On 19 Dec 2025, the HKMA issued CR-G-8 V.5 to update guidelines on large exposures and risk concentrations, clarifying credit risk transfer frameworks for Category A/B institutions, refining LC group formation criteria under economic dependence thresholds, and introducing specific valuation rules for cryptoasset exposures. The guidelines maintain statutory limits at 25% for single counterparties while reinforcing internal controls, clustering limits, and reporting requirements for Authorized Institutions.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 19 Dec 2025, the Hong Kong Monetary Authority (HKMA) issued Supervisory Policy Manual CR-G-8 (V.5) 'Large Exposures and Risk Concentrations', superseding previous versions to clarify regulatory requirements for controlling large exposures and risk concentrations under the Banking (Exposure Limits) Rules (BELR). The updated guidelines provide detailed operational guidance on statutory limits, exposure valuation, and risk concentration management for Authorized Institutions (Als).
Credit Risk Transfer Framework
The guidelines revise the credit risk transfer framework, distinguishing between Category A and Category B institutions. Category A institutions (internationally active/systemically important) must apply the comprehensive approach to recognized credit risk mitigation (CRM) for all exposures. Category B institutions may use a simplified framework, applying CRM only to specific exposures (e.g., CCR exposures with recognized netting or cash collateral). Category B institutions may opt for Category A treatment if they demonstrate adequate systems for accurate ASC/ALCG exposure calculation, including independent validation and user acceptance testing. The HKMA will review Category A designations annually.
Group of Linked Counterparties (LC Group) Formation
The guidelines clarify the formation of LC groups under Rule 41, emphasizing economic dependence criteria. An Al may exclude entities economically dependent on a reference counterparty if its exposure to that counterparty does not exceed 5% of Tier 1 capital. The 5% threshold applies per entity, and Als must aggregate exposures after CRM, offsetting, and deduction to avoid circumvention. Economic dependence is defined by specific criteria (e.g., 50% gross receipts from transactions, shared funding sources), with one-way dependence (e.g., Entity A dependent on Entity B) requiring inclusion of Entity A in Entity B's LC group. The document provides illustrative examples for complex scenarios.
Cryptoasset Exposure Valuation
Division 5A of Part 7 introduces specific valuation rules for cryptoasset-related exposures. Als must first identify counterparties or LC groups exposed to cryptoassets, then value exposures based on factors including cryptoasset classification (Group 1a/1b, 2a/2b), booking location (banking/trading book), and exposure type. The HKMA retains flexibility to prescribe alternative valuation methodologies via written notice, acknowledging the evolving nature of cryptoassets. Als must leverage Capital Rules valuations where applicable, with adjustments for credit risk exposure or default risk exposure under the BELR.
Clustering Limit and Prudential Controls
The guidelines reinforce the clustering limit requirement for Als incorporated in Hong Kong, mandating internal limits on aggregate non-exempt large exposures (excluding bank exposures) on unconsolidated and consolidated bases. The limit, approved by the Board of Directors, should be realistic (typically within 200% of Tier 1 capital) and aligned with capital adequacy, risk management capabilities, and portfolio characteristics. Als must establish systems to monitor compliance, with the HKMA assessing limit acceptability based on capital ratios, portfolio diversification, and risk management robustness. The document also clarifies that exposures covered by MA-approved letters of comfort are excluded from the clustering limit.
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