[ad_1]
Hong Kong Monetary Authority (HKMA) Circulars/Guidelines
SUMMARY
DATE
LINK
REMARKS
This is the press release of HKMA regarding a further 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (Scheme).
The HKMA, together with the Banking Sector SME Lending Coordination Mechanism (Mechanism), announced on 27 April 2023 a further 90-day repayment deferment for trade facilities under the Scheme to the end of July 2023, when the whole Scheme will expire. This repayment deferment applies only to existing trade loans under the Scheme.
The Mechanism has decided to extend the repayment period of trade facilities under the Scheme by a further 90-day period in view of the fact that a small number of trading companies are still facing some degree of funding pressure despite the impact of the pandemic on the global and local economies have substantially receded. In order not to hinder the eventual unwinding of the Scheme, the Mechanism considers it appropriate to limit the scope of the repayment deferment to existing trade loans under the Scheme.
Existing trade loans under the Scheme falling due between May and July 2023 can be extended by a further 90 days. For facilities which are self-liquidating, banks may require the loan to be settled when the customer has received the underlying payment. For trade loans which have been successively extended for 270 days or more since first being drawn down, banks may adopt a flexible approach and consider, on a case-by-case basis and subject to prudent risk-management principles, whether other forms of relief are more suitable to help the customers ride out their difficulties.
The Mechanism encourages customers who are financially able and willing to resume some principal repayment in exchange for greater certainty about their future repayment schedule, to take up the partial principal repayment options pursuant to the HKMA’s guidance of 20 October 2022. For trade facilities, banks may discuss with customers having regard to their actual circumstances and allow them to repay the amount due by regular instalments over a period of two years.
If corporate customers have enquiries about the Scheme, they may contact the HKMA via the dedicated email account (ppphs@hkma.gov.hk) or enquiry hotline (2878 1199).
Background
The Banking Sector SME Lending Coordination Mechanism was established by the HKMA in October 2019. Participants include 11 banks that are most active in SME lending. The Hong Kong Association of Banks and the HKMC Insurance Limited are also represented in the Mechanism. Since its establishment, the Mechanism has rolled out several rounds of relief measures for corporate customers, including the Pre-approved Principal Payment Holiday Scheme, loan tenor extensions, and the conversion of trade financing lines into temporary overdraft facilities. At the end of March 2023, banks had granted over 113,000 applications for loan tenor extension and other forms of relief, involving an aggregate amount of HK$1.1 trillion.
The Scheme took effect in May 2020 with around 100 participating banks and covers around 120,000 eligible corporate customers. Since its launch, the Scheme has been extended six times to the end of July 2023. Between November 2022 and January 2023, the number of participating corporate customers declined to 1,300 (participation rate of 1%), significantly lower than 19,000 (participation rate of 16%) when the Scheme was launched. To facilitate corporates to prepare for an eventual resumption of normal repayment, the Mechanism introduced in May 2022 a one-year 20% principal repayment option and in October 2022 a two-year 50% principal repayment option under the Scheme for corporates to take up on a voluntary basis.
Please see the HKMA’s circular dated 17 April 2020 here.
Please see the Annex to the HKMA’s circular dated 17 April 2020 here.
The above circular has been covered in item 58 below.
Please see the HKMA Guideline No. 5.7 “Loan Classification System” here.
Please refer to the HKMA circular dated 20 October 2022 for the previous extension of the Pre-approved Principal Payment Holiday Scheme here.
The above circular has been covered in item 4 below.
The HKMA published a Circular on 4 April 2023 to inform all authorized institutions that Phase 2 of the TFM will not be extended beyond 30 April 2023 in light of the latest development. This follows the IA’s Circular “Cessation of Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” on 4 April 2023 (“IA Circular”).
The HKMA Circular clarifies for the avoidance of doubt, the one-month transitional period as set out in the IA Circular is only provided for authorized insurers to adjust their internal procedures and process insurance applications submitted under the TFM on or before 30 April 2023, while authorized institutions are expected not to conduct any further transactions using the TFM after 30 April 2023.
Please see the circular “Extension of Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 9 September 2022 here.
Please see the circular “Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 27 March 2020 here.
Please see the circular “Circular Issued by the Insurance Authority (“IA”) on Phase 2 of the Temporary Facilitative Measures (“TFM”) to Tackle the Outbreak of COVID-19” issued by the HKMA on 27 March 2020 here.
Extension of application period of SME Financing Guarantee Scheme
The Financial Secretary announced in the 2023-24 Budget an extension of the application period of the 80% Guarantee Product, the 90% Guarantee Product and the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) from end-June 2023 to end-March 2024.
For details regarding SFGS, please see here.
For the previous update on SFGS, please refer to HKMA’s circular “Extension of Principal Moratorium for the SME Financing Guarantee Scheme” dated 20 October 2022 here.
The above circular has been covered in item 6 below.
Further extension and enhancement to partial principal repayment option
The HKMA published a circular on 20 October 2022 to inform all Authorised Institutions (“AIs”) of the HKMA’’s decision to further extend the Pre-approved Principal Payment Holiday Scheme (“Scheme”) by six months to the end of July 2023, and to introduce an enhancement to the partial principal repayment option. The HKMA has consulted with the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) on these measures which have received the unanimous support of the 11 major lenders participating in the Mechanism. The HKMA calls on AIs to continue to adopt a sympathetic attitude to customers in temporary financial difficulties and render assistance to them insofar as it is consistent with prudent risk management principles.
Reasons
Further extension:
Since announcing in September 2022 the three-month extension of the Scheme to end-January 2023, the HKMA and the relevant Government authorities have completed the review of the way forward of the Scheme. As the external environment and the economic outlook remain complex and uncertain, many business sectors are still facing significant challenges in their operations. The HKMA and the Mechanism therefore consider that a further six-month extension of the Scheme is appropriate at this juncture.
Enhanced partial principal repayment option:
The Scheme has been extended five times since its launch in May 2020 and will have to come to an end eventually. A protracted principal repayment moratorium may also render it difficult for borrowers to resume normal repayment when the Scheme ends.
To encourage financially capable borrowers to gradually transition to normal principal repayment, a new two-year 50% principal repayment option will be offered under the Scheme, on top of the one-year 20% principal repayment option introduced in May 2022.
While participation in the partial principal repayment options remains entirely voluntary, the HKMA expects AIs to take active steps to encourage their customers to take up the partial principal repayment options to prepare for the eventual exit of the Scheme.
Scope of application
With the extension of the Scheme, the principal payments of all loans of eligible corporate customers falling due between 1 February and 31 July 2023 should be deferred by six months except for repayments of trade loans, which should be deferred by 90 days. The deferment applies whether or not a loan has previously been on a principal payment holiday.
For a loan which has been extended for 540 days or more successively since it was first drawn down (or a trade loan which has been extended for 270 days or more successively since it was first drawn down), AIs can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief, including but not limited to full principal payment deferment, are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles.
In-line with the existing terms of the Scheme:
- AIs may require a customer to settle trade facilities which are self-liquidating in nature if the customer receives the underlying payment during the extended deferment period.
- For revolving facilities that are due for credit review between 1 February and 31 July 2023, AIs should not adjust downward the existing facility limits within six months from the review dates.
Partial principal repayment options
In addition to the existing 20% principal repayment option for a period of one year, customers may choose to repay 50% of the scheduled principal repayment amount for a period of two years. Customers currently participating in the Scheme may, at any time, opt to start with any one of the said partial principal repayment options.
The specific treatments for different types of loans are set out below:
- For instalment loans, such as mortgage loans and commercial vehicle loans, customers may start to repay 20% of the original principal repayment amount for one year, or 50% of the original principal repayment amount for two years. The loan tenor should generally be extended correspondingly. Customers currently participating in the 20% principal repayment option may, when the one year period expires, choose to continue to repay 20% of the principal for another one year, or transition to the 50% principal repayment option at any time. The same treatment should be applicable to commercial vehicle loans taken out by personal customers.
- For trade facilities, loans with bullet payment falling due within one year and outstanding balances of revolving facilities, customers may repay the amount due to be settled by regular instalments (e.g. quarterly or monthly) over a period of two years. For trade facilities which are self-liquidating in nature, AIs may require the loan to be settled when the underlying payment has been received by the customer.
AIs may tailor-make a specific partial principal repayment arrangement for a particular customer, so long as the terms of the partial principal repayment arrangement are no less favourable than the partial principal repayment options under the Scheme and are accepted by the customer, unless the customer explicitly asks for a less favourable arrangement taking into account its own circumstances.
For the avoidance of doubt, loans which have been extended for 540 days or more successively since the first drawdown (or trade loans which have been extended for 270 days or more successively since the first drawdown) are also eligible for the partial principal repayment options.
Operational details
Similar to the previous rounds, AIs need not issue individual notifications to eligible customers regarding the six-month extension of the Scheme. Corporate customers in need of relief should be advised to contact their lending institutions. AIs should handle each eligible customer’s case on a pre-approved basis. AIs may seek updated financial or business information from customers, particularly those who have already been granted multiple extensions of payment holidays. All other terms of the Scheme set out in the Annex to the HKMA’s circular on 17 April 2020 should continue to apply (https://www.hkma.gov.hk/media/eng/
doc/key-information/guidelines-and-circular/
2020/20200417e1a1.pdf).
Taking part in the full principal payment deferment or the partial principal repayment options will not by itself result in a loan being downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the deferment are commercial. That said, AIs should continue to recognise and classify loans of customers which are unable to meet the rescheduled payments in a timely manner, referencing the HKMA’s Guideline on Loan Classification System, and to make adequate provisions as and when needed.
Measures for the transportation sector
In recent years, the HKMA and the Mechanism have introduced a number of relief measures for the transportation sector, such as providing greater flexibility in handling new financing applications for the purchase of new vehicles for taxi operators, and upgrade of vehicles from 16 seats to 19 seats for public light bus (PLB) operators. Participating AIs have agreed to apply the same principles under the Scheme in handling requests for principal payment holiday and extension for taxis, PLBs and relevant commercial vehicles loans taken out by personal customers. These arrangements will remain applicable. In addition, the Mechanism has agreed that AIs should actively consider extending the maximum loan tenors for existing taxi and PLB loans from 25 years to 30 years, and for non-franchised buses from 7 years to 10 years on a case-by-case basis, having regard to the circumstances of individual borrowers.
Please see the HKMA’s circular dated 17 April 2020 at here.
Please see the Annex to the HKMA’s circular dated 17 April 2020 at here.
The above circular has been covered in item 58 below.
Please see the HKMA Guideline No. 5.7 “Loan Classification System” here.
This is the press release of HKMA regarding the measures mentioned in item 4 above.
Please also see related HKMA circular in item 4 above.
Please refer to the HKMA circular dated 16 September 2022 for the previous extension of the Pre-approved Principal Payment Holiday Scheme here.
The above circular has been covered in item 7 below.
HKMC Insurance Limited issued this press release regarding the extension of the principal moratorium under its SME Financing Guarantee Scheme (SFGS).
Having regard to the new arrangement by the HKMA and the banking sector to further extend the Pre-approved Principal Payment Holiday Scheme, HKMC Insurance Limited announced on the same day (20 October 2022) that the principal moratorium arrangement under the SFGS will be extended by six months to end-June 2023. The maximum principal moratorium period will be extended by six months to a total of 42 months (Please refer to the Note below).
Meanwhile, two options for making partial repayment will be provided, allowing borrowers to resume normal repayment gradually if they are willing and capable. Borrowers may choose to repay 20% of the original principal repayment amount monthly for one year, or repay half of the original principal repayment amount monthly for two years. Whether a borrower chooses the principal moratorium arrangement or the partial principal repayment option, the loan tenor and the guarantee period will generally be extended accordingly.
The above arrangements took effect from 24 October 2022 (Monday). Borrowers wishing to apply may approach lending institutions to discuss the arrangement.
Note: Currently, for term loan facilities, borrowers may apply for principal moratorium of no more than 12 months each time. If the principal moratorium period is about to expire, the borrowers in need may apply for a renewal of no more than 12 months in the relevant application period, but the total number of months of principal moratorium cannot exceed the limit set under the SFGS. To be eligible for the principal moratorium arrangement, the borrowers and/or the related facilities shall not have outstanding default for more than 30 days. These requirements will continue to be applicable during the extended period for principal moratorium as mentioned above (i.e. until end-June 2023).
For details regarding SFGS, please see here.
For the previous update on SFGS, please refer to HKMA’s circular “Extension of Principal Moratorium for the SME Financing Guarantee Scheme” dated 16 September 2022 here.
The above circular has been covered in item 9 below.
The HKMA published a circular on 16 September 2022 to inform all Authorised Institutions (AIs) that after consultation with the Banking Sector SME Lending Coordination Mechanism (“Mechanism”), the HKMA has decided to further extend the Pre-approved Principal Payment Holiday Scheme (“Scheme”) by three months.
