HKMA Updated Supervisory Policy on Share Margin Financing
The Hong Kong Monetary Authority (HKMA) updated the supervisory policy on credit risk management of share margin financing. As stipulated in the Supervisory Policy Module CRS-4, titled “New Share Subscription and Share Margin Financing,” authorized institutions should set maximum loan-to-value ratios for share collateral in line with the prevailing market norms. The SPM module further prescribes the market norms for different categories of shares with reference to the common market practices in Hong Kong.
Since the SPM module was issued in 2007, the wealth management and private banking business in Hong Kong has become increasingly globally connected. Many institutions use Hong Kong as the regional hub to serve clients and manage related risks. Their share collateral portfolios often comprise shares from bourses in different markets. It has become operationally challenging for them to integrate the prescriptive market norms for loan-to-value ratios specified in the HKMA module into their global risk management framework. Considering the global nature of Hong Kong’s wealth management and private banking business and the benchmarking against latest supervisory practices in other major financial centers, HKMA is of the view that continued enforcement of the requirement to observe market norms in the setting of maximum loan-to-value ratios is no longer appropriate. Starting from the date of this letter, authorized institutions are no longer expected to fulfil the said requirement.
HKMA also stressed that this change in supervisory policy does not reflect an intention to relax the existing supervisory standards on authorized institutions' share margin financing business. Authorized institutions should continue to undertake share margin financing business prudently. In setting maximum loan-to-value ratios for share collateral, authorized institutions should give due regard to key factors such as their credit risk appetite, risk characteristics of individual stocks, and their expertise and proficiency in margin call management. Other requirements in the Policy module will continue to apply. Going forward, HKMA will proactively assess whether authorized institutions are prudent in setting maximum loan-to-value ratios by stepping up surveillance and collection of data. As the settlement process for initial public offerings of shares is going to be overhauled under the Fast Interface for New Issuance (FINI) arrangement in 2022-23, HKMA plans to initiate a comprehensive review of the Supervisory Policy module on “New Share Subscription and Share Margin Financing.” HKMA will take the opportunity of the exercise to reflect the aforesaid change with respect to the maximum loan-to-value ratios setting in the Supervisory Policy module.
Keywords: Asia Pacific, Hong Kong, Banking, Supervisory Policy Manual, Share Margin Financing, LTV, Credit Risk, Loan-to-Value Risk, SPM CRS-4, HKMA
Previous Article
FCA Publishes Final Rules on Investment Firms Prudential RegimeRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.