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    HKMA Publishes Guideline on Minimum Criteria for Authorization

    July 10, 2020

    HKMA has published a guideline on the minimum criteria for authorization under the Banking Ordinance (Cap. 155). The guideline sets out how HKMA will interpret the licensing criteria set out in the Seventh Schedule to the Banking Ordinance and exercise the functions conferred by it. The guideline describes each criterion in the Schedule, along with the HKMA interpretation for the criterion. The key criteria are related to adequacy of home supervision, identity of controllers, adequate systems of control for appointment of managers, adequate financial resources, requirement for adequate liquidity, and adequate control of large exposures. The criteria also cover the requirement to maintain adequate provisions, the requirement to maintain adequate accounting systems and adequate systems of control, the requirement to make adequate disclosure of information, and the conduct of business with integrity, prudence, and competence.

    With respect to determining the adequacy of home supervision, the guideline specifies that an applicant that is incorporated outside Hong Kong must be a bank which, in the opinion of HKMA, is adequately supervised by the home supervisor in the place where the applicant is incorporated). In considering the adequacy of supervision exercised by the home supervisor, HKMA will have regard to the extent to which that supervisor has established, or is actively working to establish, the necessary capabilities to meet the Basel standards relating to the supervision of international banks. Among other things, the standards provide that all international banking groups and international banks should be supervised by a home country authority that capably performs consolidated supervision. In making his assessment, HKMA will take account of the: 

    • Legal and administrative powers of the home supervisor
    • Supervisory framework of the home supervisor
    • Bank resolution regime of the home jurisdiction and approach of the home resolution authority to resolution planning
    • Method of supervision adopted by, and the resources available to, the home supervisor
    • Information and analysis published by international organizations, such as the IMF country reports on the assessments of the home jurisdiction’s compliance with the Basel Core Principles; the reports issued by BCBS in respect of assessment of the home jurisdiction’s completeness and consistency of implementation of Basel standards under the Regulatory Consistency Assessment Program; and the FSB reports on assessments of the home jurisdiction’s compliance with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions and assessments of resolution or crisis management frameworks 
    • Past experience in dealings with the home supervisor and home resolution authority

    This guideline supersedes the previous “Guideline on Minimum Criteria for Authorization,” which the HKMA had issued on March 09, 2018. Under section 16(1) of the Banking Ordinance, HKMA has a general discretion to grant or refuse an application for authorization. Under section 16(2), HKMA is required to refuse to authorize if any one or more of the criteria specified in the Schedule are not fulfilled with respect to the applicant. Each decision is taken on a case-by-case basis with regard to the merits of the particular case.


    Keywords: Asia Pacific, Hong Kong, Banking, Banking Ordinance, Licensing Requirements, Resolution Framework, Basel Core Principles, Basel, HKMA

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