Reason for further extension
Although the local economy has started to recover from the impact of the COVID-19 pandemic, the external environment and the economic outlook remain complicated and uncertain. The scheduled expiry of the Scheme is at the end of October 2022, and some corporates are facing pressing cash-flow pressure. The HKMA and the Mechanism decide to extend the Scheme for another three months to the end of January 2023. In the meantime, the HKMA and the Mechanism will work with relevant Government departments to review the Scheme and further study the way forward. Further announcement will be made at a suitable juncture.
Scope of application
With the extension of the Scheme, the principal payments of all loans of eligible corporate customers falling due between 1 November 2022 and 31 January 2023 should be deferred by six months except for repayments of trade loans, which should be deferred by 90 days. The deferment applies whether or not a loan has previously been on a principal payment holiday.
For a loan which has been extended for 540 days or more successively since it was first drawn down (or a trade loan which has been extended for 270 days or more successively since it was first drawn down), AIs can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief, including but not limited to full principal payment deferment, are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles.
In-line with the existing terms of the Scheme:
- AIs may require a customer to settle trade facilities which are self-liquidating in nature if the customer receives the underlying payment during the extended deferment period.
- For revolving facilities that are due for credit review between 1 November 2022 and 31 January 2023, AIs should not adjust downward the existing facility limits within six months from the review dates.
Partial principal repayment option
Same as the last extension, customers currently participating in the Scheme may, at any time, opt to start to resume partial repayment of 20% of the original principal repayment amount (i.e. the original payment schedule when the customer first joined the Scheme) over a period of one year. AIs should emphasize to customers that taking up the option is entirely voluntary for the customers. The specific treatments for different types of loans are set out below:
- For instalment loans, such as mortgage loans and commercial vehicle loans, customers may start to repay 20% of the original principal repayment amount within one year. The loan tenor should generally be extended correspondingly. The same treatment should be applicable to commercial vehicle loans taken out by personal customers.
- For trade facilities, loans with bullet payment falling due within one year and outstanding balances of revolving facilities, customers may repay the amount due to be settled by regular instalments (e.g. quarterly or monthly) over a period of two years. For trade facilities which are self-liquidating in nature, AIs may require the loan to be settled when the underlying payment has been received by the customer.
For the avoidance of doubt, loans which have been extended for 540 days or more successively since the first drawdown (or trade loans which have been extended for 270 days or more successively since the first drawdown) are also eligible for the above partial principal repayment option.
Operational details
Similar to the previous rounds, AIs need not issue individual notifications to eligible customers regarding the extension of the Scheme. Corporate customers in need of relief should be advised to contact their lending institutions. AIs should handle each eligible customer’s case on a pre-approved basis. AIs may seek updated financial or business information from customers, particularly those who have already been granted multiple extensions of payment holidays. All other terms of the Scheme set out in the Annex to the HKMA’s circular on 17 April 2020 should continue to apply.
Taking part in the full principal payment deferment or the partial principal repayment option will not by itself result in a loan being downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the deferment are commercial. That said, AIs should continue to recognise and classify loans of customers which are unable to meet the rescheduled payments in a timely manner, referencing the HKMA’s Guideline on Loan Classification System, and to make adequate provisions as and when needed.
The HKMA calls on AIs to continue to adopt a sympathetic attitude to customers in temporary financial difficulties and render assistance to them insofar as it is consistent with prudent risk management principles to do so.
Please see the HKMA’s circular dated 17 April 2020 here.
Please see the Annex to the HKMA’s circular dated 17 April 2020 here.
The above circular has been covered in item 58 below.
Please see the HKMA Guideline No. 5.7 “Loan Classification System” here.
This is the press release of HKMA regarding the further extension of the Pre-approved Principal Payment Holiday Scheme mentioned in item 7 above.
Please also see related HKMA circular in item 7 above.
Background information
The Banking Sector SME Lending Coordination Mechanism was established by the HKMA in October 2019. Participants include 11 banks that are most active in SME lending. The Hong Kong Association of Banks and the HKMC Insurance Limited are also represented in the Mechanism. Since its establishment, the Mechanism has rolled out several rounds of relief measures for corporate customers, including the Scheme, loan tenor extensions, and the conversion of trade financing lines into temporary overdraft facilities. At the end of August 2022, banks had granted over 99,000 applications for loan tenor extension and other forms of relief, involving an aggregate amount of HK$1 trillion.
The Pre-approved Principal Payment Holiday Scheme covers all corporate customers that have an annual sales turnover below HK$800 million and that have no seriously overdue loan payments. The Scheme took effect in May 2020 with around 100 participating banks and covers around 120,000 eligible corporate customers. The Scheme has been extended in November 2020, May 2021, November 2021 and May 2022, for six months each time, to end-October 2022. Between November 2021 and April 2022, the number of participating corporate customers dropped to 2,600 (participation rate of 2.3%), significantly lower as compared to 19,000 (participation rate of 16%) when the Scheme was first launched.
Please refer to the HKMA circular dated 19 July 2022 for the previous extension of the Pre-approved Principal Payment Holiday Scheme here.
The above circular has been covered in item 13 below.
Please see the press release titled “Extension of Pre-approved Principal Payment Holiday Scheme for another 6 months” published by HKMA on 23 February 2022 here.
This is the press release of HKMC Insurance Limited regarding the further extension of the Pre-approved Principal Payment Holiday Scheme mentioned in item 7 above.
Upon the HKMA’s announcement of the further extension, HKMC Insurance Limited announced on the same day that the principal moratorium arrangement under the SME Financing Guarantee Scheme (SFGS) will be extended accordingly.
Borrowers may apply for principal moratorium of up to 36 months. The option to resume making partial principal repayment will continue to be provided, allowing borrowers to resume normal repayment gradually if they are willing and capable. Whether a borrower chooses the principal moratorium arrangement or the partial principal repayment option, the loan tenor and the guarantee period will generally be extended accordingly.
Borrowers wishing to apply may approach lending institutions to discuss the arrangement.
Please also see related HKMA circular in item 7 above.
For details regarding SFGS, please see here.
For the previous update on SFGS, please refer to HKMA’s circular “SME Financing Guarantee Scheme Enhancements to Take Effect” dated 30 March 2022, please see here.
The above circular has been covered in item 24 below.
The HKMA published a circular on 9 September 2022 to inform all Authorised Institutions (AIs) that Phase 2 of the temporary facilitative measures (TFM) to tackle the outbreak of COVID-19 will be further extended to 30 April 2023.
Extension of Phase 2 of TFM
According to the circular “Extension of Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 9 September 2022, Phase 2 of the TFM will be further extended by seven months to 30 April 2023 in light of the current COVID-19 situation.
Past Circulars
Authorized institutions may continue to adopt the TFM outlined in the circular “Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 27 March 2020 for their non-face-to-face distribution of the in-scope products until 30 April 2023.
For the avoidance of doubt, the clarifications and reminder set out in the circular entitled “Circular Issued by the Insurance Authority (“IA”) on Phase 2 of the Temporary Facilitative Measures (“TFM”) to Tackle the Outbreak of COVID-19” issued by the HKMA on 27 March 2020 remain applicable.
Please see the circular “Extension of Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 9 September 2022 here.
Please see the circular “Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 27 March 2020 here.
Please see the circular “Circular Issued by the Insurance Authority (“IA”) on Phase 2 of the Temporary Facilitative Measures (“TFM”) to Tackle the Outbreak of COVID-19” issued by the HKMA on 27 March 2020 here.
The HKMA published a circular on 28 July 2022 to inform all Authorised Institutions (AIs) some sound practices for payment operations of AIs.
Background
Over the past year, a few payment-related operational incidents were reported by AIs to the HKMA. Most of these incidents were caused by IT system malfunctions, resulting in failure in meeting cut-off timelines specified by the Hong Kong Interbank Clearing Limited (HKICL). The incidents impacted the institutions themselves and their customers and, in several instances, also affected other financial institutions including those in the securities sector.
HKMA’s Expectations
The HKMA reminds AIs of the importance of maintaining high operational resilience with respect to their payment operations. In particular, a stable and efficient payment system is immensely important to Hong Kong being an international financial centre. Payment operations should generally be regarded as critical operations and AIs should have in place a robust business continuity plans (BCPs) to ensure that their payment functions can continue to operate even when disruptions occur, in accordance with HKMA’s Supervisory Policy Manual, including Module OR-2 on Operational Resilience, Module TM-G-1 on General Principles for Technology Risk Management and Module TM-G-2 on Business Continuity Planning.
According to paragraph 1 of SPM OR-2, (i) operational disruptions include “those due to pandemics, cyber incidents, technology failures and natural disasters”, and (ii) HKMA adopts the definition of operational resilience in the Principles for Operation Resilience (POR) issued by the Basel Committee on Banking Supervision in March 2021, namely, “the ability of a bank to deliver critical operations through disruption”.
Sounds Practices for Payment Operations of AIs
Having regard to the experience obtained from the earlier operational incidents, HKMA has identified a range of sound practices for payment operations for reference of AIs:-
- Preventing payment-related operational incidents – Given the importance of payment function, it is imperative that all systems supporting payment operations are well-designed and thoroughly tested before they are rolled out. In the event that there are subsequent system changes or enhancements, AIs should test the new or enhanced systems with the same level of rigorousness before they go live. Where an AI’s payment systems rely on those of its head office, it should clearly communicate with its group counterparts to ensure that the local management are informed of any system changes affecting payment operations well in advance, and the local management should be closely involved in the testing process before any system changes are effected. (Reference: TM-G-1 section 4)
- Close monitoring of payment operations – There should be a dedicated team charged with the responsibility for ongoing monitoring of payment operations, including tracking the status and flow of payments, so as to identify irregularities at early stages of the payment process. The team of staff responsible for this function should be familiar with the institution’s BCP for payment operations and be in a position to make recommendations to management on when to trigger contingency arrangements, such as Special Posting, at a suitably early juncture to ensure timely completion of payment transactions within the specified cut-off times for various Real Time Gross Settlement (RTGS) systems. (Reference: TM-G-2 section 4 and TM-G-1 section 5)
- Robust business continuity planning – AIs are expected to have robust and well-defined BCPs in place to ensure the ongoing resilience of their payment operations. The BCP should cover a variety of scenarios, including prolonged service degradation or system outages, so that AIs can readily respond to actual disruptions. In this regard, AIs should critically review their end-to-end workflows, and conduct rigorous risk assessments in order to formulate viable contingency options to mitigate the residual risks. The assessments should factor in relevant interdependencies (e.g. transaction volume) and the time required for potential action points throughout the process (e.g. internal escalation, decision making, external communications). AIs should also have adequate processes in place to prioritise the execution of payment transactions when a disruption occurs, taking into account factors such as the nature, value and time sensitivity of the payments, and the potential knock-on market impact (e.g. the possibility of affecting other banks or other financial markets). (Reference: OR-2 section 6 and TM-G-2 section 4)
- Timely deployment of contingency arrangements – A key commonality of the operational incidents observed by the HKMA is that the disruption of the AIs’ payment operations was not timely brought to the attention of bank management as most of the efforts were placed on system recovery. Eventually, the decision to trigger the contingency arrangements specified in the BCPs was usually made at a late stage, causing many of the outstanding transactions not being completed in time. AIs should take steps to ensure that their processes require early escalation of payment-related operational incidents, and prompt response from management. AIs should not assume that an extension of RTGS cut-off times will always be granted. As stated in the HKMA’s circular dated 8 May 2015, the discretion to extend the RTGS operating window is exercised only on an exceptional basis, with due consideration to factors such as the impact on financial stability, potential knock-on effects and convenience to users of financial services. (Reference: OR-2 section 8 and TM-G-2 section 4)
- Periodic testing – The effectiveness of AIs’ BCPs should be ensured through regular testing and drills. The coverage of the drills should be sufficiently wide to capture the entire end-to-end journey, and designed in a way that allows AIs to identify critical action points and develop practical solutions to expedite recovery. Apart from their own testing and drills, AIs should ensure their operational and technical readiness for special posting or other functions on an ongoing basis, and to mandatorily test all related tools through the participation of the annual industry-wide special posting trial runs co-ordinated by the HKICL. (Reference: OR-2 section 6 and TM-G-2 section 6)
- Incident reporting and communication with stakeholders – An effective communication strategy should be developed by AIs to ensure key stakeholders in the payment process are engaged in a timely manner. In particular, relevant internal and external stakeholders should be identified upfront and included in the communication plan as part of the BCP, so as to facilitate timely communication with bank customers and other relevant parties. As payment-related incidents may have wider implications on financial stability, AIs are expected to promptly escalate and report the matter to the HKMA and other supervisory authorities, to facilitate timely regulatory response at the system level. (Reference: OR-2 section 8 and TM-G-2 section 4)
AIs should review their existing practices against the above sound practices for payment operations. Where gaps are identified, AIs should critically evaluate the need for enhancing their existing practices and make improvements where appropriate. In view of the increased number of payment-related operational incidents, the HKMA will step up its surveillance of AIs’ payment operations, including undertaking examinations focused on payment operations.
Please see the HKMA’s SPM module OR-2 on “Operational Resilience” dated 31 May 2022 here.
The above SPM has been covered in item 16 below.
Please see the HKMA’s SPM module TM-G-1 on “General principles for technology risk management” dated 24 Jun 2003 here.
