HKMA Revises Supervisory Policy Module on Capital Adequacy Regime
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
Bank of Italy Announces Regulatory Measures to Ease Impact of COVIDRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
