HKMA published revised versions of five Supervisory Policy Manual modules, in the Gazette, as statutory guidelines under the Banking Ordinance. All of these modules relate to the guidance on Banking (Exposure Limits) Rules (BELR). The Supervisory Policy Manual modules are CR-G-8 on “Large Exposures and Risk Concentrations,” CR-G-9 on “Exposures to Connected Parties,” CR-L-1 on “Consolidated Supervision of Concentration Risks: Banking (Exposure Limits) Rules (BELR)—Rule 6,” CR-L-3 on “Letters of Comfort: BELR Rule 57(1)(d),” and CR-L-4 on “Underwriting of Securities: BELR.” HKMA also revised the Glossary module, which contains a list of abbreviations and common terms used in the Supervisory Policy Manual.
The CR-L-1 Module on consolidated supervision of concentration risks has been revised in response to the recommendations from an assessment team formed by BCBS in the context of the Regulatory Consistency Assessment Program (RCAP); the BCBS assessment team has recently reviewed the local implementation of BCBS standards on large exposures. The changes are mostly editorial in nature and are intended to make explicit, in the text, the current policy of HKMA to require compliance with the statutory limits on a consolidated basis so that it is more apparent that the regulations conform to the relevant standards. The revisions to the other four modules are incidental to the implementation of the BELR, which has replaced the provisions related to exposure limits formerly set out in Part XV of the Banking Ordinance. The majority of the revisions in these Supervisory Policy Manual modules relate to replacing cross-references to obsolete Banking Ordinance provisions with those of the BELR. Other key changes include the following:
- For CR-G-8 and CR-G-9, clarification and implementation guidance on Parts 7 and 8 of the BELR, respectively, have been incorporated. CR-G-8 also introduces a new requirement for locally incorporated authorized institutions to set an internal limit on aggregate intragroup exposures; the requirement is expressed as a percentage of the tier 1 capital of an authorized institution.
- For CR-L-3, the primary change is to cease acceptance of existing letters of comfort issued by holding companies of authorized institutions after June 30, 2020. This addresses the legacy issue of treating letters of comfort as an acceptable credit risk mitigation tool, which is not consistent with the latest BCBS large exposures standards. In response to a recommendation from the recent RCAP review, the revised module specifies that HKMA, in the future, would only accept letters of comfort issued by the Government for the Hong Kong Mortgage Corporation Limited and its subsidiaries.
- For CR-L-4, an authorized institutions that engages or plans to engage in the underwriting business still needs to establish and implement necessary internal control policies and limits; however, agreement of such policies and limits with HKMA in advance is no longer required. HKMA may review the relevant documentation and internal control processes during the course of its risk-based supervisory processes.
Keywords: Asia Pacific, Hong Kong, Banking, BELR, Supervisory Policy Manual, Large Exposures, Banking Ordinance, RCAP, Concentration Risk, Credit Risk, BCBS, HKMA
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