HKMA proposed amendments to the Supervisory Policy Manual, or SPM, module CA-B-2 on systemically important banks. The module sets out the assessment methodology of HKMA for identifying systemically important authorized institutions in Hong Kong and for calibrating the level of any higher loss absorbency capital requirements. The module also sets out other policy and supervisory measures to be applied to authorized institutions identified as being systemically important to address the risks they pose. The proposed amendments mainly aim to improve the assessment of authorized institutions’ complexity in the domestic systemically important bank (D-SIB) identification process and to update various sections of the Policy Manual to reflect recent developments. The comment period for revisions expires on December 10, 2020 and HKMA plans to finalize the amendments by December 2020.
Notional amounts of over-the-counter (OTC) derivatives have been used in assessing complexity of banks in the global systemically important bank (G-SIB) framework and many D-SIB frameworks in other jurisdictions. As all authorized institutions have been required to report all their OTC derivatives transactions to the trade repository of HKMA since July 2017, the outstanding notional amounts of OTC derivatives of individual authorized institutions are now available to HKMA. HKMA is, therefore, proposing to replace the current qualitative assessment of the complexity factor in the D-SIB framework in Hong Kong with this measure, using a 10% weight in the quantitative assessment of the framework and to reduce the weight of the size factor from 50% to 40% correspondingly. HKMA also proposed to update various sections of Module CA-B-2 to reflect the following:
- Completion of the phase-in of higher loss absorbency requirements under the D-SIB framework in Hong Kong in early 2019
- Reference to the general guidance for the application of the “Principles for effective risk data aggregation and risk reporting,” incorporated into Supervisory Policy Manual Module IC-1 on risk management framework in 2017, and the expectation of HKMA on the D-SIB compliance with these principles
- Statutory recovery planning requirements as prescribed in the Banking Ordinance that came into operation in February 2018 and the subsequent revision to the Supervisory Policy Manual module RE-1 on recovery planning in June 2020
- Code of Practice chapter RA-2 under the Financial Institutions (Resolution) Ordinance on the approach of HKMA to resolution planning issued in July 2017
- Intention to take recovery plans and resolvability of authorized institutions into consideration qualitatively in D-SIB assessment
- Revision of G-SIB framework in 2018 announced by BCBS
Comment Due Date: December 10, 2020
Keywords: Asia Pacific, Hong Kong, Banking, Regulatory Capital, D-SIB, G-SIB, Supervisory Policy Manual, Systematically Important Bank, OTC Derivatives, Banking Ordinance, HKMA
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