BS)26/P.18 (06/2021)
Item 6. Loans and funds (other than operational deposits) provided by the institution to other financial institutions
55. Report the book value of loans and funds (other than the operational deposits covered
by item 5) provided by the reporting institution to other financial institutions. For example, such loans and funds include the reporting institution’s placements at, and other secured or unsecured funding granted to, financial institutions. Sub-item (a) covers loans and funds secured by level 1 assets that can be re-hypothecated by the reporting institution for the life of the loan. Other loans and funds are covered by subitem (b).
56. If the loans and funds covered by this item are repayable on demand (e.g. nostro
balances that are repayable to the institution on demand) or have a specified term to maturity, report them under the appropriate column. Otherwise, report them under the column of “No specified term to maturity”. Item 7. Loans and funds provided by the institution to retail customers and wholesale customers (other than the Monetary Authority for the account of the Exchange Fund, central banks and financial institutions)
57. This item covers all loans and funds provided by the institution to retail customers, and
wholesale customers (e.g. small business customers, corporates, sovereigns, multilateral development banks, national development banks and public sector entities) other than the Monetary Authority, central banks and financial institutions. Report under sub-item (a) the book value of loans and funds which are subject to a risk-weight of 35% or less under Division 3 of Part 4 of the BCR. Otherwise, report the loans and funds under sub-item (b).
58. Report the loans and funds under the appropriate columns according to their remaining
terms to maturity. Loans without a stated maturity (such as overdraft and credit card balances except the periodic repayment portion that is addressed separately in paragraph 59) granted by the reporting institution should be reported under the column of “no specified term to maturity” (Ref: NSFR FAQ 18). If a loan is drawn under a facility and there is a contractual provision that the loan or facility is subject to periodic review to determine whether it is renewed or not, the institution may regard the next review date as the loan’s maturity date. In doing so, the institution should consider the actual likelihood of terminating the loan or facility (e.g. the institution has decided not to renew the facility). In particular, options by an institution not to renew a facility should generally be assumed not to be exercised when there may be reputational concerns. (Ref: NSFR FAQ 21)

MA(BS)26/P.19 (06/2021)
59. To avoid doubt, loans drawn under revolving facilities but repayable according to
predefined schedules (whether by instalments or by one single bullet) can be reported according to the schedules. Such loans include, for example, the monthly minimum repayment portions of credit card balances, fixed-term trade-financing loans, and any other fixed term personal or corporate loans drawn under revolving facilities. Item 8. Assets posted by the institution as initial margins or default fund contributions
60. Report the book value of assets (whether in the form of cash or other types of asset)
posted by the reporting institution to counterparties as initial margins (IM) or default fund contributions (DFC) under all derivative contracts regardless of whether the assets are maintained on the institution’s balance sheet (Ref: NSFR FAQ 15).
61. If an asset posted by the institution as IM or DFC falls within a type of assets that would
have been subject to an RSF factor of 100% had it not been posted by the institution, report that asset under sub-item (a). Otherwise, report under sub-item (b).
62. Exclude those IM or DFC posted on behalf of the institution’s customers if the
institution does not provide guarantee to its customer on its counterparty’s performance, meaning that the customer (but not the institution) is exposed to the risk of default of the counterparty. 16

If the IM or DFC posted by the reporting institution is not separable from variation
margins (VM), follow the instructions below:
 for non-centrally cleared over-the-counter derivative contracts, any fixed independent amount an institution is contractually required to post at the inception of the derivative transaction should be considered as IM, regardless of whether any portion of this amount is returned to the institution in the form of VM. If the IM level is formulaically determined on a portfolio basis (i.e. based on the aggregate value of all derivative contracts between the reporting institution and its counterparty), the amount considered as IM should be determined according to the portfolio value at the time when the institution calculates its NSFR, notwithstanding that the amount of margin actually posted by the institution to its counterparty may be lower because of VM payments received.

16 For example, this may refer to a situation where the reporting institution provides a customer access to a third party (e.g. a central counterparty) for clearing derivative contracts, where the contracts are executed in the name of the customer and the institution does not guarantee the performance of the third party. (Ref:
NSFR FAQ 10)

MA(BS)26/P.20 (06/2021)
 for centrally cleared derivative contracts, the IM reported under this item should reflect the total amount of margin posted (IM and VM) by the reporting institution less any mark-to-market losses on the applicable portfolio of cleared transactions. (Ref: NSFR FAQ 13) Item 9. Net derivative assets
64. Complete Annex 1, which will generate a figure for this item.
Item 10. Trade-date receivables
65. Report the book value of trade-date receivables according to the definition of such
receivables provided in rule 54(1).
Item 11. Assets not covered by items 1 to 10
66. Report under sub-item (a) the book value of fixed assets, investments in associated
entities and other unlisted equities, goodwill and other intangible assets, assets of any defined benefit pension fund or plan, investments in own capital instruments (if not derecognised under applicable accounting standards), insurance assets, retained interests, non-performing assets (net of specific provisions 17), and other assets that do not have specified terms to maturity.
67. Report under sub-item (b) the book value of other assets that are repayable on demand
or have specified terms to maturity.
Item 12. Off-balance sheet obligations
68. Complete Annex 2, which will generate a figure for this item.

17 The meaning of “specific provisions” provided in section 2(1) of the BCR is also applicable for NSFR and CFR purposes. In line with the capital treatment, such provisions are made by the reporting institution at “Stage 3” (or for purchased or originated credit-impaired financial assets at initial recognition) under the HKFRS 9.

MA(BS)26/P.21 (06/2021)
Item 13. Total derivative liabilities (before adjustments) 68A. Complete this item in a manner similar to item 4 of Annex 1. For the purposes of calculating this item, derivatives structured as “settled-to-market” 18 should be included. The replacement cost of these derivatives should be calculated as if no settlement payments and receipts had been made to account for the changes in the value of the derivative transaction or a portfolio of derivative transactions. (B) Encumbered assets
69. Complete Annex 3, which will generate the total weighted amount of encumbered
assets for this item.

18 Derivative contracts are said to be “settled to market” when the variation margin on cleared derivatives is recorded as settlement payments rather than as transfer of collateral. This practice allows the banks to take ownership of the collateral they receive. Under these contracts, daily payments of mark-to-market variation margin are recorded as settlements of the derivatives transactions rather than transfers of collateral and the market value of the derivatives is reset daily to zero. [Explanatory note: the treatment of "settled-to-market" derivatives was originally set out in item 2 of the responses of the Basel Committee on Banking Supervision to FAQs issued on 20 September 2018.]

MA(BS)26/P.22 (06/2021)
PART 3: CORE FUNDING RATIO
General requirements for reporting of CFR
Securities financing transactions
70. For the CFR, securities financing transactions should be treated as follows:
(a) CFR treatment of collateral received in a secured lending (e.g. reverse repo and securities borrowing) transaction is determined by the collateral’s balance sheet and accounting treatments, which should generally result in institutions excluding, from their assets, securities which they have received or borrowed in secured lending transactions where they do not have beneficial ownership and keep off-balance sheet. In this case, there is no CFR treatment for the collateral. If, however, the collateral received is kept on-balance sheet, such collateral should receive an RCF factor according to its characteristics (the asset type, its term, issuers etc.) (b) Institutions should apply the appropriate RCF factor to securities they have posted or lent in secured funding (e.g. repo and securities lending) transactions where they retain beneficial ownership and keep the securities on the institutions’ balance sheet.
71. If the asset received under a secured lending transaction is re-hypothecated or sold
outright under another secured funding transaction, treat the two transactions separately according to the instructions provided in paragraph 70.
72. If the reporting institution has entered into more than one securities financing
transaction (e.g. repo or reverse repo transaction) with a particular counterparty that are covered by a bilateral netting agreement that meets the conditions specified in the second bullet in paragraph 10.3(b)(iii) of the Completion Instructions for the Return of Leverage Ratio (MA(BS)27), the funding provided and received by the institution arising from those securities financing transactions may be reported on a net basis.
Section (I): Available Core Funding (ACF)
Item 1. Capital
73. To complete this item, follow the instructions provided for item 1 of Section (I) of Part
2.

MA(BS)26/P.23 (06/2021)
Item 2. Debt securities or prescribed instruments issued by the institution
74. Report the book value of outstanding debt securities and prescribed instruments issued
by the reporting institution according to their remaining terms to maturity. To avoid doubt, debt securities and prescribed instruments issued and held by the reporting institution (or the institution’s overseas branch or specified associated entities included in the calculation of NSFR on an unconsolidated or consolidated basis) should be reported under item 8 (if not derecognised under the applicable accounting standard) (receiving an ACF factor of 0%). Item 3. Deposits
75. Report the book value of deposits taken by the reporting institution from non-bank
customers. Deposits without a specified term to maturity should be reported under the column of “< 6 months or repayable on demand”. Term deposits should be reported according to their contractual remaining terms to maturity. Item 4. Funding provided to the institution not covered by item 1, 2 or 3
76. Report the book value of funding provided to the reporting institution but not covered
by item 1, 2 or 3. This item covers the secured or unsecured non-deposit funding provided to the institution by all type of counterparties.
77. Funding provided to the institution for a specified period should be reported under the
appropriate column according to its remaining terms to maturity. Perpetual funding provided to the institution (e.g. by its parent or head office) can be reported under the column of “12 months or more”. Otherwise, report any funding without specified terms to maturity according to the earliest possible day of repayment. If the funding is repayable on demand, report the funding under the column of “< 6 months or repayable on demand”. If the repayment is subject to a specified period of advance notice, report the funding according to the specified period of advance notice. If the earliest possible repayment date cannot be determined practically (e.g. the repayment is subject to an advance notice period but the notice period has not been specified), report the funding under the column of “no specified term to maturity”.
78. The earnings and collective provisions of an overseas-incorporated institution’s Hong
Kong branch should also be covered by this item. The relevant instructions provided in paragraphs 35 to 37 for item 7 of Section (I) for the NSFR are also applicable for reporting this item under the CFR.

MA(BS)26/P.24 (06/2021)
Item 5. Deferred tax liabilities
79. For a deferred tax liability that has no specified term to maturity, report the item
according to rule 77(4) as follows:
 if the earliest possible realisation of the liability is in less than 6 months, the liability is to be treated as having a remaining term to maturity of less than 6 months or being repayable on demand;  if the earliest possible realisation of the liability is in less than 12 months but not less than 6 months, the liability is to be treated as having a remaining term to maturity of 6 months to less than 12 months; or  if the earliest possible realisation of the liability is in not less than 12 months, the liability is to be treated as having a remaining term to maturity of 12 months or more.
80. If the institution cannot determine the earliest possible realisation date of a deferred tax
liability, report the liability under the column of “< 6 months or repayable on demand”. Item 6. Net derivative liabilities
81. Complete Annex 1, which will generate a figure for this item.
Item 7. Trade-date payables
82. Report the book value of trade-date payables according to the definition of such
payables provided in rule 54(1).
Item 8. Liabilities not covered by items 1 to 7
83. Report the book value of other on-balance sheet liabilities not covered by items 1 to 7.
For example, operating expenses payable by the institution should be covered by this item.
Section (II): Required Core Funding (RCF)
Item 1. Currency notes and coins
84. Report the book value of currency notes and coins held by the institution.
Item 2. Gold bullion

MA(BS)26/P.25 (06/2021)
85. Report the fair value of gold bullion held by the institution.
Item 3. Claims on, or reserves maintained with, the Monetary Authority for the account of the Exchange Fund or central banks
86. Report the book value of claims on, or reserves maintained with, the Monetary
Authority or central banks, irrespective of the remaining terms to maturity of such claims or reserves.
87. To avoid doubt, RMB funds placed at the institution’s RMB Fiduciary Account can be
reported under this item.
Item 4. Export bills
88. Report the book value of export bills according to their remaining terms to maturity.
Item 5. Securities or prescribed instruments held by the institution
89. Report under sub-item (a) the fair value of securities or prescribed instruments
mentioned in item 5(a) of Table 4 to Schedule 6 (which refers to item 6 of Table A of
Section 2 of Schedule 5) to the BLR. Report under sub-item (b) the fair value of listed
ordinary shares mentioned in item 5(ab) of Table 4 to Schedule 6 (which are the same as those referred to in item 6A of Table A of section 2 of Schedule 5) to the BLR. Other securities and instruments should be reported under sub-item (c) according to their remaining terms to maturity. Report perpetual securities or prescribed instruments under the column of “no specified term to maturity”. For example, listed equities not covered by sub-item (b) should be covered by sub-item (c) under this column.
90. The reporting of securities long and short positions under item 5 should depend on the
applicable accounting standards. For example, if an institution is required under the accounting standards to recognise its securities long position as its on-balance sheet asset on a gross basis, it should also report its securities holding position on a gross basis under this item. Securities holding position should not be reported on a net long basis under this item, unless this is allowed under the applicable accounting standards.

MA(BS)26/P.26 (06/2021)
Item 6. Loans and funds provided by the institution to banks
91. Report the book value of loans and funds provided by the reporting institution to banks
according to the remaining terms to maturity of the loans and funds. Loans and funds repayable on demand should be covered by the column of “< 6 months or repayable on demand”. For example, nostro balances placed at other banks that are repayable on demand should be covered by this column (unless there are any embedded options that may change the maturity profile of the loans and funds – see general instructions provided in paragraph 10).
92. In the cases of loans and funds provided by the institution to a bank with no specified
term to maturity but not repayable to the institution on demand (e.g. intragroup loans and funds provided to affiliate banks), reported the loans and funds under the column of “no specified term to maturity”. Item 7. Loans and funds provided by the institution to customers (other than the Monetary Authority for the account of the Exchange Fund, central banks and banks)
93. Report under sub-item (a) the book value of residential mortgage loans mentioned in
item 7 of Table A in section 2 of Schedule 5 to the BLR. Other loans and funds provided by the reporting institution to non-bank and non-central-bank customers should be reported under sub-item (b) according to their remaining terms to maturity.
94. To report non-maturity loans under this item, follow the instruction provided in
paragraphs 58 and 59.
Item 8. Net derivative assets
95. Complete Annex 1, which will generate a figure for this item.
Item 9. Trade-date receivables
96. Report the book value of trade-date receivables according to the definition of such
receivables provided in rule 54(1).
Item 10. Assets not covered by items 1 to 9
97. Report under sub-item (a) the book value of fixed assets, investments in associated
entities and other unlisted equities, goodwill and other intangible assets, assets of any defined benefit pension fund or plan, investments in own capital instruments (if not derecognised under applicable accounting standards), insurance assets, retained

MA(BS)26/P.27 (06/2021) interests, non-performing assets (net of specific provisions), and other assets that do not have specified terms to maturity.
98. Report under sub-item (b) the book value of other assets that are repayable on demand
or have specified terms to maturity.
Item 11. Off-balance sheet obligations
99. Complete Annex 2, which will generate a figure for this item.
Item 12. Total derivative liabilities (before adjustments)
100. Complete this item in a manner similar to item 4 of Annex 1. For the purposes of
calculating this item, derivatives structured as “settled-to-market” 19 should be included. The replacement cost of these derivatives should be calculated as if no settlement payments and receipts had been made to account for the changes in the value of the derivative transaction or a portfolio of derivative transactions.

19 See Footnote 18

MA(BS)26/P.28 (06/2021)
Annex 1
Derivative assets, liabilities and margins

Annex 1 covers all derivative contracts, whether traded over-the-counter or with a
central counterparty. Each reporting institution must complete this Annex, which will generate the required figures to complete item 9 of section (I) and item 9 of section (II) of Part 2 (in case of a category 1 institution), or item 6 of section (I) and item 8 of
section (II) of Part 3 (in case of a category 2A institution).
Item 1. Total derivative assets
Report the sum of the replacement costs of derivative contracts between the reporting
institution and its counterparties, where each of those contracts has a positive replacement cost.
If the institution has entered into 2 or more derivative contracts with a particular
counterparty that are subject to a valid bilateral netting agreement, the institution must determine the aggregate net value of those contracts according to rule 58. If the aggregate net value of these contracts is positive, include that value in reporting under item 1. (Otherwise, report that value in absolute term under item 4.) Item 2. Cash variation margin received by the institution under the derivative contracts covered by item 1
Report the book value of variation margin (VM) received in the form of cash by the
reporting institution under the derivative contracts covered by item 1, provided that the conditions set out in Paragraph 10.2(h) for the Completion Instructions to the Return of Leverage Ratio (MA(BS)27) are satisfied. 20

20 These conditions are:
(i) For trades not cleared through a qualifying central counterparty, the cash received by the recipient counterparty is not segregated (i.e. if the recipient counterparty has no restrictions by law, regulation or any agreement with the counterparty on the ability to use the cash received. In other words, the cash variation margin received is used as its own cash); (ii) the cash variation margin is calculated and exchanged on a daily basis based on mark-to-market valuation of derivative positions. To meet this criterion, derivative positions must be valued daily and cash variation margin must be transferred daily to the counterparty or the counterparty’s account, as appropriate. Cash variation margin exchanged on the morning of the subsequent trading day based on the previous, end-of-day market values would meet this criterion; (iii) the cash variation margin is received in any currency of settlement specified in the derivative contract, governing master/ qualifying bilateral netting agreement, the credit support annex to the master/ qualifying bilateral netting agreement, or as defined by the netting agreement with a CCP. (iv) variation margin exchanged is the full amount that would be necessary to extinguish the mark-to-

MA(BS)26/P.29 (06/2021)
5. In the memorandum item 2A, report, if any, the book value of non-cash VM received
by the institution where this portion of VM is not covered by item 2. This item will facilitate the HKMA’s future policy study.
6. To avoid doubt, if any amount of the cash VM received by the institution covered by
item 2 is recognised as the institution’s on-balance sheet liability under the applicable accounting standards, that amount should not be reported under any ASF (or ACF) item in order to avoid double-counting. If there is any VM received by the institution (and recognised as on-balance sheet liability) but not covered by item 2 (e.g. non-cash VM and excess cash VM received), report such VM under item 11 of section (I) of Part 2 (for the NSFR) or item 8 of section (I) of Part 3 (for the CFR). Item 4. Total derivative liabilities
7. Report the sum of the replacement costs of derivative contracts between the reporting
institution and its counterparties, where each of those contracts has a negative replacement cost before adjustment for any variation margin posted by the institution to the counterparty under the contract. If the institution has entered into 2 or more derivative contracts with a particular counterparty that are subject to a valid bilateral netting agreement, the institution must determine the aggregate net value of those contracts according to rule 58. If the aggregate net value of these contracts is negative, include the absolute value under item 4. Item 5. Variation margin posted by the institution under the derivative contracts covered by item 4
8. Report the amount of VM (whether in form of cash or any other type of asset) posted
by the reporting institution under the derivative contracts covered by item 4.

market exposure of the derivative contract subject to the threshold and minimum transfer amounts applicable to the counterparty; and (v) derivative contracts and the variation margins are covered by a single bilateral netting agreement between the legal entities that are counterparties in the derivative contracts. The bilateral netting agreement must explicitly stipulate that the counterparties agree to settle net any payment obligations covered by such a netting agreement, taking into account any variation margin received or provided, if a credit event occurs as to either counterparty. For the purpose of this paragraph, the term “bilateral netting agreement” includes any netting agreement or arrangement that provides legally enforceable rights of offset and a master bilateral netting agreement may be deemed to be a single bilateral netting agreement. The bilateral netting agreement must be legally enforceable and effective (i.e. it meets the conditions set out in the BCR) in all relevant jurisdictions, including in the event of default and bankruptcy or insolvency. Any bilateral netting agreement that can satisfy the conditions described in this paragraph is referred to as “qualifying bilateral netting agreement” for the purpose of these CIs.

MA(BS)26/P.30 (06/2021)
9. To avoid doubt, if any amount of VM posted by the institution covered by item 4 is
recognised as the institution’s on-balance sheet asset under the applicable accounting standards, that amount should not be reported under any RSF (or RCF) item in order to avoid double-counting. (Ref: NSFR standard footnote 7) Numerical Example
10. Assuming that an institution has entered into a valid bilateral netting agreement with a
particular counterparty “C” and the institution has the following derivative positions arising from the derivative transactions with C:
Outstanding value
(a) Derivative assets arising from transactions with C 1,000 (b) Derivative liabilities arising from transactions with C (5,000) (c) Variation margins posted by the institution to C 800 (d) Cash variation margins received by the institution from C 100 (e) Aggregate net value of all derivative contracts with C (Negative sign represents the liability nature of the calculation result.) 1,000-5,000+800-100 = (3,300) These contracts with C should be singled out to calculate the aggregate net value. The calculation result is -3,300, meaning that the institution has net derivative liabilities of 3,300 arising from the derivative contracts with C.
11. Separately, the institution has the following derivative positions arising from the
derivative transactions with other counterparties which are not subject to a valid bilateral netting agreement:
Outstanding value
(f) Derivative assets arising from transactions with other counterparties 20,000 (g) Derivative liabilities arising from transactions with other counterparties (30,000) (h) Variation margins posted by the institution to other counterparties 7,000 (i) Cash variation margins received by the institution from other counterparties 4,000 (j) Non-cash variation margins received by the institution from other counterparties 1,500
12. In Annex 1, the institution should report –
Item 1 = (f) = 20,000
Item 2 = (i) = 4,000

MA(BS)26/P.31 (06/2021)
Item 2A = (j) = 1,500
Item 3 (auto) = Item 1 – Item 2 = 16,000
Item 4 = Absolute value [(e) 21 + (g)] = 33,300 Item 5 = (h) = 7,000 Item 6 (auto) = Item 4 – Item 5 = 26,300 Item 7 (auto) = 0 (In this example, the institution does not have net derivative assets.) Item 8 (auto) = Absolute value [Item 3 – Item 6] = 10,300

21
In this example, since the aggregate net value of all derivative contracts with C is a negative value, it is included in item 4. If the aggregate net value is a positive value, it must be included in item 1 instead.

MA(BS)26/P.32 (06/2021)
Annex 2
Off-balance sheet obligations

Each reporting institution must complete Annex 2, which will generate the required
figures to complete item 12 of section (II) of Part 2 (for the NSFR) or item 11 of section (II) of Part 3 (for the CFR). Item 1. Potential drawdown of undrawn committed facilities
Report under item 1 the amount of undrawn committed facilities which are not
unconditionally revocable as assessed reasonably by the reporting institution. 22

Item 2. Potential drawdown of uncommitted facilities
3. Report under item 2 the amount of undrawn uncommitted facilities which are
unconditionally revocable as assessed reasonably by the reporting institution. Item 3. Trade-related contingencies
4. Report under item 3 the contracted amount of trade-related contingencies that are
related to import or export trade transactions conducted by the reporting institution’s customers. To avoid doubt, this item does not capture undrawn commitments under trade financing facilities, which should be reported under item 1 or 2. Item 4. Guarantees and letters of credit unrelated to trade-related contingencies
5. Report under item 4 the contracted amount of guarantees and letters of credit issued by
the reporting institution, other than those covered by item 3.

