CCR Under Scrutiny

In partnership with Forvis Mazars, we surveyed 13 G-SIBs to assess CCR, IMM, and SA-CVA practices amid evolving global regulation and supervisory scrutiny post-Archegos.

Regulatory context

Following the demise of Archegos in March 2021, there has been heightened regulatory focus on Counterparty Credit Risk (CCR) risk management practices.  In December 2024, the Basel Committee on Banking Supervision (BCBS) published its final guidelines for CCR management (Final guidelines for counterparty credit risk management), while regulators have increased their focus on CCR management of Non-Bank Financial Institutions (NBFIs).

There have been a number of supervisory reviews on the topic - notably ECB on-site inspections and a PRA Thematic Review, revealing diverging practices in the industry and resulting in severe findings.

On 27 July, the ECB published a revised version of EGIM (ECB guide to internal models), which incorporates some changes to its CCR section, reflecting the importance of IMM.

Finally, FRTB-CVA is now live across several jurisdictions, including in the EU as of 1January 2025, while the UK has postponed implementation to 1January 2027 and the US having not set a time yet. Despite this divergence, a number of regulatory submissions have already been received for SA-CVA.

Forvis Mazars and GARP have partnered through the GARP Benchmarking Initiative (GBI) to conduct a survey across 13 G-SIBs to better understand existing market practice across CCR risk management, IMM and SA-CVA to reveal areas of consensus and divergence.

Key themes of focus

Counterparty Credit Risk

• Across the sample of banks, Potential Future Exposure (PFE) was found to be universally used and enforced as a CCR management metric across all businesses. 

• For highly collateralised portfolios, these are generally managed through standard risk management processes, though higher quantiles can be applied.

• In line with BCBS Guidelines, there is increased focus on institutions employing complementary metrics to manage their CCR exposures.  CCR stress-testing was found to be the most prominent one.

• A range of relatively divergent practices exists relating to the identification, scope and capitalisation of both General (gWWR) and Specific wrong-way risk (sWWR). 

• The same is true for ‘Risk not in the model’ or RNI-EEPE; frameworks are in varying states of maturity with a wide range of market practices relating to design and capitalisation.  

• The survey also focused on topics relating to IMM, such as:

  • Liquidity and Concentration rules
  • Dynamic IM
  • RNI-EEPE
  • Cash-flow spikes.

While regulatory oversight across the EU, UK and US has considerably increased and contributed to more alignment, a range of practices and a high degree of divergence continues to persist.  

Credit Valuation Adjustment

A technical survey was also conducted on FRTB-CVA. Almost all banks surveyed have plans to apply for SA-CVA for at least some part of their business, including some banks without an IMM waiver.

The survey covered topics such as

• Alignment between Accounting CVA and SA-CVA as well as SA-CVA and IMM

• Split netting sets across SA and BA

• Collateral modelling

• Specific regulatory interpretations

Banks have approached SA-CVA differently depending on their business, on the sophistication of their accounting CVA models but also on their diverging views of how to implement aspects such as gWWR and sWWR, illiquidity and concentration rules in their SA-CVA frameworks.

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