Please see the HKMA’s SPM module TM-G-2 on “Business Continuity Planning” dated 31 May 2022 here.
The above SPM has been covered in item 16 below.
The HKMA published a circular on 25 July 2022 to inform all Authorised Institutions (AIs) that, following consultation with the industry, the HKMA has issued a revised version of the SPM module OR-1 on “Operational Risk Management”.
According to paragraph 1 of SPM OR-1, operational risk management and operational resilience are closely interconnected. When implementing SPM OR-1, AIs should also take into account SPM OR-2 “Operational Resilience”. Of the tools commonly used for identifying and assessing operational risk, pandemics, natural disasters, and failures or disruptions within a third party’s supply chain are given as scenario examples (paragraph 7.2.4(f) of SPM OR-1).
Revised SPM module OR-1
The revised module implements the Revised Principles for Sound Management of Operational Risk issued by the Basel Committee on Banking Supervision (BCBS) in March 2021, which primarily incorporates clarifying guidance on the existing principles, updates in the areas of change management and information and communication technology management, and specific guidance related to operational resilience. It also reflects those requirements related to operational risk management contained within the BCBS’ Principles for Operational Resilience.
Implementation timeline
AIs should implement this module within 18 months from the date of the circular (i.e. no later than 25 January 2024), except for the areas related to operational resilience as set out in paragraph 1.5.2 which should follow the implementation timelines for the new SPM module OR-2 on Operational Resilience based on the HKMA’s circular dated 31 May 2022.
Please see the HKMA’s revised version of the SPM module OR-1 on “Operational Risk Management” dated 25 July 2022 here.
Please see the HKMA’s SPM module OR-2 on “Operational Resilience” dated 31 May 2022 here.
The above SPM has been covered in item 16 below.
The HKMA, together with the Banking Sector SME Lending Coordination Mechanism (Mechanism), announced on 19 July 2022 a further 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (Scheme), until the end of October 2022 when the whole Scheme will expire. The HKMA and the Mechanism will then conduct a holistic review and decide on the way forward for the whole Scheme.
Background
Since early this year, the heightened geopolitical tension has exacerbated pressure on the global supply chain. As inflation continues to rise around the globe, major central banks have tightened monetary policies and raised interest rates, adding to the financial burden on corporates. Meanwhile, the local economy has only started to stabilise in the wake of the fifth wave of COVID-19 infections. Significant uncertainty lies ahead for import and export businesses.
Implications of the Deferment
- Corporate customers participating in the repayment deferment for trade facilities under the Scheme can extend trade facilities falling due between August and October this year for a further 90 days.
- Eligible corporate customers can also apply for a 90-day extension of trade facilities drawn down from May 2022 to the end of July 2022.
- For facilities which are self-liquidating in nature, banks may require the loan to be settled when the customer has received the underlying payment.
- For trade loans which have been successively extended for 270 days or more since first being drawn down, banks may adopt a flexible approach and consider whether other forms of relief are more suitable to help the customers ride out the current difficulties on a case-by-case basis, subject to prudent risk management principles.
The Mechanism encourages customers that are financially capable and willing to resume some principal repayment in exchange for greater certainty to their future repayment schedule to take up the partial principal repayment option pursuant to the HKMA’s guidance of 23 February 2022. For trade facilities, banks may discuss with customers having regard to their actual circumstances and allow them to repay the amount due by regular instalments over a period of two years.
Please see the HKMA circular dated 23 February 2022 for the previous extension of the Pre-approved Principal Payment Holiday Scheme here.
The above circular has been covered in item 30 below.
The HKMA wrote to inform authorized institutions (AIs) and Stored Value Facility licensees (SVF licensees) that the Government published on 8 July 2022 the captioned report. The overarching theme to AIs and SVF licensees is the same, they must understand and respond to the money laundering and terrorist financing (ML/TF) risks as such risks continue to evolve. This report is central to shaping and sharpening the anti-money laundering and counter-financing of terrorism (AML/CFT) work of the banking sector and the SVF sector in the coming years.
Actions Taken by the HKMA since the First Report
Since the first report was published in 2018, many of the actions applicable to the banking sector have been delivered.
With regards to AIs, the HKMA has helped to strengthen collaboration using a public-private partnership approach, delivering concrete results in disrupting fraud and other financial crimes through the Fraud and Money Laundering Intelligence Taskforce and similar ecosystem initiatives. Amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) have been made or are being introduced to bring the latest international standards into law. Significant developments have been made in AML/CFT innovation and Regtech adoption by AIs, supported by a range of HKMA initiatives.
With regards to SVF licensees, the HKMA has strengthened the assessment of sectoral risks based on regulatory experience and operational data, and used this improved understanding to enhance the regulatory regime, introducing a more risk-proportionate tiered approach to customer due diligence, which features account limits and different functions for SVF products depending on whether or not the customer’s identity has been verified and subject to the customer’s choice. As part of the broader HKMA efforts to support innovation and RegTech adoption, the HKMA has also introduced revisions to the applicable Guideline to facilitate the adoption of technology solutions for remote customer on-boarding.
The 2022 HRA
The 2022 HRA provides an updated view of the ML/TF risk landscape, largely following the same methodology with expanded sectoral assessments for some sectors (e.g. SVFs, virtual asset service providers) and a standalone assessment of Hong Kong’s proliferation financing risk. The 2022 HRA also sets out the key ML/TF risks for Hong Kong that have changed since the first assessment, and the actions taken to address these risks.
The 2022 HRA concludes that the local banking sector continues to face a high level of risks of being exploited for ML, which is commensurate with Hong Kong’s status as an international financial centre and in line with the risks noted internationally. The most prominent ML threats to banks continue to arise from fraud, corruption and tax crimes. Major developments since 2018 are emphasised, including an accelerated rise in online commerce and financial services and widespread application of technology (e.g. remote on-boarding), especially during the COVID-19 pandemic, the launch of virtual banks and the Faster Payment System in Hong Kong, and the emergence of new payment methods and virtual assets.
The 2022 HRA also concludes that the SVF sector continues to face a medium level of risks of being exploited for ML, which is in line with the risks noted internationally. The most prominent ML threats to SVF licensees continue to arise from fraud and illegal bookmaking activities, mostly concentrated in certain products with more functionality and broader geographic reach. Major developments since 2018 are emphasised, including the global trend of bad actions taking advantage of the COVID-19 pandemic to perpetrate fraud and exploitation scams.
Actions to be Taken by the HKMA following the 2022 HRA
The HKMA will continue to work closely with AIs, SVF licensees and other competent authorities to address the ML/TF risks in the banking sector and SVF sector. In the coming twelve months, the HKMA will roll out further initiatives to support innovation and Regtech adoption, including the second Anti-Money Laundering Regtech Lab (AMLab) on a new theme, as well as further sharing of updated case studies and insights. To remain ready and able to meet emerging threats, the HKMA is embedding supervisory technologies and analytical capabilities in its AML/CFT work as part of the HKMA’s digital transformation. In parallel, the HKMA will continue to strengthen collaboration and intelligence sharing with the banking industry and law enforcement to deliver further results in preventing, detecting and disrupting possible abuse of the banking system for illicit fund flows, and thus protecting the integrity of customer bank accounts and the entire system.
The HKMA’s Expectations of AIs and SVF Licensees
AIs and SVF licensees should study the report carefully, consider the relevant insights and possible implications, review their institutional ML/TF risk assessments and update risk mitigating measures accordingly.
For AIs:
For SVF Licensees:
For the 2022 HRA published on 8 July 2022, please see here.
The above report has been covered in item 1 in the SFC circulars/guidelines above and item 4 of the IA circulars/guidelines below.
HKMA published a press release about a new Applied Research report released by the Hong Kong Institute for Monetary and Financial Research (HKIMR) on 15 June 2022, titled “COVID-19 and the Operational Resilience of Hong Kong’s Financial Services Industry: Preliminary considerations from the 2020-2021 experience”. HKIMR is the research arm of the Hong Kong Academy of Finance (AoF). HKIMR Applied Research reports are focused on topics that are highly relevant to market participants and regulators in Hong Kong, and they aim to provide insights on the long-term development strategy and direction of Hong Kong’s financial services industry. The AoF is set up with full collaboration amongst the Hong Kong Monetary Authority, the Securities and Futures Commission, the Insurance Authority and the Mandatory Provident Fund Schemes Authority.
“By illustrating the roles of business continuity plans, remote working arrangements and external factors, including a supportive policy environment, in achieving operational resilience, we hope that this study can provide some useful preliminary insights for financial institutions regarding their operational resilience in the post-COVID-19 future”, said Mr Edmond Lau, Deputy Chief Executive of the HKMA and Deputy Chairman of the HKIMR.
This report looks at the experience of the years 2020-2021 to understand how the financial services industry in Hong Kong has maintained operational resilience during different phases of the COVID-19 pandemic, in view of its disruptions on businesses and individuals. With the views of local financial institutions gathered through a survey and interviews, commissioned by the HKIMR in July 2021, the report discusses the measures implemented across sectors of the financial services industry to mitigate the impact of the pandemic. For example, 85% of the survey respondents stated that they had incorporated pandemic scenarios in their business continuity plans before the pandemic. In addition, hybrid work models have also been adopted by financial institutions. The report also investigates the critical role of external enhancers, including policy support, financial and data infrastructure and the accelerated adoption of financial innovations, in enhancing financial institutions’ operational resilience. The report is concluded by providing some preliminary considerations on how financial institutions can maintain and enhance the operational resilience should similar disruptive events occur in the future.
The HKMA published a circular on 31 May 2022 to inform all Authorised Institutions (AIs) that, following consultation with the industry, the HKMA has issued a new SPM module OR-2 on “Operational Resilience” and a revised version of the SPM module TM-G-2 on “Business Continuity Planning”.
According to paragraph 1 of SPM OR-2, (i) operational disruptions include “those due to pandemics, cyber incidents, technology failures and natural disasters”, and (ii) HKMA adopts the definition of operational resilience in the Principles for Operation Resilience (POR) issued by the Basel Committee on Banking Supervision in March 2021, namely, “the ability of a bank to deliver critical operations through disruption”.
New SPM module OR-2 and revised SPM module TM-G-2
The modules serve to implement the POR. Specifically:
- The new SPM OR-2, issued as a guidance note, specifies the HKMA’s overall approach to operational resilience. It sets out the HKMA’s expectation that every authorized institution (AI) should be operationally resilient, and provides high-level guidance on how AIs can develop an integrated and holistic operational resilience framework to support this.
- The revised SPM TM-G-2 complements SPM OR-2 by providing enhanced guidance on business continuity planning, which is a key component of an effective operational resilience framework. It incorporates additional requirements related to business continuity planning and testing covered within the POR, and also aligns the terminology used for business continuity planning and operational resilience purposes to enhance clarity.
AIs should note that many of the concepts and requirements related to operational resilience are not new and are already covered extensively under existing HKMA guidance. AIs should therefore refer to the relevant SPM modules when implementing the requirements of SPM OR-2. Besides the revised SPM TM-G-2, other relevant SPM modules also include SPM SA-2 on “Outsourcing” and the forthcoming revised SPM OR-1 on “Operational Risk Management”, which is being refined having regard to comments received from the industry, to reflect the operational risk management requirements contained within the POR.
Implementation timeline
The implementation timeline detailed within SPM OR-2 was set by HKMA after factoring in industry feedback. HKMA will expect every AI to have:
(i)developed its operational resilience framework and determined the timeline by which it will become operationally resilient, within 1 year after the SPM OR-2 is issued (i.e. 31 May 2023); and
(ii)become operationally resilient as soon as their circumstances allow and no later than 3 years after the initial 1-year planning period (i.e. no later than 31 May 2026).
The above timeline applies to all new requirements related to operational resilience, including those contained in the revised SPM TM-G-2 and the revised SPM OR-1. An AI should therefore be compliant with those requirements relating to the development of its operational resilience framework by 31 May 2023, and those relating to the implementation of the framework no later than 31 May 2026.
Please see the HKMA’s new SPM module OR-2 on “Operational Resilience” dated 31 May 2022 here.
Please see the HKMA’s revised version of the SPM module TM-G-2 on “Business Continuity Planning” dated 31 May 2022 here.
Starting from 6 May 2022, the 100% Personal Loan Guarantee Scheme (PLGS) will receive loan applications from individual landlords affected by rental enforcement moratorium.
The Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Ordinance (the Ordinance) came into effect on 1 May 2022 to provide temporary protection for business tenants in specified premises whose businesses are hard hit by the fifth wave of the COVID-19 pandemic. The Ordinance imposes a moratorium to prohibit landlords from taking certain actions in respect of their business tenants of specified sectors for failing to settle rent on schedule for a specified short period. In this connection, the Government has announced earlier the provision of interest-free loans under the PLGS to affected individual landlords who live off rental income from specified business premises they hold.
The loan application period will last until 31 October 2022.
