January 16, 2018 / 10:41 AM / 8 months ago

UPDATE 1-China tightens rules on counterparty risk for derivatives

* New rules to boost banks’ risk management abilities

* Offshore derivative trading rising as banks expand overseas (Adds details, background)

BEIJING, Jan 16 (Reuters) - China’s banking regulator issued new rules on Tuesday to control counterparty risk for derivative tools as commercial banks increase their offshore derivative trading activities.

The new rules, which will take effect from Jan. 1, 2019, set higher standards for banks to gauge risk sensitivity when calculating capital for derivative tools.

The existing standards were not sufficient for banks to fully catch the volatility and growth of their derivative trading counterparties’ credit risk, the China Banking Regulatory Commission (CBRC) said in an online statement.

The new rules are the latest in a series of measures taken by policymakers in the world’s second-largest economy to fend off financial risks and slow an explosive build-up in debt without stunting economic growth.

They are based on international standards set by the Basel committee and require commercial banks to include credit risk of their counterparties into their risk management framework, the CBRC said. (Reporting by Shu Zhang and Beijing Monitoring Desk; Editing by Jacqueline Wong)

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