Basel Committee Makes Changes to Treatment of Client Cleared Derivatives

The Basel Committee today announced that it will revise the leverage ratio treatment of client cleared derivatives to align it with the standardized approach to measuring counterparty credit risk exposures, or SA-CCR. With this change, both cash and non-cash forms of initial margin and variation received from a client may offset the replacement cost and potential future exposure for client cleared derivatives only. The change will take effect Jan. 1, 2022.

While this action would help to harmonize the existing regulatory framework, ABA has previously raised concerns about SA-CCR, particularly with respect to its treatment of initial margin. In previous comments to U.S. regulators about their proposal to implement SA-CCR, ABA noted that it included overly conservative assumptions that could result in a risk-insensitive treatment of initial margin.