Chile Financial Market Commission consults on Basel III market risk capital amendments including cutting the vertical adjustment parameter to 7 percent

The Chile Financial Market Commission (CMF) opened a five-week consultation on amendments to Chapter 21-7 of the Updated Compilation of Banking Regulations to make market risk capital requirements more consistent with banks’ risk profiles by refining the calculation of Market Risk-Weighted Assets (MRWA) as part of its ongoing Basel III implementation review. The proposal would recalibrate the vertical adjustment parameter to reflect local market characteristics, reducing it from 10 percent to 7 percent based on local calibration results for basis and gap risks. It would also update guidance for interest rate risk estimation by excluding derivatives and allowing full offsetting of matched derivative positions even when positions are not strictly identical, in line with Basel standards. CMF estimates the combined changes would reduce MRWA across the system by around 23 percent, resulting in a short-term reduction in capital requirements and narrowing the gap in risk-weighted asset density between Chilean banks and peers in other jurisdictions. If adopted, the amendments would take effect from July 2026. CMF also flagged a medium-term plan to assess the use of more sophisticated MRWA calculation methodologies.