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January 17, 2018

HKMA launched a two-month public consultation on a set of proposed rules related to loss-absorbing capacity (LAC) requirements for authorized institutions under the Financial Institutions (Resolution) Ordinance (Cap. 628). Comments are due by March 16, 2018. HKMA intends to introduce the rules as subsidiary legislation under the Ordinance into the Legislative Council for negative vetting later in 2018.

The consultation sets out detailed proposals on minimum LAC requirements for authorized institutions.  The proposals are designed to be aligned with the international standards on loss-absorbing capacity set by FSB in its Total Loss-absorbing Capacity (TLAC) Term Sheet. In drawing up the proposed rules, HKMA has taken these standards into account and made reference to the approaches adopted in comparable overseas jurisdictions. The consultation invites views from any interested parties, including industry, academia and the general public, on all aspects of those proposals, including on the scope of institutions that will be covered, calibration of minimum requirements, eligibility criteria for LAC instruments, restrictions on the sale, and distribution of LAC instruments and safeguards.

The Ordinance established a cross-sectoral resolution regime for financial institutions that is fully compliant with the international standards.  It confers on HKMA, as the resolution authority for the banking sector, statutory responsibilities and powers to enable it to manage any future failure of an authorized institution in an orderly manner that avoids disruption to financial stability and minimizes the risk to public funds. The Ordinance was enacted by the Legislative Council on June 22, 2016.  The main provisions of the Ordinance came into operation on July 07, 2017.

 

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Comment Due Date: March 16, 2018

Keywords: Asia Pacific, Hong Kong, Banking, TLAC, Resolution Regime, HKMA

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