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    HKMA Consults on Implementation of Final Basel III Reform Package

    November 06, 2020

    HKMA is consulting on the approach to implementing the Basel III final reform package in respect of standards included in the package, with certain exceptions. The standards in relation to the revised market risk framework and the revised credit valuation assessment (CVA) framework, along with standards such as the disclosure requirements associated with the package, have been, or will be, the subjects of separate consultations. The consultation sets out the proposed work plan (with timeline) for implementing the Basel III final reform package in Hong Kong. The policy proposals in this consultation paper consider the outcome of a quantitative impact study on selected locally incorporated authorized institutions. This consultation will close on January 06, 2021, with HKMA proposing to bring into force the new requirements in this consultation on January 01, 2023, in line with the internationally agreed timetable.

    The consultation paper sets out the overall results of the local quantitative impact study and covers policy proposals for the following standards included in the Basel III final reform package:

    • Revised standardized approach for credit risk and revised internal ratings-based approach for credit risk
    • Revised basic approach for credit risk (retained from the current framework, incorporating certain modifications to align with the revised standardized approach for credit risk)
    • Revised operational risk framework
    • Output floor
    • Revisions to the leverage ratio standard

    When finalized, the revised requirements proposed in this consultation paper will be implemented through legislative amendments to the Banking (Capital) Rules, together with corresponding updates to the relevant supervisory guidance and the Return of capital adequacy ratio (MA(BS)3)—that is, the CAR return. Meanwhile, to the extent that the text in the Basel III final reform package, along with the proposals contained in this consultation paper, already provides sufficient information on the key fabrics of the requirements contained in the package, authorized institutions are encouraged to start gearing up their information technology systems to prepare for the implementation of the requirements. Post this consultation, in the first half of 2021, HKMA expects to launch an informal consultation of detailed proposals to amend the Banking (Capital) Rules, followed by a statutory consultation of Banking (Capital) (Amendment) Rules in the second half of 2022. Finally, in the fourth quarter of 2022, HKMA expects to table Banking (Capital) (Amendment) Rules to the Legislative Council for negative vetting, with the target implementation date in 2023.

     

    Comment Due Date: January 06, 2021

    Keywords: Asia Pacific, Hong Kong, Banking, Basel, Basel IV, Regulatory Capital, Credit Risk, Operational Risk, Leverage Ratio, Output Floor, Standardized Approach, IRB Approach, HKMA

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