Cryptoassets Standard: SPM Modules, Code of Practice, Disclosure Templates and Tables, and Banking Returns Annex 2(h): SPM: MR-1 Market Risk Capital Charge

Introduction

On 27 Nov 2025, the Hong Kong Monetary Authority (HKMA) issued Version 2 of its Market Risk Capital Charge (MR-1) module, superseding the previous version dated 15 March 2024, which implements the Basel Committee on Banking Supervision's Fundamental Review of the Trading Book (FRTB) standards for market risk capital calculation. This updated framework replaces the previous market risk capital requirements and provides detailed operational guidance for Authorized Institutions (Als) to calculate their market risk capital charges.

Key Regulatory Changes

The updated MR-1 module introduces significant changes to the market risk capital calculation framework, implementing the FRTB standards through three primary approaches: the Standardized (Market Risk) Approach (STM), the Internal Models Approach (IMA), and the Simplified Standardized Approach (SSTM). The framework replaces the previous market risk capital requirements and provides detailed requirements for calculating capital charges across multiple risk classes including general interest rate risk, credit spread risk, equity risk, foreign exchange risk, and commodity risk. The document also establishes specific treatment for cryptoasset exposures, including Group 1 and Group 2a cryptoassets, with detailed requirements for their classification and capital treatment.

Market Risk Capital Calculation Framework

The STM approach requires Als to calculate capital charges using a sensitivities-based method (SBM) that captures delta, vega, and curvature risks within prescribed risk classes, supplemented by a residual risk add-on (RRAO) and standardised default risk charge (SA-DRC). The IMA approach permits Als with sophisticated risk management systems to use internal models for capital calculation, subject to HKMA approval and strict requirements for model validation, backtesting, and profit and loss attribution tests (PLAT). The SSTM approach is available for smaller Als with simpler market risk exposures, subject to specific eligibility criteria including limits on market risk risk-weighted assets and notional derivatives exposure. The document specifies detailed requirements for risk factor definitions, correlation parameters, and capital charge calculations across all approaches.

Special Treatment for Cryptoassets

The MR-1 module provides specific treatment for cryptoasset exposures, with Group 1 cryptoassets (tokenized instruments and stablecoins) mapped to traditional asset risk categories and subject to the same capital treatment as their underlying traditional assets. Group 2a cryptoassets, which meet hedging recognition criteria, must be assigned to the trading book and are subject to modified versions of the SSTM and STM approaches with specific capital requirements. Group 2b cryptoassets are not subject to market risk capital charges but are treated conservatively under the banking book rules. The document specifies detailed requirements for calculating capital charges for both Group 1 and Group 2a cryptoassets under each approach, including specific risk factor definitions and bucket structures.

Implementation and Compliance Requirements

Version 2 of the MR-1 module takes effect on 1 January 2026, coinciding with the commencement date of the Banking (Capital) (Amendment) Rules 2025. The framework requires Als to implement robust risk management systems, including detailed policies for trading book boundaries, internal risk transfers, and trading desk definitions. For the IMA approach, Als must satisfy strict requirements for model validation, backtesting (with specific thresholds for exceptions), and PLAT to maintain model eligibility. The document also establishes requirements for structural foreign exchange risk position exclusions, with specific conditions for protecting capital adequacy ratios against exchange rate movements.