Eligibility for PLGS in connection to the Ordinance
Eligible landlords have to be Hong Kong residents aged 18 or above, who legally and beneficially own premises which are used wholly or primarily as specified premises as defined under the Ordinance, live off rental income but have been affected by rental enforcement moratorium, and can demonstrate a temporary loss of monthly rental income of at least 20% from the specified premises for at least one month during the period from 1 January 2022 to the end of the protection period for business tenants specified in the Ordinance. Eligible applicants may receive a loan amount of up to three times the monthly rent receivable in respect of their specified premises, subject to a ceiling of HK$100,000. The maximum repayment period is five years, with an option of repayment holiday for the first six months to alleviate the immediate repayment burden of the borrowers.
Participating Lenders
11 participating lenders will be ready to receive applications from affected individual landlords from 6 May 2022 onwards. They include Bank of China (Hong Kong) Limited, The Bank of East Asia, Limited, China CITIC Bank International Limited, China Construction Bank (Asia) Corporation Limited, Chiyu Banking Corporation Limited, Dah Sing Bank, Limited, Hang Seng Bank, Limited, The Hongkong and Shanghai Banking Corporation Limited, Nanyang Commercial Bank, Limited, Shanghai Commercial Bank Limited, and Standard Chartered Bank (Hong Kong) Limited.
More information, including the list of participating lenders and their enquiry hotlines, will be available on the PLGS webpage here.
For more information on this new Ordinance from the perspective of landlords and tenants, please refer to Mayer Brown’s Legal Update dated 3 May 2022 here.
For more information on this new Ordinance from the perspective of lenders, please refer to Mayer Brown’s Legal Update dated 5 May 2022 here.
The Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Ordinance came into effect on 1 May 2022 to provide temporary protection for business tenants in specified premises whose businesses are hard hit by the fifth wave of the COVID19 pandemic. The Ordinance imposes a moratorium to prohibit landlords from terminating the tenancy, suspending the provision of services, or taking other related legal actions against their business tenants of specified sectors for failing to settle rent on schedule for a specified short period. In this connection, the Government has announced the provision of interest-free loans of up to three times the monthly rent under the 100% Personal Loan Guarantee Scheme (PLGS), subject to a ceiling of HK$100,000 per individual, to provide support to affected individual landlords who live off rental income from specified business premises they hold. HKMC Insurance Limited being the scheme administrator of the PLGS has been liaising with participating authorized institutions on improvements to the existing arrangement of the PLGS to allow the provision of loans to affected individual landlords.
The HKMA confirmed that the regulatory and reporting treatments, their expectations on credit assessment and approval etc., in respect of PLGS loans granted by participating authorized institutions to eligible individual landlords will follow those set out in our circular letter of 20 April 2021 on this subject.
Please see the HKMA’s circular on 100% Personal Loan Guarantee Scheme dated 20 April 2021 here.
The above circular has been covered in item 37 below.
For more information on this new Ordinance from the perspective of landlords and tenants, please refer to Mayer Brown’s Legal Update dated 3 May 2022 here.
For more information on this new Ordinance from the perspective of lenders, please refer to Mayer Brown’s Legal Update dated 5 May 2022 here.
The HKMA published this circular to draw attention to the passage of the Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Bill by the Legislative Council on 28 April 2022, and to provide guidance on the steps that authorized institutions (AIs) should take to comply with the Ordinance.
Implications on AIs
As an initiative announced by the Financial Secretary in this year’s Budget, the Ordinance aims to mitigate the impact of COVID-19 on business tenants of certain premises. The Ordinance bars landlords from taking certain actions against their tenants for failure to pay rent for a protection period (generally three months from the commencement of the Ordinance). To support landlords facing cashflow difficulties as a result of the rental enforcement moratorium, the Ordinance correspondingly provides for a period within which a lender (including an AI), which has provided a loan secured by such (tenanted) premises (“secured loan”), is barred from taking certain actions in respect of a repayment default where certain conditions are satisfied.
Contravention of the prohibition amounts to an offence and the lender will be liable to a fine on conviction.
The Ordinance ceases to apply if the lender has entered into a written agreement with the landlord during the protection period that provides for forbearance in respect of the repayment schedule for, or the amount of any repayment of, the loan secured by such (tenanted) premises.
Cases where AIs are prohibited from taking enforcement actions
The Ordinance prohibits AIs and other lenders from taking specified enforcement actions in relation to the secured loan where:
(a) the tenant fails to pay the rent and the landlord is debarred by the rental enforcement moratorium provisions in the Ordinance from taking action against the tenant;
(b) there is a default in payment of the secured loan between 1 January 2022 (or, if an underlying tenancy only comes within the scope of the Ordinance during the protection period, the date upon which the Ordinance becomes applicable) and the end of the protection period (unless the rental enforcement moratorium provisions of the Ordinance cease to apply earlier in a given case); and
(c) the landlord can reasonably establish that the tenant’s failure to pay the rent and the rental enforcement moratorium imposed by the Ordinance are the sole reason or a significant reason for the landlord’s inability to avoid a repayment default.
Types of prohibited enforcement actions
The prohibited enforcement actions include, among others, suing for repayment, taking possession of the property, petitioning for the bankruptcy of the landlord, and making demand against the landlord under any other right of recourse as a result of the repayment default triggering any contractual cross-default clause. Any pending action by the lender for a payment default from 1 January 2022 will be stayed whilst the rental enforcement moratorium is in effect.
HKMA’s expectations of AIs
As stated in the HKMA’s circular of 23 February 2022, AIs are expected to play their part in assisting the delivery of Government initiatives announced in the Budget to support the community facing temporary financial difficulties. Accordingly:
(a) AIs should study the Ordinance carefully and be mindful of the applicable legal requirements when dealing with any affected landlords (which, where specified by the Ordinance, will include obligors, guarantors and other sureties).
(b) Specifically, the HKMA would expect and would strongly encourage AIs to waive any penalties or late charges incurred by the landlords as a result of a failure of payment protected by the Ordinance.
(c) Likewise, in such circumstances, the HKMA would expect that, whilst interest may continue to be accrued on the unpaid principal amount, interest would not be accrued on unpaid interest. AIs should be prepared to extend the loan tenor correspondingly if they are so requested.
(d) AIs should also refrain from any actions in respect of loan covenant breaches by customers as a result of the rental enforcement moratorium.
(e) Pre-approved Principal Payment Holiday Scheme (PPPHS)
(i) In addition to complying with the Ordinance, the HKMA continues to expect AIs to offer credit relief, on the basis of the PPPHS, to landlords encountering cashflow problem where appropriate.
(ii) At present, the PPPHS already covers smaller corporate borrowers (i.e. corporates with annual sale turnover of no more than HK$800 million) which have outstanding loans secured by properties. For these customers which encounter repayment difficulty as a result of the Ordinance, AIs should assist them in understanding the protection afforded by the Ordinance and the relief available under the PPPHS. In cases where customers consider the PPPHS to be more suitable for their circumstances and decide to take up the relief thereunder, AIs should advise them whether the protection afforded by the Ordinance will cease by virtue of section 4 of the Ordinance. Section 4 of the Ordinance states that once a written agreement is entered into during the protection period for forbearance in relation to the timing or amount of repayments of a relevant secured loan, the Ordinance ceases to apply. AIs should seek legal advice to ascertain whether their existing processes and documentation in relation to the PPPHS constitute a “written agreement” within the meaning of section 4 of the Ordinance.
(iii) AIs should refer to the HKMA’s earlier circulars on PPPHS in handling applications by eligible corporate landlords. As in the past, the PPPHS operates on an opt-in basis. AIs need not issue individual notifications to eligible customers. They should handle each eligible application on a pre-approved basis.
(iv) The HKMA expects AIs to offer the same treatment under the PPPHS to landlords affected by the Ordinance who are individuals. In other words, the credit relief available under the PPPHS should be offered to these landlords if they so request. As for larger corporate landlords falling outside of the PPPHS which face repayment difficulty as a result of the Ordinance, AIs should adopt a sympathetic attitude and identify, in consultation with their customer, a feasible solution consistent with prudent risk management principles.
(f) Making reference to the PPPHS, non-repayment of debt covered by the Ordinance will not by itself result in a loan being downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the loan remain commercial. That said, AIs should continue to recognise and classify loans of customers which are unable to meet the rescheduled payments in a timely manner, referencing the HKMA’s Guideline on Loan Classification System, and to make adequate provisions as and when needed. The HKMA will collect from AIs relevant statistics to monitor compliance with the requirements in this circular.
Please see the HKMA’s circular on the Pre-approved Principal Payment Holiday Scheme dated 23 February 2022 here.
The above circular has been covered in item 30 below.
For HKMA’s Guideline on Loan Classification System published on 2 September 1994, please see here.
The HKMA has received feedback from members of the public that their bank accounts maintained on the Mainland (“Mainland bank accounts”) have become dormant or have been suspended for various reasons, and they are facing difficulties in reactivating their Mainland bank accounts by visiting the banks’ branches on the Mainland in person due to the travel restrictions amid the COVID-19 pandemic situation. The situation is becoming more prevalent over time, and this may create significant hardships to the customers concerned. It will not be conducive to the convenient flow of people, goods and funds between Hong Kong and the Mainland, including but not limited to the Guangdong-Hong Kong-Macao Greater Bay Area.
HKMA’s Recommendations for AIs
Having communicated with the relevant Mainland authorities, the HKMA strongly encourages authorized institutions (“AIs”) to introduce facilitative measures to assist these affected customers to reactivate their Mainland bank accounts, especially during the current pandemic situation for the benefit of the community. In response to some questions from AIs on regulatory aspects of such facilitative measures, this circular provides clarifications for AIs in the offering of assistance to the affected customers.
Where Mainland banks are AIs
In the case where the relevant Mainland bank is already an AI, facilitative measures to reactivate Mainland bank accounts will not have bank licensing issue or concern on the establishment and maintenance of local representative offices under the Banking Ordinance. AIs should have flexibility in implementing facilitative measures.
Where Mainland banks are not AIs
In the case where the relevant Mainland bank is not an AI, the HKMA is of the view that where the AI, in offering administrative assistance to affected customers to reactivate their Mainland bank accounts, acts according to such customers’ instructions and acts on such customers’ behalf (instead of acting as a representative or an agent of the relevant Mainland bank in Hong Kong, or soliciting customers for the relevant Mainland bank), the offering of such assistance by the AI to the affected customers will not of itself render the relevant Mainland bank to have established or maintained a local representative office in Hong Kong.
Moving Forward
AIs are encouraged to implement facilitative measures as soon as feasible to assist affected customers under the current pandemic situation, including adopting financial technology solutions, having regard to the applicable laws and regulatory requirements, including those on the Mainland
The Government announced on April 14 the relaunch of the subscription arrangement for the government retail green bond, for which the issuance was previously postponed due to the epidemic situation.
According to the press release published by HKMA, the Financial Secretary, Mr Paul Chan, said, “As the fifth wave of the epidemic gradually subsides, we are relaunching the subscription arrangement of the inaugural retail green bond and combining the issuance targets of the last and the current financial years, so as to minimise issuance costs and administrative work. Having considered the rising interest rates in the market, we have decided to increase the minimum interest rate of this retail green bond so as to provide the public with a green investment choice with a steady return.”
Details regarding the Government Retail Green Bond
The target issuance size of this retail green bond is HK$15 billion. The Government may further increase the issuance size to a maximum of HK$20 billion having regard to market conditions. As set out in the Government’s Green Bond Framework, the proceeds of green bonds will be credited to the Capital Works Reserve Fund to finance or refinance green projects that provide environmental benefits and support the sustainable development of Hong Kong (see Annex). The Government will provide information on the allocation of the proceeds and expected environmental benefits of green projects on an annual basis.
The bond will have a tenor of three years. Bond holders will be paid interest once every six months at a rate linked to inflation in Hong Kong, subject to a minimum rate of 2.5 per cent.
Subscription Period and Subscription Channels
The subscription period of the retail green bond will start from 9am on April 26 and end at 2pm on May 6. Hong Kong residents may apply for the retail green bond through a placing bank, a securities broker or the Hong Kong Securities Clearing Company Limited.
A Government spokesman noted that, to facilitate the subscription of the retail green bond and provide more options of subscription channels, the issuance has retained the various channels adopted for government retail bonds in the past. However, the Government calls on the public to subscribe for the retail green bond through online or telephone channels if possible, which not only supports environmental protection and reduces paper consumption, but also helps reduce social contact.
Issuance and Listing of the Government Retail Green Bond
The retail green bond will be issued on May 18 and listed on the Stock Exchange of Hong Kong on the following business day (May 19). It can be traded in the secondary market afterwards.
The Annex provides the nine categories of eligible projects under the Government’s Green Bond Framework.
For the nine categories of eligible projects under the Government’s Green Bond Framework, please refer to the Annex here.
Please see the HKMA’s press release sharing the Government’s announcement of the postponement of retail green bond offering dated 26 February 2022 here.
The above press release has been covered in item 27 below.
According to this press release published by HKMA, HKMC Insurance Limited announced that enhancements to the 100% Personal Loan Guarantee Scheme (PLGS) will take effect from 19 April 2022 (Tuesday).
