On 19 Dec 2025, the HKMA issued MR-2 Version 2, implementing Basel-aligned CVA risk capital requirements effective 1 January 2026. The proposals mandate Als to calculate CVA charges using BA-CVA (reduced/full) or HKMA-approved SA-CVA, with specific rules for cryptoasset exposures (Group 1a/1b under standard rules, Group 2a excluded from SA-CVA, Group 2b subject to 1,250% risk weight). Key requirements include monthly reporting, SA-CVA model validation standards, and MPoR floors of 4+N/9+N business days for margining.
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Introduction
On 19 Dec 2025, the Hong Kong Monetary Authority (HKMA) issued Version 2 of the Supervisory Policy Manual Module MR-2 'CVA Risk Capital Charge', superseding the previous version dated 15 March 2024. The proposals establish a revised regulatory framework for calculating credit valuation adjustment (CVA) risk capital charges for authorised institutions (Als), aligning with the Basel Committee on Banking Supervision's 2020 targeted revisions to the CVA risk framework. This framework will take effect on 1 January 2026, with the Banking (Capital) Rules prevailing over this module in case of discrepancies.
Regulatory Framework and Calculation Approaches
The proposals mandate all locally incorporated Als to calculate CVA risk capital charges for covered transactions in both banking and trading books using either the Basic CVA Approach (BA-CVA) or, with HKMA approval, the Standardised CVA Approach (SA-CVA). The BA-CVA offers two variants: a reduced version (eliminating hedging recognition) and a full version (recognising counterparty credit spread hedges), with a 25% supervisory floor on hedge recognition. The SA-CVA requires explicit HKMA approval and imposes stringent qualitative standards, including model validation, independent oversight, and alignment with accounting CVA calculations. Als with aggregate non-centrally cleared derivatives below HKD 1 billion may use a simplified 100% counterparty credit risk capital charge alternative, subject to HKMA review.
Cryptoasset Exposure Requirements
The proposals introduce specific CVA risk 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 for liquidity differences; if insufficient data exists, SA-CVA cannot be applied. Group 1b cryptoassets follow standard CVA rules. Group 2a cryptoassets are subject to the framework excluding SA-CVA eligibility, while Group 2b cryptoassets require a conservative 1,250% risk weight for CVA capital charges, except for material fair-valued SFTs collateralised by Group 2b cryptoassets, which require HKMA determination of materiality.
Implementation and Compliance
Als must calculate CVA risk capital charges monthly under both approaches. For SA-CVA, Als must demonstrate compliance with qualitative criteria including model validation, independent oversight, and data integrity standards. The margin period of risk (MPoR) floor is set at 4+N business days for SFTs and client-cleared transactions (where N is the re-margining period), and 9+N days for other transactions. The proposals also specify risk-weighted sensitivity calculations, correlation parameters, and sector-based risk weights for delta and vega risk components across six risk classes (interest rate, FX, credit spread, equity, commodity, and reference credit spread).
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