Global banking watchdogs have announced their first big crackdown on regulatory arbitrage since the passage of the Basel III reform package with a plan for hefty charges on banks that use pricey credit default swaps to cut their capital requirements.

The highly technical consultation announced on Friday by the Basel Committee on Banking Supervision, which sets global bank safety rules, takes aim at banks that have been exploiting a regulatory loophole by buying credit protection on risky loans but spreading out the premiums for several years.

The Basel group, made up of 27 countries with major financial centres, announced 15 months ago that it was concerned about these arrangements because they immediately cut a bank’s capital charges, though the costs – and the risk of buying the insurance – do not show up until later.