22 For the assessment of “revocability” of a credit facility or liquidity facility, please refer to the guidance provided in paragraph 5.8.22 of SPM module LM-1.

MA(BS)26/P.33 (06/2021)
Annex 3
Encumbered assets

Annex 3 should be completed by category 1 institutions for NSFR purposes. If the
reporting institution has assets that are not free from encumbrances, report the assets in this Annex taking into account their remaining terms to maturity and periods of encumbrance, which will generate the total weighted amount of “encumbered assets” for item (B) of section (II) of Part 2.
To avoid double, this Annex does not cover those assets posted by the reporting
institution as IM or DFC under derivative contracts, which have been covered by item 8 of Section (II) of Part 2; (Ref: NSFR FAQ 16)
For the completion of this Annex,
 if an asset of the reporting institution is segregated in a margin trading account to satisfy statutory requirements for the protection of customer interests, the asset should be treated as “encumbered”. In determining the asset’s encumbrance period, the institution should take into account the contractual term of the transaction that generates the segregation requirement, and whether and when the asset can be re-hypothecated by the institution. If the transaction does not have a specified term to maturity and the institution cannot determine the early possible time of the asset’s re-hypothecation, report that asset under the encumbrance period of “12 months or more”; (Ref: NSFR FAQ 23)  if an asset is collateralised by the reporting institution in a secured funding transaction (e.g. repo transaction) that has a remaining term to maturity longer than that of the collateral, the collateral should be considered “encumbered” throughout the transaction’s remaining term to maturity; 23 (Ref: NSFR FAQ 4)  if the reporting institution has used a common pool of assets to secure more than one funding transaction, the institution should, to the extent practicable, identify which asset in the pool is used to secure which specific transaction taking into account the relevant contractual specifications. If this is not practically feasible, the institution may adopt the following assumptions:

the funding carrying the highest ASF factor would be secured first;
the asset in the collateral pool carrying the highest RSF factor would be

23 For example, if the institution has collateralised an issue of securities having a remaining term to maturity of 3 months to secure a funding transaction where the borrowed fund has a remaining term to maturity of 12 months, the institution should treat the collateralised securities as encumbered for a period of 12 months.

MA(BS)26/P.34 (06/2021) used to cover a funding first.

MA(BS)26/P.35 (06/2021)
Annex 4
Interdependent assets and liabilities

This Annex must be completed by a category 1 institution that has been permitted by
the HKMA to specify a pair of asset and liability as “interdependent” under rule 70(1). To avoid doubt, certificates of indebtedness held and legal tender notes issued by noteissuing banks do not need to be covered by this Annex.
A pair of interdependent asset and liability should be reported under the same item
number in this Annex.
Provide the information specified in this Annex, including –
 the type of the interdependent asset and liability; 24  the value of the asset and liability; and  the date of the Monetary Authority’s permission given to the institution with respect to the specified pair of asset and liability.

24 For example, if the reporting institution has been permitted to treat a pair of asset and liability and as “interdependent”, where the asset and liability would have been covered by a specified RSF item and ASF item respectively, the institution should report the RSF item number under the column of “type of asset” in
Table 1 and the ASF item number under the column of “type of liability” in Table 2.

Enclosure 2 - Return of Leverage Ratio

LR /
Co. No. M M Y Y CAT.
(For Official Use Only)

Delete which is not appropriate. Combined and consolidated returns are defined in the completion instructions.
Name of Authorized Institution Date of Submission We certify that this return is, to the best of our knowledge and belief, correct. Chief Accountant Name Name and telephone number of responsible person who may be contacted by the Monetary Authority in case of any query Name MA(BS)27 (Rev. 06/2021) The Banking Ordinance Chief Executive Name Telephone Number SECRET Information required under the Banking Ordinance RETURN OF LEVERAGE RATIO *COMBINED / CONSOLIDATED RETURN As at ______________________ The Monetary Authority requires the submitting Authorized Institution to provide the information specified in this return to the Monetary Authority, in the form set out in the return, in accordance with section 63(2) of the Banking Ordinance. The information, in the form of the duly completed return, must be submitted to the Monetary Authority:
(a) in the case of a combined return or consolidated return – within 6 weeks after the end of each quarter unless otherwise advised by the Monetary Authority; and (b) if the submission deadline falls on a public holiday, it will be deferred to the next working day. This return must be completed in accordance with the completion instructions issued by the Monetary Authority to ensure that all requisite information is provided and submitted in the required form.

Return of Leverage Ratio
Section 1: Exposure Measure
(1) On-balance Sheet Exposures
(a)
(2) Derivative Exposures
(a)
(i) of which: replacement cost associated with the offering of client clearing services (b) (i) of which: potential future exposure associated with the offering of client clearing services (c) (d) (e) (f) (g) (3) Securities Financing Transaction (SFT) Exposures (a) (b) (c) (d) (4) CCF (%) (a) 10 (b) 20 (c) 50 (d) 100 (5)
Section 2: Calculation of the Leverage Ratio
(6) Exposure Measure for the calculation of the Leverage Ratio (A) (7) Tier 1 Capital After Deductions (B) (8) LEVERAGE RATIO [((B) / (A)) * 100%] (C) 0 Item Nature of Item Column 1 (HK$ '000) Column 2 (HK$ '000) Column 4 (HK$ '000) 0.0000% 0 Collective provisions and specific provisions that are allowed to be excluded from Exposure Measure 0 Less : Regulatory adjustments Replacement cost associated with all derivative contracts Add-on amounts for potential future exposure associated with all derivative contracts Gross-up for collateral provided in respect of derivative contracts Adjusted effective notional amount of written credit-related derivative contracts Exposures with a 100% CCF for the calculation of Leverage Ratio Counterparty credit risk exposure for SFT assets Agent transaction exposures Exposures with a 10% CCF for the calculation of Leverage Ratio Exposures with a 20% CCF for the calculation of Leverage Ratio Exposures with a 50% CCF for the calculation of Leverage Ratio Less : Permitted reductions in effective notional amount and permitted deductions from add-on amounts for potential future exposure of written credit -related derivative contracts Less : Receivables in respect of cash variation margin provided in derivative contracts Less : Exempted CCP legs of client-cleared trade exposures Gross SFT assets, after adjusting for sales accounting transactions Less : Netted amounts of cash payables and cash receivables of gross SFT assets 0 Other Off-balance Sheet Exposures 0 Column 3 (HK$ '000) 0

Enclosure 3 - Completion Instructions - Return of Leverage Ratio

MA(BS)27/P.1 (06/2021)
Completion Instructions
Return of Leverage Ratio
Form MA(BS)27
Introduction

This return collects information on the leverage position of authorized institutions
incorporated in Hong Kong (AIs).
Section A : General Instructions
Definitions
Unless otherwise specified, terminology used in this return follows that of the
Banking (Capital) Rules (BCR)
1
. For ease of reference, most of the main terms are printed in bold italics on their first appearance in these instructions. Reporting institutions should refer to the BCR for definitions of these terms. Layout
This return comprises 2 sections:
(a) Section 1 collects information on the four broad categories of an AI’s exposures for which the calculation of exposure measure is required under the leverage ratio (LR) framework, viz., (i) on-balance sheet exposures, excluding those arising from derivative contracts or SFTs (other than collateral for derivative contracts or for SFTs recognised as an on-balance

1 This refers to the BCR as amended by the Banking (Capital) (Amendment) Rules 2020.

MA(BS)27/P.2 (06/2021) sheet asset under the applicable accounting standard); (ii) derivative contracts; (iii) SFTs; and (iv) other off-balance sheet exposures; and (b) Section 2 computes the LR of an AI based on the institution’s total exposure measure (as derived from Section 1) and Tier 1 capital calculated in accordance with the BCR (i.e. after regulatory adjustments and deductions).
4. There are four input columns in this return for reporting exposures. Column 1
collects the gross values of the four broad categories of the AI’s exposures, Columns 2 & 3 collects the values of the relevant breakdown items, where applicable, included in the calculation of the exposure measure for each of the four broad items, based on which the total exposure measure, and hence the LR, are calculated within Column 4. Basis of reporting
5. AIs should report the quarter-end value for each item in this return.
6. This return should be completed on a solo (or solo-consolidated) basis (i.e. the
Combined Return) and on a consolidated basis (i.e. the Consolidated Return) as specified by the HKMA under section 3Z of the BCR (i.e. corresponding to the bases in which the AI is required to report under the Return of Capital Adequacy Ratio (CAR Return) of an Authorized Institution Incorporated in Hong Kong (Form MA(BS)3)). Submission dates
7. This return should be submitted quarterly. Submissions should be made to the
HKMA not later than 6 weeks/ [1 month] 2 after the end of March, June, September

2
Please note that the submission deadline of this return will be changed from 6 weeks to “one month” starting from the reporting position of end-March 2022 to align with the same adjustment to submission deadline of the CAR Return and some other returns currently with a submission deadline of 6 weeks. Please refer to the HKMA’s letter of 16 November 2020 on “New Return of Consolidated Accounts and revised submission deadlines for selected returns” (https://www.hkma.gov.hk/media/eng/doc/key-

MA(BS)27/P.3 (06/2021) and December. If the submission deadline falls on a public holiday, it will be deferred to the next working day. Others
8. Amounts should be shown to the nearest thousand, in HK$ or HK$ equivalents in
the case of foreign currency items. The closing middle market T/T rates prevailing at the reporting date should be used for conversion purposes.
9. This return and its completion instructions (CIs) should be read in conjunction with
the BCR and the relevant supervisory policy/guidance on the capital adequacy (CAR) framework and the LR framework.
Section B : Calculation methodology
10. AIs should refer to the calculation methodology described in Annex 1 for
computing the value of each reporting item. For ease of reference, the following
table explains and links each of the reporting items in the return to the relevant
paragraphs of Annex 1.
Row Item
Explanation / reference to
Annex 1 (paragraph nos.)
Section 1: Exposure Measure
(1) in column 1
On-balance Sheet Exposures paragraphs 10.1(a), (b), (c) and (e) (1)(a) in column 2 Less: Regulatory adjustments paragraph 10.1(d)

information/guidelines-and-circular/2020/20201116e1.pdf) & Annex 5 to the letter (https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-andcircular/2020/20201116e1a5.pdf) for details.

MA(BS)27/P.4 (06/2021)
Row Item
Explanation / reference to
Annex 1 (paragraph nos.)
(2) in column 1
Derivative Exposures paragraph 10.2
Report the positive fair value of all derivative contracts (including those that are treated as off-balance sheet exposures under the applicable accounting standards) on a gross basis (without recognising any netting that would otherwise be permitted under accounting standards or any credit risk mitigation effects). (2)(a) in column 2 Replacement cost associated with all derivative contracts Replacement cost associated with all derivative contracts (paragraph 10.2(b) or 10.2(c)(i)), net of cash variation margin received (paragraph 10.2(i)(i)) and with, bilateral netting according to paragraphs 10.2(d) to (f). (2)(a)(i) in column 3 of which: replacement cost associated with the offering of client clearing services paragraphs 10.2(j) to (m) (2)(b) in column 2 Add-on amounts for potential future exposure associated with all derivative contracts paragraph 10.2(b) or 10.2(c)(ii) (2)(b)(i) in column 3 of which: potential future exposure associated with the offering of client clearing services paragraphs 10.2(j) to (m)

MA(BS)27/P.5 (06/2021)
Row Item
Explanation / reference to
Annex 1 (paragraph nos.)
(2)(c) in column 2
Gross-up for collateral provided in respect of derivative contracts paragraph 10.2(g)(ii) (2)(d) in column 2 Adjusted effective notional amount of written creditrelated derivative contracts paragraph 10.2(o) (2)(e) in column 2 Less: Permitted reductions in effective notional amount and permitted deductions from add-on amounts for potential future exposure of written credit-related derivative contracts paragraphs 10.2(o) to (q) (2)(f) in column 2 Less: Receivables in respect of cash variation margin provided in derivative contracts paragraph 10.2(i)(ii) (2)(g) in column 2 Less: Exempted CCP legs of client-cleared trade exposures paragraphs 10.2(j) to (m) (3) in column 1 Securities Financing Transaction (SFT) Exposures Report the gross value of SFTs (without recognising any netting of (cash) payables against (cash) receivables that would otherwise be permitted under accounting standards or any credit risk mitigation effects).

MA(BS)27/P.6 (06/2021)
Row Item
Explanation / reference to
Annex 1 (paragraph nos.)
(3)(a) in column 2
Gross SFT assets, after adjusting for sales accounting transactions Gross SFT assets with no recognition of any netting other than novation with QCCPs as set out in footnote 19, removing certain securities received as determined by the first bullet in paragraph 10.3(b)(iii) and adjusting for any sales accounting transactions as determined by paragraph 10.3(b)(v). (3)(b) in column 2 Less: Netted amounts of cash payables and cash receivables of gross SFT assets The second bullet in paragraph 10.3(b)(iii) (3)(c) in column 2 Counterparty credit risk exposure for SFT assets paragraphs 10.3(b)(i),(ii) and (iv) (3)(d) in column 2 Agent transaction exposures paragraph 10.3(c) (4) in column 4 Other Off-balance Sheet Exposures An auto-calculation row representing the credit equivalent amount of the institution’s offbalance sheet exposures. (4)(a) in column 1 Exposures with a 10% CCF for the calculation of Leverage Ratio paragraph 10.4 (4)(b) in column 1 Exposures with a 20% CCF for the calculation of Leverage Ratio paragraph 10.4 (4)(c) in column 1 Exposures with a 50% CCF for the calculation of Leverage Ratio paragraph 10.4

MA(BS)27/P.7 (06/2021)
Row Item
Explanation / reference to
Annex 1 (paragraph nos.)
(4)(d) in column 1
Exposures with a 100% CCF for the calculation of Leverage Ratio paragraph 10.4 (5) in Column 4 Collective provisions and specific provisions that are allowed to be excluded from Exposure Measure paragraphs 6.1 and 10.4(c)
Section 2 – Calculation of the Leverage Ratio
(6) Exposure Measure for the calculation of the Leverage Ratio An auto-calculation row representing the institution’s exposure measure, being the sum of items (1), (2), (3) and (4) minus item (5) in column 4. (7) Tier 1 Capital After Deductions paragraph 2 The amount reported in this row must be consistent with the figure reported for item (E) in column 2 of
Part II of MA(BS)3.
(8) Leverage Ratio An auto-calculation row representing the institution’s LR at the quarter-end. Hong Kong Monetary Authority June 2021

MA(BS)27/P.8 (06/2021)
Annex
Leverage Ratio Calculation Methodology
(A) Definition of Leverage Ratio
 The leverage ratio (LR) is defined as the ratio, expressed as a percentage, of the Tier 1 capital of an authorised institution (AI) to its exposure measure. (B) Tier 1 Capital  The Tier 1 capital is calculated according to Part 3 of the Banking (Capital) Rules (BCR), meaning that it should be net of any applicable regulatory deductions. (C) Exposure Measure Scope of consolidation  When calculated on a consolidated basis, the exposure measure should cover exposures of group entities that are inside the scope of regulatory consolidation 3 . In other words, the LR framework follows the same scope of regulatory consolidation as the risk-based capital framework.  In determining the exposure measure in respect of an AI’s investment in other entities (investees), in cases where the investee is a financial sector entity or a commercial entity that is outside the scope of regulatory consolidation (in other words the investee is not included in an AI’s consolidation group pursuant to a
section 3C requirement under the BCR), only the AI’s investment in the capital
of the investee (i.e. only the carrying value of the AI’s investment and not the investee’s underlying assets and other exposures) must be included in the exposure measure of the AI.

3 This covers an AI and its subsidiaries that are required to be consolidated under a section 3C requirement in the BCR.

MA(BS)27/P.9 (06/2021)
 However, investments in the capital of investees which are deducted from the Tier 1 capital of the AI may be excluded from the exposure measure of the AI. The AI’s investment in the entity may be excluded from the exposure measure of the AI to the same extent that it is deducted from the capital of the AI under
section 43(1)(p) of the BCR in cases where the investee is a financial sector
entity, or section 43(1)(n) in cases where the investee is a commercial entity that is a connected company of the AI. General measurement principles in respect of the exposure measure  An AI should generally follow the gross accounting value for the purposes of calculating the exposure measure for the LR, subject to the following:
6.1 on-balance sheet, non-derivative exposures are to be included in the
exposure measure, net of any accounting valuation adjustments (e.g. accounting credit valuation adjustments) and the following (to the extent that they have reduced / are deducted from Tier 1 capital): (i) specific provisions, (ii) collective provisions, and (iii) prudent valuation adjustments (PVAs) for exposures to less liquid positions (other than those related to liabilities);
6.2 netting of loans and deposits is not allowed;
6.3 unless otherwise specified in this document, physical or financial
collateral, guarantees or other credit risk mitigation techniques must not be taken into account for reducing the exposure measure; and
6.4 exposures or assets deducted from Tier 1 capital may be deducted from
the exposure measure of the AI (e.g. for IRB portfolios, the shortfall of the stock of provisions to expected losses that is deducted from the CET1 capital of the AI under section 43(1)(i) of the BCR).  With regard to traditional securitization transactions, the originating institution of an eligible securitization transaction may exclude the underlying exposures of the transaction from its exposure measure. Such institutions must

MA(BS)27/P.10 (06/2021) however include any retained securitization exposures in its exposure measure. For any non-eligible securitization transaction, the underlying exposures of the transaction must be included in the exposure measure of the institution.  For the purposes of LR, any long settlement transaction (LST) or failed trade has to be treated according to their accounting classification. For example, if a LST is classified as a derivative according to applicable accounting standards, the exposure measure has to be calculated according to paragraph 10.2. Similarly, if a failed trade is classified as a receivable and reported on-balance sheet according to the applicable accounting standards, the exposure measure has to be calculated according to paragraph 10.1. For SFTs that have failed to settle, their exposure measure must be calculated according to paragraph 10.3. [BCBS FAQ section 6 Q1] 4 Total exposure measure  An AI’s total exposure measure is the sum of the following four categories of exposures, each as determined by the standard calculation methodology set out in this Annex:
9.1 on-balance sheet exposures, excluding those arising from paragraphs 9.2
and 9.3 below;
9.2 exposures arising from derivative contracts (derivative exposures),
other than collateral recognised as on-balance sheet asset under the applicable accounting standard;
9.3 exposures arising from SFTs (SFT exposures), other than collateral
recognised as on-balance sheet asset under the applicable accounting standard; and

4 Unless otherwise stated, all references in these CIs are to the frequently asked questions on the Basel III leverage ratio framework, which will be updated to the corresponding references to the Consolidated Basel Framework upon implementation of the 2017 Basel III Final Package (please see https://www.bis.org/basel_framework/standard/LEV.htm).

MA(BS)27/P.11 (06/2021)
9.4 other off-balance sheet exposures.
 The methods for calculating the exposure measure in respect of the above four exposure categories are described in greater detail below:
10.1 On-balance sheet exposures
(a) For the purpose of calculating an AI’s exposure measure, the onbalance sheet exposures of an AI must include all on-balance sheet assets 5 . This includes on-balance sheet derivatives collateral and collateral for SFTs (i.e. which is recognised as an on-balance sheet asset under the applicable accounting standard), with the exception of on-balance sheet derivatives and SFT assets as described under separate sections below. (b) Liability items (e.g. gains/losses on fair-valued liabilities or debit valuation adjustments on derivative liabilities due to changes in the AI’s own credit risk as described in sections 38(2)(b) and 43(1)(h) respectively of the BCR) must not be deducted from the exposure measure of an AI. (c) Where an AI is a note-issuing bank (which has the meaning assigned to it by section 2 of the Legal Tender Notes Issue Ordinance (Chapter 65 of the Laws of Hong Kong)), the AI’s onbalance sheet exposure shall not include, for the purpose of calculating the exposure measure, any certificates of indebtedness issued by the Financial Secretary pursuant to section 4 of the Exchange Fund Ordinance (Chapter 66 of the Laws of Hong Kong) to, and held by, the AI.

5 Where an AI according to its operative accounting framework recognises fiduciary assets on the balance sheet, such assets can be excluded from the exposure measure provided that they meet the IAS 39 / HKAS 39 (or IFRS 9 / HKFRS 9 on or after 1 January 2018) criteria for derecognition and, where applicable, IFRS 10 / HKFRS 10 for deconsolidation. Where an AI leases a tangible asset, the related right-of-use asset being recognised on its balance sheet must be included in the exposure measure.

MA(BS)27/P.12 (06/2021)
(d) Subject to the exceptions described in paragraph (b) above, items deducted from Tier 1 capital (as set out in sections 38(2)(a), (c), (d) and (e), 43 and 47 of the BCR) may be deducted from the exposure measure. 6 (e) The following treatment applies in the case of “cash pooling” (i.e. arrangements involving treasury products whereby an AI combines the credit and/or debit balances of several individual participating customer accounts into a single account balance to facilitate cash and/or liquidity management): [BCBS FAQ section 1.1 Q1] (i) when such arrangement entails a transfer at least on a daily basis of the credit and/or debit balances of the individual participating customer accounts into a single account balance, the individual participating customer accounts are deemed to be extinguished and transformed into a single account balance upon the transfer provided the institution is not liable for the balances on an individual basis upon the transfer. Thus, the basis of the exposure measure for such a cash pooling arrangement is the single account balance and not the individual participating customer accounts. (ii) when the transfer of credit and/or debit balances of the individual participating customer account does not occur daily, extinguishment and transformation into a single account balance is deemed to occur and such balance may serve as the basis of the exposure measure provided all of the following conditions are met:
(A) in addition to providing for the several individual

6 Where applicable, the deductions should include any shares issued by the AI by virtue of capitalizing property revaluation reserves that have been excluded from the institution’s CET1 capital under section 38(1)(a) of the BCR.

MA(BS)27/P.13 (06/2021) participating customer accounts, the cash pooling arrangement provides for a single account, into which the balances of all individual participating customer accounts can be transferred and thus extinguished; (B) the AI not only has a legally enforceable right to transfer the balances of the individual participating customer accounts into a single account so that the institution is not liable for the balances on an individual basis, but also has the discretion and be in a position to exercise this right at any point in time; (C) the frequency by which the AI transfers the balances of individual participating customer accounts into a single account is not considered inadequate by the HKMA; (D) there are no maturity mismatches among the balances of the individual participating customer accounts included in the cash pooling arrangement or all balances are either overnight or on demand; and (E) the institution charges or pays interest and/or fees based on the combined balance of the individual participating customer accounts included in the cash pooling arrangement. (iii) in case the conditions mentioned in sub-paragraph (ii) above are not fully met, the individual balances of the participating customer accounts must be reflected separately in the exposure measure.

