HKMA revised the Supervisory Policy Manual module on the overview of capital adequacy regime for locally incorporated authorized institutions, as a statutory guideline under the Banking Ordinance. This module sets out the HKMA policy related to the framework for calculation of capital adequacy ratio of covered institutions. The HKMA policy on capital adequacy closely reflects the latest regulatory capital standards published by BCBS.
The changes incorporated in the revised Supervisory Policy Manual module are mainly to:
- Revise the guidance on the self-assessment of proposed capital instruments to be included within an authorized institution's capital base so as to align with the equivalent guidance in the Code of Practice "Resolution Planning - LAC Requirements" (LAC-1)
- Update the guidance in relation to capital buffer, revised securitization framework, sovereign concentration risk, leverage ratio, and interest rate risks in the banking book to reflect the current capital regime in Hong Kong (in terms of both legal framework and associated supervisory practices)
- Outline the plan of HKMA to implement the remaining BCBS capital standards, covering those in relation to the Basel III final reform package
Under the updated section on the implementation plan of HKMA, the policy manual states that the Banking (Capital) (Amendment) Rules 2020 will take effect on June 30, 2021 for implementation of the BCBS capital standards on the treatment of counterparty credit risk (CCR) exposures of banks—that is, the standardized approach for measuring CCR exposures (SA-CCR) and capital requirements for bank exposures to CCPs. In addition, the proposed amendments to the Banking Capital Rules for implementation of the BCBS standard on the capital requirements for banks’ equity investments in funds (EIF standard) are being prepared in consultation with the industry. The EIF standard clarified the existing capital treatment for equity investments in investment funds under Basel II by introducing enhancements to reflect directly the risks associated with a fund’s underlying investments and its leverage. The updated module also indicates that the implementation of the Basel III final package and the revised market risk framework has been deferred by one year to January 01, 2023 to provide additional operational capacity for banks and supervisors in addressing the impact of COVID-19 on the global banking system. HKMA will have regard to the revised implementation timeline in devising its implementation proposals for Hong Kong in consultation with the industry.
Keywords: Asia Pacific, Hong Kong, Banking, Supervisory Policy Manual, Capital Adequacy, Basel III, Banking Ordinance, Resolution Planning, IRRBB, Leverage Ratio, BCAR, COVID-19, Regulatory Capital, Securitization Framework, BCBS, HKMA
Previous ArticleEBA Updates Single Rulebook Q&A in June 2020
HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.
The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.
MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.
EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.
EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.
EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.
FFIEC, on behalf of its members that include US Agencies such as CFPB, FDIC, FED, NCUA, and OCC, issued a joint statement that sets out prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers.
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).