Featured Product

    HKMA Clarifies Regulatory Treatment of Measures to Ease COVID Impact

    May 25, 2020

    HKMA published a circular, addressed to authorized institutions, on the application of the Basel Committee guidance on certain COVID-related measures. The Basel Committee issued its guidance on March 27, 2020 and April 03, 2020 with the aim to alleviate the impact of COVID-19 on the global banking system. The related Basel Committee guidance and this HKMA circular provide clarifications regarding the regulatory capital treatment of loan guarantee measures, the provisioning of expected credit losses (ECLs) under HKFRS/IFRS 9, and the timeline for implementing margin requirements for non-centrally cleared OTC derivatives.

    To ensure that authorized institutions reflect the risk-reducing effect of the extraordinary support measures related to COVID when calculating their regulatory capital requirements, HKMA has published several technical clarifications, which are enclosed as an Annex to this circular. These clarifications address the reporting requirements as well as the capital treatment of the associated loans under the standardized credit risk approach and the internal ratings-based approach. In this circular, HKMA also announced that it will defer the final two implementation phases of margin requirements for non-centrally cleared OTC derivatives by an additional year. With this extension, the final implementation phase will start on September 01, 2022, at which point the covered entities with an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives greater than HKD 60 billion will be subject to the requirements. As an intermediate step, from September 01, 2021, covered entities with an AANA of non-centrally cleared OTC derivatives greater than HKD 375 billion will be subject to the requirements.

    With respect to the ECL provisioning, HKMA expects institutions to continue to apply the relevant ECL frameworks for accounting purposes. HKMA expects ECL estimates to reflect the mitigating effect of the significant economic support and payment relief measures put in place by public authorities and the banking sector. The provision of relief measures to borrowers should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement. Additionally, institutions are expected to exercise informed judgment and to use the flexibility inherent in HKFRS/IFRS 9, for example, to give due consideration to long-term economic trends in estimating ECL. Finally, HKMA highlighted that it will continue to monitor the banking and supervisory implications of COVID-19 outbreak and coordinate with the BCBS and other relevant standard-setting bodies on responses to the pandemic.

    Keywords: Asia Pacific, Hong Kong, Banking, COVID-19, Margin Requirements, OTC Derivatives, IFRS 9, HKFRS 9, Basel, Loan Guarantee, Loan Moratorium, Credit Risk, Regulatory Capital, HKMA

    Featured Experts
    Related Articles
    News

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News
    News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News
    News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582