MA(BS)27/P.14 (06/2021)
10.2 Derivative exposures
The exposure measure for a derivative contract consists of two components: (i) exposure arising from the underlying reference obligation of the derivative contract and (ii) counterparty default risk exposure. (a) The exposure measure for the counterparty default risk in respect of a derivative contract in turn consists of: (i) the replacement cost (RC) 7 and (ii) the potential future exposure (PFE) of the contract (as described in paragraphs (b) and (c) below), and is calculated based on the formula below:
Depending on the approach it is required to use for calculating its default risk exposures for CAR purposes under the BCR (i.e. current exposure method (CEM), SA-CCR approach, IMM(CCR) approach), an AI is required to use either (i) the modified CEM (as described in paragraph (b) below) or (ii) the modified SA-CCR approach (as described in paragraph (c) below) to calculate the exposure measure of its counterparty default risk exposures for LR purposes as set out in the following table:
Approach used for CAR purposes
Approach used for LR purposes
CEM Modified CEM
SA-CCR / IMM(CCR) Modified SA-CCR

7
Where there is no accounting measure of exposure for certain derivative instruments because they are held (completely) off-balance sheet, an AI must use the sum of positive fair values of these derivatives as the RC. Exposure Measure = 1.4 * (RC + PFE)

MA(BS)27/P.15 (06/2021)
Basic formula (applicable for AIs adopting modified CEM) (b) AIs must calculate the RC of a derivative contract as the current exposure of the contract and calculate the PFE of the contract by multiplying the notional amount of the contract and its applicable credit conversion factor (CCF) (i.e. Table 23AI under section 226MD of the BCR). The RC in relation to the contract must be calculated and adjusted for collateral received or provided as set out in paragraphs (g) to (i) below. Treatment of derivative exposures arising out of contracts cleared through central counterparties (CCPs) is described in paragraphs (j) to (m) below. Written credit-related derivative contracts are subject to additional requirements as set out in paragraphs (n) to (q) below. Basic formula (applicable for AIs adopting modified SA-CCR approach) (c) AIs must calculate the RC and the PFE of a derivative contract in accordance with sub-paragraphs (c)(i) & (ii) below). The exposure measure in relation to the contract must then be calculated and adjusted for collateral received or provided as set out in paragraphs (g) to (i) below. For derivative contracts not covered by a qualifying bilateral netting agreement 8 , the amount to be included in the exposure measure is determined for each contract separately. When a qualifying bilateral netting agreement is in place, the formula above (paragraph 10.2(a)) is applied at the netting set level. Treatment of derivative exposures arising out of contracts cleared through CCPs is described in paragraphs (j) to (m) below. Written credit-related derivative contracts are subject to additional requirements as set out in paragraphs (n) to (q) below:

8 Please refer to sub-paragraph 10.2(h)(v).

MA(BS)27/P.16 (06/2021)
RC
(i) RC is measured based on the following formula:
where
 V is the market value of the derivative contract or of the derivative contracts in a netting set;  CVMr is the cash portion of the variation margin (cash variation margin) received that meets the conditions set out in paragraphs (h) and (i), and for which the amount has not already reduced the market value of the derivative contract V under the AI’s operative accounting standard; and  CVMp is the cash variation margin provided by the AI that meets the same conditions. PFE (ii) Same as SA-CCR approach for CAR purposes, the amount of PFE to be included in the exposure measure is calculated according to the formula below:
The manner in which the relevant methodology of SACCR approach described in Part 6A (Division 1A) of the BCR (i.e. subdivision 3 on “Classification of Derivative Contracts into Asset Classes and Further Classification into Hedging Sets”; subdivision 4 on “Calculation of PFE”; subdivision 5 on “Calculation of Add-on”; and RC = max (V – CVMr + CVMp, 0) PFE = multiplier x AddOn aggregate

MA(BS)27/P.17 (06/2021) subdivision 6 on “Calculation of Effective Notional Amount”) should be applied or adjusted for the calculation of the amount of PFE for LR purposes is set out in the following:
 For the purposes of LR framework, the multiplier is fixed at one (i.e. the calculation of multiplier prescribed under section 226BR(3) of the BCR is NOT applicable); and  when calculating the aggregate add-on component for all margined contracts, the maturity factor for the contracts may be determined in accordance with
section 226BZE of the BCR.
Bilateral netting
(d) AIs may net transactions subject to novation under which any obligation between an AI and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations. (e) AIs may also net transactions subject to any legally valid form of bilateral netting not covered in paragraph (d) above, including other forms of novation. (f) For cases described in paragraphs (d) and (e) above, an AI will need to be satisfied that the agreement is a qualifying bilateral netting agreement (as defined in sub-paragraph (h)(v)). Treatment of collateral (g) Subject to the treatment of cash variation margin as described in paragraphs (h) and (i) below, in calculating the exposure measure, the treatment of collateral described in the following applies regardless of whether the collateral is cash or non-cash; received

MA(BS)27/P.18 (06/2021) or provided under contracts covered by a qualifying bilateral netting agreement; or in connection with derivative contracts traded on an exchange or through a central counterparty:
(i) Collateral Received (cash or non-cash) by an AI must not be netted against its exposure measure irrespective of whether or not netting is permitted under the accounting rules or the BCR applicable to the AI. The AI must not reduce its exposure measure for a derivative contract by any collateral received from the counterparty. (ii) Collateral Provided (cash or non-cash) by an AI must not reduce its exposure measure. Where the provision of such collateral under the terms of a derivative contract has reduced the AI’s on-balance sheet assets under the applicable accounting standard, the AI must gross up its exposure measure by the amount of collateral provided. Treatment of cash variation margin (h) For the purpose of calculating the AI’s exposure measure, the cash variation margin exchanged between AI and its counterparties may be viewed as a form of pre-settlement payment and may be used to reduce the exposure measure if the following conditions are met:
(i) for trades not cleared through a qualifying central counterparty (QCCP), the cash received by the recipient counterparty is not segregated (i.e. if the recipient counterparty has no restrictions by law, regulation or any agreement with the counterparty on the ability to use the cash received. In other words, the cash variation margin received is used as its own cash). [BCBS FAQ section 2.5 Q5 & Q6] (ii) the cash variation margin is calculated and exchanged on a daily basis based on mark-to-market valuation of derivative

MA(BS)27/P.19 (06/2021) positions. To meet this criterion, derivative positions must be valued daily and cash variation margin must be transferred daily to the counterparty or the counterparty’s account, as appropriate. [BCBS FAQ section 2.3 Q3] Cash variation margin exchanged on the morning of the subsequent trading day based on the previous, end-of-day market values would meet this criterion. [BCBS FAQ section
2.4 Q4]
(iii) the cash variation margin is received in any currency of settlement specified in the derivative contract, governing master/ qualifying bilateral netting agreement, the credit support annex to the master/ qualifying bilateral netting agreement, or as defined by the netting agreement with a CCP. [BCBS FAQ section 2.1 Q1] (iv) variation margin exchanged is the full amount that would be necessary to extinguish the mark-to-market exposure of the derivative contract subject to the threshold and minimum transfer amounts applicable to the counterparty. 9 [BCBS FAQ section 2.4 Q4] (v) derivative contracts and the variation margins are covered by a single bilateral netting agreement between the legal entities that are counterparties in the derivative contracts. The bilateral netting agreement must explicitly stipulate that the counterparties agree to settle net any payment obligations covered by such a netting agreement, taking into account any variation margin received or provided, if a credit event occurs as to either counterparty. For the purpose of this paragraph, the term “bilateral netting agreement” includes any netting agreement or arrangement

9
In situations where a margin dispute arises, the amount of non-disputed variation margin that has been exchanged can be recognised.

MA(BS)27/P.20 (06/2021) that provides legally enforceable rights of offset 10 and a master bilateral netting agreement may be deemed to be a single bilateral netting agreement. The bilateral netting agreement must be legally enforceable and effective (i.e. it meets the conditions set out in the BCR) [BCBS FAQ section
2.2 Q2] in all relevant jurisdictions, including in the event of
default and bankruptcy or insolvency. Any bilateral netting agreement that can satisfy the conditions described in this paragraph is referred to as “qualifying bilateral netting agreement” for the purpose of these CIs. (i) Subject to the conditions outlined in paragraph (h) above, the cash variation margin received may be used to reduce the RC portion of the exposure measure, and the assets constituted by the receivable in respect of the cash variation margin provided may be deducted from the exposure measure as follows:
(i) in the case of cash variation margin received, the receiving AI may reduce the RC (but not the PFE) of the exposure amount of the derivative contract as specified in paragraph (b) or (c)(i) above, as the case requires; and (ii) in the case of cash variation margin provided to a counterparty, the posting AI may deduct the resulting receivable from its exposure measure, where the cash variation margin has been recognised as an asset under the accounting treatment applicable to the AI, and instead include the cash variation margin provided in the calculation of the RC as specified in paragraph (b) or (c)(i) above, as the case requires.

10 This is to take into account the fact that, for netting agreements employed by CCPs, no standardization has currently emerged that would be comparable with respect to over-the-counter netting agreements for bilateral trading.

MA(BS)27/P.21 (06/2021)
Treatment of clearing services
(j) Where an AI acting as clearing member (CM) offers clearing services to clearing clients, the AI’s trade exposures 11 to the CCP that arise when the AI is obligated to reimburse the clearing clients for any losses suffered due to changes in the value of its transactions in the event that the CCP defaults must be captured by applying the same treatment that applies to any other type of derivative contracts. However, if the AI, based on the contractual arrangements with the clearing client for derivative contracts cleared with a QCCP, is not obligated to reimburse the clearing client for any losses suffered due to changes in the value of its transactions in the event that the QCCP defaults, the AI need not recognise the resulting trade exposures to the QCCP in the exposure measure. Where an AI within a multi-level client structure associated with a QCCP provides clearing services to a clearing client within the structure, the AI need not recognise in its exposure measure the resulting trade exposures to the CM of the QCCP or to an entity within the structure that is a higher-level client (HLC) of the AI in the exposure measure if all of the following conditions are met:
(i) the offsetting transactions with the CM are identified by the QCCP as client transactions and collateral to support them is held by the QCCP and/or the CM, as applicable, under arrangements that prevent losses to the AI and the HLC due to the default or insolvency of: (a) the CM; (b) the CM’s other clearing clients; and (c) the joint default or insolvency

11
For the purposes of these instructions, “trade exposures” means an exposure to the counterparty default risk of a CCP, clearing member or clearing client. If the entity to which the AI has a trade exposure is a CCP, the AI’s trade exposures to the CCP includes initial margin irrespective of whether or not it is posted in a manner that makes it remote from the insolvency of the CCP.

MA(BS)27/P.22 (06/2021) of (a) and (b) 12;
(ii) the AI must have conducted a sufficient legal review (and undertake such further review as necessary to ensure continuing enforceability) and have a well-founded basis to conclude that, in the event of legal challenge, the relevant courts and administrative authorities would find that such arrangements mentioned above would be legal, valid, binding and enforceable under relevant laws of the relevant jurisdiction(s); (iii) relevant laws, regulation, rules and contractual or administrative arrangements provide that the offsetting transactions with the defaulted or insolvent CM are highly likely to continue to be indirectly transacted through the QCCP, or by the QCCP, if the CM defaults or becomes insolvent 13. In such circumstances, the AI’s and the HLC’s positions and collateral with the QCCP will be transferred at market value unless the AI or the HLC requests to close out the position at market value; and (iv) the AI is not obliged to reimburse its clearing client for any losses suffered in the event of default of either the CM or the QCCP. (k) Pursuant to paragraph (j) above, for derivative exposures associated with the AI’s offering of client clearing services, the RC and the PFE of the exposure to the direct client (or the exposure to the “lower level client” in the case of multi-level client

12
That is, upon the insolvency of the CM, there is no legal impediment (other than the need to obtain a court order to which the client is entitled) to the transfer of the collateral belonging to clearing clients of a defaulting CM to the QCCP, to one of more other surviving CMs or to the clearing client or the clearing client’s nominee. 13 If there is a clear precedent for transactions being ported at a QCCP and industry intent for this practice to continue, then these factors must be considered when assessing if trades are highly likely to be ported. The fact that QCCP documentation does not prohibit client trades from being ported is not a sufficient consideration that they are highly likely to be ported.

MA(BS)27/P.23 (06/2021) structure) may be calculated according to the SA-CCR approach (or the CEM if the AI also uses the CEM for the purpose of calculating CAR). For the determination of RC and PFE, the amount of initial margin received by the AI from its clearing client that may be included in the values of collateral and net amount of independent collateral (NICA) calculated under section 226BJ(3) of the BCR should be limited to the amount that is subject to appropriate segregation by the AI as defined in the relevant jurisdiction. (l) Where an AI’s clearing client enters directly into a derivative contract with the CCP and the AI as a CM merely guarantees the performance of the clearing client’s trade exposure to the CCP in respect of the derivative contract, the AI must calculate its related exposure measure resulting from the guarantee as a derivative exposure as set out in paragraphs (a) to (i) above, as if it had entered directly into the contract with the clearing client, including with regard to the receipt or provision of cash variation margin. (m) For the purposes of paragraphs (j) to (l) above, if an AI is a CM, an entity affiliated to the AI may be considered a clearing client of the AI if it is outside the relevant scope of regulatory consolidation at the level at which the LR is applied. In contrast, if an affiliate entity falls within the regulatory scope of consolidation, the trade between the affiliate entity and the AI is eliminated in the course of consolidation, but the AI still has a trade exposure to the CCP, which will be considered proprietary and the exemption in paragraph (j) no longer applies. [BCBS FAQ section 2.7 Q8] Written credit-related derivative contracts (n) In addition to the counterparty default risk exposure arising from the fair value of the contracts, written credit-related derivative contracts create a notional credit exposure arising from the creditworthiness of the reference entity that has to be incorporated

MA(BS)27/P.24 (06/2021) into the exposure measure 14 in addition to the above treatments for derivative contracts, netting and collateral. (o) To capture the credit exposure to the underlying reference entity, in addition to the above treatment for derivative contracts and related collateral, the effective notional amount of a written creditrelated derivative contract is incorporated into the exposure measure unless the written credit-related derivative contract is included in a transaction cleared on behalf of a clearing client of an AI acting as a CM (or acting as a clearing services provider in a multi-level client structure in paragraph (j) above) and the transaction meets the requirements of paragraph (j) above for the exclusion of trade exposures to the QCCP (or, in the case of a multi-level client structure, the requirements of paragraph (j) for the exclusion of trade exposures to the CM or the QCCP). The “effective notional amount” is obtained by adjusting the notional amount to reflect the true exposure of contracts that are leveraged or otherwise enhanced by the structure of the transaction. The effective notional amount of a written credit-related derivative contract may be reduced by any negative change in fair value amount that has been incorporated into the calculation of Tier 1 capital with respect to the written credit-related derivative contract. 15 The resulting amount may be further reduced by the

14 This is so even if certain written options are permitted the zero exposure at default treatment allowed in the BCR. 15 For example, if a written credit-related derivative contract had a positive fair value of 20 on one date and has a negative fair value of 10 on a subsequent reporting date, the effective notional amount of the credit-related derivative contract may be reduced by 10. The effective notional amount cannot be reduced by 30. However, if at the subsequent reporting date the credit-related derivative contract has a positive value of 5, the effective notional amount cannot be reduced at all. This treatment is consistent with the rationale that the effective notional amounts included in the exposure measure may be capped at the level of the maximum potential loss, which means that the maximum potential loss at the reporting date is the notional amount of the credit-related derivative contract minus any negative fair value that has already reduced Tier 1 capital. [BCBS FAQ section 3.1 Q1]

MA(BS)27/P.25 (06/2021) effective notional amount of a purchased credit-related derivative contract on the same reference name, 16 provided that:
(i) the credit protection obtained through the purchased creditrelated derivative contract is otherwise subject to the same or more conservative material terms as those in the corresponding written credit-related derivative contract. This ensures that if an AI provides written protection via some type of credit-related derivative contract, the AI may only recognise offsetting from another purchased creditrelated derivative contract to the extent that the purchased protection is certain to deliver a payment in all potential future states. Material terms include the level of subordination, optionality credit events, reference and any other characteristics relevant to the valuation of the derivative contract; 17 (ii) the remaining maturity of the credit protection obtained through the purchased credit-related derivative contract is equal to or greater than the remaining maturity of the written credit-related derivative contract; (iii) the credit protection obtained through the purchased creditrelated derivative contract is not purchased from a

16 An AI may offset the effective notional amount of a written credit-related derivative contract sold to a clearing client by means of a credit-related derivative contract on the same underlying name purchased from a CCP provided that the criteria of this paragraph are met. [BCBS FAQ section 3.5 Q5] 17 For example, the application of the same material terms condition would result in the following treatments. First, in the case of single name credit-related derivative contracts, the credit protection purchased through the credit-related derivative contracts is on a reference obligation which ranks pari passu with or is junior to the underlying reference obligation of the written credit-related derivative contract. Credit protection purchased through credit-related derivative contracts that references a subordinated position may offset written credit-related derivative contracts on a more senior position of the same reference entity as long as a credit event on the senior reference asset would result in a credit event on the subordinated reference asset. Second, for tranched products, the credit protection purchased through credit-related derivative contracts must be on a reference obligation with the same level of seniority.

MA(BS)27/P.26 (06/2021) counterparty whose credit quality is highly correlated with the value of the reference obligation 18; (iv) in the event that the effective notional amount of written credit-related derivative contract is reduced by any negative change in fair value reflected in the AI’s Tier 1 capital, the effective notional amount of the offsetting credit protection obtained through the purchased credit-related derivative contract must also be reduced by any resulting positive change in fair value reflected in Tier 1 capital; and (v) the credit protection obtained through the purchased creditrelated derivative contract is not included in a transaction that has been cleared on behalf of a clearing client (or that has been cleared by the AI in its role as a clearing services provider in a multi-level client structure as referenced in paragraph (j)) and for which the effective notional amount referenced by the corresponding written credit-related derivative contract is excluded from the exposure measure according to this paragraph. (p) For the purposes of paragraphs (n) and (o) above:
(i) the term “written credit-related derivative contract” refers to a broad range of credit-related derivative contract through which an AI effectively provides credit protection and is not limited solely to credit default swaps and total return swaps. [BCBS FAQ section 3.2 Q2] For example, all options where an AI has the obligation to provide credit protection under certain conditions qualify as “written credit-related derivative contracts”. The effective notional amount of

18 Specifically, the credit quality of the counterparty must not be positively correlated with the value of the reference obligation (i.e. the credit quality of the counterparty falls when the value of the reference obligation falls and the value of the purchased credit-related derivative contract increases). In making this determination, there does not need to exist a legal connection between the counterparty and the underlying reference entity.

MA(BS)27/P.27 (06/2021) such options sold by the AI may be offset by the effective notional amount of options by which the AI has the right to purchase credit protection which fulfils the conditions in paragraph (o); and the condition of same or more conservative material terms as those in the corresponding written credit-related derivative contracts as referenced in paragraph (o) can be considered met only when the strike price of the underlying purchased credit protection is equal to or lower than the strike price of the underlying sold credit protection. (ii) two reference names are considered identical only if they refer to the same legal entity. Credit protection on a pool of reference names purchased through credit-related derivative contracts may offset credit protection sold on individual reference names if the credit protection purchased is economically equivalent to purchasing credit protection separately on each of the individual names in the pool (this would, for example, be the case if an AI were to purchase credit protection on an entire securitization structure). If an AI purchases credit protection on a pool of reference names through credit-related derivative contracts, but the credit protection purchased does not cover the entire pool (i.e. the protection covers only a subset of the pool, as in the case of an nth-to-default credit-related derivative contract or a securitization tranche), then the written credit-related derivative contracts on the individual reference names may not be offset. However, such purchased credit protection may offset written credit-related derivative contracts on a pool provided that the credit protection purchased through credit-related derivative contracts covers the entirety of the subset of the pool on which the credit protection has been sold. [BCBS FAQ section 3.4 Q4]. Credit protection purchased through a credit-related derivative contract on a pool of reference assets cannot offset a written credit-related derivative contract unless both contracts reference the same

MA(BS)27/P.28 (06/2021) pool of reference assets and the level of subordination of both contracts is identical. (iii) where the effective notional amount of the purchased creditrelated derivative contract has not been reduced by any resulting positive change in fair value reflected in Tier 1 capital, the effective notional amount of the written creditrelated derivative contract may only be offset if the effective notional amount of that written credit-related derivative contract has not been reduced by any negative change in fair value reflected in Tier 1 capital. [BCBS FAQ section 3.3 Q3] Also, the effective notional amount of a written creditrelated derivative contract may be reduced by any negative change in fair value reflected in the AI’s Tier 1 capital provided the effective notional amount of the offsetting purchased credit protection is also reduced by any resulting positive change in fair value reflected in Tier 1 capital. (iv) where an AI buys credit protection through a total return swap and records the net payments received as net income, but does not record offsetting deterioration in the value of the written credit-related derivative contract (either through reductions in fair value or by an addition to reserves) in Tier 1 capital, the credit protection will not be recognised for the purpose of offsetting the effective notional amounts related to written credit-related derivative contracts. (q) Since written credit-related derivative contracts are included in the exposure measure at their effective notional amounts, and are also subject to amounts for PFE, the exposure measure for written credit-related derivative contracts may be overstated. AIs may therefore choose to exclude from the netting set for the PFE calculation the portion of a written credit-related derivative contract which is not offset according to paragraph (o) and for which the effective notional amount is included in the exposure

MA(BS)27/P.29 (06/2021) measure. This condition of exclusion refers only to the offset by credit protection purchased through a credit-related derivative contract according to paragraph (o) and not to the reduction of the effective notional amount as a result of the negative change in fair value that has reduced Tier 1 capital.
10.3 SFT exposures
(a) The exposure measure calculations for SFTs distinguish between:
(i) situations where an AI is acting as principal; and (ii) situations where an AI is acting as agent and provides an indemnity or guarantee to one or both counterparties to the SFTs. (b) AI acting as principal Basic Formula (i) Where a valid bilateral netting agreement (see paragraphs 1 and 2 of Appendix A) is in place, the exposure measure is calculated according to the formula below:

where an AI is acting as principal on an SFT (or a
portfolio of SFTs), the exposure measure is the sum of:
Exposure Measure =
Gross SFT Assets + max {0, [Σ(Ei) –Σ(Ci)]}

MA(BS)27/P.30 (06/2021)

the AI’s gross SFT assets 19 recognised for
accounting purposes (i.e. no recognition of accounting netting); 20 and
a measure of counterparty default risk calculated as
the current exposure (i.e. without PFE) in respect of the SFT (i.e. the current exposure (E * ) calculated as the greater of zero and the fair value of securities and cash lent to a counterparty for all transactions included in the valid bilateral netting agreement (ΣEi) less the total fair value of securities and cash received from the counterparty for those transactions (ΣCi)). (ii) Where no valid bilateral netting is in place, the current exposure (Ei * ) for transactions with a counterparty must be calculated on a transaction-by-transaction basis - that is, each transaction (i) is treated as its own netting set, as calculated in the formula below:
The current exposure (Ei
*) may be set to zero if –
(A) Ei is the cash lent to the counterparty;

19 For SFT assets subject to novation and cleared through QCCPs, “gross SFT assets recognised for accounting purposes” is replaced by the final contractual exposure, i.e. the exposure to the QCCP after the process of novation has been applied, given that pre-existing contracts have been replaced by new legal obligations through the novation process. However, AIs can only net cash receivables and cash payables with a QCCP if the criteria in paragraph 10.3(b)(iii) are met. Any other netting permitted by the QCCP is not permitted for the purposes of the LR. [BCBS FAQ section 4.1 Q3] 20 Gross SFT assets recognised for accounting purposes must not recognise any accounting netting of cash payables against cash receivables (e.g. as currently permitted under the IFRS and US GAAP accounting frameworks). This regulatory treatment has the benefit of avoiding inconsistencies from netting which may arise across different accounting regimes. Ei* = max [0, (Ei –Ci)]

MA(BS)27/P.31 (06/2021)
(B) the SFT is treated as its own netting set; and (C) the associated cash receivable is not eligible for the netting treatment in paragraph 10.3(b)(iii) below. (iii) the gross SFT assets as mentioned in sub-paragraph (i) above may be adjusted as follows:

exclude the value of any securities received under a
SFT, where the AI has recognised the securities as an asset on its balance sheet 21, and
cash payables and cash receivables in SFTs with the
same counterparty may be measured net if all the following criteria are met:
(A) transactions have the same explicit final settlement date; in particular, transactions with no explicit end date but which can be unwound at any time by either party to the transaction are not eligible; [BCBS FAQ section 4.1 Q2] (B) the right to set off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable both currently in the normal course of business and in the event of the counterparty’s (i) default; (ii) insolvency; or (iii) bankruptcy; and [BCBS FAQ
section 4.1 Q4]

21 This may apply where securities received under a SFT may be recognised as assets if the recipient has the right to rehypothecate but has not done so under the applicable accounting standards.

