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 list of domestic systemically important authorized institutions (D-SIBs), and a policy module (IC-7) on sharing of commercial credit data through a commercial credit reference agency.
Below are the key highlights of the aforementioned developments:
- HKMA announced that the list of authorized institutions designated as D-SIBs remains unchanged at five compared to the list of D-SIBs published by HKMA on December 24, 2021, post the annual HKMA assessment. Additionally, compared to the D-SIBs list published on December 24, 2021, there is no change to the Higher Loss Absorbency (HLA) requirements applied to the designated D-SIBs. The banks designated as D-SIBs as of January 01, 2023 are Industrial and Commercial Bank of China (Asia) Limited, Hang Seng Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, Bank of China (Hong Kong) Limited, and Standard Chartered Bank (Hong Kong) Limited.
- HKMA announced its intention to locally implement the recently finalized global standard on the prudential treatment of crypto-asset exposures as per the Basel Committee timetable. The standard is scheduled to be implemented by member jurisdictions by January 01, 2025. HKMA plans to consult the industry on the specific local implementation proposal in due course. HKMA also recommends that the authorized institutions with plans to conduct crypto-asset-related business activities should familiarize themselves with the new standard and consider its implications.
- In an update on the latest developments with respect to the reform of interest rate benchmarks. HKMA notes that the authorized institutions in Hong Kong have made substantial progress in transitioning away from LIBOR to alternative reference rates. The latest survey results show that the number of contracts referencing the remaining USD LIBOR settings requiring renegotiation fell by more than 90%, from a peak of 79,600 contracts (or HKD 15 trillion) at end-September 2020 to 4,100 contracts (or HKD 1 trillion) at end-September 2022. Meanwhile, the number of contracts referencing the alternative reference rates surged from 200 contracts (or HKD 0.2 trillion) at end-September 2020 to 64,000 contracts (or HKD 13 trillion) at end-September 2022. The remaining panel-based USD LIBOR settings will cease publication after end-June 2023 and there are still a number of outstanding contracts that require remediation. HKMA expects authorized institutions to complete the remediation of contracts that reference the remaining LIBOR settings in good time before end-June 2023.
- The Monetary Authority also published the Supervisory Policy Manual (IC-7) that specifies the minimum standards that authorized institutions should observe in relation to the sharing and use of commercial credit data through a commercial credit reference agency. IC-7 is a statutory guideline issued under the Banking Ordinance and it applies to institutions that are involved in the provision of credit to commercial enterprises, which fall within the definitions of SME Limited Companies and Unlimited Companies. Failure to adhere to the standards and requirements set out in this module may call into question whether the authorized institution continues to satisfy the relevant authorization criterion under the Banking Ordinance.
Keywords: Asia Pacific, Hong Kong, Banking, Basel, Regulatory Capital, Supervisory Policy Manual, Interest Rate Benchmarks, LIBOR, Benchmark Reforms, D SIBs, Crypto Assets, Lending, HKMA
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.