HKMA Issues Multiple Regulatory Updates in July 2022

The key highlights of the aforementioned updates follow:

• The revised supervisory policy manual module (OR-1) on operational risk management implements the revised principles for sound management of operational risk issued by the Basel Committee on Banking Supervision (BCBS) in March 2021. The policy manual clarifies guidance on the existing principles, provides updates in the areas of change management and information and communication technology management, and offers guidance on operational resilience. It also reflects the requirements related to operational risk management within the BCBS’ principles for operational resilience. The revised policy should be implemented by all authorized institutions within 18 months, no later than January 25, 2024, except for the areas related to operational resilience, as set out in paragraph 1.5.2; for these operational resilience areas, authorized institutions should follow the implementation timelines for the new SPM module OR-2 on operational resilience.
• The new Code of Practice chapter on resolution planning, particularly liquidity and funding in resolution under the Financial Institutions (Resolution) Ordinance (Cap. 628), sets out HKMA expectations about the capabilities and arrangements that an authorized institution should have in place, in business as usual, to address the potential impediment to orderly resolution that would arise if an authorized institution were unable to assess its liquidity and funding needs and access funding in resolution. HKMA also issued an updated version of the Chapter RA-1 titled “Operational Independence of the Monetary Authority as Resolution Authority” to reflect certain changes in the reporting lines within the Resolution Office of HKMA since its establishment.
• The guideline on minimum criteria for authorization to operate a banking-related business. This guideline sets out the HKMA interpretation of the licensing criteria set out in the Seventh Schedule to the Banking Ordinance. This guideline supersedes the previous “Guideline on Minimum Criteria for Authorization” issued by HKMA under section 16(10) of the Banking Ordinance on July 10, 2020. The key criteria relate to the adequacy of home supervision, fitness and propriety of individuals in certain top management positions, adequacy of control systems for appointment of managers, adequacy of financial resources and liquidity requirement, and adequacy of controls for large exposures. The criteria also cover the requirement to maintain adequate provisions, the requirement to maintain adequate accounting systems and adequate systems of control, the requirement to make adequate disclosure of information, and the conduct of business with integrity, prudence, and competence. Under section 16(1) of the Banking Ordinance, HKMA has general discretion to grant or refuse an application for authorization of a banking institution incorporated in or outside of Hong Kong. HKMA is also required to refuse to authorize if any one or more of the criteria specified in the Schedule are not fulfilled with respect to the applicant.
• The new set of the frequently asked questions (FAQs) on Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) aim to assist authorized institutions regulated by HKMA in understanding the relevant AML/CFT requirements. Authorized institutions are expected to be fully conversant and meet their AML/CFT legal and regulatory obligations. Authorized institutions should, therefore, consider the money laundering and terrorist financing risks to which they are exposed and their own circumstances (among others) before taking action on matters to which these FAQs may be relevant. These FAQs should not be regarded as a substitute for obtaining legal or other professional advice on AML/CFT requirements.

Keywords: Asia Pacific, Hong Kong, Banking, Operational Risk, Basel, Operational Resilience, Banking Ordinance, Resolution Framework, FIRO, Resolution Planning, FAQ, AML CFT, Bank Licenses, HKMA