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
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
