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    HKMA Revised Capital and Liquidity Rules Under Banking Ordinance

    October 20, 2017

    The Banking (Capital) (Amendment) Rules 2017 (BCAR 2017), the Banking (Liquidity) (Amendment) Rules 2017 (BLAR 2017), and the Banking (Specification of Multilateral Development Bank) (Amendment) Notice 2017 (Amendment Notice 2017) were published in the Gazette to implement certain recent international standards on banking regulation in Hong Kong.

    • BCAR 2017. The amendments contained in the BCAR 2017 are to implement three Basel III-related capital standards of BCBS. These include the revised securitization framework, the leverage ratio framework, and the interim capital treatment of expected loss provisions under Hong Kong Financial Reporting Standard (HKFRS) 9 (in line with the new International Financial Reporting Standard 9).
    • BLAR 2017. BLAR 2017 aims to implement the Basel III net stable funding ratio and a new local Core Funding Ratio to different categories of authorized institutions, with regard to their business size and liquidity risk profile, to ensure that their assets are financed with a sufficiently stable source of funding.
    • Amendment Notice 2017. The Amendment Notice seeks to implement the BCBS decision of November 2016 to allow banks to apply a 0% risk-weight to claims on the International Development Association (a member of the World Bank Group) as a multilateral development bank (MDB) under the standardized approach for credit risk. The opportunity is also taken to incorporate the Chinese names of certain MDBs in the existing Notice.

    The three pieces of subsidiary legislation will be tabled before the Legislative Council for negative vetting on October 25, 2017. Subject to the views of the Legislative Council, the subsidiary legislation should come into operation on January 01, 2018. These rules seek mainly to implement the Basel III-related capital and liquidity standards that are scheduled to take effect from January 01, 2018, in accordance with the international timeline.

    Keywords: Asia Pacific, Hong Kong, Banking, BCAR, BLAR, IFRS 9, Securitization Framework, HKMA

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