HKMA Consults on Stay Rules on Financial Contracts Under FIRO
HKMA published proposals for making rules related to contractual stays on termination rights in financial contracts for authorized institutions under FIRO or the Financial Institutions (Resolution) Ordinance (Cap. 628). The proposals encompass the rules that HKMA intends to make in its capacity as a resolution authority. Comments are requested by March 22, 2020.
FIRO, which came into effect in 2017, establishes a cross-sectoral resolution regime for financial institutions that is in line with the international standards. Disorderly termination of contracts by counterparties of a financial institution in a resolution would cause significant contagion effect to the financial markets. FIRO contains a provision that provides a resolution authority with the power to suspend (that is, stay), for a specified period, the termination right of a counterparty to a qualifying contract under certain circumstances. For ensuring the effective implementation of this provision, a resolution authority may make rules that impose a requirement for contractual recognition of the temporary stay power under FIRO
The consultation sets out detailed proposals for the stay rules HKMA intends to make, which will require the entities subject to the rules to adopt appropriate provisions in certain financial contracts to the effect that the parties to the contracts agree to be bound by a temporary stay that may be imposed by HKMA under FIRO. The proposals are designed to be aligned with the relevant principles set by FSB. In drawing up the proposals, HKMA has taken these principles into account and made reference to the approaches adopted in key jurisdictions.
The consultation paper sets out the relevant FIRO provisions and the international context. It also sets out the proposed scope of the stay rules, operational and implementation matters in relation to the stay rules, along with the next steps intended to be taken in relation to the stay rules. The Annex to the consultation paper sets out the full list of consultation questions. Subject to outcome of the public consultation, the intention is to introduce the rules as subsidiary legislation under FIRO into the Legislative Council for negative vetting in the 2020-2021 legislative session.
Comment Due Date: March 22, 2020
Keywords: Asia Pacific, Hong Kong, Banking, Securities, Stay Rules, FIRO, Termination of Contracts, Financial Contract, Resolution Framework, FSB, HKMA
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.