The Financial Secretary announced in the 2022-23 Budget that the application period of the PLGS will be extended to end-April 2023. The maximum loan amount per borrower will be increased from six times to nine times the average monthly income during employment, subject to a ceiling of HK$100,000 (originally HK$80,000). In addition, the maximum repayment period under the PLGS will be extended from six years to 10 years, and the principal moratorium arrangement will be extended from 12 months to 18 months.
Details of PLGS is available on the official webpage here.
For the previous update on PLGS, please refer to HKMA’s circular “Enhancements to the 100% Personal Loan Guarantee Scheme” dated 23 February 2022 here.
The above circular has been covered in item 29 below.
The HKMA issued a Circular dated 30 March 2022 regarding the HKMC Insurance Limited’s announcement that enhancements to the SME Financing Guarantee Scheme (SFGS) will take effect from 1 April 2022 (Friday).
To further alleviate the cash flow pressure of small and medium-sized enterprises in the time of the pandemic, the Financial Secretary announced in the 2022-23 Budget that the maximum loan amount per enterprise under the Special 100% Loan Guarantee will be raised from the total amount of employee wages and rents for 18 months to that for 27 months, subject to a ceiling of HK$9 million (originally HK$6 million), and the maximum repayment period will be extended from eight years to 10 years. Eligible enterprises should have been operating for at least three months as at 31 March 2022, and have suffered at least a 30% decline in sales turnover in any month since February 2020 compared with the monthly average of any preceding quarter from January 2019 to March 2022.
In addition, the principal moratorium arrangement for the 80% Guarantee Product, the 90% Guarantee Product and the Special 100% Loan Guarantee of the SFGS will be extended by six months to a maximum of 30 months in total. An option for borrowers to resume making partial principal repayment for one year will be provided, allowing borrowers to resume normal repayment gradually if they are willing and capable.
The application period of the SFGS has been extended to 30 June 2023.
For details regarding SFGS, please see here.
For the previous update on SFGS, please refer to HKMA’s circular “ Enhancements to the SME Financing Guarantee Scheme” dated 23 February 2022 here.
The above circular has been covered in item 28 below.
OTC Derivatives Trade Repository of the HKMA
Updated Technical Specifications for Reporting
The HKMA announced through a notice dated 29 March 2022 that a revised version of the Administration and Interface Development Guide (“AIDG”) – version 2.0 for reporting is published to update the technical specification under the over-the-counter (OTC) derivatives trade repository of the HKMA (“HKTR”). The AIDG version 2.0 (see attachments to the notice) will start to apply from 19 December 2022. Updates to coding schemes to cover “Proprietary rates” will be postponed to 19 December 2022 as well due to the pandemic.
Key Changes in AIDG version 2.0
With reference to the Proposed Updates to the Technical Specifications for OTC Derivatives Trade Reporting communicated by local regulatory authorities to the reporting entities dated on 11 October 2021, corresponding key changes are made in the revised AIDG, including
(i) making available the “Global Unique Transaction Identifier” (Global UTI) related data fields’ in anticipation of the global implementation of UTI,
(ii) enhancing the Equity templates to address market feedback and cater to regulatory needs,
(iii) amending data field descriptions to accommodate the mandating of reporting specified field values and product types.
The revised AIDG also covers updates of coding schemes supported in the HKTR reporting templates and corresponding changes in some business validation rules.
Postponement of Implementing Updates to Coding Schemes Amid Covid-19
Amid the operational challenges reporting entities may face under the current pandemic situation, the implementation date of updates to coding schemes to cover “Proprietary rates” will be postponed from the originally scheduled 31 March 2022 to 19 December 2022.
Existing Updates and Updates to Come
Reporting entities are reminded to read the proposed updates made by local regulatory authorities and the revised AIDG for the details of the changes and review their obligation to report all transactions involving the updates supported by the HKTR. Further to this, an updated Operating Procedures for Hong Kong Trade Repository — User Manual for Participants will be published in due course for the enhanced display of the user interface and system reports of the HKTR system.
Simulated Reporting for AIDG version 2.0
The HKTR will make available a testing environment from October 2022 for interested reporting entities to simulate reporting on the changes made in the AIDG on a voluntary basis.
Attachments to the notice provides details regarding AIDG version 2.0
In light of the latest wave of the Covid-19 pandemic, the HKMA issued a Circular dated 7 March 2022 to (i) extend or temporarily suspend certain deadlines for regulatory submissions; and (ii) extend the deadline for completion of Continuous Professional Training (CPT) hours.
The HKMA is aware that amid an upsurge of infections, the banking industry has stepped up efforts to implement special work arrangements and safety measures to protect staff and customers while ensuring an uninterrupted provision of essential banking services. The operational challenges authorized institutions (AIs) face under the circumstances may increase further in the short term as the Hong Kong community makes a concerted effort to combat the pandemic with city-wide measures, including a universal testing exercise, to bring it under control.
Extension of Deadline or Temporary Suspension of Regulatory Submissions
To enable AIs to focus resources on essential operations, the HKMA considers it appropriate to provide flexibility in certain submissions required of them during this exceptional period. These cover various surveys, banking returns, self-assessments, consultations, etc. which AIs are required to make submissions to the HKMA within specified periods. The way the HKMA proposes to exercise flexibility in each case (i.e. either by way of an extension of submission deadline, or temporary suspension of submission) is set out at Annex 1 to the Circular. For upcoming consultations, the HKMA is prepared as far as appropriate to allow the industry to provide feedback within a more accommodative time frame.
Relatedly, the HKMA issued a Circular on 7 February 2020 informing AIs of its preparedness to allow flexibility for those encountering pandemic-related operational difficulties in meeting the deadlines for lodging documents with the HKMA under section 60 of the Banking Ordinance (BO) or in making disclosures under the Banking (Disclosure) Rules. A copy of the Circular is attached as Annex 2 to the Circular. The HKMA reiterates that the same principles for allowing flexibility as set out in that Circular remain applicable. Any AI anticipating difficulties is requested to approach the HKMA as soon as practicable for discussion.
Extension of Deadline for Completing CPT Hours
In respect of relevant individuals (including executive officers) within the meaning of the BO who are originally required to pass regulatory examinations or have undertaken to complete additional CPT hours on or before 31 May 2022, the HKMA allows the same extension of three calendar months as that provided by the SFC for licensed individuals. Application for time extension to the HKMA is not required.
The HKMA will continue to closely monitor the development of the pandemic situations and collaborate with the industry in maintaining the safety and soundness of the banking system. The HKMA is using its supervisory tools flexibly in this period and reiterates the importance of risk-based approach.
Appendix 1 – Extended deadlines for regulatory submissions
(covered in item 66 below)
For the SFC’s extension of deadline for completing CPT Hours, please refer to questions 1 and 2 of the FAQs on “Licensing related matters in light of the COVID-19 pandemic” last updated on 2 March 2022 here.
(also covered in item 25 of the SFC circulars/guidelines above)
Extension of Phase 2 of the Temporary Facilitative Measures (“TFM”) and Distribution of in-scope TFM products via Virtual Onboarding (“VO”) Sandbox
AIs may continue to adopt the TFM outlined in the circular “Phase 2 of the temporary facilitative measures to tackle the outbreak of COVID-19” issued by the IA on 27 March 2020 for their non-face-to-face (“non-F2F”) distribution of the in-scope TFM products until 30 September 2022.
For AIs that distribute long term insurance products via video-conferencing tools under the InsurTech sandbox of the IA (i.e. the VO Sandbox), in distributing in-scope TFM products under TFM (i.e. all the requirements in relation to the adoption of TFM are met), the requirement of end-to-end recording of every video conference session can be dispensed with according to the IA Circular.
For the avoidance of doubt, the clarifications and reminder set out in the circular entitled “Circular Issued by the Insurance Authority (“IA”) on Phase 2 of the Temporary Facilitative Measures (“TFM”) to Tackle the Outbreak of COVID-19” issued by the HKMA on 27 March 2020 remain applicable. In particular, AIs should continue to comply with the audio-recording requirements for sale of annuity insurance products in selling Qualifying Deferred Annuity Policies.
Extension of the VO Sandbox to all long term insurance products
As communicated with the industry earlier, following the issuance of the new supervisory requirements related to Investment-Linked Assurance Scheme (“ILAS”) by the Securities and Futures Commission and the IA on 1 November and 28 December 2021 respectively, the HKMA aims to set out the corresponding requirements on AIs’ selling process through a revised guideline, and aims to consult the industry later this year. AIs that intend to distribute any ILAS product, including Protection Linked Plan, should provide prior notification to and discuss with the HKMA before launching such product.
Fast track for VO Sandbox applications
AIs that intend to distribute long term insurance products via video conferencing tools can continue to submit VO Sandbox application to the IA through their appointing insurers. The HKMA will work with the IA in reviewing VO Sandbox applications involving AIs.
Please also see “Circular Issued by the Insurance Authority (“IA”) on Phase 2 of the Temporary Facilitative Measures (“TFM”) to Tackle the Outbreak of COVID-19” issued by the HKMA on 27 March 2020: here
On 23 February 2022, the Financial Secretary announced in the 2022-23 Budget that there will be enhancements to the SME Financing Guarantee Scheme (“SFGS”). The enhancements are as follows:
- The application period for the 80% Guarantee Product, the 90% Guarantee Product and the Special 100% Loan Guarantee of the SFGS will be extended to 30 June 2023.
- The maximum loan amount per enterprise under the Special 100% Loan Guarantee will be raised from the total amount of employee wages and rents for 18 months to that for 27 months, subject to a ceiling of HK$9 million (originally HK$6 million), and the maximum repayment period will be extended from eight years to ten years.
- Having regard to the HKMA and the banking sector’s further extension and new partial principal repayment option under the Pre-approved Principal Payment Holiday Scheme (please see “Remarks”), HKMC Insurance Limited (“HKMCI”) will follow suit with the following enhancements to the principal moratorium arrangement under the SFGS:
- The principal moratorium arrangement under the SFGS will be extended from six months to 30 months, and the application period for principal moratorium will be extended to end-December 2022.
- Borrowers will be given the option to resume making partial principal repayment for one year if they are willing and capable. Whether a borrower chooses the principal moratorium arrangement or the partial principal repayment option, the loan tenor and the guarantee period will be extended accordingly.
The HKMCI will follow up on the implementation details with lending institutions, and strive to roll out the enhanced measures in 1.5 months. Effective date and details will be further announced.
Please see the HKMA’s circular on the Pre-approved Principal Payment Holiday Scheme dated 23 February 2022 here.
The above circular has been covered in item 30 below.
On 23 February 2022, the Financial Secretary announced in the 2022-23 Budget that there will be enhancements to the 100% Personal Loan Guarantee Scheme (“PLGS”). The enhancements are as follows:
- The application period of the PLGS will be extended to end-April 2023.
- The maximum loan amount per borrower will be increased from six times to nine times the average monthly income during employment, subject to a ceiling of HK$100,000 (originally HK$80,000). In addition, the maximum repayment period under the PLGS will be extended from six years to ten years, and the principal moratorium arrangement will be extended from 12 months to 18 months.
The HKMCI will follow up on the implementation details with lending institutions, and strive to roll out the above measures in 1.5 months. Effective date and details will be further announced. Before the measures come into effect, those in need may approach lending institutions to make applications based on the existing terms.
The HKMA issued a circular dated 23 February 2022 (i) extending the Pre-approved Principal Payment Holiday Scheme (“Scheme”) by six months; and (ii) introducing a one-year partial principal repayment option (“Option”) which will be offered to those customers who prefer to resume principal payment gradually. Given the severity of the prevailing wave of COVID infections, the HKMA calls on AIs to continue to adopt a sympathetic attitude to customers in temporary financial difficulties and render assistance to them insofar as it is consistent with prudent risk management principles. This is intended to avoid an abrupt curtailment of credit to the SME sector and would be in the best interest of the banking industry as a whole. The extension of the Scheme and the introduction of the Option have received the unanimous support of the 11 major lenders of the Mechanism. The HKMA expects all AIs to offer the same treatment to their corporate customers covered by the Scheme.
Further extension of the Pre-approved Principal Payment Holiday Scheme
During the past few months, the HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) explored the possibility of gradually exiting the Scheme. However, due to the recent resurgence of COVID-19 cases, the HKMA and the Mechanism considered a change in plan and decided to further extend the Scheme by six months.
Principal payments of all loans of eligible corporate borrowers falling due between 1 May 2022 and 31 October 2022 should be deferred by six months (except for repayments of trade loans, which should be deferred by 90 days). The deferment applies whether or not a loan has previously been on a principal payment holiday.
Similar to previous rounds of Scheme extensions:
AIs need not issue individual notifications to eligible customers regarding the six-month extension of the Scheme. Corporate customers in need of relief should be advised to contact their lending institutions. AIs should handle each eligible customer’s case on a pre-approved basis. AIs may seek updated financial or business information from customers, particularly those who have already been granted multiple extensions of payment holidays. All other terms of the Scheme set out in the Annex to the HKMA’s circular on 17 April 2020 should continue to apply.
