October 19, 2018

The Government of the Hong Kong Special Administrative Region published, in the Gazette, the Financial Institutions (Resolution) (Loss-Absorbing Capacity Requirements – Banking Sector) Rules (the Rules) and the Inland Revenue (Amendment) (No. 6) Bill 2018. The Rules and the Amendment Bill will be tabled before the Legislative Council at the sittings on October 24 and October 31, 2018, respectively. The Rules will come into operation on December 14, 2018, on negative vetting by the Legislative Council.

Following the commencement of the Financial Institutions (Resolution) Ordinance (Cap. 628) (the Ordinance) in July 2017, the Monetary Authority, as the resolution authority for authorized institutions, has made the Rules pursuant to section 19(1) of the Ordinance to prescribe minimum loss-absorbing capacity (LAC) requirements for authorized institutions and their group companies. The Rules are closely aligned to the international standards on LAC requirements, as set out in the Total Loss-absorbing Capacity Term Sheet of FSB.
 
Owing to the loss-absorbing nature of the LAC debt instruments, their profits tax treatment under the Inland Revenue Ordinance (Cap. 112) is uncertain, in particular whether they are eligible for debt-like tax treatment. To facilitate the implementation of the Rules, the Amendment Bill will provide certainty of tax treatment for LAC debt instruments issued by authorized institutions and relevant group companies. HKMA conducted a public consultation at the beginning of 2018 on the approach to implementing LAC requirements in Hong Kong, along with a subsequent industry consultation on the draft text of the Rules and the Amendment Bill. Respondents were broadly supportive of the proposals and their views have been suitably reflected in the Rules and the Amendment Bill.


Effective Date: December 14, 2018

Keywords: Asia Pacific, Hong Kong, Banking, TLAC, Loss Absorbing Capacity, Resolution, Hong Kong Government, HKMA

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