Standard Approach for Measuring Counterparty Credit Risk Exposures (SA-CCR)
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AxiomSL’s solution for the Standardized Approach for Measuring Counterparty Credit Risk Exposures (SA-CCR) includes the functionality and new calculations needed to compute exposure at default (EAD) and provides full support for impact analysis. AxiomSL’s ‘one platform’ model means the same system can be used for all other regulatory calculation and reporting requirements, including the other Basel capital calculations. This greatly reduces the cost and complexity of compliance. AxiomSL’s solution aggregates and normalizes all of the data required for SA-CCR from the disparate sources in which it is maintained. Data can be loaded on to the solution in any format without the need for data conversion. It is then used to run the add-on, PFE and RC calculations and to produce the EAD.
When the calculations have been completed, users can review the results, check whether they are as expected and do trend analysis. If necessary, they can adjust their input data. The calculation results can be used as inputs for other Basel capital calculations. When mandated in the European Union (EU), it will also be possible to automatically feed the SA-CCR results into Common Reporting (COREP) templates using the appropriate XBRL taxonomy.
AxiomSL’s solution provides full support for impact analysis, including the ability for banks to do parallel running of their incumbent calculations and the new SA-CCR calculations. This allows them to understand how they will be affected by SA-CCR and ensures they can migrate smoothly to the new calculations when SA-CCR comes into force. Due to its high-performance capabilities, AxiomSL’s solution can process large volumes of data rapidly. This will allow banks to execute their SA-CCR calculations each day to ensure they are within their capital limits and to circulate the relevant information to different internal groups. The solution offers unparalleled transparency. Users have the ability to drill down from their final SA-CCR figures to their source data and can see how the data has been transformed at each stage in the calculation process. This gives users confidence in the accuracy of the results and enables them to respond to queries from regulators.
AxiomSL continually monitors changes to the SA-CCR calculations and provides updates when they are amended. These regulatory update releases are separated from software releases, allowing firms to upgrade quickly without undertaking regression testing.
The SA-CCR solution is built on the same platform as all of AxiomSL’s other offerings. This gives banks a unique opportunity to reduce cost and complexity by using a single platform to meet all of their regulatory calculation and reporting requirements, including other Basel capital calculations such as the Fundamental Review of the Trading Book (FRTB) and Interest Rate Risk in the Banking Book (IRRBB).
- A single platform that can be used for all regulatory calculation and reporting requirements globally, including SA-CCR, the FRTB and IRRBB
- Full support for impact analysis, including parallel running of calculations
- Aggregation of disparate data
- The ability to load data in any format without conversion
- Automation of the entire calculation process
- Unrivalled transparency, including drilldown from outputs to source data
- Provision of mandatory calculations, including new add-on, PFE and RC calculations
- A high-performance calculation engine
- Add-on for interest rate derivatives
- Add-on for foreign exchange derivatives
- Add-on for credit derivatives
- Add-on for equity derivatives
- Add-on for commodity derivatives
- RC for margined trades
- RC for unmargined trades
- RC where a single margin agreement covers multiple netting sets
As part of what has been dubbed ‘Basel IV’, banks around the world will be required to use a new methodology to calculate their exposure to counterparty credit risk and the corresponding capital reserves needed to mitigate this risk. SA-CCR will be mandatory for all over-the-counter (OTC) derivatives, exchange-traded derivatives (ETDs) and long settlement transactions. It will replace the incumbent Current Exposure Method (CEM) and Standardized Method (SM), altering banks’ capital requirements.
In order to comply, banks will need a variety of complex calculations. These include new add-on, potential future exposure (PFE) and replacement cost (RC) calculations that are required to compute the EAD.
Banks will want to implement these calculations and run impact analysis exercises as soon as possible to understand how SA-CCR will affect their capital requirements. They will also need the ability to run the calculations on a regular (in many cases daily) basis to ensure they do not exceed the capital limits set by regulators.
SA-CCR Solution Diagram
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