HKMA granted a banking license to NongHyup Bank (also NH Bank), which is incorporated in the Republic of Korea. With this, the number of licensed banks in Hong Kong is 163. HKMA also published the annual report for 2020. The report sets out the work done during 2020, along with the work plans for 2021. HKMA plans to undertake implementation of Basel standards, climate risk work, and thematic reviews and examinations of credit risk management practices, including assessing the connected lending practices and loan classification system, of authorized institutions. HKMA will also continue to collaborate with the banking industry to support financing needs of small and medium-size enterprises (SMEs) to the extent consistent with the prudent risk management principles.
The report highlights the following key work plans for 2021:
- Updating supervisory policies and risk management guidelines. HKMA plans to update certain Supervisory Policy Manual modules, including those on stress-testing, foreign-exchange risk management, countercyclical capital buffer, interest rate risk in the banking book, and code of conduct.
- Green and sustainable banking. HKMA is planning to consult the industry on the supervisory requirements for climate change risk management in the first half of 2021. This will include mandating climate-related disclosures that are aligned with the Task Force on Climate-related Financial Disclosures recommendations no later than 2025. HKMA will launch the pilot climate risk stress test in 2021 and engage participating authorized institutions throughout the process to ensure they are progressing in the right direction.
- Implementation of Basel Standards. HKMA is working toward submitting, to the Legislative Council for negative vetting during the second half of 2021, a set of amendments to the Banking (Capital) Rules for implementing the Capital Requirements for Banks’ Equity Investments in Fund; this is targeted to be effected by the end of 2021 or early 2022. HKMA intends to propose amendments to the Banking (Exposure Limits) Rules to better clarify policy intent, implement recommendations from international peer review, and incorporate changes consequential to the amendment of related capital rules. HKMA plans to also consult the industry on its proposed approach to implementing the updated Pillar 3 disclosure requirements.
- Resolution. HKMA will continue its multi-year program to build an operational resolution regime for authorized institutions. HKMA prioritizations will include finalizing rules on contractual stays, consulting on liquidity reporting and estimation capabilities of authorized institutions, advancing bilateral resolution planning programs with domestic systemically important banks, assessing resolvability, and working with banks to address impediments to an orderly resolution.
- Supervision of operational and technology risk. HKMA plans to strengthen the capability of the banking sector to address existing and emerging operational and technology risks amid the trend of accelerated digitalization. In light of the COVID-19 experience, additional resources will be devoted to assessing the operational resilience of authorized institutions, including their capability to respond to extreme scenarios and escalating cyber risk.
- Adoption of supervisory technology. HKMA will explore the adoption of suptech solutions to enhance the effectiveness and forward-looking capability of its supervisory processes. Following a three-year roadmap developed earlier, a series of proof-of-concept exercises will be undertaken to evaluate the suitability of the technologies concerned before proceeding to production. The technologies under consideration include, but are not limited to, knowledge management systems, tools that serve to digitalize and automate workflows, and advanced analytics techniques that include the use of natural language processing and machine-learning algorithms.
- Smart banking. HKMA will continue to promote the adoption of regtech and foster a larger and more diverse regtech ecosystem in Hong Kong. HKMA will implement the two-year roadmap that was published in November 2020 to accelerate regtech adoption in the banking sector.
Keywords: Asia Pacific, Hong Kong, Banking, Securities, Annual Report, Work Plan, Credit Risk, Supervisory Policy Annual, Climate Change Risk, ESG, Sustainable Finance, Basel, Banking Capital Rules, Banking Exposure Limit Rules, Resolution Framework, Operational Risk, Regtech, Suptech, HKMA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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