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    HKMA Revises Policy Manual and Returns for Reporting of Liquidity Risk

    December 31, 2019

    HKMA revised the Supervisory Policy Manual module LM-1 on regulatory framework for supervision of liquidity risk. HKMA also revised two returns and related completion instructions for reporting the statutory liquidity ratio: MA(BS)1E is return on liquidity position of an authorized institution and MA(BS)26 is the return on stable funding position of an authorized institution. The revisions were intended to update the regulatory requirements consequential to the commencement of the Banking (Liquidity) (Amendment) Rules 2019 and to incorporate certain provisions to keep pace with the latest development. The returns take effect from January 01, 2020.

    The key changes to LM-1 are to:

    • Provide guidance for authorized institutions in recognizing Basel-compliant listed ordinary shares and triple-B rated marketable debt securities as “level 2B assets” and “liquefiable assets” under the Liquidity Coverage Ratio (LCR) and the Liquidity Maintenance Ratio (LMR) respectively
    • Provide an overview of the statutory liquidity requirements in respect of the Net Stable Funding Ratio (NSFR) and the Core Funding Ratio (CFR) and explain the approach and criteria adopted by HKMA for the designation of category 2A institutions which are subject to the CFR requirements
    • Streamline the guidance on the disclosure of liquidity information by authorized institutions

    The main changes to the two returns for reporting the statutory liquidity ratios are to:

    • Include Basel-compliant listed ordinary shares and triple-B rated marketable debt securities as “level 2B assets” and “liquefiable assets” in the calculation of LCR and LMR respectively
    • Implement a required funding requirement on total derivative liabilities in the calculation of NSFR and CFR


    Effective Date: January 01, 2020 (Returns)

    Keywords: Asia Pacific, Hong Kong, Banking, Liquidity Risk, LCR, NSFR, Supervisory Policy Manual, Statutory Liquidity Ratio, MA(BS)26, MA(BS)1E, Reporting, Banking Liquidity Rules, HKMA

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