March 20, 2019

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

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