On 27 Nov 2025, the HKMA issued revised CVA risk capital rules (MR-2 V.2) effective 1 January 2026, replacing the 2024 version. The proposals mandate two calculation approaches (BA-CVA/SA-CVA with approval) and introduce tiered cryptoasset treatment, with Group 2b assets subject to a 1,250% risk weight. Als must implement standalone CVA portfolio calculations and meet stringent SA-CVA model validation requirements.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction and Key Regulatory Changes
On 27 Nov 2025, the Hong Kong Monetary Authority (HKMA) published the revised Supervisory Policy Manual (SPM) Module MR-2: CVA Risk Capital Charge (V.2), replacing the previous version dated 15 March 2024. The proposals establish updated minimum standards for calculating counterparty credit valuation adjustment (CVA) risk capital charges, introducing refined approaches for locally incorporated Authorised Institutions (Als) and specific treatment for cryptoasset exposures, effective 1 January 2026.
Calculation Approaches and Requirements
The proposals require Als to calculate CVA risk capital charges using either the Basic CVA Approach (BA-CVA) or, with HKMA approval, the Standardised CVA Approach (SA-CVA). The BA-CVA offers reduced (simplified) or full versions, with the full version recognising eligible counterparty credit spread hedges. The SA-CVA, requiring explicit HKMA approval, mandates monthly reporting and adherence to stringent qualitative and quantitative standards, including model validation, independent oversight, and specific sensitivity calculations. Als with non-centrally cleared derivatives below HKD 100 million may use a simplified 100% counterparty credit risk capital charge, subject to HKMA review.
Cryptoasset Exposure Treatment
The proposals introduce distinct regulatory treatment for cryptoasset derivatives and fair-valued securities financing transactions (SFTs). Group 1a cryptoassets (tokenised traditional assets with similar liquidity) follow standard CVA rules, but require individual assessment due to potential basis risk. Group 1b cryptoassets (e.g., stablecoins) are treated like traditional assets. Group 2a cryptoassets (e.g., non-stablecoins) are subject to the CVA framework excluding SA-CVA. Group 2b cryptoassets (e.g., high-volatility tokens) are subject to a conservative 1,250% risk weight treatment for CVA risk capital, with no additional calculation required unless HKMA deems CVA risk material for fair-valued SFTs.
Implementation and Compliance
The revised module takes effect on 1 January 2026, superseding the previous MR-2 V.1. Als must calculate CVA risk capital charges on a standalone basis for covered transactions (including eligible hedges) across banking and trading books. The SA-CVA requires Als to demonstrate robust CVA risk management frameworks, including validated exposure models, independent validation units, and adherence to prescribed risk factor definitions and sensitivity calculations. The HKMA may adjust the SA-CVA multiplier (mCVA) based on model risk levels.
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