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    HKMA Updates Policy Module on Supervisory Review Process

    January 24, 2020

    HKMA is issuing, by notice in the Gazette, revised versions of two Supervisory Policy Manual modules as statutory guidelines under section 7(3) of the Banking Ordinance. The Supervisory Policy Manual modules are CA-G-5 on “Supervisory Review Process” and SB-2 on “Leveraged Foreign Exchange Trading.”

    CA-G-5 on Supervisory Review Process—The revised module CA-G-5 has incorporated updates primarily related to the local implementation of latest standards issued by BCBS on banking supervision on interest rate risk in the banking book, liquidity risk, and large exposures. The purpose of module CA-G-5 is to set out HKMA approach to conducting supervisory review process under Pillar 2, including the criteria and standards used for evaluating an authorized institution’s capital adequacy and, where applicable, the effectiveness of the authorized institution’s capital adequacy assessment process (CAAP), for determining its Pillar 2 capital requirement. CA-G-5 also describes how the Pillar 2 framework will operate under the capital adequacy framework.

    SB-2 on Leveraged Foreign Exchange Trading—HKMA considers it appropriate to incorporate in this module the general principles on expected business conduct in respect of leveraged foreign exchange trading activities. There is no change to the regulatory standards or the HKMA approach to supervising the business conduct of authorized institutions in respect of the making of unsolicited calls in connection with leveraged foreign exchange trading. The first version of the Supervisory Policy Manual module SB-2 was issued in 2003, which was prepared in the light of the commencement of the Securities and Futures Ordinance and the then new securities and futures supervisory regime. The purpose of module SB-2 is to set out the HKMA approach to supervising authorized institutions’ conduct in leveraged foreign exchange trading, including the making of unsolicited calls in connection with leveraged foreign exchange trading as well as the appraisal of customers in this regard. 

    Keywords: Asia Pacific, Hong Kong, Banking, Supervisory Policy Manual, Pillar 2, Supervisory Review Process, Capital Adequacy, Basel III, IRRBB, Leveraged Foreign Exchange Trading, Banking Ordinance, HKMA

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