July 08, 2019

HKMA published the frequently asked questions (FAQs) on sale and distribution of debt instruments with loss-absorption features and related products (collectively called “Loss-absorption Products”). The FAQs provide clarification and further guidance to address some enquiries received from the industry. Earlier, in October 2018, HKMA had issued a circular on the sale and distribution of debt instruments with loss-absorption features and related products.

The types of debt instruments that fall within the scope of the October 2018 circular include the following:

  • Debt instruments that meet the qualifying criteria to be Additional Tier 1 Capital or Tier 2 Capital under the Banking (Capital) Rules. The same principle applies to debt instruments issued under an equivalent regime of non-Hong Kong jurisdictions (collectively called AT1/T2 debt instruments)
  • External loss-absorbing capacity (LAC) debt instruments under the Financial Institutions (Resolution) (Loss-absorbing Capacity Requirements – Banking Sector) Rules and debt instruments issued under a regime of non-Hong Kong jurisdictions, which implements the FSB standards for "total loss-absorbing capacity term sheet.”

Having considered that more time may be needed to further consider the matters clarified in the set of FAQs, HKMA is extending the deadline for:

  • Loss-absorption products (except for in-scope collective investment scheme) to September 06, 2019
  • In-scope collective investment scheme to December 31, 2019

Keywords: Asia Pacific, Hong Kong, Banking, Securities, Loss-Absorption Products, FAQ, Tier 1 Capital, Tier 2 Capital, TLAC, Resolution, Banking Capital Rules, HKMA

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