- For a loan which has been extended for 540 days or more successively since it was first drawn down (or a trade loan which has been extended for 270 days or more successively since it was first drawn down), AIs can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief (including but not limited to full principal payment) are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles.
- AIs may require a customer to settle trade facilities which are self-liquidating in nature if the customer receives the underlying payment during the extended deferment period
- For revolving facilities that are due for credit review between 1 May 2022 and 31 October 2022, AIs should not adjust downward the existing facility limits within six months from the review dates.
Partial principal repayment option
The HKMA and the Mechanism note that some customers may be financially capable and willing to resume some principal repayment in exchange for greater certainty to their future repayment schedule. AIs are therefore recommended to offer customers an option to start to resume partial repayment of the original principal repayment amount (i.e. the original payment schedule when the customer first joined the Scheme) over a period of one year. Specific treatments are recommended for different types of loans:
- For instalment loans (e.g. mortgage loans and commercial vehicle loans), customers may start to repay 20% of the original principal repayment amount within one year. The loan tenor should generally be extended correspondingly. The same treatment should be applicable to commercial vehicle loans taken out by personal customers. The HKMA and the Mechanism will review the arrangement for principal repayment beyond one year at a suitable juncture.
- For trade facilities, loans with bullet payment falling due within one year, and outstanding balances of revolving facilities, customers may repay the amount due to be settled by regular instalments (e.g. quarterly or monthly) over a period of two years. For trade facilities which are self-liquidating in nature, AIs may require the loan to be settled when the underlying payment has been received by the customer.
For the avoidance of doubt, loans which have been extended for 540 days or more successively since the first drawdown (or trade loans which have been extended for 270 days or more successively since the first drawdown) are eligible for the Option.
The HKMA and the Mechanism encourage AIs to approach their customers participating in the Scheme to ascertain their interest in the Option. AIs should emphasize to customers that taking up the Option is entirely voluntary for the customers. The HKMA points out that taking part in the full principal payment deferment or the Option will not by itself result in a loan being downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the deferment are commercial. That said, AIs should continue to recognise and classify loans of customers which are unable to meet the rescheduled payments in a timely manner, with reference to the HKMA’s Guideline on Loan Classification System, and to make adequate provisions as and when needed.
Please see the HKMA’s circular dated 17 April 2020 here.
Please see the Annex to the HKMA’s circular dated 17 April 2020 here.
The above circular has been covered in item 58 below.
The HKMA issued a Circular dated 18 February 2022 encouraging AIs to (i) implement “vaccine pass” arrangements and (ii) encourage their staff to take the third dose of COVID-19 vaccination.
Implementation of “vaccine pass” arrangements
In light of the recent surge in COVID-19 infections involving new, highly transmissible strains, the HKMA advises AIs to step up their precautionary measures for protecting their staff and customers and ensuring the uninterrupted provision of essential banking services. Drawing reference from the “vaccine pass” arrangements by the Government and financial regulators for staff entering the workplace, the HKMA strongly encourages AIs to consider implementing similar arrangements appropriate to their own settings and operational needs at their premises. Under such arrangements:
- Staff should be required to present proof of vaccination for at least the first dose of COVID-19 vaccine before entering the workplace.
- Exemption may be granted to staff who are unfit for vaccination due to medical conditions, supported by a valid medical certificate.
- Exempted staff should continue to be required to undergo regular testing for COVID-19.
AIs are required to inform the HKMA within 2 weeks from the date of the circular (i.e. by 4 March 2022) whether they will implement a “vaccine pass” arrangement and the planned date of implementation. If an AI decides not to implement a “vaccine pass” arrangement, it should provide the HKMA with details of its considerations in reaching this decision.
Third dose of COVID-19 vaccination
HKMA acknowledges that the Hong Kong banking industry has made substantial efforts to promote COVID-19 vaccine uptake in the workplace, strengthening the protection of bank staff and customers and facilitating better business continuity planning. According to the latest information shared by AIs with the HKMA, over 90 percent of bank staff have received at least one dose of COVID-19 vaccine.
AIs are required to strongly encourage eligible staff to take the third dose of COVID-19 vaccine. AIs should provide adequate facilitating measures (e.g. vaccination leave arrangement) for staff to receive COVID-19 vaccination. AIs should also pay close attention to the development of the COVID-19 epidemic situation and conduct timely assessments of the need to adjust their workplace safety measures, having regard to the Government’s latest guidance on COVID-19 prevention and control measures.
The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced a further 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (“Scheme”).
The decision to extend the repayment of trade facilities under the Scheme for 90 days until the end of April 2022 was made in light of the rapid spread of the COVID-19 variant around the world which creates uncertainties for economic recovery and the ongoing global supply-chain disruptions which put pressure on corporates hard-hit by the pandemic.
Similar to previous extensions:
- Corporate customers participating in the repayment deferment for trade facilities under the Scheme, if in need, can extend trade facilities falling due between February and April 2022 for another 90 days.
- Eligible corporate customers can also apply for a 90-day extension of trade facilities drawn down from November 2021 to end of January 2022.
- For facilities which are self-liquidating in nature, banks may require the loan to be settled when the customer has received the underlying payment.
- For trade loans which have been successively extended for 270 days or more since first draw-down, banks can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief are more suitable to help the customers, subject to prudent risk-management principles.
The Mechanism is due to expire at the end of April 2022 and, going forward, HKMA and the Mechanism are considering ways to strike a balance between banks’ need for prudent risk management and supporting corporates that are still hard-pressed by the pandemic.
Please see the HKMA’s circular dated 5 August 2020 here.
The above circular has been covered in item 47 below.
The HKMA issued a circular dated 28 October 2021 requiring AIs to strongly encourage ALL staff to get vaccinated as soon as practicable. Staff who have not received a first dose of COVID-19 vaccine by 30 November 2021 or are unfit to receive vaccination due to medical conditions should undergo effective testing for COVID-19 every two weeks.
In 1 June 2021, the HKMA issued a circular requiring all AIs to strongly encourage staff performing client-facing roles or critical support functions (“designated staff”) to receive COVID-19 vaccinations, and to make arrangements for designated staff who have not been vaccinated to undergo effective testing for COVID-19 every two weeks. The measures aimed to strengthen the protection of bank staff and customers against the risk of COVID-19 and to enhance the business continuity planning of AIs.
Since the 1 June 2021 Circular, the COVID-19 vaccination rate of designated staff has increased steadily. The latest information shared by AIs with the HKMA shows that over 80% of designated staff have received at least one dose of COVID-19 vaccine. That said, the HKMA notes that more infectious variants of COVID-19 have spread rapidly in some overseas jurisdictions.
Taking into account the potential for severe business disruption to banking operations in the event of another outbreak, and the experience and practices of other major markets, the HKMA considers it essential for AIs to expand the scope of their vaccination and regular testing arrangements to all staff. AIs should provide adequate facilitating measures for staff to receive vaccination, such as pre-vaccination health checks sponsored by the AI, time off work to get vaccinated and extra days of leave.
Please see the HKMA’s circular on 1 June 2021 here.
The above circular has been covered in item 36 below.
The HKMA issued a circular dated 21 September 2021 (i) extending the Pre-approved Principal Payment Holiday Scheme (“Scheme”) by six months; (ii) disclosing the plan for an orderly exit of the Scheme; and (iii) exploring alternative repayment arrangements for some sectors such as the transportation sector.
Further extension of the Pre-approved Principal Payment Holiday Scheme
The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) has decided to further extend the Scheme by six months to end-April 2022.
Principal payments of all loans of eligible corporate borrowers falling due between 1 November 2021 and 30 April 2022 should be deferred by six months (except for repayments of trade loans, which should be deferred by 90 days). The deferment applies whether or not a loan has previously been on a principal payment holiday.
For a loan which has been extended for 540 days or more successively since it was first drawn down (or a trade loan which has been extended for 270 days or more successively since it was first drawn down), AIs can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles. In-line with the existing terms of the Scheme:
- For facilities which are self-liquidating in nature, AIs may require the loan to be settled by the borrower if the borrower receives the underlying payment during the extended deferment period.
- For revolving facilities that are due for credit review between 1 November 2021 and 30 April 2022, AIs should not adjust downward the existing facility limits within six months from the review dates.
Similar to previous Scheme extensions, AIs need not issue individual notifications to eligible customers regarding the six-month extension arrangement. Corporate customers should be advised to contact their lending institutions. AIs should handle each eligible customer’s case on a pre-approved basis and may seek updated financial or business information from customers, particularly those who have already been granted multiple extensions of payment holidays. All other terms of the Scheme set out in the Annex to the HKMA’s circular on 17 April 2020 continue to apply.
The HKMA and the Mechanism are planning for an orderly exit of the Scheme
As the usage of the Scheme has dwindled to a low level on the back of steady economic recovery, the HKMA and the Mechanism consider that planning should be made for the discontinuation of the Scheme, in line with prudent risk management principles. The HKMA will engage the banking industry to discuss the appropriate exit strategy, drawing reference from experience of overseas jurisdictions which are in different stages of withdrawal from pandemic relief measures. Further details will be shared at a later date.
Alternative arrangements for alleviating cash flow difficulty in transportation sector
HKMA stresses that AIs should continue to be accommodative and actively explore alternative repayment arrangement with the borrowers, such as partial principal repayment over a longer period of time as favoured by some sectors.
Making reference to the practice of upgrading of public light buses (PLBs) to 19 seats, the Mechanism agreed that AIs should exercise greater flexibility in handling the new financing applications from taxi operators for replacing aged vehicles. The HKMA considers that AIs do not need to rigidly adhere to the 85% loan-to-value ratio cap provided that prudent risk management principles are observed and that the new loans are only used for purchase of new vehicles. The Mechanism further agrees that AIs should actively consider extending the maximum tenors for existing taxi and PLB loans from 25 years to 30 years, and for non-franchised buses from 7 years to 10 years, after taking into account the circumstances of individual borrowers. During consultation with the transportation sector, views were floated that, as an alternative to the six-month full principal payment holiday, AIs should offer partial repayment of principal over a longer period of time (such as 20-50% principal repayment over one to two years) which has the merit of greater certainty for the borrowers. The Mechanism encourages AIs to explore such options with their customers. The HKMA will also make reference to these suggestions when planning for the exit of the Scheme.
Please see the HKMA’s circular on 17 April 2020 here.
Please see the Annex to the HKMA’s circular on 17 April 2020 here.
The above circular has been covered in item 58 below.
90-day deferral for trade facilities under the Pre-approved Principal Payment Holiday Scheme
The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced a 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (“Scheme”).
Under the Scheme (which was covered in a previous circular (please see “Remarks”)), trade loans have been granted 90-day extension five times. Some of these loans will fall due in August 2021. The Mechanism recognised that Hong Kong’s external trade has continued to improve and the local economy is gradually recovering, however given the fluctuating pandemic situation around the world, economic recovery is still laden with uncertainties. The Mechanism therefore has agreed to further extend the repayment period of trade facilities under the Scheme for 90 days until the end of October, when the whole Scheme will expire.
Interested corporate customers may contact their banks, which in turn will handle repayment deferment requests on a “pre-approved” basis. Features for trade facilities under the Scheme are similar to previous extensions:
- Corporate customer in need can further extend for 90 days their trade facilities falling due between August and October 2021.
- Eligible corporate customers can apply for a 90-day extension of trade facilities drawn down from May to end-July 2021.
- For facilities which are self-liquidating in nature, banks may require the loan to be settled when the underlying payment has been received by the customer.
- For trade loans extended for 270 days or more cumulatively since their first draw-downs, banks can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief are more suitable to help the customers, subject to prudent risk-management principles.
When the Scheme expires at end-October, the HKMA and the Mechanism will consider the way forward, taking into account consultations with the banking industry and commercial sectors, as well as overseas practices in handling similar schemes.
Please see the HKMA’s circulars dated 5 August 2020 here.
The above circular has been covered in item 47 below.
HKMA issued a Circular urging all authorised institutions (AIs) to introduce additional effective measures to encourage all bank staff to get vaccinated. In particular, consideration should be given to following the recent practice of the Government and the HKMA of giving extra days of leave to staff who have taken both doses of the vaccine, or providing other suitable and adequate incentives for inoculation.
HKMA requires that all AIs should strongly encourage staff performing client-facing roles or critical support functions to get vaccinated. AIs should identify and draw up a list of designated staff expected to receive inoculation. The list should include, without limitation, those staff involved in branch operation, wealth management and commercial banking, who have frequent face-to-face interactions with customers, as well as those responsible for critical IT, data centre, treasury and settlement operations.
Bank staff included in the list should be requested to get vaccinated as soon as possible. Arrangements should be made for those, who have not yet been vaccinated or are unfitfor vaccination due to medical conditions, to undergo effective testing for COVID-19every two weeks. Following the advice of public health authorities, the HKMA considers that polymerase chain reaction-based nucleic acid testing using combined nasal and throat swabs is an effective test for COVID-19 for this purpose.