MA(BS)27/P.32 (06/2021)
(C) the counterparties intend to settle net, settle simultaneously, or the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement, that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date. To achieve such equivalence, both transactions are settled through the same settlement system and the settlement arrangements are supported by cash and/or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day, and any issues arising from the securities legs of the SFTs do not interfere with the completion of the net settlement of the cash receivables and payables. In particular, this latter condition means that the failure of any single securities transaction in the settlement mechanism may delay settlement of only the matching cash leg or create an obligation to the settlement mechanism, supported by an associated credit facility. [BCBS FAQ section 4.1 Q1] If there is a failure of the securities leg of a transaction in such a mechanism at the end of the window for settlement in the settlement mechanism, then this transaction and its matching cash leg must be split out from the netting set and treated gross. 22 [BCBS FAQ section 4.1 Q1]

22 Specifically, the criteria in paragraph 10.3(b)(iii)(C) above are not intended to preclude a DVP settlement mechanism or other type of settlement mechanism, provided that the settlement mechanism meets the functional requirements set out in that paragraph. For example, a settlement mechanism may meet these functional requirements if any failed transactions (i.e. the securities that failed to transfer and the related cash receivable or payable) can be re-entered in the settlement mechanism until they are settled. [BCBS FAQ section 4.1 Q1]

MA(BS)27/P.33 (06/2021)
(iv) for the measurement of counterparty default risk, the term “counterparty” includes not only the counterparty of the bilateral repo transactions but also triparty repo agents that receive collateral in deposit and manage the collateral in the case of triparty repo transactions. Therefore, securities deposited at triparty repo agents are included in “total value of securities and cash lent to a counterparty” (E) up to the amount effectively lent to the counterparty in a repo transaction. However, excess collateral that has been deposited at triparty agents but that has not been lent out may be excluded. [BCBS FAQ section 4.2 Q5] Sale accounting transactions (v) leverage may remain with the lender of the security in an SFT whether or not sale accounting is achieved under the accounting framework. As such, where sale accounting is achieved for an SFT under the AI’s accounting framework, the AI must first reverse all sales-related accounting entries, and then calculate its exposure as if the SFT had been treated as a financing transaction under the accounting framework (i.e. in this last step, the AI must include the sum of amounts described in sub-paragraphs (b)(i) to (iv) above for such an SFT) for the purposes of determining its exposure measure. (c) AI acting as agent (i) if an AI acts as an agent in respect of an SFT (or a portfolio of SFTs) entered into by the AI’s customer and the AI provides an indemnity or guarantee to the customer for any difference between the value of the security or cash provided by the customer under the SFT (or SFTs) and the value of security or cash received by the customer, the AI will only be required to calculate its current exposure using the above

MA(BS)27/P.34 (06/2021) formula. 23
Exposure beyond indemnity / guarantee
(ii) if, however, an AI’s exposure in respect of an SFT goes beyond an indemnity or a guarantee for the difference in value between the assets provided and received and includes exposure to the underlying cash or securities in the SFT, 24 the AI will need to calculate its exposure measure as if it were acting as principal, i.e. by also including gross SFT assets recognised for accounting purposes. This would be the case where an AI manages collateral received in connection with an SFT for its own account rather than for the customer’s account. (iii) to avoid doubt, where an AI acting as agent provides an indemnity or guarantee to both parties involved in an SFT (i.e. securities lender and securities borrower), the AI will be required to calculate exposure measure separately for each party involved in the SFT. [BCBS FAQ section 4.3 Q6]

23 Where an AI is acting as an agent in a SFT but does not provide an indemnity or guarantee to any of the involved parties, the AI is not exposed to the SFT and therefore need not recognise the SFT in its exposure measure. 24 For example, this may arise due to the bank managing collateral received in the bank’s name or on its own account rather than on the customer’s or borrower’s account (e.g. by on-lending or managing unsegregated collateral, cash or securities). However, this does not apply to client omnibus accounts that are used by agent lenders to hold and manage client collateral provided that client collateral is segregated from the bank’s proprietary assets and the AI calculates the exposure on a client-by-client basis. [BCBS FAQ section 4.3 Q7]

MA(BS)27/P.35 (06/2021)
10.4 Other off-balance sheet exposures
Basic Formula
(a) The credit equivalent amount of an off-balance sheet item is generally calculated by multiplying the principal amount of the off-balance sheet item by a specific CCF as set out below. 25 CCFs Off-balance sheet items 10%

Commitments that are unconditionally
cancellable at any time by the AI without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness
Undrawn qualified servicer cash advance
facilities for securitization transactions that meet the requirements set out in section 235(3) of the BCR 20%
Commitments (other than off-balance sheet
securitization exposures) with an original maturity up to one year
Trade-related contingency 26

25 These correspond to the CCFs of the standardized (credit risk) approach under the Basel II framework, subject to a floor of 10%. The floor of 10% will impact commitments that are unconditionally cancellable at any time by the AI without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness. These may receive a 0% CCF under the risk-based capital framework. 26 20% CCF applies to both issuing and confirming banks. Exposure Measure = Amount of Off-balance Sheet Item x applicable CCF

MA(BS)27/P.36 (06/2021)
CCFs Off-balance sheet items
50%

Commitments (other than off-balance sheet
securitization exposures) with an original maturity over one year
Transaction-related contingencies
Note issuance facilities and revolving
underwriting facilities
100%
Direct credit substitutes
Forward asset purchases, forward forward
deposits placed 27 and partly paid-up shares and securities, which represent commitments with certain drawdown
All off-balance sheet securitization exposures
other than undrawn qualified servicer cash advance facilities mentioned above that are eligible for a 10% CCF (b) Where there is an undertaking to provide a commitment on an offbalance sheet item, AIs are to apply the lower of the two applicable CCFs. (c) Specific and collective provisions set aside against off-balance sheet exposures that have decreased Tier 1 capital may be deducted from the credit equivalent amount of those exposures. However, the resulting total credit equivalent amount for offbalance sheet exposures cannot be less than zero.

27 The commitment to place or accept forward forward deposits under the LR framework must be treated consistently with the treatment of these commitments under the risk-based capital framework. Specifically, the commitment to place forward forward deposits is subject to a 100% CCF, while the commitment to accept forward forward deposits is treated as an interest rate contract. In addition, deliverable bond futures and over-the-counter equity forward purchases must be treated as derivative contracts. [BCBS FAQ section 7.1 Q1]

MA(BS)27/P.37 (06/2021)
SFT exposures

The eligibility criteria for determining what constitutes a valid bilateral netting
agreement follow those set out in the BCR.
Netting across positions in the banking book and trading book will only be
recognised when the SFTs fulfill the following conditions:
(a) all SFTs are marked to market daily; and
(b) the collateral used in the SFTs is recognized collateral (if the AI concerned uses the STC approach or the BSC approach to calculate its credit risk for non-securitization exposures) or recognized financial collateral (if the AI concerned uses the IRB approach to calculate its credit risk for nonsecuritization exposures) in the banking book under the BCR.
Appendix A

Enclosure 4 - Completion Instructions - Return of Large Exposures

MA(BS)28/P.1 (06/2021)
Completion Instructions
Return of Large Exposures
Form MA(BS)28
Introduction

This Return collects information on authorized institutions’ (“AIs”) large exposures to a
single counterparty/group of linked counterparties, non-bank connected parties and group affiliates.
This set of Completion Instructions is for the reporting of form MA(BS)28 that caters for
the Banking (Exposure Limits) Rules (Cap. 155S) implemented on 1 July 2019. The revisions introduced under this set of revised Completion Instructions are to take effect from 30 June 2021.
These Completion Instructions contain two sections. Section A gives instructions on the
general reporting requirements. Section B explains the reporting requirements for individual items in the Return form.
Section A: General Instructions
The basis of reporting and submission deadline applicable to AIs incorporated in and
outside Hong Kong are as follows: -
Basis of reporting Submission deadline
AIs One Return on the Not later than 6 weeks incorporated combined position of the after the end of each in Hong Kong Hong Kong offices and quarter all overseas branches (if any) One Return on the Not later than 6 weeks consolidated position (Note) after the end of each quarter AIs One Return on the position of the Not later than 6 weeks incorporated Hong Kong offices only after the end of each outside Hong Kong quarter If the submission deadline falls on a public holiday, it will be deferred to the next working day. Note: Unless otherwise specified by the Monetary Authority (“MA”), the subsidiaries to be included for reporting in this Return should be the same as those included for calculating the reporting institution's consolidated position under Rule 6 of the Banking (Exposure Limits) Rules (Cap. 155S). The MA may, by notice in writing, require the institution to include also the exposures of its holding companies or any of the subsidiaries of such holding companies in this Return.

MA(BS)28/P.2 (06/2021)
5. Inter-branch transactions are not required to be reported under this Return except for the
reporting of Part V Intragroup exposures by overseas incorporated AIs. See paragraph 43 for details. Interpretations
6. For the purposes of these Completion instructions and the return form, unless specified
otherwise,
(i) the following terms have the meaning given by Rule 2(2) of the BELR:
 banking book;
 derivative contract;
 trading book.
(ii) the following terms have the meaning given by Rule 39(1) or (2) of the BELR:
 affiliate;
 ALCG exposure;
 ASC exposure;
 bank (with the modification to include a central bank);  Category A institution;  Category B institution;  CCR exposure;  credit protection;  credit protection provider;  CRM covered exposure;  default risk exposure;  entity;  exempted sovereign entity;  exposure;  LC group;  recognized collateral;  recognized CRM;  recognized guarantee;  securities financing transaction;  STC approach. (iii) the following terms have the meaning given by Rule 84(1) of the BELR:
 connected natural person;
 non-listed company.
(iv) the following terms have the meaning given by section 2(1) of the BO:
 chief executive;
 manager;
 holding company and subsidiary.
(v) the following terms have the meaning given by section 2(1) of the BCR:
 SA-CCR approach;
 unsegregated collateral.

MA(BS)28/P.3 (06/2021)
7. In these completion instructions or the return form:
“BCBS” means Basel Committee on Banking Supervision.
“BCR” means the Banking (Capital) Rules (Cap.155L).
“BELR” means the Banking (Exposure Limits) Rules (Cap.155S).
“Commitments and contingent liabilities” refers to the off-balance sheet items in the banking book as specified in Column 2 of Table A, Schedule 1 to the BELR, including:
 Direct credit substitutes;
 Transaction-related contingencies;
 Trade-related contingencies;
 Asset sale with recourse;
 Forward asset purchases;
 Partly paid-up shares and securities;
 Forward forward deposits placed;
 Note issuance and revolving underwriting facilities; and  Any other commitments such as undrawn credit facilities. However, such items do not include credit facilities which have not been formally advised to the customers concerned or which have been formally advised to the customers concerned but not yet taken effect. “Connected party” refers to a counterparty connected to a reporting institution as specified below:
(i) the parties falling within the meaning of connected party under Rule 85 of the BELR 1 ; (ii) the reporting institution’s senior management and key staff (collectively comprising chief executive and manager) and the relatives of such persons; (iii) the reporting institution’s subsidiaries, fellow subsidiaries 2 and other entities (including special purpose entities) over which the reporting institution is able to exert control 3 ; and

1 While connected party under Rule 85 of the BELR covers a controller of an AI but not entities controlled by the controller, as mentioned in footnote 3 of the SPM module CR-G-9, for the purpose of identifying connected parties under Rule 85 of the BELR, the MA expects AIs to take into account the substance over form and treat any company controlled by the AI’s controller that is primarily used for obtaining funding from the AI on behalf of the AI’s controller, as if it were the controller itself. 2 For the purposes of this subparagraph, “fellow subsidiary” means any entity in which a controller of the AI is able to exert control. See footnote 3 for the meaning of control. 3 An entity (controlled entity) is treated as being controlled by another entity (parent entity) if:- (a) the parent entity owns more than 50% of the voting rights in the controlled entity; (b) the parent entity has control of a majority of the voting rights in the controlled entity under an agreement with other shareholders (or similar holders of voting rights); (c) the parent entity has the right to appoint or remove a majority of the members of the controlled entity’s board of directors (or a similar governing body); (d) a majority of the members of the controlled entity’s board of directors (or a similar governing body) have been appointed solely as a result of the parent entity exercising his or her voting rights; or (e) the parent entity has the power, under a contract or otherwise, to exercise a controlling influence over the management or policies of the controlled entity.

MA(BS)28/P.4 (06/2021)
(iv) the controllers, minority shareholder controllers, directors, senior management and key staff 4 (and the relatives of such persons) of the reporting institution’s subsidiaries, fellow subsidiaries and other entities referred to in sub-paragraph (iii) above. “CRM” means recognized CRM. “Exempted exposure before CRM” has the meaning given by paragraph 12. “Exposure arising from investments with additional risk factor”, in relation to an entity that falls under Rule 52(1)(a), (b), (c), (d) or (e) of the BELR, means an exposure that an AI is required under Rule 52(2) to include as its exposure to that entity. “Group affiliate” means an affiliate of the reporting institution meeting the following condition: the institution and the affiliate are accounted for on a full basis in the consolidated financial statements of the holding company of the group of companies to which they belong, for the purposes of and in compliance with – (i) the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants; (ii) the International Financial Reporting Standards issued by the International Accounting Standards Board; or (iii) the standards of accounting practices applicable to the holding company in the place in which it is incorporated. “Group of linked counterparties” (“LC Group”) means a group of linked counterparties of the reporting institution as determined by Rule 41 of the BELR. In relation to an AI incorporated outside Hong Kong, LC Group only applies to its counterparties booked in the Hong Kong branch. “Intragroup exposure” means exposure to a group affiliate. “Indirect exposure” means an exposure to a counterparty of a reporting institution that arises from the counterparty providing credit protection to the reporting institution’s other exposures. “Large exposure”, in relation to a reporting institution, means an aggregate exposure to an LC group (or a counterparty if it does not belong to any LC group) that equals to or exceeds 10% of the institution’s Tier 1 capital. “Non-bank”, when used to describe an entity, means an entity other than an AI or an institution that is regarded as a bank by the appropriate supervisory authorities in its place of incorporation. Thisincludes an international organization, central and local government, and any state-owned enterprise (except state-owned banks) and agencies. “Pre-amended BCR” means the BCR as in force immediately before the Banking (Capital) (Amendment) Rules 2020 come into operation on 30 June 2021.

4 For an AI's subsidiary, fellow subsidiary or other entity which is not an AI itself, "senior management and key staff" means the chief executive officer (or equivalent) and those persons having a principal responsibility for a line of business within the subsidiary, fellow subsidiary or entity concerned.

MA(BS)28/P.5 (06/2021)
“SA(CCR) approach”, in relation to an overseas incorporated AI, means the standardized approach for counterparty credit risk under the Basel III framework 5 as implemented under the capital rules of its place of incorporation. “Tier 1 capital” of a locally incorporated AI is as defined under section 37 of the BCR. AIs incorporated in overseas jurisdictions which have adopted the Basel capital framework should adopt the amount of Tier 1 capital of their head offices. Other overseas incorporated AIs may adopt the capital and reserves (excluding provisions and revaluation reserves however described) of their head offices in place of Tier 1 capital. For the purposes of reporting this return, locally incorporated AIs should use the Tier 1 capital figures as at the end of the previous quarter and overseas incorporated AIs should use the latest figures obtained from their head offices. Determination of exposure value
8. Exposure after CRM to a counterparty is the ASC exposure as determined by Rule 46 of
the BELR. However, for the purposes of reporting Part I of this return, the determination of the ASC exposure to a connected party of the reporting institution is subject to exemptions provided for in Rule 92 of the BELR and any modifications under Division 4,
Part 8 of the BELR. For the purposes of reporting Part V of this return, the determination
of the ASC exposure to a group affiliate of the reporting institution is subject to the modifications of Rule 93 of the BELR as if that rule were related to the determination of an ASC exposure to a group affiliate.
9. Exposure before CRM to a counterparty is the ASC exposure as determined under
paragraph 8 above, subject to the modification that the provisions related to credit risk mitigation under subdivision 2, Division 3, Part 7 of the BELR do not apply. Exposure before CRM includes credit risk “transferred in” (i.e. indirect exposures to credit protection provider) but not that “transferred out”. For example, Bank A granted a loan of HK$200 to customer X which was fully covered by a recognized collateral. Bank A also granted a loan of HK$100 to customer Y which was guaranteed by customer X (assuming it was a recognized guarantee). Exposure before CRM to customer X was HK$300, which is the sum of the loan to customer X (HK$200) and the indirect exposure to customer X arising from the guarantee (HK$100).
10. Exposure to an LC group is the aggregate exposure to all the counterparties in an LC group.
However, if the AI’s exposure to an entity is covered by a recognized CRM provided by another entity within the same LC group, by virtue of Rule 47(4) of the BELR, the AI should include the same portion of the exposure once only in determining the AI’s ALCG exposure to the group. For the purpose of reporting the AI’s exposure to this LC group in this return, the AI should ignore the recognized CRM provided by entities of the same group and report the relevant exposure in column 3 to 7 according to the nature of the protected exposure instead of in column 8 as an indirect exposure. Besides, the amount of the exposure before CRM and after CRM in respect of such protected exposure should be the same.
11. An exposure reported should include interest accrued on the exposure except for the case
that it has not been recognised in the profit & loss account of the reporting institution but credited as interest in suspense, whether or not it has been capitalised.

5 See BCBS, March 2014, The standardized approach for measuring counterparty credit risk exposures, as incorporated into the consolidated Basel Framework (https://www.bis.org/basel_framework/).

MA(BS)28/P.6 (06/2021)
12. Exempted exposure before CRM includes (1) the amount of exposures before CRM that
is disregarded from the determination of an ASC exposure or ALCG exposure in accordance with Rule 48(1) of the BELR except for Rule 48(1)(b), (d) and (k) (i.e. it is not necessary to include exposures not concerning the risk of default of a counterparty such as holding a commodity or foreign currency, exposures to a security as mentioned in Rule 48(1)(d) and intraday bank exposures, in the reporting of exempted exposures before CRM.); and (2) the amount of exposure deducted in the valuation of an exposure in accordance with Rule 57(1)(c) or (d) of the BELR, which is treated as exempted exposure for the purposes of this Return.
13. For the purposes of reporting Part I of this return, connected party exposure should include
exposures disregarded under Rule 48(1)(a) of the BELR. Besides, an exposure of an AI to a firm, partnership or non-listed company controlled by a connected natural person should be treated as an exposure to that connected natural person.
14. A net short position to a counterparty in the banking book or a net short position to a
counterparty in the trading book should be disregarded.
15. Indirect exposures should be determined as exposures to a credit protection provider by
Rule 54 of the BELR.
In respect of the reporting of an indirect exposure to the issuer of a recognized collateral under Rule 54(2)(a)(ii), the reporting institution should ascertain the amount by which the CCR exposure is reduced (see paragraph 2.4.3 of the SPM module CR-G-8 Large Exposures and Risk Concentrations). This means- (i) where a locally incorporated AI uses the SA-CCR approach to calculate the default risk exposures of its derivative contracts for regulatory capital purposes; or (ii) where a locally incorporated AI is required under Rule 59(b) of the BELR to use the SA-CCR approach to calculate the default risk exposure of its derivative contracts for BELR purposes, the AI has to calculate the amount of the default risk exposures to the counterparty under the SA-CCR approach (A) with the consideration of the relevant recognized collateral received by the AI; and (B) without the consideration of the relevant recognized collateral received by the AI (i.e. assuming that the amount of the relevant recognized collateral received by the institution is zero). The difference in the values of the default risk exposure derived under (A) and (B) is to be included as an exposure to the issuer of the collateral in accordance with Rule 54(2)(a)(ii). The above measurement approach also applies in respect of an overseas incorporated AI that uses the SA-CCR approach or the SA(CCR) approach to calculate the default risk exposure of its derivative contracts in accordance with paragraph 17 below. Alternatively, in case an AI has assessed it as too operationally burdensome for it to perform the calculations under (A) and (B) above using the SA-CCR approach or (in case of an overseas incorporated AI) the SA(CCR) approach, the AI may opt to assign the current market value of the recognized collateral that has been taken into account in valuing the relevant default risk exposure of its derivative contracts as the indirect exposure to the issuer of the collateral, provided that (1) the AI has informed the HKMA in writing before the adoption of this alternative measurement approach; (2) this alternative measurement approach is applied consistently in respect of all of the AI’s

MA(BS)28/P.7 (06/2021) default risk exposures of its derivative contracts that are subject to the SA-CCR approach or the SA(CCR) approach, whichever is the case; and (3) where the AI subsequently decides to opt out of this alternative measurement approach, it is to inform the HKMA in writing at least two weeks before the switch.
16. For the purposes of reporting the exposures before CRM and exposures after CRM in this
Return, subdivision 2, Division 3 (for reducing a CRM covered exposure) and Rule 54 (for recognizing an exposure to the credit protection provider) of Part 7 of the BELR apply to a reporting institution incorporated outside Hong Kong as if the institution were a Category A institution or Category B institution 6 . Alternatively, an institution incorporated outside Hong Kong - (i) may apply similar credit risk adjustment and risk transfer mechanism under the formal rules of its place of incorporation to implement the BCBS standard, “LEX – Large Exposures”, as set out in the consolidated Basel Framework published by the BCBS in December 2019 (“LEX standard”), as amended or supplemented by the BCBS from time to time; or (ii) (if the regulator of its place of incorporation has not implemented large exposure limits based on the LEX standard) may apply the credit risk adjustment and risk transfer mechanism, if any, applicable to it under its home rules on large exposures. An overseas incorporated AI is required to inform its case officer on its choice of application of credit risk adjustment and risk transfer mechanism for the purpose of reporting this return and is expected to apply the chosen method consistently.
17. A reporting institution incorporated outside Hong Kong should, in relation to the
calculation of a CCR exposure, calculate the default risk exposures in respect of derivative contracts and securities financing transactions (“SFTs”) in the following manner:- For default risk exposure in respect of derivative contracts 7

6
If a reporting institution incorporated outside Hong Kong applies the CRM provisions in the BELR as if it were a Category A institution or Category B institution, it should apply the STC simple approach and STC comprehensive approach for the purposes of CRM. When to use which approach is prescribed under section 78 of the BCR. 7 With a view to reducing the compliance burden of AIs where permissible and practical, certain flexibility is available to an overseas incorporated AI in relation to the application of paragraph 17(i) and/or (iv)(b) regarding the use of the SA-CCR approach or the SA(CCR) approach:- (a) Where paragraph 17(i) and/or (iv)(b) is applicable in respect of the AI as of 30 June 2021: the AI may, upon submission of a written notice to its case officer before 30 June 2021, continue using the method it uses immediately before 30 June 2021 to calculate its default risk exposures of derivative contracts until 30 September 2021. The written notice is expected to cover at a minimum the following: (i) the AI has obtained the approval of its head office / parent bank / regional oversight body (whichever is the usual oversight body of the AI’s banking operation in Hong Kong) to make use of the grace period to defer adoption of the SA-CCR approach or the SA(CCR) approach for the purposes of reporting of MA(BS)28 to a date no later than 1 October 2021; and (ii) to specify the default risk calculation method it will continue to use to calculate the default risk exposure of derivative contracts during the grace period; (b) Where paragraph 17(i) and/or (iv)(b) becomes applicable in respect of the AI from a date after 30 June 2021: the AI is generally expected to start using the SA-CCR approach or the SA(CCR) approach, whichever is the case, to calculate its default risk exposures of derivative contracts from the date of adoption of the SA(CCR) approach in its head office. However, in case where its head office starts using the SA(CCR) approach on a date other than the first day of a quarter, the AI may start complying with paragraph 17(i) and/or (iv)(b) for reporting of MA(BS)28 purpose in the quarter immediately after the date of adoption of the SA(CCR) approach by its head office. An overseas incorporated AI that wishes to make use of this flexibility should give a notice in writing to its case officer at least two weeks before the date of adoption of the SA(CCR) approach by its head office.

