April 26, 2019

HKMA published the annual report for 2018, which summarizes its work activities during 2018. The report reveals that the Hong Kong banking system remained sound in 2018, notwithstanding increased uncertainties in the global economy and the financial markets.

The report highlights that substantial progress was made on the local implementation of international regulatory standards, including capital adequacy standards, disclosure standards, liquidity standards, and large exposure limits. HKMA’s interface with the banking industry was enhanced to ensure an appropriate balance between supervisory effectiveness and market development. Meanwhile, HKMA continued its work to ensure there is a credible resolution regime for authorized institutions, including introducing rules on minimum loss-absorbing capacity requirements to address a significant impediment to authorized institutions’ resolvability.

During the year, HKMA continued to focus its supervisory efforts on reviewing the effectiveness of authorized institutions’ liquidity and credit risk management systems. In view of growing cybersecurity threats and increasing adoption of fintech in the banking industry, HKMA stepped up the supervision of authorized institutions’ technology risk management and operational resilience. HKMA also published a revised guideline on authorization of virtual banks in May and began to process applications for authorization as virtual banks. In addition, the scope of the Banking Made Easy initiative was expanded in September to facilitate the adoption of regulatory technology (regtech) by banks. Three new workstreams focusing on surveillance technologies for AML/CFT, regtech for prudential risk management and compliance, and machine-readable regulations were created. As part of the Cyber Resilience Assessment Framework (C-RAF), during the year, HKMA conducted on-site examinations focusing on authorized institutions’ cyber-security controls, outsourcing arrangements, and information technology governance. 

On conduct supervision, HKMA took further steps to enhance the supervision of authorized institutions’ sales practices for investment and insurance products, facilitate access to barrier-free banking services to customers with disabilities, and promote a customer-centric corporate culture. HKMA also reviewed authorized institutions’ market risk management for their debt securities portfolios. Thematic on-site examinations were undertaken to evaluate authorized institutions’ compliance with the new international standards on treasury activities, including the Foreign Exchange Global Code, and the margining and risk mitigation standards on non-centrally cleared over-the-counter (OTC) derivatives.

 

Keywords: Asia Pacific, Hong Kong, Banking, Annual Report, Regtech, Cyber Risk, Market Risk, TLAC, HKMA

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