AIs are required to submit to the HKMA, within two weeks from the date of the Circular, a breakdown by department or function of designated staff expected to receiveinoculation. Staff included in the list should undergo the first COVID-19 test by 30June 2021 if they have not yet taken the first dose of vaccine by then.
The Circular added that promoting a high vaccination rate is a collective effort of the whole community towards the ultimate resumption of normal economic activities, and emphasized that the banking sector has an important role to play in this process and should make its contribution to safeguarding public health and bringing Hong Kong’s economy onto a steady recovery path. This would also provide the requisite foundation for Hong Kong to re-start international travel, which is crucial for maintaining Hong Kong’s status as an international financial centre.
HKMA issued a circular on 20 April 2021 in relation to the 100% Personal Loan Guarantee Scheme (PLGS) proposed in the 2021-2022 Budget. The PLGS provides a supplementary financing option for individuals suffering from cessation of main recurrent incomes from employment due to the COVID-19 pandemic.
The PLGS will be administered by HKMC Insurance Limited (HKMCI). HKMCI will rely on the professional expertise, judgment and care of participating lender institutions in conducting customer due diligence and verification of applicants’ eligibility for concessionary low-interest loans. After drawdown, the loans will be sold by the participating lender institutions to The Hong Kong Mortgage Corporation Limited (HKMC). HKMC’s purchase of the loans will be funded by the HKSAR Government. The Government has issued a letter of comfort to HKMA confirming its commitment under the PLGS.
In this circular, HKMA sets out its policy intent on the relevant regulatory treatments in respect of a loan granted by a participating authorised institution (AI) to an eligible borrower under the PLGS:
1) Regulatory and reporting treatments
Under the PLGS arrangement, an AI is considered to have an exposure to HKMC fully covered by the Government’s commitment under the PLGS. It follows that:
2) Credit assessment and approval
An AI is expected to check the eligibility of an applicant against the criteria specified under the PLGS. HKMA considers the credit risk exposure of the AI to be minimal as the loan will be transferred without recourse to HKMC shortly after it is created. Therefore, HKMA’s supervisory requirements on credit assessment and risk management set out in the SPM module CR-G-2 do not apply to loans covered by the PLGS.
Having regard to the policy intent of the PLGS is to provide some relief to members of the public over the temporary financial hardship caused by the pandemic, AIs are expected not to take any credit actions which may result in a tightening of existing credit to the borrower, on knowledge of his / her application under the PLGS. HKMA has established an arrangement with the HKMC to handle complaints and feedback received from the public about unfair treatment of borrowers under the PLGS.
Finally, HKMA reminds AIs to refer to the communications of HKMC with the AIs for details regarding disclosure in respect of consumer protection.
HKMA issued a circular on 24 March 2021 in relation to the territory-wide COVID-19 Vaccination Programme for Hong Kong residents.
The key message is that it is in the interest of authorized institutions to support the Government’s vaccination drive and help prevent the spread of COVID-19 in the workplace and protect the health and safety of their staff and customers. This is to ensure that banks can operate and provide banking services to their customers without interruption given that they perform a critical financial intermediation role in the economy and provide services that are essential to the wider public interest.
The circular provides examples of supportive measures to facilitate staff who wish to get vaccinated to do so, especially those who interact frequently with customers or perform critical functions. These examples include:
- Disseminating information about the Vaccination Programme to staff and referring them to the Government’s dedicated website (www.covidvaccine.gov.hk) for queries they may have in relation to the COVID-19 vaccines;
- Allowing staff to get vaccinated during working hours or implementing flexible working hours to accommodate vaccination appointments; and
- Granting staff time off work, where necessary, to rest after vaccination.
Authorized institutions should also monitor updates to the Vaccination Programme and related COVID-19 guidance issued by the Government, and provide relevant information to their staff with a view to encouraging vaccine uptake.
HKMA issued a Circular dated 10 March 2021 on the following:
(a) FATF pause in its review process for strategic deficiencies in AML/CFT regimes
In response to the COVID-19 pandemic, the Financial Action Task Force (FATF) decided on a general pause in the review process for the list of “high-risk jurisdictions subject to a call for action”. Authorized Institutions (AIs) and Stored Value Facility (SVF) Licensees should continue to refer to the HKMA circular on “Statements issued by the Financial Action Task Force” dated 11 March 2020, in particular, applying the enhanced due diligence measures and other counter-measures in relation to Iran and the Democratic People’s Republic of Korea.
(b) Outcomes of the FATF Plenary meeting held in February 2021
FATF member delegates discussed and reviewed various strategic initiatives and country-specific processes. In particular, the FATF is developing Guidance to help both public and private sectors in implementing new requirements to identify, assess, understand and mitigate proliferation financing risk as defined in Recommendation 1 and its Interpretive Note. The Guidance aims to assist both public and private sectors in conducting a risk assessment in the context of proliferation financing, and applying corresponding risk mitigation measures. The FATF is consulting private sector stakeholders before finalising the Guidance.
Please see HKMA’s Circular dated 11 March 2020 here.
FATF’s statement on “Jurisdictions under Increased Monitoring” can be found in here.
Outcomes of the FATF can be found in here.
The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced that the Pre-approved Principal Payment Holiday Scheme (“Scheme”) will be extended for another six months to October 2021.
All principal payments of loans falling due between May and October 2021 by eligible corporate customers will be deferred by another six months (except for repayments of trade loans, which will be deferred by 90 days). Similar to the Scheme extension in November 2020, banks will not issue individual notifications to eligible customers regarding the deferment arrangement. Interested corporate customers may contact their banks. Deferment requests will be handled on a “pre-approved” basis. Banks may request customers to provide up-to-date operational and financial information to better understand their needs when processing their requests.
As the Scheme has been rolled out for nearly one year, in order to strike a balance between catering for the unique circumstances facing customers and the need for prudent risk management, the Mechanism has agreed that, for loans which have been extended for 540 days or more cumulatively since first being drawn down (or trade loans which have been extended for 270 days or more cumulatively since first being drawn down), banks can adopt a flexible approach and consider, on a case-by-case basis and subject to prudent risk management principles, whether other forms of relief are more suitable to help the customers ride out the current difficulties.
Please see the HKMA’s circulars dated 5 August 2020 here.
The above circular has been covered in item 47 below.
Please also see the HKMA’s announcement dated 2 September 2020 here.
The above announcement has been covered in item 44 below.
90-day deferral for trade facilities under the Pre-approved Principal Payment Holiday Scheme
The HKMA and the Banking Sector SME Lending Coordination Mechanism (“Mechanism”) announced a 90-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme (“Scheme”).
Under the Scheme (which was covered in a previous circular (please see “Remarks”)), trade loans have been granted 90-day extension respectively in May, August and November 2020. Some of these loans will fall due in February 2021. The Mechanism has agreed that in light of the COVID-19 pandemic, corporate customers can further extend their trade facilities for another 90-day period. Eligible corporate customers can also apply for a 90-day extension of trade facilities drawn down from November 2020 to end-January 2021.
Similar to previous extensions of the Scheme, interested corporate customers may contact their banks, which in turn will handle repayment deferment requests on a “pre-approved” basis. However, it is important to note some additional features for trade facilities under the Scheme:
- For facilities which are self-liquidating in nature, banks may require the loan to be settled when the underlying payment has been received by the customer.
- For trade loans extended for 270 days or more cumulatively since their first draw-downs, banks can adopt a flexible approach and consider on a case-by-case basis whether other forms of relief (such as repaying the trade loans by instalments) are more suitable to help the customers (subject to prudent risk-management principles).
Flexibility under the Scheme for customers in the transportation sector
The HKMA and the Mechanism also discussed various difficulties facing customers in the transportation sector and identified the following assistance that banks can provide:
- Banks will be more flexible in handling new financing applications by public light bus (“PLB”) operators to finance the upgrade of their vehicles from 16 seats to 19 seats.
- Banks do not need to rigidly adhere to the 85% loan-to-value ratio cap (provided that prudent risk-management principles are observed) for new loans used only for the purchase of new vehicles.
- As regards new loans granted for taxis, PLBs and other non-franchised buses, banks agreed that they would actively consider extending the maximum loan tenors for taxis and PLBs to 30 years, and the maximum loan tenors for non-franchised buses to 10 years, on a temporary basis for the next two years.
- Banks may provide other forms of relief to help alleviate the repayment burden of relevant commercial vehicle owners, subject to prudent risk-management principles.
The HKMA reminded banks to be sympathetic to customers who are not eligible for the Scheme to help tide them over this difficult time (while observing prudent risk-management principles).
Please see the HKMA’s circulars dated 5 August 2020 here.
The above circular has been covered in item 47 below.
HKMA published a circular to draw the attention of all Authorized Institutions (AIs) and Stored Value Facility (SVF) Licensees to the most recent update from the Financial Action Task Force (FATF) on COVID-19-related money laundering / terrorist financing (ML/TF) risks (please find the link to FATF’s update in Remarks column). The update highlights developments since FATF’s previous reports and provide details on how criminals continue to attempt to exploit the global financial systems, with case studies (including some provided by Hong Kong), and illustrate how the risks have evolved along with the COVID-19 pandemic.
The FATF update reinforces the continuing importance of a risk-based response which does not disrupt essential and legitimate services. HKMA has already articulated its regulatory expectations in this respect in previous circulars (please find the links to those circulars in Remarks column).
This circular also provides updates on efforts of HKMA and other organisations on combating ML/TF risks:
- HKMA has been monitoring COVID-19 related impact on ML/TF risks and working closely with AIs and SVF Licensees to cope with the developments;
- the Fraud and Money Laundering Intelligence Taskforce, the public-private partnership for information sharing in Hong Kong which consists of law enforcement agency, banking supervisor and ten retail banks in Hong Kong, has been delivering alerts and case-based intelligence on COVID-19 related deceptions;
- the Fraud Risk Management Taskforce established under the Hong Kong Association of Banks (HKAB) broadcasted a video clip on television to remind the public to stay alert of COVID-19 related fraudulent activities and shared good practices on fraud prevention and detection with the industry; and
- HKAB also held a sharing session, with HKMA’s support, to share financial crime trends observed and challenges encountered during COVID-19, and good practices of AIs in managing and mitigating ML/TF risks.
HKMA reminds AIs and SVF Licensees to study the FATF update in conjunction with the ML/TF risk information provided through the above forums, and consider the relevant implications for their ML/TF risk management.
Please see FATF’s update dated December 2020 here.
Please see the HKMA’s circulars dated 30 July 2020:
The above circulars have been covered in items 48 and 49 below respectively.
Please see the HKMA’s circulars dated 7 April 2020:
The above circulars have been covered in items 61 and 62 below respectively.
Please see the press release published on HKMA’s website dated 29 May 2020 here.
The above press release has been covered in item 51 below.
The HKMA published a circular announcing the extension of the Pre-approved Principal Holiday Scheme by 6 months.
As covered in a previous circular (please see “Remarks”), the HKMA and the Banking Sector SME Lending Coordination Mechanism had put in place the Pre-approved Principal Payment Holiday Scheme for its authorised institution participants (AI) to alleviate cash flow difficulties faced by small and medium size corporations. Under the Scheme, eligible small and medium size corporate customers could make deferred repayments on loan principal payments.
The Scheme has now been extended for a further 6 months so that all loan principal payments falling due between November 2020 and April 2021 will be deferred by six months (except for repayments of trade loans, which will be deferred by 90 days). Participating AIs will handle each eligible customer’s case on a “pre-approved” basis, and may request customers (especially those who have been granted multiple extensions of payment holidays) to provide up-to-date business and financial information to better understand their needs when processing their cases.
Please see the HKMA’s circular dated 5 August 2020 here.
The above circular has been covered in item 47 below.
The HKMA published a circular on adjustments introduced by the HKMA on 19 August 2020 to the prudential measures for mortgage loans on non-residential properties.The HKMA noted that as a result of the COVID-19 outbreak, non-residential property markets have seen major corrections, with the prices of offices, flatted factories and retail premises declining by 15%, 11%, and 10% respectively. The transaction volume of non-residential properties also contracted in the first half of 2020, and will likely remain under pressure due to lowered business confidence and rising geopolitical tensions.
In light of this, the HKMA has decided to adjust the countercyclical macroprudential measures for mortgage loans on non-residential properties. The applicable loan-to-value ratio caps under different scenarios for non-residential properties have been adjusted upward by 10%. These changes will take effect from 20 August 2020 and will apply to all transactions where the provisional sale and purchase agreement is signed on or after that date.
The HKMA reiterated that these measures are intended to apply to mortgage loans for the purpose of financing property transactions or the refinancing of existing properties. They are not intended to apply to credit facilities secured by properties for the purpose of financing the business operation of corporates, as these credit facilities are subject to a set of comprehensive credit underwriting standards and regular credit reviews by authorized institutions. AIs may send any questions they have regarding this circular to rml_hkma@hkma.gov.hk.
The HKMA published a circular reminding Authorized Institutions (AI) of some important investor protection measures in light of the current volatility in the markets.