MA(BS)28/P.8 (06/2021)
(i) where the AI uses the SA(CCR) approach in its place of incorporation - the AI may use either (1) the SA(CCR) approach 8 ; or (2) the SA-CCR approach 9 ; (ii) where the AI uses the CCR standardized method under the 2006 Basel II framework 10, or a comparable method, in its place of incorporation – the AI may use either (1) that method as implemented under the capital rules of its place of incorporation; or (2) the SA-CCR approach 9 ; (iii) where the AI uses the CCR current exposure method under the 2006 Basel II framework, or a comparable method, in its place of incorporation – the AI may use either (1) that method as implemented under the capital rules of its place of incorporation; (2) the current exposure method as set out in the Pre-amended BCR 11; or (3) subject to compliance with all the conditions specified below, the SA-CCR approach. The conditions applicable to subparagraph (iii)(3) are:
(A) The AI is to give an advance notice in writing to its case officer specifying its justifications to implement the SA-CCR approach ahead of its head office’s adoption of the SA(CCR) approach; (B) The head office of the AI has to confirm in writing that it:-

has a concrete plan to implement the SA(CCR) approach in compliance with
the relevant capital requirements in its home jurisdiction within one to two years and has proper governance in place to oversee its migration to the SA(CCR) approach;
will approve the Hong Kong branch to use the SA-CCR approach for the
purpose of MA(BS)28 reporting, having taken into account the nature, scale and complexity of the business of the branch;
is willing and able to provide sufficient support (expertise, systems and
resources) to enable its Hong Kong branch to implement the SA-CCR approach ahead of the Head Office's migration to the SA(CCR) approach in its home jurisdiction; (C) The internal auditors of the head office should provide a confirmation that the Hong Kong branch has adequate systems and controls for supporting the use of the SA-CCR approach; and (D) The AI should keep the HKMA posted regularly (say, on a half-yearly basis) of major developments in its adoption of the SA(CCR) approach in its home jurisdiction, and to inform its case officer as soon as practicable if there is a significant change related to its decision to implement the SA(CCR) approach. (iv) where the AI is approved to use a CCR calculation method that is an internal modelling method in its place of incorporation:- (a) where the standardized approach for counterparty credit risk under the Basel III framework has not been implemented in its place of incorporation – the AI

8 For an overseas incorporated AI which has opted to use the SA(CCR) approach for calculating default risk exposures arising from derivative contracts, if it has difficulties in using the SA(CCR) approach to compute such exposure to an intragroup counterparty for reasons in relation to the consolidation practices of the AI, it may calculate the default risk exposure to an intragroup counterparty by using the current exposure method as set out in the Pre-amended BCR or a comparable method under the capital rules of its home jurisdiction . 9 Just to be clear, an AI will not be required to apply the SA-CCR approach for the purposes of paragraph 17 before 30 June 2021. 10 https://www.bis.org/publ/bcbs128.pdf 11 The current exposure method set out in the BCR is considered inappropriate for the purposes of this return in view that it has been simplified and tailored for use by only those locally incorporated AIs that adopt the basic approach for credit risk under the BCR.

MA(BS)28/P.9 (06/2021) should use the method as described under paragraph 17(ii); or (in the event that paragraph 17(ii) is not applicable in respect of the AI) the method as described under paragraph 17(iii); (b) where the SA(CCR) approach has been implemented in its place of incorporation – the AI should use the method described under paragraph 17(i); For default risk exposure in respect of SFTs (v) before the revisions to the standardized approach for credit risk under the final Basel III framework 12 are implemented in its place of incorporation – the AI should calculate the default risk exposure of its SFTs by using either (1) the methods in accordance with section 10A(1)(b) of the BCR; or (2) a comparable method under the capital rules of its place of incorporation; and (vi) after the revisions to the standardized approach for credit risk under the final Basel III framework have been implemented in its place of incorporation – the AI should calculate the default risk exposure of its SFTs by using either (1) that method; or (2) the revised STC approach set out under the BCR (when implemented in Hong Kong) or (if the revised STC approach is not yet implemented in Hong Kong) the method as described under paragraph 17(v)(1).
18. For the purpose of calculation of a CCR exposure under paragraph 17, an overseas
incorporated AI should not, irrespective of the method it applies in the calculation of default risk exposure of derivative contracts and SFTs, convert the default risk exposure into a risk-weighted amount as in the case of determining regulatory capital; and should take into account the CRM considered in the calculation of the risk-weighted amount of such default risk exposure under the capital rules of its place of incorporation or the BCR as applicable in its case.
19. A locally incorporated AI should report an exposure to an AI/bank arising from the
balance of its Nostro account maintained with the AI/ bank based on available balance instead of the ledger balance. An AI incorporated outside Hong Kong, however, is allowed to report such exposure based on either the available balance or ledger balance as long as the relevant reporting approach is applied consistently.
20. Under the BELR, a Category A institution can value an exposure covered by a recognized
collateral or recognized guarantee issued by an exempted sovereign entity in accordance with either (1) the credit risk mitigation provision under Subdivision 2, Division 3, Part 7 or (2) the deduction provision under Rule 57(1)(c). For the purposes of reporting this return, a Category A institution should, however, only apply the former option to value the relevant exposure and report nil in the memo item on deduction under column 12 in respect of such exposure. Exposures to joint accounts
21. If a reporting institution has extended its financial facilities to joint accounts the holders
of which are individuals who are jointly and severally responsible for the financial facilities, the AI should report its exposures to each of the individual holders of the joint accounts. For example, assuming that loan 1 is granted to a joint account held by

12 See “Basel III: Finalising post-crisis reforms” issued by the BCBS on 7 December 2017 (https://www.bis.org/bcbs/publ/d424.pdf) and as updated by the BCBS from time to time thereafter.

MA(BS)28/P.10 (06/2021) individuals “A” and “B” and loan 2 is granted to another joint account held by individuals “A” and “C”, the following exposures should be measured for the purpose of determining whether any of them has to be reported as a large exposure under this Return:
Borrower Amount of loans reported
Individual A loan 1 + loan 2
Individual B loan 1
Individual C loan 2
Basis for exposure ranking
22. Exposures should be reported in descending order of exposure amount based on,
 for the purposes of Parts I, II and V, the maximum exposure before CRM in the reporting period;  for the purposes of Part III, the maximum exposure after CRM in the reporting period; and  for the purposes of Part IV, the total exempted exposure before CRM at the reporting date.
Section B: Specific Instructions
Columns in tables
23. Column (2) Maximum exposure 13
– Report maximum exposure before CRM (in respect of Parts I, II and V) or after CRM (in respect of Part III) during the reporting period.
24. Column (3) On-balance sheet exposures – Report on-balance sheet exposures before CRM
(in respect of Parts I, II, IV and V) or after CRM (in respect of Part III) in the banking book. Exposures arising from the assets underlying an option contract that is booked in the banking book 14, as valued in accordance with Rule 68 of the BELR, should be reported in this column notwithstanding that strictly speaking this may not be an on-balance sheet exposure. Do not include on-balance sheet exposures in relation to default risk exposures of derivative transactions and SFTs, which should be reported under column (6) Default risk exposures arising from derivative transactions and SFTs. For avoidance of doubt, the amount reported in this column should have taken into account the offsetting under Rule 56 of the BELR if applicable.
25. Column (4) Trading book exposures – Report trading book exposures before CRM (in
respect of Parts I, II, IV and V) or after CRM (in respect of Part III). Exposures arising from the assets underlying an option contract that is booked in the trading book, as valued in accordance with Rule 68 of the BELR, should be reported in this column. For avoidance of doubt, the amount reported in this column should have taken into account the offsetting under Rule 56 of the BELR if applicable.
26. Column (5) Off-balance sheet exposures arising from commitments and contingent
liabilities – Report off-balance sheet exposures arising from commitments and contingent

13 For the avoidance of doubt, AIs should only take into account the revisions introduced under this set of revised Completion Instructions for the determination of maximum exposure from 30 June 2021 onwards. 14 See illustrative examples on the reporting of an option contract with several underlying assets or with reference to a stock index as underlying asset in Annex 1.

MA(BS)28/P.11 (06/2021) liabilities as well as unsegregated collateral before CRM (in respect of Parts I, II, IV and V) or after CRM (in respect of Part III).
27. Column (6) Default risk exposures arising from derivative contracts and SFTs – Report
default risk exposures before CRM (in respect of Parts I, II, IV and V) or after CRM (in respect of Part III) arising from derivative contracts and SFTs, irrespective of whether the item from which the exposures have arisen is booked in the AI’s banking book or trading book. For avoidance of doubt, an AI should report the amount of default risk exposures arising from derivative contracts and SFTs as valued in accordance with Rule 59 and 60 of the BELR (i.e. after bilateral netting as applicable) as “exposure before CRM”. If this amount is subject to a recognized CRM that has not been taken into account in the calculation of the amount, the amount after adjusting for such recognized CRM should be reported as “exposure after CRM”. However, for the purpose of reporting the default risk exposures arising from a margin lending transaction, any recognized collateral that is taken into account in the calculation of the risk-weighted amount of default risk exposure under the BCR should be reported as a CRM under the BELR irrespective of whether the reporting institution is a Category A institution or Category B institution. See illustrative examples on the reporting of a SFT in Annex 2.
28. Column (7) Exposures arising from investment with additional risk factor – In relation to
an entity that falls under Rule 52(1)(a), (b), (c), (d) or (e) of the BELR, report the exposures before CRM (in respect of Parts I, II, IV and V) or after CRM (in respect of
Part III) that an AI is required to include as its exposures to that entity under Rule 52(2).
29. Column (8) Indirect exposures – Report exposures before CRM (in respect of Parts I, II,
IV and V) or after CRM (in respect of Part III) of a reporting institution that arise from the counterparty providing credit protection to the reporting institution’s other exposures.
30. Column (10) As % of Tier 1 capital (%) – Report the percentage of the amount reported
in column (9) to the amount of Tier 1 capital of the institution.
31. Column (11) – In respect of Parts I, II and V, report the total exposures after CRM. In
respect of Part III, report the total exposures before CRM. In respect of Part IV, report the provision of the BELR under which an exemption is granted. If more than one exemption provision is applicable to the exposures to the same counterparty, the AI should report all the relevant provisions.
32. Column (12) Memorandum item: Deductions – Report the amount of exposures that is
deducted from the relevant exposures before CRM (in respect of Parts I, II and V) or after CRM (in respect of Part III) in accordance with Rule 57 of the BELR.
Part I: Exposures to any non-bank connected party equal to or exceeding 5% of Tier 1 capital
during the reporting period
33. Report in the table any exposures before CRM to a non-bank connected party equal to or
exceeding 5% of the reporting institution’s Tier 1 capital during the reporting period.
34. Report in “Memorandum items” under this part the aggregate exposures to all non-bank
connected parties and connected natural persons of the reporting institution as at the reporting date, including the amounts before and after CRM and the amount as a percentage of the Tier 1 capital of the reporting institution.

MA(BS)28/P.12 (06/2021)
Part II: Twenty largest exposures (and all those equal to or exceeding 10% of Tier 1 capital)
before CRM during the reporting period
35. Subject to paragraph 36, report in the table the twenty largest exposures before CRM to
an LC group (or a counterparty if it does not belong to any LC group) and all those exposures before CRM to an LC group (or a counterparty if it does not belong to any LC group) equal to or exceeding 10% of the Tier 1 capital of the reporting institution during the reporting period.
36. An overseas incorporated reporting institution should report its 20 largest exposures
before CRM during the reporting period only.
Part III: Twenty largest exposures (and all those equal to or exceeding 10% of Tier 1 capital)
after CRM during the reporting period
37. Subject to paragraph 38, report in the table the twenty largest exposures after CRM to an
LC group (or a counterparty if it does not belong to any LC group) and all those exposures after CRM to an LC group (or a counterparty if it does not belong to any LC group) equal to or exceeding 10% of the Tier 1 capital of the reporting institution during the reporting period.
38. An overseas incorporated reporting institution should report its 20 largest exposures after
CRM during the reporting period only.
39. Report in the “Memorandum items” under this part the aggregate amount of the large
exposures excluding banks 15 of the reporting institution as at the reporting date, including the amount after CRM and the ratio of the amount to the Tier 1 capital of the reporting institution expressed as a percentage. In this connection, an AI only needs to include the exposure to an LC group (or a counterparty if it does not belong to any LC group) under the Memorandum items if the aggregate non-bank exposure to this group/ counterparty after CRM equals or exceeds 10% of the AI’s Tier 1 capital. If the exposures to a single counterparty is included in more than one LC group in a Memorandum item under this
part, such exposures should only be counted once in the item.
Part IV: Exempted exposures before CRM (other than intragroup exposures) equal to or
exceeding 10% of Tier 1 capital
40. Report in the table any aggregate exempted exposures to an LC group (or a counterparty
if it does not belong to any LC group) equal to or exceeding 10% of the Tier 1 capital of the reporting institution as at the reporting date except for exposures to a group affiliate, which should instead be reported in Part V. For the purposes of reporting this Part, the amount of exposure deducted in the valuation of an exposure under Rule 57(1)(c) and (d) of the BELR (“deduction amount”) is treated as an exempted exposure. In respect of the deduction amount under Rule 57(1)(c), a reporting institution should report it in column (8) as an indirect exposure to the exempted sovereign entity that issued the recognized collateral or recognized guarantee. In respect of the deduction amount under Rule 57(1)(d), a reporting institution should report it in column (3) to (8) according to the nature of the exposure from which the relevant deduction is made.

15 For the purposes of this item, “banks” include a bank holding company if it is subject to the supervision of a prudential regulator. For avoidance of doubt, a category B institution should treat a corporate bond covered by a recognized bank guarantee as a corporate exposure and i.e. not excluded from the clustering limit.

MA(BS)28/P.13 (06/2021)
41. If an LC group includes an exempted sovereign entity, the reporting of the amount of
exempted exposure of the LC group should exclude the exempted exposure of the exempted sovereign entity. The exempted exposure of the exempted sovereign entity should be considered on a standalone basis. For example, if after excluding the exempted sovereign entity, the exempted exposure of the LC group is only 4% of the AI’s Tier 1 capital, it is not necessary to report the exempted exposure to this LC group in this Part. If the exempted exposure of that exempted sovereign is 12% of the Tier 1 capital, this exempted exposure of the exempted sovereign entity should be reported on a standalone basis.
Part V Intragroup exposures equal to or exceeding 5% of Tier 1 capital (local AIs) or 20 largest
intragroup exposures (overseas AIs) during the reporting period
42. A locally incorporated AI should report in the table any exempted exposures before CRM
(as defined under paragraph 12 of the CIs) to a group affiliate of the reporting institution that equals or exceeds 5% of the Tier 1 capital of the institution during the reporting period.
43. An overseas incorporated AI should report on the basis as if its operation in Hong Kong
were a separate legal entity incorporated in Hong Kong and each of its head office and overseas branch were a group affiliate of that separate legal entity. Report the twenty largest exempted exposures before CRM to each of its group affiliates during the reporting period.
44. When an exposure to a group affiliate of the AI is also subject to the deduction under Rule
57(1)(d) of the BELR, the amount of deduction should be reported in column (3) to (8) according to the nature of the exposure instead of in column (12). Similarly, when reporting Column (2) “maximum exposure before CRM in reporting period”, the relevant deduction under Rule 57(1)(d) should be added back as if Rule 57(1)(d) does not apply to the valuation of AI’s exposure to the group affiliate. Report Column (11) treating the amount of deduction as if it were adjustments applicable to recognized CRM.
45. Report in the “Memorandum items” under this part the aggregate exposures to all group
affiliates of the reporting institution as at the reporting date, including the amounts before and after CRM and the ratios of the amounts to the Tier 1 capital of the reporting institution expressed as a percentage. The adjustment to the deduction amount under Rule 57(1)(d) in paragraph 44 above should similarly apply to the determination of aggregate intragroup exposures both before and after CRM. If the same portion of exposure of an AI is included in the determination of the AI’s exposure to 2 or more group affiliates in
Part V of the return, the exposure is to be counted once only in determining the aggregate
intragroup exposure (e.g. If an AI’s exposure to a group affiliate A is guaranteed by group affiliate B of the AI, the exposure should only count once as a direct exposure to group affiliate A in determining the aggregate intragroup exposure under Part V). An overseas incorporated AI should identify its group affiliates on the same basis as under paragraph 43. Hong Kong Monetary Authority June 2021

MA(BS)28/P.14 (06/2021)
Annex 1
Illustrative example on the reporting of the non-CCR exposures arising from certain option contracts In respect of option contracts with several underlying assets or with reference to a stock index as underlying assets, an AI is always allowed to look-through the index or basket of securities to the exposure to a constituent security in the index or basket of securities, and must do so if the exposure to the security, calculated by the method below, equals to or exceeds 0.25% of the AI's Tier 1 capital. If an AI is unable to identify the securities contained in an index or a basket of securities which are the underlying assets of an option contract, the AI should (1) in cases where the exposure arising from the option contract as determined in accordance with Rule 68 of the BELR does not exceed 0.25% of the AI’s Tier 1 capital, assign the exposure as an exposure to the index or basket as a distinct counterparty, or (2) in other cases, assign the exposure to a hypothetical counterparty known as the “unknown client”. All exposures to the unknown client (including those under Rule 71(4)(b)(i) of the BELR) must be added up as if they were related to a counterparty, to which Rule 44(1) of the BELR applies. It should be noted that the method under Rule 71(6) of the BELR that applies to look-through for direct holdings of an investment structure does not apply directly to look-through for the underlying basket of assets or securities index of an option contract. Method for look-through for an index or basket of securities underlying an option contract to a constituent security of the index or basket of securities Principle - Pursuant to Rule 68(2) of the BELR, the exposure to the constituent stock equals the change in option price that would result from a default of the constituent stock. Example: A bank seeks to look through an option contract on an index to a constituent stock A in the index. Let the current underlying (i.e. index) price be U0, the strike price be S and the option price be V0. The calculation is the same for a call or a put option. Firstly, estimate the new underlying price assuming stock A’s jump to default – e.g. if stock A accounts for 2% of the index 16, the new underlying price level arising after the default of A is U1 = 0.98．U0. Then calculate V1 by revaluing the option based on the new underlying price level U1 (assuming the volatility to remain unchanged). To determine the exposure to stock A arising from the option contract, take the absolute value of the change in option price (V1 – V0) and adjust the calculated value as follows:

Long call: treat it as positive;
Short call: treat it as negative;
Long put: treat it as negative;
Short put: treat it as positive.
In other words, the exposure to stock A resulting from the option contract equals –(V1–V0) for long call or put options and V1–V0 for short call or put options.

16 In general, the weight of a security in a basket of securities is the ratio of the fair value of that security to the aggregate fair value of all the securities in the basket of securities while the weight of a security in a securities index is the weight of the security in the securities index as specified by the index provider that compiles the index.

MA(BS)28/P.15 (06/2021)
The exposure to a constituent security calculated by the above method can be used for offsetting an opposite exposure to the same counterparty, if allowed by the BELR. A net short position in a book after offsetting is taken as zero. Example: An AI (case i) bought or (case ii) sold a call option for its banking book with an underlying consisting of 3 securities A, B and C. Assuming that:

the exposures to the issuer of securities A, B and C from the option contract as calculated
by the method above are OA, OB and OC respectively;
other exposures to the issuer of securities A, B and C in the banking book are EA, EB, EC
respectively; and the exposures to A, B and C are all large reportable exposures. The reporting of the exposures to A, B, C in the banking book should be as follows:
Before CRM (in HK$’000) After CRM (in HK$’000) Name of entity/LC group On-balance sheet exposures in the banking book Col (3) On-balance sheet exposures in the banking book Col (3) A Max (0, OA+EA) Max (0, OA+EA) B Max (0, OB+EB) Max (0, OB+EB) C Max (0, OC+EC) Max (0, OC+EC) Case (i): The AI bought the call option, creating a long position. The exposures looked through to the constituents A, B and C (i.e. OA, OB and OC respectively) are positive. The amount of OA+EA , etc. is positive and can be directly reported in the data field. Case (ii): The AI sold the call option, creating a short position. The exposures looked through to the constituents A, B and C (i.e. OA, OB and OC respectively) are negative. If the amount of OA+EA, etc. is positive, report the value in the data field. If the amount of OA+EA, etc. is negative, report zero in the data field.

