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    HKMA Proposes Pillar 3 Disclosures and Operational Resilience Guidance

    December 22, 2021

    The Hong Kong Monetary Authority (HKMA) is consulting the banking industry on the implementation of Pillar 3 disclosure requirements under the Basel III final reform package. Annex I of the consultation paper provides a tabulated summary of the tables and templates for implementing the new and revised disclosure requirements, along with their respective reporting frequencies and proposed implementation dates. Annex II illustrates the first reporting periods for the proposed disclosure requirements. The consultation on Pillar 3 disclosures closes on January 19, 2022. HKMA also proposed revisions to the Supervisory Policy Manual Modules TM-G-2 on business continuity planning and OR-1 on operational risk management, in addition to the new Module OR-2 on operational resilience. The consultation period for the Policy Modules ends on February 04, 2022.

    Consultation on Pillar 3 Disclosure Requirements

    This consultation addresses the implementation of certain disclosure requirements published by BCBS in December 2018, June 2019, and November 2021. These requirements include the following:

    • Revisions and additions to the Pillar 3 framework arising from the finalization of the Basel III final reform package, including revised disclosure requirements for credit risk, operational risk, leverage ratio, credit valuation adjustment, and overview of risk management, risk-weighted assets, and key prudential metrics
    • New disclosure requirements to compare risk-weighted asset outcome of internal models of banks, with risk-weighted assets calculated according to the full standardized approaches
    • New disclosure requirements on asset encumbrance
    • Revisions to the disclosure requirements on leverage ratio
    • Revisions to the disclosure requirements on market risk 

    Consultation on Policy Modules

    • SPM Module on Operational Risk Management—HKMA proposed to revise this module, which sets out the approach that HKMA will adopt toward the supervision of authorized institutions’ operational risk and to provide guidance to authorized institutions on the key elements of effective operational risk management. Each authorized institution should develop and maintain an appropriate operational risk management framework that is effective and efficient in identifying, assessing, monitoring, and controlling/mitigating operational risk, taking into account its complexity, range of products and services, organizational structure, and risk management culture.
    • SPM Module on Operational Resilience—This newly proposed Policy Module sets out the supervisory approach to operational resilience and provides authorized institutions with guidance on the general principles that they are expected to consider when developing their operational resilience framework. HKMA will consider an authorized institution to be operationally resilient if it is able to identify and mitigate risks that may threaten delivery of critical operations, continue to deliver critical operations when disruptions occur, resume normal operations in a timely manner after disruptions occur, and absorb learnings from disruptions or near-misses.
    • SPM Module on Business Continuity Planning—HKMA proposed to revise this module, which sets out the supervisory approach to business continuity planning and the sound practices, which HKMA expects authorized institutions to consider. An effective business continuity plan is forward-looking and should be validated for a range of severe but plausible scenarios that contain disruptive events and incidents. The business continuity plan should identify critical operations as well as the key internal and external dependencies supporting these critical operations. It should incorporate business impact analysis, recovery strategies, testing programs, training and awareness programs, communication strategies, and crisis management processes. 


    Comment Due Date: January 19, 2022 (Disclosure Requirements)/February 04, 2022 (Policy Modules)

    Keywords: Asia Pacific, Hong Kong, Banking, Basel, Pillar 3, Disclosures, Supervisory Policy Manual, Business Continuity, Operational Risk, Operational Resilience, Credit Risk, Market Risk, CVA Risk, HKMA

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