The Green and Sustainable Finance Cross-Agency Steering Group (the Steering Group) announced the progress made and the way forward to advance Hong Kong’s position as a leader in green and sustainable finance. The Hong Kong Monetary Authority (HKMA) issued a circular to provide further guidance on the corporate governance expectations from locally incorporated authorized institutions, in the light of a Financial System Stability Assessment report published by the International Monetary Fund (IMF) in 2021. HKMA also issued a circular to remind authorized institutions of the timely preparation for their participation in the Credit Reference Platform or CRP, which is scheduled for launch by the end of 2022. Finally, HKMA and the Securities and Futures Commission (SFC) issued a joint consultation on adding eight new calculation periods under the Clearing Rules for the over-the-counter derivatives regulatory regime. Interested parties are invited to submit comments to HKMA or SFC by January 21, 2022.
Way forward on green and sustainable finance
The Steering Group will explore developing a green classification framework for adoption in the local market to facilitate easy navigation among the Common Ground Taxonomy, the Chinese taxonomy, and the EU taxonomies. The work will be guided by the principles of interoperability, comparability, and inclusiveness, taking into account other definitions of green, transitional activities, and local considerations. The Steering Group will work with industry practitioners, experts, and stakeholders to operationalize the Common Ground Taxonomy. In addition, the Steering Group is making progress toward mandating climate-related disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework by 2025, across relevant sectors. The Steering Group also recommended to develop a common green and sustainable finance qualification framework; enhance access to and availability of green and sustainable finance data and data analytics tools; and fill the key data gaps identified by market participants. To take forward the Group's recommendations, HKMA will begin work to develop a new module on Green and Sustainable Finance under the Enhanced Competency Framework for Banking Practitioners.
Circular on corporate governance
IMF recently recommended HKMA to take suitable action to address potential issues around conflicts of interest and time commitment of directors and senior management of authorized institutions. HKMA has, therefore, specified that chief executives should avoid taking-up outside mandates, particularly in a commercial entity, unless they can demonstrate to the satisfaction of their boards that effective measures are in place to guard against all potential conflicts of interest associated with the outside mandates and that the chief executives have adequate time to perform their managerial roles in the authorized institutions. In forming any such views on outside mandates held in commercial entities, the boards of authorized institutions are encouraged to have prior consultation with HKMA. For future applications for appointment as a director, chief executive, or alternate chief executive of a locally incorporated authorized institution under section 71 of the Banking Ordinance, an authorized institution should provide an assessment by the board (or its nomination committee) of the applicant in terms of time commitment to the role being applied for and any potential conflicts of interest identified, if the applicant has outside mandates. The Annex to the Circular sets out examples of factors that should be considered in assessing the time commitment and potential conflicts of interest of a director, chief executive, or alternate chief executive.
Circular on participation in the Credit Reference Platform
The Hong Kong Association of Banks (HKAB), the Hong Kong Association of Restricted License Banks and Deposit-Taking Companies (DTCA), and the Hong Kong Special Administrative Region. Licensed Money Lenders Association Ltd. (collectively, the Industry Associations) have been working on an initiative to introduce more than one credit reference agency for consumer credit data in Hong Kong. To ensure a smooth launch of the Credit Reference Platform, as scheduled, authorized institutions are being reminded to take timely actions to prepare for their participation. In particular, authorized institutions are being reminded to follow the advice issued by the Industry Associations from time to time to achieve the key milestones in the coming months, in the run-up to the target launch date of the Credit Reference Platform as set out in the Annex to the Circular. Authorized institutions involved in the provision of consumer credit are reminded to collect a copy of the functional specification from the Industry Associations, study the specification in details, and commence system development as soon as practicable, if they have not already done so.
Comment Due Date: January 21, 2022 (Clearing Rules Consultation)
Keywords: Asia Pacific, Hong Kong, Banking, Securities, Climate Change Risk, Sustainable Finance, ESG, Disclosures, TCFD, OTC Derivatives, Clearing Rules, Credit Reference Agencies, Governance, 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.
Previous ArticleFI Issues Multiple Regulatory Updates and Financial Stability Report
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.