MA(BS)28/P.16 (06/2021)
Annex 2
Illustrative examples on the reporting of a SFT Case 1: AI entered into a margin lending transaction with Customer A:
 Financing to Customer A: HK$100
 Amount of shares (Issued by Entity B) pledged after haircut: HK$100 Scenario 1: the new shares are recognized collateral (assume the exposures are reportable)
Part II & III, MA(BS)28
Before CRM After CRM
Default risk exposures arising from derivative contracts and SFTs Col (6) Indirect exposures Col (8) Default risk exposures arising from derivative contracts and SFTs Col (6) Indirect exposures Col (8) Customer A HK$100 HK$0 Entity B HK$100 HK$100 Scenario 2: the new shares are NOT recognized collateral (assume the exposures are reportable)
Part II & III, MA(BS)28
Before CRM After CRM
Default risk exposures arising from derivative contracts and SFTs Col (6) Indirect exposures Col (8) Default risk exposures arising from derivative contracts and SFTs Col (6) Indirect exposures Col (8) Customer A HK$100 HK$100 Entity B HK$0 HK$0 Case 2: AI entered into the following repo-style transactions with a counterparty (Counterparty X):
AI delivered AI received
(i) Reverse repo transaction
HK$1m cash HK$1.2m exempted sovereign bond issued by Sovereign A (assume HK$1.14m after haircut) (ii) Repo transaction HK$0.5m exempted sovereign bond(Note) issued by Sovereign B booked in the banking book (assume HK$0.525m after haircut) HK$0.5m cash Total (after haircut) HK$1.525m HK$1.64m Note: the securities sold in a repo transaction (i.e. the Sovereign B bond in this case) are treated as an

MA(BS)28/P.17 (06/2021) on-balance sheet exposure of the institution as if the institution had never entered into the transaction and the relevant non-CCR exposure should be valued in accordance with Rule 67 of the BELR. Through these repo-style transactions, the institution had gross default risk exposure of HK$1.525m (i.e. aggregate value of cash and securities delivered) to Counterparty X. Scenario 1: No netting agreement with Counterparty X (assume the exposures are reportable) As there is no netting agreement with Counterparty X, transactions (i) and (ii) have to be considered separately. For transaction (i), the default risk exposure of HK$1m was fully offset by the recognized collateral of the Sovereign A bond. In accordance with Rule 54(2)(a)(ii) of the BELR, the AI should report an indirect exposure to Sovereign A. For transaction (ii), there is a residual default risk exposure of HK$0.025m after the consideration of the recognized collateral of cash. Please note that the value of such recognized collateral has been considered in the calculation of the risk-weighted amount of default risk exposure under the BCR and so the amount of CCR exposure arising from a SFT valued in accordance with Rule 60 of the BELR would be an amount net of such recognized collateral. Before CRM (in HK$’000) After CRM (in HK$’000) Onbalance sheet exposures in the banking book Col (3) Default risk exposures arising from derivative contracts and SFTs Col (6) Indirect exposures Col (8) Onbalance sheet exposures in the banking book Col (3) Default risk exposures arising from derivative contracts and SFTs Col (6) Indirect exposures Col (8)
Part II & III, MA(BS)28
Counterparty
X
25 25
Part IV, MA(BS)28
Sovereign A 1,000
Sovereign B 500
Scenario 2: Netting agreement applies to the transaction with Counterparty X (assume the exposures are reportable) The aggregate gross default risk exposure amount of HK$1.525m in the netting set can be offset by the aggregate collateral received of HK$1.64m in the netting set. As a result, the full amount of exposure of HK$1.525m was offset by value of collateral available. Before CRM (in HK$’000) After CRM (in HK$’000) Onbalance sheet exposures in the banking book Col (3) Default risk exposures arising from derivative contracts and SFTs Indirect exposures Col (8) Onbalance sheet exposures in the banking book Col (3) Default risk exposures arising from derivative contracts and SFTs Indirect exposures Col (8)

MA(BS)28/P.18 (06/2021)
Col (6) Col (6)
Part II & III, MA(BS)28
Counterparty
X
0 0
Part IV, MA(BS)28
Sovereign A 1,025*
Sovereign B 500
*AI should refer to Rule 83 of the BELR for the treatment of overlap of coverage of recognized CRM. Assume in this case, the reduction amount of the exposure to the CRM uncovered portion is allocated between the CRMs of Sovereign A bond of HK$1.025m and cash of HK$ 0.5m.

Enclosure 5 - Standard Disclosure Templates and Tables for Revised Pillar 3 Framework – Phase I & II (with Explanatory Notes) (revised templates updated on 4 June 2021)

Summary of disclosure templates and tables[1]

[Note: For ease of reference, the title of templates that have been revised in this round of amendments are highlighted in blue.]

Disclosure requirement	Tables and templates	Phase	Applicability[2]	Format		Frequency of disclosure
Fixed	Flexible	Quarterly	Semi-annual	Annual
Part I : Key prudential ratios, overview of risk management and RWA	Table OVA: Overview of risk management	I	L		🗸			🗸
Template KM1: Key prudential ratios	II	L	🗸		🗸
Template OV1: Overview of RWA	II	L	🗸		🗸
Part II : Linkages between financial statements and regulatory exposures	Template LI1: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories	I	L		🗸			🗸
Template LI2: Main sources of differences between regulatory exposure amounts and carrying values in financial statements	I	L		🗸			🗸
Table LIA: Explanations of differences between accounting and regulatory exposure amounts	I	L		🗸			🗸
Template PV1: Prudent valuation adjustments	II	L	🗸				🗸
Part IIA : Composition of regulatory capital	Template CC1: Composition of regulatory capital	II	L	🗸			🗸
Template CC2: Reconciliation of regulatory capital to balance sheet	II	L		🗸		🗸
Table CCA: Main features of regulatory capital instruments	II	L		🗸		🗸
Part IIB : Macroprudential supervisory measures	Template GSIB1: G-SIB indicators	II	L [G-SIBs, or AIs falling within BDR §16FF(1)]		🗸			🗸
Template CCyB1: Geographical distribution of credit exposures used in countercyclical capital buffer	II	L		🗸		🗸
Part IIC : Leverage ratio	Template LR1: Summary comparison of accounting assets against leverage ratio exposure measure	II	L	🗸			🗸
Template LR2: Leverage ratio	II	L	🗸		🗸
Part IID : Liquidity	Table LIQA: Liquidity risk management	II	L & O		🗸			🗸
Template LIQ1: Liquidity Coverage Ratio – for category 1 institution	II	L & O [designated as category 1 institution]	🗸		🗸
Template LIQ2: Net Stable Funding Ratio – for category 1 institution	II	L & O [designated as category 1 institution]	🗸			🗸
Part III : Credit risk for non-securitization exposures	Table CRA: General information about credit risk	I	L		🗸			🗸
Template CR1: Credit quality of exposures	I	L	🗸			🗸
Template CR2: Changes in defaulted loans and debt securities	I	L	🗸			🗸
Table CRB: Additional disclosure related to credit quality of exposures	I	L		🗸			🗸
Table CRC: Qualitative disclosures related to credit risk mitigation	I	L		🗸			🗸
Template CR3: Overview of recognized credit risk mitigation	I	L	🗸			🗸
Table CRD: Qualitative disclosures on use of ECAI ratings under STC approach	I	L [STC]		🗸			🗸
Template CR4: Credit risk exposures and effects of recognized credit risk mitigation – for STC approach or BSC approach	I	L [STC; BSC]	🗸			🗸
Template CR5: Credit risk exposures by asset classes and by risk weights – for STC approach or BSC approach	I	L [STC; BSC]	🗸			🗸
Table CRE: Qualitative disclosures related to internal models for measuring credit risk under IRB approach	I	L [IRB]		🗸			🗸
Template CR6: Credit risk exposures by portfolio and PD ranges – for IRB approach	I	L [IRB]	🗸			🗸
Template CR7: Effects on RWA of recognized credit derivative contracts used as recognized credit risk mitigation – for IRB approach	I	L [IRB]	🗸			🗸
Template CR8: RWA flow statements of credit risk exposures under IRB approach	I	L [IRB]	🗸		🗸
Template CR9: Back-testing of PD per portfolio – for IRB approach	I	L [IRB]		🗸			🗸
Template CR10: Specialized lending under supervisory slotting criteria approach and equities under simple risk-weight method – for IRB approach	I	L [IRB]		🗸		🗸
Part IV : Counterparty Credit risk	Table CCRA: Qualitative disclosures related to counterparty credit risk (including those arising from clearing through CCPs)	I	L		🗸			🗸
Template CCR1: Analysis of counterparty default risk exposures (other than those to CCPs) by approaches	I	L	🗸			🗸
Template CCR2: CVA capital charge	I	L	🗸			🗸
Template CCR3: Counterparty default risk exposures (other than those to CCPs) by asset classes and by risk weights – for STC approach or BSC approach	I	L [STC; BSC]	🗸			🗸
Template CCR4: Counterparty default risk exposures (other than those to CCPs) by portfolio and PD range – for IRB approach	I	L [IRB]	🗸			🗸
Template CCR5: Composition of collateral for counterparty default risk exposures (including those for contracts or transactions cleared through CCPs)	I	L		🗸 (fixed columns, flexible rows)		🗸
Template CCR6: Credit-related derivatives contracts	I	L		🗸		🗸
Template CCR7: RWA flow statements of default risk exposures under IMM(CCR) approach	I	L [IMM(CCR)]	🗸		🗸
Template CCR8: Exposures to CCPs	I	L	🗸			🗸
Part V : Securitization exposures	Table SECA: Qualitative disclosures related to securitization exposures	I	L		🗸			🗸
Template SEC1: Securitization exposures in banking book	I	L		🗸		🗸
Template SEC2: Securitization exposures in trading book	I	L		🗸		🗸
Template SEC3: Securitization exposures in banking book and associated capital requirements – where AI acts as originator	I	L	🗸			🗸
Template SEC4: Securitization exposures in banking book and associated capital requirements – where AI acts as investor	I	L	🗸			🗸
Part VI : Market risk	Table MRA: Qualitative disclosures related to market risk	I	L (other than exempted)		🗸			🗸
Table MRB: Additional qualitative disclosures for AI using IMM approach	I	L [IMM]		🗸			🗸
Template MR1: Market risk under STM approach	I	L [STM]	🗸			🗸
Template MR2: RWA flow statements of market risk exposures under IMM approach	I	L [IMM]	🗸		🗸
Template MR3: IMM approach values for market risk exposures	I	L [IMM]	🗸			🗸
Template MR4: Comparison of VaR estimates with gains or losses	I	L [IMM]		🗸		🗸
Part VII : Interest rate risk in banking book	Table IRRBB: Interest rate exposures in banking book (related to financial year end before 30 June 2019)	II	L		🗸			🗸
Table IRRBBA: Interest rate risk in banking book – risk management objectives and policies	II	L		🗸			🗸
Template IRRBB1: Quantitative information on interest rate risk in banking book	II	L	🗸				🗸
Part VIII : Remuneration	Table REMA: Remuneration policy	II	L		🗸			🗸
Template REM1: Remuneration awarded during financial year	II	L		🗸			🗸
Template REM2: Special payments	II	L		🗸			🗸
Template REM3: Deferred remuneration	II	L		🗸			🗸

Part I: Key prudential ratios, overview of risk management and RWA


Template OV1: Overview of RWA
Purpose:	To provide an overview of capital requirements in terms of a detailed breakdowns of RWAs for various risks.
Scope of application:	The template is mandatory for all AIs incorporated in Hong Kong.
Content:	RWA and capital requirements under the Pillar 1 framework.
Frequency:	Quarterly.
Format:	Fixed.
Accompanying narrative:	An AI should explain the drivers behind differences in reporting periods T and T-1 where these differences are material. The AI should also explain the adjustments made if capital requirements in column (c) do not correspond to 8% of RWA in column (a). If an AI uses the internal models method to calculate its equity exposures in the banking book pursuant to the BCR, it should provide a description of its internal models used in an accompanying narrative.
Corresponding BDR section:	16C

		(a)	(b)	(c)
		RWA		Minimum capital requirements
	T	T-1	T
1	Credit risk for non-securitization exposures
2	Of which STC approach
2a	Of which BSC approach
3	Of which foundation IRB approach
4	Of which supervisory slotting criteria approach
5	Of which advanced IRB approach
6	Counterparty default risk and default fund contributions
7	Of which SA-CCR approach
7a	Of which CEM
8	Of which IMM(CCR) approach
9	Of which others
10	CVA risk
11	Equity positions in banking book under the simple risk-weight method and internal models method
12	Collective investment scheme (“CIS”) exposures – LTA*
13	CIS exposures – MBA*
14	CIS exposures – FBA*
14a	CIS exposures – combination of approaches*
15	Settlement risk
16	Securitization exposures in banking book
17	Of which SEC-IRBA
18	Of which SEC-ERBA (including IAA)
19	Of which SEC-SA
19a	Of which SEC-FBA
20	Market risk
21	Of which STM approach
22	Of which IMM approach
23	Capital charge for switch between exposures in trading book and banking book (not applicable before the revised market risk framework takes effect)*
24	Operational risk
24a	Sovereign concentration risk
25	Amounts below the thresholds for deduction (subject to 250% RW)
26	Capital floor adjustment
26a	Deduction to RWA
26b	Of which portion of regulatory reserve for general banking risks and collective provisions which is not included in Tier 2 Capital
26c	Of which portion of cumulative fair value gains arising from the revaluation of land and buildings which is not included in Tier 2 Capital
27	Total
Point to note: 1. Items marked with an asterisk () will be applicable only after their respective policy frameworks take effect. Until then, “Not applicable” should be reported in the rows.*

Explanatory Note
Columns
(a)	RWA (T):RWA referred to in the BCR and as reported in accordance with the subsequent parts of this document. Where the output of a calculation approach is a capital charge instead of a RWA (e.g. the approaches for market risk and operational risk), an AI should calculate the RWA by multiplying capital charge by 12.5.
(b)	RWA (T-1):RWA as reported in the previous reporting period (i.e. at the end of the previous quarter) of this template.
(c)	Minimum capital requirements (T): Pillar 1 capital requirements, which in general are calculated as 8% of the RWA but may differ if a capital floor is applicable or adjustments (such as scaling factors) are applied in accordance with the BCR, as of the reporting date. Any such adjustments, if applicable, should be applied to all the applicable rows in column (c). For example, an AI using the IRB approach for credit risk is required to apply a scaling factor of 1.06 as specified in section 224 of the BCR to column (c) of all the items the credit risk requirement of which are calculated in accordance with Part 6 of the BCR (i.e. RWA x 8% x 1.06).
Rows
1	Credit risk for non-securitization exposures: RWA and capital requirements according to the credit risk framework reported in Part III of this document. The amounts exclude all positions subject to capital requirements relating to counterparty default risk and default fund contributions, CVA risk, equity exposures (unless otherwise required), CIS exposures (exclusion of CIS exposures from this row only when the new CIS framework takes effect), settlement risk, securitization framework (e.g. securitization exposures in the banking book), and amount below the deduction threshold and subject to a 250% risk-weight.
2	Of which STC approach: RWA and capital requirements calculated using the STC approach under the BCR. For an interim or annual reporting period, the value in [OV1: 2/a] should be equal to the value in [CR4 (STC): 15/e].
2a	Of which BSC approach: RWA and capital requirements calculated using the BSC approach under the BCR. For an interim or annual reporting period, the value in [OV1: 2a/a] should be equal to the value in [CR4 (BSC): 10/e].
3	Of which foundation IRB approach: RWA and capital requirements for AIs using the foundation IRB approach to calculate their credit risk under the BCR, excluding specialized lending calculated using the supervisory slotting criteria approach (reported in row 4) and equity positions in banking book under the simple risk-weight method and internal models method (reported in row 11), but including equity exposures under the PD/LGD approach, retail exposures under the retail IRB approach and other exposures under the specific risk-weight approach.
4	Of which supervisory slotting criteria approach: RWA and capital requirements of specialized lending calculated using the supervisory slotting criteria approach under the BCR.
5	Of which advanced IRB approach: RWA and capital requirements for AIs using the advanced IRB approach to calculate their credit risk under the BCR, excluding specialized lending calculated using the supervisory slotting criteria approach (reported in row 4) and equity positions in banking book under the simple risk-weight method and internal models method (reported in row 11), but including equity exposures under the PD/LGD approach, retail exposures under the retail IRB approach and other exposures under the specific risk-weight approach.
6	Counterparty default risk and default fund contributions: RWA and capital requirements for counterparty default risk (including such a risk to CCPs) and default fund contributions, calculated in accordance with the BCR as reported in Part IV of this document. The RWA and capital requirements for CVA should be reported in row 10 and must not be included in this row and rows 7 to 9 below. The value in [OV1:6/a] is equal to the sum of values in [CCR1:6/f], [CCR8:1/b] and [CCR8:11/b].
7	Of which SA-CCR approach: RWA calculated based on the amount of default risk exposures calculated under the SA-CCR approach. The value in [OV1:7/a] should be equal to the value in [CCR1: 1/f].
7a	Of which CEM: RWA calculated based on the amount of default risk exposures calculated under the CEM, and the capital requirement calculated based on the RWA. The value in [OV1:7a/a] is equal to the value in [CCR1:1a/f].
8	Of which IMM(CCR) approach: RWA calculated based on the amount of default risk exposures calculated under the IMM(CCR) approach, and the capital requirement calculated based on the RWA. The value in [OV1:8/a] is equal to the value in [CCR1:2/f] and the value in [CCR7:9/a].
9	Of which others: RWA and capital requirements for the following items calculated in accordance with the BCR by using methods other than those falling under rows 7 to 8 above as reported in Part IV of this document: 1. counterparty default risk (including such a risk to CCPs) in respect of securities financing transactions; and 2. default fund contributions.
10	CVA risk: capital requirements for CVA calculated in accordance with the BCR and the corresponding RWA for CVA, as reported in Part IV of this document. The value in [OV1:10/a] is equal to the value in [CCR2:4/b].
11	Equity positions in banking book under the simple risk-weight method and internal models method: The amounts correspond to the RWA and capital requirements where the AI applies the simple risk-weight method and internal models method specified in the BCR. Where the regulatory treatment of equities is in accordance with the simple risk-weight method, the corresponding RWA are included in Template CR10 and in this row. The value in [OV1:11/a] is equal to the sum of values in [CR10: total/e for equity exposures under the simple risk-weight method] and the RWA corresponding to the internal models method for equity exposures in the banking book. To avoid doubt, row 11 is not applicable to equity exposures that are subject to the STC approach or the BSC approach. The corresponding RWA calculated under the STC or BSC approach is reported in Template CR4 and included in row 2 (for STC approach) or row 2a (for BSC approach), as the case requires, of this template.
12	*Collective investment scheme (“CIS”) exposures – LTA: This row is not applicable before the new CIS framework takes effect.
13	*CIS exposures – MBA: This row is not applicable before the new CIS framework takes effect.
14	*CIS exposures – FBA: This row is not applicable before the new CIS framework takes effect.
14a	*CIS exposures – combination of approaches: This row is not applicable before the new CIS framework takes effect.
15	Settlement risk: RWA and capital requirements for the exposures arising from the following items: 1. Transactions in securities (other than repo-style transactions), foreign exchange, and commodities that are entered into on a delivery-versus-payment basis and remain outstanding for 5 or more business days after the settlement date, calculated in accordance with the risk-weight allocated to the exposures as specified in the BCR; and 2. Transactions in securities (other than repo-style transactions), foreign exchange, and commodities that are entered into on a non-delivery-versus-payment basis and remain unsettled after the settlement date, calculated in accordance with the risk-weight allocated to the exposures as specified in the BCR.
16	Securitization exposures in banking book: The amounts correspond to capital requirements applicable to the securitization exposures in the banking book (Part V of this document). The RWA should be derived from the capital requirements (including the impact of the cap specified in the BCR), meaning that they do not necessarily systematically correspond to the RWA reported in Templates SEC3 and SEC4, which are before the application of the cap.
17	Of which SEC-IRBA: RWA and capital requirements calculated using the SEC-IRBA under the BCR.
18	Of which SEC-ERBA (including IAA): RWA and capital requirements calculated using the SEC-ERBA (including those exposures that the AI uses IAA to determine the risk-weights) under the BCR.
19	Of which SEC-SA: RWA and capital requirements calculated using the SEC-SA under the BCR.
19a	Of which SEC-FBA: RWA and capital requirements calculated using the SEC-FBA under the BCR.
20	Market risk: The amounts correspond to the RWA and capital requirements in the market risk framework (Part VI of this document), which also includes capital charges for securitization exposures booked in the trading book but excludes the capital charges for counterparty default risk, default fund contributions and CVA risk associated with covered positions (reported in Part IV of this document and in rows 6 and 10 of this template). An AI should derive the market risk RWAs by multiplying the market risk capital requirements by 12.5.
21	Of which STM approach: RWA and capital requirements calculated using the STM approach under the BCR, including capital charges for securitization exposures booked in the trading book. The value in [OV1:21/a] is equal to the value in [MR1:9/a].
22	Of which IMM approach: RWA and capital requirements calculated using the IMM approach under the BCR. The value in [OV1:22/a] is equal to the value in [MR2:8/f].
23	*Capital charge for switch between exposures in trading book and banking book (not applicable before the revised market risk framework takes effect): This row is not applicable before the revised market risk framework takes effect.
24	Operational risk: The amounts correspond to capital requirements in the operational risk framework specified in the BCR.
24a	Sovereign concentration risk: The amounts correspond to capital requirements in the sovereign concentration risk framework specified in the BCR.
25	Amounts below the thresholds for deduction (subject to 250% RW): The amounts correspond to items subject to a 250% risk-weight pursuant to the BCR.
26	Capital floor adjustment: The impact of any Pillar 1 capital floor adjustment on total RWA and total capital requirements determined according to the BCR so that the total amount in row 27 below reflects the total RWA and total capital requirements, including such an adjustment. An AI should not report Pillar 2 adjustments applied to it in this row. Where the capital floor or adjustments are applied at a more granular level (e.g. at risk category level), the AI should reflect them in the capital requirements reported for the risk category.
26a	Deduction to RWA: This is the sum of values in rows 26b and 26c.
26b	Of which portion of regulatory reserve for general banking risks and collective provisions which is not included in Tier 2 Capital: This row is only applicable for an AI using the STC, BSC, SEC-SA, SEC-ERBA or SEC-FBA approach for calculating credit risk for all or part of its exposures. It refers to and has the same calculation basis as the amount reported in item 2.12(i), Division A, Part I of CAR return MA(BS)3.
26c	Of which portion of cumulative fair value gains arising from the revaluation of land and buildings which is not included in Tier 2 Capital: It refers to and has the same calculation basis as the amount reported in item 2.12(ii), Division A, Part I of CAR return MA(BS)3.
27	Total: This is equal to the sum of values in rows 1, 6, 10, 11, [12, 13, 14, 14a], 15, 16, 20, [23], 24, 24a, 25 and 26, minus the deduction value in row 26a. [ ]* only applicable when relevant policy frameworks take effect.

