The HKMA has recently (March 23, 2022) updated its Authorization Guide (the “Guide”) to reflect some earlier changes to its other guidance documents and codes. The time therefore seems opportune to recall the objectives of the Guide, which is a very useful description of the HKMA’s approach to its supervisory role.
The Guide complements and provides guidance on the licensing and supervision regime under the Banking Ordinance (Chapter 155; “Arrangement”). In addition to the requirements set out in the Banking Ordinance and other regulatory guidelines and codes of practice issued by the HKMA, such as the Supervisory Policy Manual (“MPS”), also familiarize yourself with the Guide, as amended, supplemented and updated from time to time by the HKMA. Below is a summary of the topics covered in the guide.
- Chapter 2 and chapter 3 provide an overview of the licensing regime and the legal and policy framework for the oversight regime under the order. The HKMA deals with the overall business of a licensed institution and not just its banking or depositary business. Therefore, the HKMA is also the frontline regulator and has important roles in supervising other regulated activities such as securities and futures activities. , insurance business and OTC derivative business carried on by an authorized institution under the Securities and Futures Ordinance (Chapter 571) and Insurance Ordinance (Chapter 41) , in cooperation with other regulators such as the Securities and Futures Commission and the Insurance Authority.
- Chapter 4 sets out the HKMA’s interpretation of each of the minimum clearance criteria set out in the Seventh Schedule to the Order. These authorization criteria include, among other things, the identity, fitness and good repute of the administrators, controllers, general managers, general managers and managers, the financial resources of the institution, the ability to fulfill and maintain adequate liquidity, large exposure control policies, risk management capabilities, adequacy and effectiveness of accounting systems and control systems, whether the institution has conducted its business with integrity, prudence and jurisdiction, and the adequacy of domestic supervision if an applicant is incorporated outside of Hong Kong. Details of the HKMA’s expectations and supervisory approach with respect to the above criteria are detailed in the relevant SPM and Code of Practice modules. If one or more of the criteria are not met, the HKMA must refuse the corresponding authorization request. In addition, the HKMA has general discretion to grant or deny an application for a license and will consider other matters such as prudential concerns and HKMA’s statutory objectives when assessing the suitability of a licensee. institution to obtain accreditation. The accreditation criteria continue to apply after an establishment has been accredited. The procedures for applying for authorization or upgrading an existing authorization are described in Chapter 8 of the Guide. Prospective applicants are encouraged to consult and discuss with the HKMA before submitting formal applications for clearance.
- Chapter 9 specifically sets out the principles that the HKMA will consider when deciding whether or not to allow “virtual banks”, i.e. banks that primarily provide retail banking services via the internet or other electronic channels. In accordance with established HKMA policy, it is expected that a potential virtual bank applicant will be held through a holding company incorporated in Hong Kong, which holding company will be subject to the supervisory requirements of the HKMA similar to those of the seventh schedule. Once licensed, virtual banks are generally subject to the same supervisory standards with appropriate adaptations based on a risk-based and technology-neutral approach, including but not limited to the requirements outlined in this chapter.
- Chapter 5 discusses the HKMA’s interpretation of each of the grounds for license revocation and suspension set out in the Eighth Schedule to the Order. HKMA’s powers to revoke an authorization become exercisable when one of the grounds for revocation is established, but in exercising its discretionary powers of revocation and suspension, HKMA will take into account the circumstances of the breach in each case, and more importantly, the paramount need to maintain the stability of the banking system and to protect the interests of depositors and potential depositors of the institution.
- Chapter 6 describes the powers of the HKMA under Section 52 of the Ordinance in respect of an authorized institution which is in financial difficulty or in breach or fails to comply with its legal obligations, including its power to appoint a director to manage the affairs, affairs and property of such an institution institution.
- Chapter 7 explains the general legal restrictions and HKMA consent requirements for using bank names or descriptions to do business in Hong Kong.
- Chapter 10 focuses on the licensing of securities brokers and describes the legal framework, the HKMA’s interpretation of the minimum licensing criteria for securities brokers set out in the Eleventh Schedule of the Ordinance and the grounds for revocation of the authorization of securities dealers set out in the twelfth schedule to the Ordinance.
To access a full copy of the guide, please click on here.