Financial Crime World

Title: HKMA Cracks Down on Banking Compliance: Enforcing International Regulatory Standards in Hong Kong

The Role of the Hong Kong Monetary Authority (HKMA)

As the city’s de facto central bank, the Hong Kong Monetary Authority (HKMA) plays a crucial role in maintaining the stability and effectiveness of Hong Kong’s banking system. With its primary function being to promote the general stability and effective working of the banking system under the Banking Ordinance (Section 7[1]), the HKMA works diligently to align its regulatory framework with international regulatory standards.

International Regulatory Compliance

To uphold international regulatory standards, the HKMA follows guidelines from bodies such as the:

  1. Basel Committee on Banking Supervision
  2. Financial Stability Board

The aim is to strike a balance between maintaining a sound and prudential supervisory system and providing authorized institutions the necessary commercial flexibility.

Obligations for Authorized Institutions

Authorized institutions are expected to adhere to the following aspects of the Banking Ordinance:

  1. Maintaining adequate capital and liquidity
  2. Submitting periodic returns to the HKMA
  3. Observing exposure limitations to single counterparties and controlling directors and employees

Overseas Banks in Hong Kong

Overseas banks operating in a branch form are exempt from holding capital in Hong Kong but must comply with other aspects of the Banking Ordinance.

HKMA’s Supervisory Approach

The HKMA’s supervisory approach is rooted in international best practices and a risk-based supervisory approach, which includes:

  • On-site examinations
  • Off-site reviews
  • Prudential meetings
  • Cooperation with external auditors

Oversight and Evaluation

The HKMA’s oversight and evaluation of banks’ financial conditions involve the utilization of the “CAMEL” rating system and a robust capital adequacy framework. Banks must:

  • Adhere to minimum capital adequacy ratios for common equity tier 1, tier 1, and total capital.
  • Have liquidity frameworks.

Derivatives Activities

The HKMA also supervises authorized institutions’ derivatives activities, ensuring adequate internal controls, capital support, and expertise to manage risks. Derivatives reporting and clearing requirements were introduced with significant implementation milestones in March 2017.

Regulatory Disclosure Standards and Data Collection

Regulatory disclosure standards are aligned with those in leading financial centers, and the HKMA has the power to collect prudential data from authorized institutions to effectively perform its functions under the Banking Ordinance.

Conclusion

In conclusion, the HKMA’s commitment to upholding banking compliance regulations in Hong Kong is unwavering, as the organization adheres to international best practices and ensures a stable and effective banking system.