Part IIC: Leverage ratio


Template LR1: Summary comparison of accounting assets against leverage ratio (“LR”) exposure measure
Purpose:	To reconcile the total assets in the published financial statements (if any) to the LR exposure measure.
Scope of application:	The template is mandatory for all AIs incorporated in Hong Kong. The LR framework should follow the same scope of regulatory consolidation as the risk-based capital framework (i.e. solo basis, solo-consolidated basis, and/or consolidated basis as specified by the MA under BCR §3C).
Content:	Quantitative information. Where an AI has a reporting date for disclosure (e.g. end-April, end-October) that does not fall on the same position date for the Return of Leverage Ratio (MA(BS)27) (i.e. end-March, end-June, end-September, end-December), the AI should disclose this template based on its own reporting date. In such circumstance, the calculation basis of values disclosed in this template should, however, follow the same calculation basis used for the return.
Frequency:	Semi-annually.
Format:	Fixed.
Accompanying narrative:	An AI should disclose and detail the source of material differences between its total balance sheet assets (net of on-balance sheet derivative exposures and securities financing transaction (“SFT”) exposures) as reported in its financial statements and its on-balance sheet exposures as set out in row 1 of Template LR2.
Corresponding BDR section:	16FH

		(a)
	Item	Value under the LR framework (HK$ equivalent)
	Total consolidated assets as per published financial statements
	Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation
2a	Adjustment for securitised exposures that meet the operational requirements for the recognition of risk transference
	Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting standard but excluded from the LR exposure measure
3a	Adjustments for eligible cash pooling transactions
	Adjustments for derivative contracts
	Adjustment for SFTs (i.e. repos and similar secured lending)
	Adjustment for off-balance sheet (“OBS”) items (i.e. conversion to credit equivalent amounts of OBS exposures)
6a	Adjustments for prudent valuation adjustments and specific and collective provisions that are allowed to be excluded from exposure measure
	Other adjustments
	Leverage ratio exposure measure

Explanatory Note
Rows
	The AI’s total consolidated assets as per published financial statements.
	Adjustments in relation to the AI’s investments in financial sector entities or commercial entities as defined in BCR §35 that are consolidated for accounting purposes, but outside the scope of regulatory consolidation. As these adjustments reduce the total leverage ratio exposure measure, they should be reported as a negative amount.
2a	Adjustment related to securitised exposures that meet the operational requirements for the recognition of risk transference. As the adjustment reduces the total leverage ratio exposure measure, it shall be reported as a negative amount.
	Adjustments related to any fiduciary assets recognised on the balance sheet pursuant to the AI’s applicable accounting framework but excluded from the LR exposure measure, provided that the assets meet the IAS 39 / IFRS 9 (or HKAS 39 / HKFRS 9) criteria for derecognition and, where applicable, IFRS 10 (or HKFRS 10) for deconsolidation. As these adjustments reduce the total leverage ratio exposure measure, they should be reported as a negative amount.
3a	Adjustments for eligible cash-pooling transactions. An adjustment is for the difference between the accounting value of cash-pooling transactions and the treatments specified in Consolidated Basel Framework (2022) LEV30.12. If this adjustment leads to an increase in exposure, it shall be reported as a positive amount. If this adjustment leads to a decrease in exposure, it shall be reported as a negative amount.
	Any adjustments in relation to derivative contracts should be in line with the LR calculation methodology under Part 1C of the BCR. If this adjustment leads to an increase in exposure, an AI should disclose this as a positive amount. If this adjustment leads to a decrease in exposure, the AI should disclose this as a negative amount.
	Any adjustments in relation to SFTs (i.e. repos and other similar secured lending) should be in line with the LR calculation methodology under Part 1C of the BCR. If this adjustment leads to an increase in the exposure, an AI should disclose this as a positive amount. If this adjustment leads to a decrease in exposure, the AI should disclose this as a negative amount.
	Aggregates of the credit equivalent amount of OBS exposures, as converted under the STC approach under the BCR, subject to a floor of 10%, through the use of credit conversion factors (“CCFs”). For details of the OBS exposures and their applicable CCFs, please refer to the LR calculation methodology under Part 1C of the BCR.
6a	Adjustments for prudent valuation adjustments and specific and collective provisions which have reduced Tier 1 capital. This adjustment reduces the LR exposure measure by the amount of prudent valuation adjustments and provisions that have reduced Tier 1 capital, which should be reported as a negative amount. Where specific and collective provisions are set aside against OBS exposures that have an effect to decrease Tier 1 capital, such provision amounts may be deducted from the credit equivalent amount of the exposures and in turn reported in this row. However, the resulting total credit equivalent amount for OBS exposures cannot be less than zero.
	Any other adjustments that are necessary for the reconciliation but not included in rows 1 to 6a above. These may include adjustments in relation to any items that are deducted from Tier 1 capital under the risk-based capital framework in accordance with BCR §38(2), §43 and §47, but are not already excluded from the calculation of the LR exposure measure. For a note-issuing bank as defined under the Legal Tender Notes Issue Ordinance (Cap. 65), the adjustments should also include any certificates of indebtedness issued under the Exchange Fund Ordinance (Cap. 66) and held by it as cover for legal tender notes issued.
	The LR exposure, which should be the sum of rows 1 to 7 above, should be consistent with the total exposures amount reported in [LR2: 21/a].


Template LR2: Leverage ratio (“LR”)
Purpose:	To provide a detailed breakdown of the components of the LR denominator.
Scope of application:	The template is mandatory for all AIs incorporated in Hong Kong. The LR framework should follow the same scope of regulatory consolidation as the risk-based capital framework (i.e. solo basis, solo-consolidated basis, and/or consolidated basis as specified by the MA under BCR §3C).
Content:	Quantitative information. Where an AI has a reporting date for disclosure (e.g. end-April, end-October) that does not fall on the same position date for the Return of Leverage Ratio (MA(BS)27) (i.e. end-March, end-June, end-September, end-December), the AI should disclose this template based on its own reporting date. In such circumstance, the calculation basis of values disclosed in this template should, however, follow the same calculation basis used for the return.
Frequency:	Quarterly.
Format:	Fixed.
Accompanying narrative:	An AI should describe the key factors that have had a material impact on the LR at the end of the current reporting period compared to the end of the preceding reporting period.
Corresponding BDR section:	16FI

		(a)	(b)
		HK$ equivalent
		T	T-1
On-balance sheet exposures
	On-balance sheet exposures (excluding those arising from derivative contracts and SFTs, but including collateral)
	Less: Asset amounts deducted in determining Tier 1 capital
	Total on-balance sheet exposures (excluding derivative contracts and SFTs)
Exposures arising from derivative contracts
	Replacement cost associated with all derivative contracts (where applicable net of eligible cash variation margin and/or with bilateral netting)
	Add-on amounts for PFE associated with all derivative contracts
	Gross-up for collateral provided in respect of derivative contracts where deducted from the balance sheet assets pursuant to the applicable accounting framework
	Less: Deductions of receivables assets for cash variation margin provided under derivative contracts
	Less: Exempted CCP leg of client-cleared trade exposures
	Adjusted effective notional amount of written credit-related derivative contracts
	Less: Adjusted effective notional offsets and add-on deductions for written credit-related derivative contracts
	Total exposures arising from derivative contracts
Exposures arising from SFTs
	Gross SFT assets (with no recognition of netting), after adjusting for sale accounting transactions
	Less: Netted amounts of cash payables and cash receivables of gross SFT assets
	CCR exposure for SFT assets
	Agent transaction exposures
	Total exposures arising from SFTs
Other off-balance sheet exposures
	Off-balance sheet exposure at gross notional amount
	Less: Adjustments for conversion to credit equivalent amounts
	Off-balance sheet items
Capital and total exposures
	Tier 1 capital
20a	Total exposures before adjustments for specific and collective provisions
20b	Adjustments for specific and collective provisions
	Total exposures after adjustments for specific and collective provisions
Leverage ratio
	Leverage ratio

Explanatory Note
Rows
	An AI should include all consolidated assets on balance sheet as per its financial statements, including collateral for on-balance sheet derivative contracts and for SFTs, with the exception of on-balance sheet derivative contracts and SFT assets that are included in rows 4 to 16. Where an AI is a note-issuing bank as defined under the Legal Tender Notes Issue Ordinance (Cap. 65), the AI’s on-balance sheet exposure should not include, for the purpose of this template, any certificates of indebtedness issued under the Exchange Fund Ordinance (Cap. 66) and held by the AI as cover for legal tender notes issued.
	Adjustments to balance sheet assets due to deductions from Tier 1 capital in accordance with BCR §3ZB(4). For example: - Where a financial sector entity is not included in the regulatory scope of consolidation, the amount of any investment in the capital of that entity that is totally or partially deducted from CET1 capital or from additional Tier 1 capital of the bank following the corresponding deduction approach, may be deducted from the exposure measure. - For an AI using the IRB approach to determining capital requirements for credit risk, it is required any excess of the total expected loss over the total eligible provisions be deducted from CET1 capital. The same amount may be deducted from the exposure measure. As the adjustments in row 2 reduce the exposure measure, they should be reported as negative figures.
	Sum of values in rows 1 and 2.
	Replacement cost (“RC”) associated with all derivative contracts (including exposures resulting from direct transactions between a client and a CCP where the bank guarantees the performance of its clients’ derivative trade exposures to the CCP), net of cash variation margin received and with, where applicable, bilateral netting under a qualifying bilateral netting agreement. This amount should be reported after applying the 1.4 alpha factor.
	Add-on amount for the potential future exposure (“PFE”) of all exposures arising from derivative contracts. This amount should be reported after applying the 1.4 alpha factor.
	Grossed-up amount of any collateral provided in relation to exposures arising from derivative contracts where the provision of that collateral has reduced the value of the balance sheet assets under the AI’s applicable accounting framework.
	Deductions of receivable assets in respect of cash variation margin provided under derivative contracts where the posting of cash variation margin has resulted in the recognition of a receivable asset under the AI’s applicable accounting framework. As the adjustments in row 7 reduce the exposure measure, they should be reported as negative figures.
	Exempted trade exposures associated with the CCP leg of derivative contracts resulting from client-cleared transactions or which the clearing member, based on the contractual arrangements with the client, is not obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that a QCCP defaults. As the adjustments in row 8 reduce the exposure measure, they should be reported as negative figures.
	Adjustments relating to the effective notional amount of written credit-related derivative contracts, which may be reduced by the total amount of negative changes in fair value amounts that have been incorporated into the calculation of Tier 1 capital with respect to written credit-related derivative contracts.
	Adjustments relating to: - The amount by which the notional amount of a written credit-related derivative is reduced by a purchased credit-related derivative contract on the same reference name; and - The deduction of add-on amounts for PFE in relation to written credit-related derivative contracts. As the adjustments in row 10 reduce the exposure measure, they should be reported as negative figures.
	Sum of values in rows 4 to 10.
	The gross amount of SFT assets without recognition of netting, other than novation with QCCPs (in which case the final contractual exposure is to replace the gross SFT assets amount), determined in accordance with the LR framework in respect of SFT exposures (e.g. excluding any securities received under an SFT where the AI has recognised the securities as an asset on its balance sheet), and adjusting for any sales accounting transactions.
	Adjustments for cash payables and cash receivables of gross SFT assets with netting determined in accordance with the LR framework in respect of SFT exposures. As these adjustments reduce the exposure measure, they should be reported as a negative figure.
	The amount of the counterparty credit risk add-on for SFTs determined in accordance with the LR framework in respect of SFT exposures.
	The amount for which the AI acting as an agent in an SFT has provided an indemnity or guarantee determined in accordance with the LR framework in respect of SFT exposures.
	Sum of values in rows 12 to 15.
	Total off-balance sheet exposure amounts (excluding off-balance sheet exposure amounts associated with SFT and derivative contracts) on a gross notional basis, before any adjustment for credit conversion factors (“CCFs”).
	Reduction in gross amount of off-balance sheet exposures due to the application of CCFs. This corresponds to the complement of CCFs of the STC approach, subject to a floor of 10%. The floor of 10% will affect commitments that are unconditionally cancellable at any time by the AI without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness. As these adjustments reduce the exposure measure, they should be reported as negative figures.
	Sum of values in rows 17 and 18.
	The amount of Tier 1 capital as determined under the BCR, taking into account of the transitional arrangements. The value in [LR2:20/a] is equal to the value in [KM1:2/a].
20a	Sum of values in rows 3, 11, 16 and 19.
20b	Specific and collective provisions, if any, that reduce the on- and off-balance sheet exposure measures may be presented in this row, provided that such reductions from exposure measures are allowable under Part 1C of the BCR. As these adjustments reduce the exposure measure, they should be reported as negative figures.
	Sum of values in rows 20a and 20b. The value in [LR2:21/a] is equal to the value in [KM1:13/a] and in [LR1: 8/a].
	Leverage ratio is defined as the Tier 1 capital measure of row 20 (the numerator) divided by the exposure measure of row 21 (the denominator), where the resultant quotient be expressed as a percentage. The value in [LR2:22/a] is equal to the value in [KM1:14/a].

Part IID: Liquidity


Template LIQ2: Net Stable Funding Ratio – for category 1 institution
Purpose:	To provide details of NSFR and details of ASF and RSF components.
Scope of application:	The template is mandatory for locally incorporated and overseas incorporated AIs that are designated as category 1 institution. A category 1 institution should disclose the required items in this template on:- 1. a consolidated basis – applicable to a category 1 institution incorporated in Hong Kong that is subject to BLR rule 11(1); 2. an unconsolidated basis – applicable to a category 1 institution incorporated in Hong Kong that is not subject to BLR rule 11(1) but subject to BLR rule 10(1)(b); or 3. a Hong Kong office basis – applicable to a category 1 institution:- - incorporated in Hong Kong that is not subject to BLR rule 10(1)(b) or 11 but subject to BLR rule 10(1)(a); and - incorporated outside Hong Kong that is subject to BLR rule 10(1)(a). A category 1 institution should indicate the basis on which the required disclosure items in this template are disclosed.
Content:	Items disclosed should be measured and defined according to the methodology and instructions set out in the Stable Funding Position Return (MA(BS)26). Data should be presented as quarter-end observations and in Hong Kong dollars or the equivalent amount of Hong Kong dollars.
Frequency:	Semi-annual (including two data sets covering the latest and the preceding quarter-ends).
Format:	Fixed.
Accompanying narrative:	An AI should provide a sufficient qualitative discussion on the NSFR to facilitate an understanding of the results and the accompanying data. For example, where significant, the AI should discuss: - the drivers of its NSFR results, the reasons for intra-period changes and the changes over time (e.g. changes in strategies, funding structure, circumstances); and - the composition of the AI’s interdependent assets and liabilities (as defined under Division 2 of Part 9 of the BLR) and to what extent these transactions are interrelated.
Corresponding BDR section:	16FL and 103AB

		(a)	(b)	(e)
Basis of disclosure: consolidated / unconsolidated / Hong Kong office (delete as appropriate)		Unweighted value by residual maturity		Weighted amount
No specified term to maturity	<6 months or repayable on demand	6 months to < 12 months	12 months or more
1. Available stable funding (“ASF”) item
1	Capital:
2	Regulatory capital
2a	Minority interests not covered by row 2
3	Other capital instruments
4	Retail deposits and small business funding:
5	Stable deposits
6	Less stable deposits
7	Wholesale funding:
8	Operational deposits
9	Other wholesale funding
10	Liabilities with matching interdependent assets
11	Other liabilities:
12	Net derivative liabilities
13	All other funding and liabilities not included in the above categories
14	Total ASF
1. Required stable funding (“RSF”) item
15	Total HQLA for NSFR purposes
16	Deposits held at other financial institutions for operational purposes
17	Performing loans and securities:
18	Performing loans to financial institutions secured by Level 1 HQLA
19	Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions
20	Performing loans, other than performing residential mortgage, to non-financial corporate clients, retail and small business customers, sovereigns, the Monetary Authority for the account of the Exchange Fund, central banks and PSEs, of which:
21	With a risk-weight of less than or equal to 35% under the STC approach
22	Performing residential mortgages, of which:
23	With a risk-weight of less than or equal to 35% under the STC approach
24	Securities that are not in default and do not qualify as HQLA, including exchange-traded equities
25	Assets with matching interdependent liabilities
26	Other assets:
27	Physical traded commodities, including gold
28	Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs
29	Net derivative assets
30	Total derivative liabilities before adjustments for deduction of variation margin posted
31	All other assets not included in the above categories
32	Off-balance sheet items
33	Total RSF
34	Net Stable Funding Ratio (%)
Points to note: 1. the rows without a numerical row number introduce a section of the NSFR template (i.e. ASF and RSF) and do not require any value to be input; 2. the disclosure items shaded in light grey (e.g. rows 1, 4, 7, 10, 11) represent a broad sub-component category of the NSFR in the relevant section; 3. the unshaded disclosure items represent a sub-component within the major categories under ASF and RSF items, except that rows 21 and 23 are sub-components of rows 20 and 22, respectively. See explanatory note below for a more detailed explanation of the composition of such sub-components; 4. no disclosure is required for items shaded in dark grey (i.e. cells 5/a, 6/a, 8/a, 12/b-e, 14/a-d, 27/b-d, 28/b-d, 29/b-d, 30/b-d, 32/a, 33/a-d and 34/a-d).

Explanatory Note
Columns
(a) to (d)	Unweighted value by residual maturity: values entered in these columns should be the quarter-end observations of individual line items in accordance with the maturity bands. Items to be reported in column (a), i.e. the “no specified term to maturity” time bucket, do not have a stated maturity. These may include, but are not limited to, items such as capital with perpetual maturity, collective provisions, net derivative liabilities, currency notes and coins, equities, physical traded commodities, assets posted as initial margin for derivative contracts and contributions to default funds of CCPs, net derivative assets and total derivative liabilities before deduction of variation margin posted.
(e)	Weighted amount: values entered in this column are calculated in accordance with Part 9 of the BLR.
Rows
1	Capital: the sum of values in rows 2 to 3.
2	Regulatory capital: CET1 capital, Additional Tier 1 capital and Tier 2 capital as defined by Part 3 of the BCR before the application of any regulatory adjustments required by the BCR. Capital instruments that will be phased out for regulatory capital purposes after completion of the transitional arrangements as referred to in section 5, Schedule 4H to the BCR should not be included in this row. However, these capital instruments may be reported under row 2a or 3 where appropriate. To avoid doubt, the aggregated amount of total Tier 1 capital can be reported under the time bucket of “No specified term to maturity” (i.e. column (a)).
2a	Minority interests not covered by row 2: if there is any minority interest that has a specified term to maturity, report it under the relevant column. Otherwise, report under the time bucket of “No specified term to maturity” (i.e. column (a)).
3	Other capital instruments: total amount of any capital instruments not included in row 2 or 2a.
4	Retail deposits and small business funding: as defined in BLR rule 39, which are equal to the sum of values in rows 5 and 6.
5	Stable deposits: they comprise stable retail deposits and stable small business funding, as defined in the BLR.
6	Less stable deposits: they comprise retail deposits and small business funding as defined in the BLR but not already covered by row 5 above.
7	Wholesale funding: the sum of values in rows 8 and 9.
8	Operational deposits: as defined in BLR rule 39.
9	Other wholesale funding: it is funding (other than operational deposits) provided to the AI by non-financial corporates (other than small business customers), sovereigns, public sector entities (“PSEs”), multilateral development banks, national development banks, the Monetary Authority (“MA”) for the account of the Exchange Fund (“EF”), central banks, financial institutions and other entities.
10	Liabilities with matching interdependent assets: any liabilities that meet the descriptions in BLR rule 70 and match with interdependent assets should be included in this row and excluded from all other ASF items. For note-issuing banks, this row also includes the amount of legal tender notes in circulation issued by them, as follows: - for unweighted value, the legal tender notes in circulation should be included in column (a) for ‘no specified term to maturity’; - for weighted value, a note-issuing bank may choose either to (a) treat the amount for legal tender notes as $0; or (b) apply BLR rules 65 and 68 to determine such weighted amounts in accordance with BLR rule 69(2).
11	Other liabilities: the sum of values in rows 12 and 13.
12	Net derivative liabilities: in the unweighted cell, report the amount of net derivatives liabilities as calculated according to Part 9 of the BLR (i.e. the net amount of total derivative liabilities (after adjustments) in excess of total derivative assets (after adjustments)). The cell for weighted amount under net derivative liabilities is darkened given that the value will be zero after the 0% ASF is applied.
13	All other funding and liabilities not included in the above categories: report in this row all other funding and liabilities that are counted towards ASF under the BLR but not included in rows 1 to 12 above (e.g. debt securities or prescribed instruments issued, deferred tax liabilities, trade-date payables, etc).
14	Total ASF: the sum of all weighted amounts in rows 1, 4, 7, 10 and 11.
15 to 31	For any assets that are not free from encumbrances (as defined in Part 9 of the BLR), report the unweighted value in columns (a) to (d) taking into account their remaining terms to maturity and periods of encumbrance (whichever is subject to a higher RSF factor), and the weighted amount (i.e. after the applicable RSF factor for encumbered assets) in column (e).
15	Total HQLA for NSFR purposes: being unencumbered high quality liquid assets without regard to LCR operational requirements and caps on Level 2 and Level 2B assets that might otherwise limit the ability of some HQLA to be included as eligible in calculation of the LCR. Under the BLR, these items include: 1. currency notes and coins; 2. claims on the MA for the account of the EF or central banks that are repayable on demand or readily monetizable (including funds placed with the AI's HKD CHATS Account, or with central banks to meet reserve requirements, EF debt securities and central bank debt securities that qualify for HQLA); and 3. other level 1 assets, level 2A assets and level 2B assets held by the AI.
16	Deposits held at other financial institutions for operational purposes: as defined in Part 7 of the BLR.
17	Performing loans and securities: the sum of values in rows 18, 19, 20, 22 and 24.
18	Performing loans to financial institutions secured by Level 1 HQLA: comprising performing loans and funds (other than operational deposits) provided by the AI to other financial institutions that are secured by level 1 assets.
19	Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions: comprising performing loans and funds (other than operational deposits) provided by the AI to other financial institutions not already covered by row 18.
20	Performing loans, other than performing residential mortgages, to non-financial corporate clients, retail and small business customers, sovereigns, the MA for the account of the EF, central banks and PSEs: comprising performing loans and funds (which are not residential mortgages) provided by the AI to retail customers and wholesale customers (other than financial institutions) that are not covered by rows 15 to 19 and 22 to 23.
21	With a risk-weight of less than or equal to 35% under the STC approach: being the portion of amount reported in row 20 that is subject to a risk-weight of less than or equal to 35% under Division 3, Part 4 of the BCR.
22	Performing residential mortgages: comprising all performing residential mortgages provided by the AI. In determining the scope of residential mortgage, an AI could make reference to BCR §2(1) for the scope of row 22. For clarity sake, residential mortgage loans to financial institutions, if any, should be excluded from row 22 and be included in row 18 or 19 where appropriate.
23	With a risk-weight of less than or equal to 35% under the STC approach: being the portion of amount reported in row 22 that is subject to a risk-weight of less than or equal to 35% under Division 3, Part 4 of the BCR.
24	Securities that are not in default and do not qualify as HQLA including exchange-traded equities: comprising debt securities, prescribed instruments and listed equities held by the AI that are not already included in row 15. To avoid doubt, debt securities or prescribed instruments that are not marketable should also be covered by this row, while unlisted equities should be reported under row 31.
25	Assets with matching interdependent liabilities: any assets which meet the descriptions in BLR rule 70 and match with interdependent liabilities should be included in this row and excluded from all other RSF items. For note-issuing banks, this row also includes the amount of certificate of indebtedness that are issued under section 4(1) of the Exchange Fund Ordinance (Cap. 66), as follows: - for unweighted value, the certificates of indebtedness held should be included in column (a) for ‘no specified term to maturity’; - for weighted value, a note-issuing bank may choose either to (a) treat the amount for certificates of indebtedness as $0; or (b) apply BLR rules 65 and 68 to determine such weighted amounts in accordance with BLR rule 69(2).
26	Other assets: the sum of values in rows 27 to 31.
27	Physical traded commodities, including gold: including all physical traded commodities held by the AI.
28	Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs: including cash, securities and other assets posted by the AI as initial margins or default fund contributions under all derivative contracts regardless of whether the assets are maintained on the AI’s balance sheet.
29	Net derivative assets: in the unweighted cell, report the amount of net derivative assets as calculated according to Part 9 of the BLR (i.e. the net amount of the total derivative assets (after adjustments) in excess of total derivative liabilities (after adjustments)). Since net derivative assets are subject to an RSF factor of 100%, the amount reported in the weighted cell should be equal to the amount reported in the unweighted cell.
30	Total derivative liabilities before adjustments for deduction of variation margin posted: report in this row the amount of total derivative liabilities (before adjustments) according to Part 9 of the BLR (i.e. the sum of the replacement costs of derivative contracts between the reporting AI and its counterparties, where each of those contracts has a negative replacement cost before adjustments for any variation margin posted by the reporting AI to the counterparty under the contract). The reported value should be in an absolute term (i.e. disregard the negative sign).
31	All other assets not included in the above categories: report in this row all other on-balance sheet assets that are counted towards RSF under the BLR but not included in rows 15 to 29 above (e.g. trade-date receivables, fixed assets, goodwill, investments in associated entities, unlisted equities, non-performing assets, etc).
32	Off-balance sheet items: the sum of all off-balance sheet obligations listed in Table 2, Schedule 6 to the BLR.
33	Total RSF: the sum of all weighted amounts in rows 15, 16, 17, 25, 26 and 32.
34	Net Stable Funding Ratio (%): presented as quarter-end observations.

