Hong Kong Regulators Consult on Resolution Regime

The Hong Kong government and its financial sector regulators – the Hong Kong Monetary Authority ("HKMA"), the Securities and Futures Commission ("SFC") and the Insurance Authority ("IA") – have launched a consultation on protected arrangements under its new Financial Institutions (Resolution) Ordinance. 

The two-month consultation covers a set of proposed regulations relating to "protected arrangements" under the ordinance – these are: clearing and settlement systems arrangements, netting arrangements, secured arrangements, set-off arrangements, structured finance arrangements and title transfer arrangements.

"The proposed regulations seek to impose some suitably tailored constraints on the resolution authorities in the exercise of their resolution powers to safeguard the economic effect of specific financial arrangements that are vital to the daily functioning of financial markets," a government spokesman said.

The consultation invites views on the scope and degree of protection for different classes of such protected arrangements, including carve-outs from protections in order not to restrict a resolution authority from achieving an orderly resolution. 

"Views are also sought on remedial actions to be taken by a resolution authority should its actions inadvertently result in the constituent parts of a protected arrangement being treated otherwise than as envisaged in the regulations," the government spokesman added.

The government said the proposed regulations have taken into account responses to two previous consultations on establishing a resolution regime in Hong Kong. 

"Subject to the outcome of the public consultation, our target is to introduce the regulations as subsidiary legislation under the Ordinance into the Legislative Council for negative vetting in the first half of 2017," the government spokesman said. 

The Financial Institutions (Resolution) Ordinance was enacted by the Legislative Council on 22 June 2016, and provides the legal basis for the establishment of a cross-sectoral resolution regime for financial institutions in Hong Kong. It will come into operation on a date to be appointed by the Secretary for Financial Services and the Treasury at the same time that the regulations are put in place and ready to become operational.

The consultation paper can be downloaded from the FSTB website.

Hong Kong was one of the jurisdictions that was "named and shamed" by the Financial Stability Board ("FSB") in March this year for not yet having in place resolution laws to address "too-big-to-fail" banks. As a leading regional financial hub, Hong Kong plays host to 29 of the 30 global systemically important financial institutions ("SIFIs") named by the FSB.

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North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.