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August 31, 2018

HKMA is informing the authorized institutions in advance about an impending change on the scope of authorized institutions that will be subject to the new framework for interest rate risk in the banking book (IRRBB). HKMA has decided to exempt the authorized institutions incorporated outside Hong Kong from the new local IRRBB framework in cases where the parent group of the authorized institutions is not additionally represented in Hong Kong through a locally incorporated authorized institution.

This change was prompted by the feedback received from industry associations, which strongly suggested that the new local IRRBB framework may lead to disproportional costs for some authorized institutions incorporated overseas, especially those with relatively simple and small-scale local operations in Hong Kong. Therefore, based on an analysis weighing the costs and benefits of requiring all authorized institutions incorporated overseas to implement the new IRRBB framework, HKMA has decided to put in place this exemption. The exempted overseas incorporated authorized institutions will continue to be subject to the existing local standards on interest rate risk and they will be expected to additionally manage their IRRBB, along with their parent groups, based on the IRRBB standards of their home jurisdictions and in accordance with the BCBS standards. HKMA will, however, reserve the discretion to require any of these exempted authorized institutions to implement the new local IRRBB framework and to meet the corresponding reporting standards with a reasonable notice period for any reason that may be relevant in exercising the key functions of HKMA.

HKMA is still in the process of finalizing the policy documents for the local implementation of the IRRBB standards issued by BCBS in April 2016. Further details on the outlined exemption will be provided in the finalized version of the IRRBB policy documents and in the second-round response of HKMA to the industry feedback (to be issued later this year) on IRRBB consultation. The consultation period for the IRRBB framework in Hong Kong had ended on August 11, 2018.

Keywords: Asia Pacific, Banking, Basel III, IRRBB, Interest Rate Risk, Scope of Application, HKMA

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