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    HKMA Publishes Rules on Equity Exposure Limits for Banks

    May 18, 2018

    The Banking (Exposure Limits) Rules were published in the Gazette. The Banking (Amendment) Ordinance 2018 (Commencement) Notice 2018 and the Banking (Exposure Limits) Rules were gazetted to modernize section 87 of the Banking Ordinance in relation to a prescribed limit on equity exposures incurred by authorized institutions. The Commencement Notice and the Banking (Exposure Limits) Rules will be tabled before the Legislative Council at its sitting on May 23, 2018 for negative vetting and will come into operation on July 13, 2018.

    The Banking (Exposure Limits) Rules:

    • Capture equity exposures more comprehensively
    • Recognize certain risk mitigation techniques commonly used in the industry in measuring equity exposures
    • Provide details of valuation of different types of equity exposure
    • Change the basis of calculation of the equity exposure limit from overall capital base to tier 1 capital

    The relevant provisions in the Banking (Amendment) Ordinance 2018 will have to commence operation to allow new rules to be made to replace section 87 of the Banking Ordinance. Rules to replace other exposure limits in Part XV of the Banking Ordinance are being developed and will be issued for consultation later this year. Enacted by the Legislative Council in January 2018, the Banking (Amendment) Ordinance seeks to incorporate into local legislation the latest standards promulgated by BCBS in relation to concentration of financial exposures of authorized institutions, by empowering HKMA to prescribe rules on financial exposure limits. 

     

    Effective Date: July 13, 2018

    Keywords: Asia Pacific, Hong Kong, Banking, Large Exposures, Concentration Risk, Equity Exposures, BAO 2018, HKMA

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