Part IV: Counterparty Credit risk


Template CCR1: Analysis of counterparty default risk exposures (other than those to CCPs) by approaches
Purpose:	To provide a comprehensive breakdown of default risk exposures (other than those to CCPs), RWAs, and, where applicable, main parameters under the approaches used to calculate default risk exposures in respect of derivative contracts and SFTs.
Scope of application:	The template is mandatory for all AIs incorporated in Hong Kong.
Content:	Default risk exposures (other than those to CCPs), RWA and parameters used to calculate the AI’s default risk exposures in respect of derivative contracts and SFTs.
Frequency:	Semi-annual.
Format:	Fixed.
Accompanying narrative:	An AI should supplement the template with a narrative commentary to explain any material changes in relation to its RWA in the current reporting period and the key drivers of such changes.
Corresponding BDR section:	16W

		(a)	(b)	(c)	(d)	(e)	(f)
		Replacement cost (RC)	PFE	Effective EPE	Alpha (α) used for computing default risk exposure	Default risk exposure after CRM	RWA
1	SA-CCR approach (for derivative contracts)				1.4
1a	CEM (for derivative contracts)				1.4
2	IMM (CCR) approach
3	Simple approach (for SFTs)
4	Comprehensive approach (for SFTs)
5	VaR (for SFTs)
6	Total

Explanatory Note
Columns
(a)	- Replacement Cost (RC): for the SA-CCR approach, means the RC calculated under the SA-CCR approach in accordance with Division 1A, Part 6A of the BCR. For the CEM, means the RC calculated under the CEM in accordance with Division 2A, Part 6A of the BCR.
(b)	- PFE: For SA-CCR approach, means the PFE calculated under the SA-CCR approach in accordance with Division 1A, Part 6A of the BCR. For CEM, means the PFE calculated under the CEM in accordance with Division 2A, Part 6A of the BCR.
(c)	Effective EPE: this has the meaning given to it by the BCR.
(d)	Alpha (α) used for computing default risk exposure:under the CEM, SA-CCR approach or IMM(CCR) approach, as the case may be, means the alpha applicable to the AI as specified in the BCR.
(e)	Default risk exposure after CRM: In the case of the SA-CCR approach, the CEM, the IMM(CCR) approach, SFTs subject to section 226MJ of the BCR for which the CRM effect is taken into account by using the simple approach and SFTs subject to section 226MK or 226ML of the BCR, means the default risk exposure or outstanding default risk exposure, as the case may be, as defined under the BCR. In the case of SFTs subject to section 226MJ of the BCR for which the CRM effect is taken into account by using the comprehensive approach under Part 4 of the BCR, the amount disclosed in row 4 should be the amount calculated after taking into account any recognized collateral received under the SFTs. In the case of recognized guarantees and recognized credit derivative contracts where the CRM effect is taken into account in accordance with Parts 4 and 5 of the BCR, the default risk exposure (or outstanding default risk exposure) after taking into account the guarantee or credit derivative contract is equal to the default risk exposure (or outstanding default risk exposure) as defined under the BCR. In the case of recognized collateral for SFTs subject to section 226MJ of the BCR, recognized guarantees and recognized credit derivative contracts where the CRM effect is considered in the risk-weight function under Part 6 of the BCR, the post-CRM default risk exposure reported in column (e) is equal to the pre-CRM default risk exposure given that the related CRM effect is not reflected in the EAD of eligible IRB exposures. For the purposes of this disclosure template— - CRM does not include recognized collateral received by an AI outside a netting set where the collateral is not designated solely for offsetting losses on default risk exposures. - Simple approach — - in relation to the STC approach, means the simple approach set out in Division 6 of Part 4 of the BCR; and - in relation to the BSC approach, means the method of reducing the risk-weighted amount of an exposure set out in Division 5 of Part 5 of the BCR.
(f)	RWA: the product of the default risk exposure after CRM and the risk weight applicable to the counterparty concerned.
Rows
1	SA-CCR approach (for derivative contracts): for an AI that uses the SA-CCR approach to calculate default risk exposure in respect of derivative contracts, the AI should report the relevant figures under column (a) to (f) where applicable. The value in [CCR1: 1/f] should be equal to the value in [OV1: 7/a].
1a	CEM (for derivative contracts): for an AI that uses the CEM to calculate default risk exposure in respect of derivative contracts, the AI should report the relevant figures under column (a) to (f) where applicable. The value in [CCR1: 1a/f] should be equal to the value in [OV1: 7a/a].
2	IMM(CCR) approach: this has the meaning given to it by the BCR. The value in [CCR1: 2/f] should be equal to the value in [CCR7: 9/a] and [OV1: 8/a].
3	Simple approach (for SFTs): the default risk exposures after CRM and RWAs in respect of SFTs by the following AIs:- - AIs that do not use the IMM(CCR) approach to calculate their default risk exposures in respect of SFTs; - AIs that use the simple approach set out in Part 4 of the BCR, or the treatments for recognized collateral set out in Part 5 of the BCR, to take into account the recognized collateral received under SFTs.
4	Comprehensive approach (for SFTs): the default risk exposures after CRM and RWAs in respect of SFTs by the following AIs:- - AIs that do not use the IMM(CCR) approach to calculate their default risk exposures in respect of SFTs; - AIs that use the comprehensive approach set out in Part 4 of the BCR to take into account the recognized collateral received under SFTs and/or use the method (other than a VaR model as discussed below) provided for under the BCR to take into account recognized netting for repo-style transactions.
5	VaR (for SFTs): this row is for AIs that have obtained the MA’s approval for using a VaR model to calculate the default risk exposure of their nettable repo-style transactions to disclose the default risk exposure so calculated and the associated RWA.
6	Total: this row reports the sum of values in rows 1 to 5.


Template CCR2: CVA capital charge
Purpose:	To provide information on portfolios subject to the CVA capital charge and the CVA calculations based on standardized CVA method and advanced CVA method.
Scope of application:	The template is mandatory for AIs incorporated in Hong Kong with exposures subject to CVA capital charges.
Content:	Risk-weighted assets and corresponding exposures at default.
Frequency:	Semi-annual.
Format:	Fixed.
Accompanying narrative:	An AI should supplement the template with a narrative commentary to explain any material movements in the current reporting period and the key drivers of such movements.
Corresponding BDR section:	16X


		(a)	(b)
		EAD post CRM	RWA
	Netting sets for which CVA capital charge is calculated by the advanced CVA method
1	(i) VaR (after application of multiplication factor if applicable)
2	(ii) Stressed VaR (after application of multiplication factor if applicable)
3	Netting sets for which CVA capital charge is calculated by the standardized CVA method
4	Total

Explanatory Note
Columns
(a)	EAD post CRM: this column refers to the outstanding default risk exposure, or default risk exposure, of the netting sets calculated in accordance with the BCR. For any SFT within a netting set that are subject to section 226MJ of the BCR where the CRM effect of any recognized collateral received under the SFTs is taken into account by using the comprehensive approach under Part 4 of the BCR, the amount reported should be the net credit exposure calculated in accordance with section 88 of the BCR .
(b)	RWA: this column refers to the CVA risk-weighted amount.
Rows
	Netting sets for which CVA capital charge is calculated by the advanced CVA method: the relevant amounts of the netting sets subject to the advanced CVA method according to Part 6A of the BCR.
1	VaR (after application of multiplication factor if applicable): the product of the VaR determined in accordance with Part 6A of the BCR and 12.5.
2	Stressed VaR (after application of multiplication factor if applicable): the product of the stressed VaR determined in accordance with Part 6A of the BCR and 12.5.
3	Netting sets for which CVA capital charge is calculated by the standardized CVA method: the relevant amounts of the netting sets subject to the standardized CVA method according to Part 6A of the BCR.
4	Total: for each of columns (a) and (b), this is equal to the sum of values in row “Netting sets for which CVA capital charge is calculated by the advanced CVA method” and row 3 of the columns concerned.


Template CCR5: Composition of collateral for counterparty default risk exposures (including those for contracts or transactions cleared through CCPs)
Purpose:	To provide a breakdown of all types of collateral posted or recognized collateral received to support or reduce the exposures to counterparty default risk exposures in respect of derivative contracts or SFTs entered into, including contracts or transactions cleared through a CCP.
Scope of application:	The template is mandatory for all AIs incorporated in Hong Kong.
Content:	Carrying values of collateral posted and recognized collateral received in the context of derivative contracts or SFTs, irrespective of whether the contracts or transactions are cleared through a CCP and whether the collateral is posted to a CCP.
Frequency:	Semi-annual.
Format:	Flexible. The columns are fixed but the rows are flexible where the categories of collateral which may be recognized are those specified under Division 5 of Part 4, Division 5 of Part 5, or Division 10 of Part 6, of the BCR, as the case requires.
Accompanying narrative:	An AI should supplement the template with a narrative commentary to explain any material movements in the current reporting period and the key drivers of such movements.
Corresponding BDR section:	16ZA


		(a)	(b)	(c)	(d)	(e)	(f)
		Derivative contracts				SFTs[3]
		Fair value of recognized collateral received		Fair value of posted collateral		Fair value of recognized collateral received	Fair value of posted collateral
Segregated	Unsegregated	Segregated	Unsegregated
Cash - domestic currency[4]
Cash - other currencies
Domestic sovereign debt
Other sovereign debt
Government agency debt
Corporate bonds
Equity securities
Other collateral
…
Total
Explanatory Note
Columns
(a), (b) and (e)	Fair value of recognized collateral received: the disclosed fair value of recognized collateral received should be after any haircut (if applicable), meaning the value of recognized collateral received will be reduced after haircut (i.e. C(1-Hs)).
(c), (d) and (f)	Fair value of posted collateral: the disclosed fair value of collateral posted should be after any haircut (if applicable), meaning the value of collateral posted (which is an exposure) will be increased after haircut (i.e. E(1+Hs)).
(a) & (c)	Segregated: this refers to collateral which is held in a bankruptcy remote manner.
(b) & (d)	Unsegregated: this refers to collateral which is not held in a bankruptcy remote manner.


Template CCR6: Credit-related derivatives contracts
Purpose:	To disclose the amount of credit-related derivative contracts, broken down into credit protection bought and credit protection sold.
Scope of application:	This template is mandatory for all AIs incorporated in Hong Kong.
Content:	Notional amounts (before any netting) and fair values of credit-related derivative contracts
Frequency:	Semi-annual.
Format:	Flexible. The columns are fixed but the rows (other than the “Total notional amounts” and those related to fair values) are flexible.
Accompanying narrative:	An AI should supplement the template with a narrative commentary to explain any material movements in the current reporting period and the key drivers of such movements.
Corresponding BDR section:	16ZB

	(a)	(b)
	Protection bought	Protection sold
Notional amounts
Single-name credit default swaps
Index credit default swaps
Total return swaps
Credit-related options
Other credit-related derivative contracts
Total notional amounts
Fair values
Positive fair value (asset)
Negative fair value (liability)


Template CCR7: RWA flow statements of default risk exposures under IMM(CCR) approach
Purpose:	To present a flow statement explaining variations in RWA for default risk exposures determined under the IMM(CCR) approach.
Scope of application:	The template is mandatory for AIs incorporated in Hong Kong that use the IMM(CCR) approach for measuring default risk exposures, irrespective of the credit risk approach used to compute the RWAs of the default risk exposures.
Content:	RWA of default risk exposure (i.e. credit risk disclosed in template CR8 excluded). Changes in RWA in the current reporting period for each of the key drivers should be based on an AI’s reasonable estimation of the figures.
Frequency:	Quarterly.
Format:	Fixed. Columns and rows 1 and 9 should not be altered. An AI should add additional rows between rows 7 and 8 to disclose additional elements, if any, that contribute significantly to RWA variations.
Accompanying narrative:	An AI should supplement the template with a narrative commentary to explain any material change in the current reporting period and the key drivers of such changes.
Corresponding BDR section:	16ZC

		(a)
		Amount
1	RWA as at end of previous reporting period
2	Asset size
3	Credit quality of counterparties
4	Model updates
5	Methodology and policy
6	Acquisitions and disposals
7	Foreign exchange movements
8	Other
9	RWA as at end of reporting period

Explanatory Note
Rows
1	RWA as at end of previous reporting period: this row equals the value in [CCR7: 9/a] of the last reporting period, which is also equal to the value in [OV1: 8/b].
2	Asset size: the variation in RWA due to the organic changes in book size and composition (including origination of new businesses and maturing exposures) but excluding changes in book size due to acquisitions and disposal of entities.
3	Credit quality of counterparties: the variation in RWA due to the changes in the assessed credit quality of the AI’s counterparties, whatever credit risk calculation approach the AI uses. This row also includes potential changes due to internal models used under the IRB approach.
4	Model updates: the variation in RWA arising from model implementation, changes in model scope, or any material changes intended to address model weaknesses, in respect of the model used for the IMM(CCR) approach.
5	Methodology and policy: the variation in RWA due to methodological changes in calculations driven by regulatory policy changes, such as new regulations, in respect of the use of the IMM(CCR) approach.
6	Acquisitions and disposals: the variation in RWA arising from changes in book sizes due to acquisitions and disposal of entities.
7	Foreign exchange movements: the variation in RWA driven by foreign exchange rate movements.
8	Other: this category captures changes in RWA that cannot be attributed to any category above. An AI should add additional rows between rows 7 and 8 (to be named 7a, 7b and so on) to disclose any other material drivers of RWA movements in the current reporting period.
9	RWA as at end of reporting period: the sum of rows 1 to 8 (including any additional row(s) inserted by the AI), which is also equal to the value in [OV1: 8/a] and the value in [CCR1:2/f].


Template CCR8: Exposures to CCPs
Purpose:	To provide a comprehensive breakdown of exposures to both qualifying and non-qualifying CCPs and the respective RWAs, covering all types of credit risk exposures (including default risk exposures to the CCPs, credit risk exposures arising from initial margins posted, and default fund contributions made, to the CCPs).
Scope of application:	The template is mandatory for all AIs incorporated in Hong Kong.
Content:	Exposures to CCPs after recognized CRM, and RWA corresponding to the exposures to CCPs.
Frequency:	Semi-annual.
Format:	Fixed. An AI should provide a breakdown of exposures to both qualifying and non-qualifying CCPs.
Accompanying narrative:	An AI should supplement the template with a narrative commentary to explain any material movements in the current reporting period and the key drivers of such movements.
Corresponding BDR section:	16ZD

		(a)	(b)
		Exposure after CRM	RWA
1	Exposures of the AI as clearing member or clearing client[5] to qualifying CCPs (total)
2	Default risk exposures to qualifying CCPs (excluding items disclosed in rows 7 to 10), of which:
3	(i) OTC derivative transactions
4	(ii) Exchange-traded derivative contracts
5	(iii) Securities financing transactions
6	(iv) Netting sets subject to valid cross-product netting agreements
7	Segregated initial margin
8	Unsegregated initial margin
9	Funded default fund contributions
10	Unfunded default fund contributions
11	Exposures of the AI as clearing member or clearing client to non-qualifying CCPs (total)
12	Default risk exposures to non-qualifying CCPs (excluding items disclosed in rows 17 to 20), of which:
13	(i) OTC derivative transactions
14	(ii) Exchange-traded derivative contracts
15	(iii) Securities financing transactions
16	(iv) Netting sets subject to valid cross-product netting agreements
17	Segregated initial margin
18	Unsegregated initial margin
19	Funded default fund contributions
20	Unfunded default fund contributions

Explanatory Note
Columns
(a)	Exposure after CRM: - For rows 2 to 6 and 12 to 16, the amount should be the “outstanding default risk exposure” or “default risk exposure”, as the case may be, as defined under the BCR, for the derivative contracts or SFTs calculated in accordance with Part 6A of the BCR. For any SFTs subject to section 226MJ of the BCR where the CRM effect of any recognized collateral received under the SFTs is taken into account by using the comprehensive approach under Part 4 of the BCR, the amount disclosed should be the net credit exposure calculated in accordance with section 88 of the BCR. - For rows 7 to 10 and 17 to 20, the amount should be the amount of the initial margin posted or the amount of default fund contribution made or committed by the AI.
(b)	RWA: the RWA calculated in accordance with Division 4, Part 6A of the BCR.
Rows
1 & 11	Exposures of the AI as clearing member or clearing client to qualifying CCPs / non-qualifying CCPs (total): for column (b), the value in row 1 should equal the sum of values in rows 2, 8, 9 and 10; the value in row 11 should equal the sum of values in rows 12, 18, 19 and 20. Column (a) should be left blank.
2 & 12	Default risk exposures to qualifying CCPs / non-qualifying CCPs (excluding items disclosed in rows 7 to 10 / rows 17 to 20): the default risk exposures disclosed should include all exposures that are, or regarded as, default risk exposures to qualifying CCPs or to non-qualifying CCPs in accordance with the requirements set out in Division 4, Part 6A of the BCR. The values in row 2 should equal the sum of values in rows 3 to 6; the value in row 12 should equal the sum of values in rows 13 to 16.
3 & 13	(i) OTC derivative transactions: this has the meaning given to it by the BCR.
4 & 14	(ii) Exchange-traded derivative contracts: a derivative contract other than an OTC derivative transaction.
5 & 15	(iii) Securities financing transactions: this has the meaning given to it by the BCR.
6 & 16	(iv) Netting sets subject to valid cross-product netting agreements: netting set as defined by the BCR where the netting could be done according to a valid cross-product netting agreement.
7 & 17	Segregated initial margin: the initial margin held in a bankruptcy remote manner. For the purposes of this template, initial margin does not include contributions to a CCP for mutualised loss-sharing arrangements (i.e. in cases where a CCP uses initial margin to mutualise losses among the clearing members, such margin will be treated as a default fund exposure).
8 & 18	Unsegregated initial margin: it means the initial margin not held in a bankruptcy remote manner. Similar to the above, for the purposes of this template, initial margin does not include contributions to a CCP for mutualised loss-sharing arrangements.
9 & 19	Funded default fund contributions: the meaning of this term should be in line with that of “default fund contribution” under the BCR and the usage of “funded default fund contribution” in Division 4, Part 6A of the BCR.
10 & 20	Unfunded default fund contributions: the meaning of this term should be in line with that of “default fund contribution” under the BCR and the usage of “unfunded default fund contribution” in Division 4, Part 6A of the BCR.

This summary of disclosure templates and tables should be read in conjunction with that published alongside the Phase I and Phase II templates and tables on 21 March 2019. (https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2019/20190321e1.pdf) ↑
‘L’ denotes a disclosure template/table applicable to locally incorporated AIs; ‘O’ denotes a disclosure template/table applicable to overseas incorporated AIs. ↑
For “SFTs” reported in columns (e) and (f), the collateral used is defined as referring to both legs of the transaction. For example, an AI transfers securities to a third party, which in turn posts collateral to the AI. The AI should report both legs of the transaction in the template; on one hand the collateral received is reported in column (e), on the other hand the collateral posted by the AI is reported in column (f). ↑
“Domestic currency” refers to the AI’s reporting currency (not the currency / currencies in which the derivative contract or SFT is denominated). ↑
“Clearing client” here may mean a direct client, or an indirect client within a multi-level client structure, as applicable. These terms have the meaning given by the BCR. ↑