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    HKMA Finalizes BCAR 2022, Issues Policy on Operational Resilience

    May 31, 2022

    The Hong Kong Monetary Authority (HKMA) announced that the subsidiary legislation incorporating capital requirements for banks' equity investments in funds will go into effect on July 01, 2022. The Authority also published the new Supervisory Policy Manual (SPM) module on operational resilience (OR-2) and the revised module on business continuity planning (TM-G-2).

    The subsidiary legislation in the Banking (Capital) (Amendment) Rules 2022 (also known as the BCAR 2022), which implements the capital standard in line with the Basel Committee's capital requirements for banks’ equity investments in funds, will come into operation on July 01, 2022. HKMA published a circular informing all authorized institutions that the 28-day period for the negative vetting of the Banking (Capital) (Amendment) Rules 2022 has expired without extension. The capital standard on equity investments by banks introduced a hierarchy of three approaches, with varying degrees of risk-sensitivity for setting capital requirements for banks’ equity investments in funds. The BCAR 2022 also contains an amendment to designate the Hong Kong Export Credit Insurance Corporation as a domestic public sector entity for preferential risk-weighting treatments by locally incorporated authorized institutions. 

    The recently published supervisory policy module on operational resilience implements the Basel Committee’s Principles for Operational Resilience (POR), which were issued in March 2021. The module on Operational Resilience sets out the the HKMA expectation that every authorized institution should be operationally resilient and provides high-level guidance on how authorized institutions can develop an integrated and holistic operational resilience framework to support this. Additionally, the revised module on business continuity planning incorporates additional requirements related to business continuity planning and testing covered within the POR and aligns the terminology used for business continuity planning and operational resilience purposes to enhance clarity. The revised module on business continuity planning complements the module on operational resilience by providing enhanced guidance on business continuity planning, which is a key component of an effective operational resilience framework. 

    An authorized institution should be compliant with the requirements on the development of its operational resilience framework by May 31, 2023, and with the requirements for the implementation of the framework no later than May 31, 2026. After factoring in industry feedback, and as detailed within the operational resilience module, HKMA will expect every authorized institution to have:

    • developed its operational resilience framework and determined the timeline by which it will become operationally resilient, within one year after the final operational resilience module is issued (that is, May 31, 2023)
    • become operationally resilient as soon as their circumstances allow and no later than three years after the initial one-year planning period (that is, no later than May 31, 2026)

    The afore-mentioned timeline applies to all new requirements related to operational resilience, including those in the revised business continuity planning and the revised operational resilience modules. 

    Keywords: Asia Pacific, Banking, Hong Kong, Basel, Regulatory Capital, BCBS, Operational Resilience, Business Continuity, Supervisory Policy Manual, BCAR 2022, Operational Risk, Equity Investments in Funds, Capital Requirements, Regtech, HKMA

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