HKMA Publishes CoP on Loss-Absorbing Capacity Requirements of Banks
HKMA issued, in relation to the Financial Institutions Resolution (Loss-Absorbing Capacity Requirements—Banking Sector) Rules (LAC Rules) a chapter of a code of practice (LAC CoP) under section 196 of the Financial Institutions Resolution Ordinance (FIRO). The LAC Rules, which came into operation on December 14, 2018, give certain discretionary powers to the Monetary Authority as resolution authority for the banking sector. The LAC CoP provides guidance on how HKMA intends to exercise those powers, including the power to classify authorized institutions and certain of their group companies as "resolution entities" or "material subsidiaries." Those entities will then be required to maintain minimum levels of loss-absorbing capacity (LAC).
The LAC CoP sets out the planning assumption of HKMA that where the total consolidated assets of a Hong Kong incorporated authorized institution exceed HKD 300 billion, LAC requirements should be imposed. The primary purpose of this chapter is to provide guidance on how HKMA as the resolution authority intends to exercise certain discretionary powers under the LAC Rules, and on the operation of certain provisions of the LAC Rules. This chapter is not designed to provide a comprehensive overview of requirements imposed by the LAC Rules. A draft of the LAC CoP was issued for consultation last year during October 19, 2018 to December 03, 2018). A total of seven submissions were received. HKMA has carefully reviewed all comments, and reflected them in the final version of the LAC CoP, where appropriate.
The LAC Rules provide for the imposition of LAC requirements on Hong Kong incorporated AIs and certain of their Hong Kong incorporated group companies (that is, classifiable entities). In relation to the timing of implementation of LAC requirements, the resolution authority intends that, apart from any entities to which rule 32 of the LAC Rules applies, no domestic systemically important bank (or group company thereof) will be required to meet any LAC requirement any earlier than January 01, 2022 and no other authorized institution (or group company thereof) will be required to meet any LAC requirement any earlier than January 01, 2023.
Keywords: Asia Pacific, Hong Kong, Banking, TLAC, Loss Absorbing Capacity, Resolution, Code of Practice, HKMA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
EC to Defer Application of SFDR Standards Till July 2022
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
EBA Seeks Views on Proportionality Assessment Methodology
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
US Agencies Propose Changes to Call Reports and Instructions
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
EBA Examines Asset Encumbrance in Banking Sector
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
