Final Basel Committee guidelines for counterparty credit risk management | A&O Shearman

The Basel Committee on Banking Supervision has published the final version of its guidelines for counterparty credit risk management, replacing its “Sound Practices for Banks’ Interactions with Highly Leveraged Institutions” (originally published in January 1999). The guidelines provide a supervisory response to the significant shortcomings that have been identified in banks’ management of CCR, including the lessons learned from recent episodes of non-bank financial intermediary distress.

The guidelines include the need to: (i) conduct comprehensive due diligence both at initial onboarding and on an ongoing basis; (ii) develop a comprehensive credit risk mitigation strategy to manage counterparty exposures effectively; (iii) measure, control and limit CCR using a wide variety of complementary metrics; and (iv) build a strong CCR governance framework. Banks and supervisors are encouraged to take a risk-based and proportional approach in the application of the guidelines. The Basel Committee will continue to monitor implementation of the guidelines on an ongoing basis.

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