In view of the recent price volatility of various markets and investment products (including shares, bonds, commodities, precious metals, FX, etc.) as well as the operational challenges brought about by COVID-19, AIs are reminded to remain vigilant, and continue to treat customers fairly and act in the best interest of their customers in the sale of investment products, in line with the Code of Banking Practice and the Treat Customers Fairly Charter. AIs should exercise extra care when handling leveraged transactions where the customer could have potential losses exceeding the invested amount.
Registered institutions are also reminded to observe the following requirements when making solicitations or recommendations on investment products regulated by the Securities and Futures Ordinance:
- ensure proper product due diligence, taking into account, among others, the market conditions amid the COVID-19 situation, which may impact on the risk return profile and prospect of an investment. Where the continuous review by an RI of the risk rating of an investment product results in a higher risk rating being attributed to the product, the RI should follow the existing requirement of disclosing such increase in risk rating to customers to whom it has recommended and sold the product;
- give due consideration to relevant circumstances of a customer when assessing the suitability of an investment product for the customer. Where an RI is aware of material changes to a customer’s circumstances (e.g. impact arising from the COVID-19 situation), such changes should be taken into account in the assessment;
- explain to the customer the risks and features of the investment product; and
- present balanced views: do not focus solely on advantageous terms such as high coupon rates or yields, but should explain also the disadvantages and potential downside risks.
With regards to leveraged transactions, AIs should
- make adequate disclosure of the nature, key features and terms, and the associated risks of leveraged products or transactions, especially the risk of losing more than the customer’s invested amount (and where applicable the risk of having unlimited loses, e.g. a customer writing a naked call option)
- ensure that the customer is willing and has sufficient net worth to assume the risks and bear the potential losses of the leveraged transactions.
In practice, AIs are expected to put in place policies and controls to ensure that targeted customers have been provided with adequate disclosure of, and are capable of understanding the risk of leveraged or margin trading, and the possibility of being subject to margin-calls within a short time period. AIs are also expected to put in place mechanism to monitor customers’ margin maintained with the AIs. The HKMA will continue to monitor AIs’ compliance with the regulatory requirements as part of its on-going supervision.
The HKMA published a circular announcing that in light of the issues caused by the COVID-19 outbreak, all Authorized Institutions (AI) are requested to extend the principal payment for trade loans under the Pre-approved Principal Payment Holiday Scheme (Scheme) for another 90 days.
According to the HKMA, the deferment should cover trade loans both currently subject to the Scheme as well as those drawn between 1 May 2020 to 31 July 2020 by eligible customers with no outstanding payments overdue for more than 30 days as at 1 August 2020. For facilities which are self-liquidating in nature, AIs may require the loan to be settled when the underlying payment has been received by the customer. All other terms of the Scheme stated in the Annex to the HKMA’s circular on 17 April 2020 will continue to apply.
As only between 10% to 20% of eligible corporate customers have chosen to take up the Scheme and with AIs adopting work-from-home arrangements in response to the pandemic, AIs will not issue individual notifications to customers regarding the deferment arrangement. Interested corporate customers are requested to contact their AIs, which will handle principal deferment requests on a “pre-approved” basis. AIs may request customers to provide up-to-date operational information to better understand their needs when processing their requests.
The HKMA reiterated that this extension of the Scheme will not by itself render a trade loan to be downgraded, nor will it cause the loan to be categorised as “rescheduled” as long as the terms of the extension are “commercial”. This principle applies regardless of whether or not the trade loan is already on a payment holiday. That said, borrowers who are unable to meet the restructured payment schedule should continue to be recognized in a timely manner and the classification of their loans should refer to the HKMA’s Guideline on Loan Classification System as well as previously issued FAQs.
The HKMA will continue to engage banks and the commercial sectors through the Mechanism and expects to arrive at a decision regarding follow-up arrangements for the Scheme, which will end in October, as soon as possible.
Please see the Annex to the HKMA’s circular on 17 April 2020 here.
(also covered below in item 58)
The HKMA published a circular highlighting some key observations and industry practices to assist Authorized Institutions (AI) in developing sustained efforts to cope with the evolving COVID-19 situation and support operational responses which are consistent with the risk-based approach (RBA).
The HKMA stated that as the situation continues to evolve, it has become clear that measures originally intended to be short-term may now have to be kept in place by AIs for relatively longer, or in some cases reintroduced as new clusters of COVID-19 cases emerge. Key observations and practices highlighted by the HKMA include:
1. Customer due diligence under social distancing and travel restrictions
The HKMA noted that social distancing and a significant reduction in travel have significantly impacted the ability of AIs to interact with existing and potential customers. AIs are increasingly using video conferencing to interact with customers in the course of on-boarding and ongoing customer due diligence reviews. Some AIs have utilised the flexibility provided in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance to delay verifying the customer’s identity, while adopting appropriate risk mitigating measures. In addition to remote on-boarding for individual retail customers currently offered by more than 10 AIs, some AIs have also expedited testing of similar initiatives for corporate customers.
2. Pressure on AML/CFT resources
The HKMA noted that all AIs have some form of business continuity planning in place to maintain sound operations. To address the pressure on resources, AIs have been adopting a number of responses, which collectively have minimised potential impact to AML/CFT processes. These include reprioritising work on the basis of ML/TF risks, reallocation of staff, staggering office hours and equipping staff with work-from-home capabilities. Some AIs are also expediting their exploration of regulatory technology (RegTech) solutions (e.g. machine learning) to reduce the number of false positives generated from transaction monitoring and screening systems, and thus enhancing efficiency and effectiveness.
The HKMA continues to monitor resource allocation as part of AIs’ operational responses to ML/TF risk management and reiterates through this engagement the importance of applying the principles of the RBA, maintaining adequate records of decisions made and that relevant controls or risk appetite need not be compromised in the process.
3. Emerging threats and changes in customers’ behaviour
The HKMA noted that AIs have increased their understanding of and vigilance to emerging COVID-19 related financial crime risks, including through the Fraud and Money Laundering Intelligence Taskforce (FMLIT) and a recently established Fraud Risk Management Taskforce under the Hong Kong Association of Banks. In line with global trends, some AIs have also identified changes in customer behaviour, such as digital payments and online transactions, and have been working to incorporate their understanding of emerging risks into transaction monitoring rules and scenarios. The HKMA further noted that it had observed examples where RegTech is helping to build out a more collaborative, intelligence-led approach to financial crime risk management and that some AIs are applying advanced analytics to help detect networks and common vulnerabilities.
The HKMA will continue to work closely with AIs to support ongoing industry efforts, in line with the principles of RBA. AIs may approach the HKMA through their usual contacts at the AML & Financial Crime Risk Division or at aml@hkma.iclnet.hk for any questions about this circular.
The HKMA published a circular updating Stored Value Facility (SVF) Licensees on some key observations and industry practices which the HKMA shared with the banking sector in a circular dated 30 July 2020 regarding the ongoing AML/CFT response to COVID-19 related challenges.
The HKMA stated that as the situation continues to evolve, it has become clear that measures originally intended to be short-term may now have to be kept in place by SVF Licensees for relatively longer, or in some cases reintroduced as new clusters of COVID-19 cases emerge. The HKMA will continue to work closely with SVF licensees to support ongoing industry efforts, and reiterated that the principles of the RBA provide the flexibility to be both pragmatic and responsive to the evolving COVID-19 situation and the challenges it presents.
Please see the HKMA’s circular on key observations and industry practices at here.
(also covered above in item 48)
The HKMA published a press release announcing the extension of the temporary US Dollar Liquidity Facility to 31 March 2021. The US Dollar Liquidity Facility was originally launched by the HKMA in a circular dated 22 April 2020 in response to a temporary repurchase agreement facility (FIMA Repo Facility) launched by the US Federal Reserve on 31 March 2020, with the intention of providing licensed banks with an additional channel to obtain US dollar liquidity in light of the tightness in the global US dollar interbank money markets amid volatilities and uncertainties in the global financial markets brought about by the spread of COVID-19. Given the decision by the US Federal Reserve to extend the FIMA Repo Facility to 31 March 2021, the HKMA has decided to extend the temporary US Dollar Liquidity Facility accordingly.
The operational parameters of the temporary US Dollar Liquidity Facility will remain unchanged. A total of US$10 billion is currently available to banks under the Facility in the form of repurchase transactions for a term of 7 days through competitive tenders held by the HKMA every week.
The HKMA published a press release on the enhancement measures to the 80% and 90% Guarantee Products under the SME Financing Guarantee Scheme (SFGS). The enhancement measures were included in the second round of the Anti-epidemic Fund announced by the Hong Kong Government in April 2020. Now Hong Kong Mortgage Corporation Insurance Limited (HKMCI) announced that the enhancement measures will take immediate effect from 29 May 2020.
The enhancement measures are intended to allow more enterprises affected by COVID-19 to apply for guaranteed loans to alleviate their cash flow burden in light of the current economic challenges.
Under the enhancement measures, the maximum loan amount per enterprise for the 80% Guarantee Product is increased from HK$15 million to HK$18 million, while the maximum loan amount per enterprise for the 90% Guarantee Product is increased from HK$6 million to HK$8 million. All borrowing enterprises under the SFGS can benefit from the enhancements. The eligibility coverage of both guarantee products is also extended to listed companies in Hong Kong. In addition, for the requirement of personal guarantee by individual shareholder(s) under the Special 100% Loan Guarantee, the applicable percentage of equity interest is reduced from over 70% to over 50%, which is in line with that for the 80% and 90% Guarantee Products.
The Hong Kong Government will provide interest subsidy for the 80% and 90% guaranteed loans, with the amount of subsidy capped at 3%. Each loan is entitled to an interest subsidy for a maximum period of 12 months. HKMCI has reached a consensus with the Government and the lenders on the implementation details, which are as follows:
- All outstanding loans as of 30 April 2020 will receive the first batch of interest subsidy for up to 3 months, of which payment will be successively made starting from the end of June 2020 (Please refer to the Annex for details);
- The payment of subsequent interest subsidy will be made on a monthly basis thereafter;
- Interest subsidy is applicable to new loan applications successfully submitted before 31 May 2021.
The interest subsidy will be automatically deposited into relevant bank accounts, and no application will be required, to expedite the support to the borrowing enterprises.
The HKMA published a circular setting out the application of additional guidance issued by the Basel Committee on Banking Supervision (BCBS) on 3 April 2020 regarding alleviation of the impact of COVID-19 on the global banking system in the context of Hong Kong. The circular focused on the following 3 measures:
- Clarifications on the treatment of extraordinary support measures related to COVID-19
Governments and public authorities in many jurisdictions have introduced extraordinary support measures to alleviate the financial and economic impact of COVID-19. These measures include, among others, guarantee programmes for bank loans and payment holidays offered by banks to borrowers. To ensure that AIs reflect the risk-reducing effect of these measures when calculating their regulatory capital requirements, the HKMA has also enclosed an Annex to this circular setting out several technical clarifications.
- Expected credit loss provisioning
The HKMA expects AIs to continue to apply the relevant expected credit loss (ECL) frameworks for accounting purposes, and also expects ECL estimates to reflect the mitigating effect of the significant economic support and payment relief measures put in place by public authorities and the banking sector. The provision of relief measures to borrowers should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement. Additionally, AIs are expected to exercise informed judgement and to use the flexibility inherent in HKFRS/IFRS 9, for example, to give due consideration to long-term economic trends in estimating ECL.
However, the BCBS transitional arrangements for the regulatory capital treatment of ECL accounting will not be adopted in Hong Kong. Instead, the HKMA has lowered the regulatory reserve requirement by half to provide AIs with more room on their balance sheets to cater for future financing needs, as per a circular dated 8 April 2020.
- Margin requirements for non-centrally cleared OTC derivatives
Following the announcement made by the BCBS and the International Organization of Securities Commissions (IOSCO) on 3 April 2020, the HKMA will defer the final two implementation phases of margin requirements for non-centrally cleared OTC derivatives by an additional year. With this extension, the final implementation phase will start on 1 September 2022, at which point covered entities with an average aggregate notional amount (AANA) of non-centrally cleared OTC derivatives greater than HKD 60 billion will be subject to the requirements. As an intermediate step, from 1 September 2021, covered entities with an AANA of non-centrally cleared OTC derivatives greater than HKD 375 billion will be subject to the requirements.
The HKMA will continue to monitor the banking and supervisory implications of COVID-19, and coordinate with the BCBS and other relevant standard-setting bodies on responses to the pandemic.
Please see the Annex to this circular setting out clarifications on the treatment of extraordinary support measures related to COVID-19 here.
Please also see the HKMA’s previous circular dated 8 April 2020 for further details regarding the lowered regulatory reserve requirement here.
(also covered below in item 60)
Please also see the SFC’s circular dated 7 May 2020 regarding the SFC’s measures with respect to margin requirements for non-centrally cleared OTC derivatives here.
(also covered in item 19 of the SFC circulars/guidelines above)
Please see the additional guidance issued by the BCBS here.
Please also see the HKMA’s previous circular dated 17 April 2020 for further details regarding the Scheme here.
(also covered below in item 58)
The HKMA published a circular providing information on the temporary US Dollar Liquidity Facility (Facility), which was announced on the same day. The Facility was launched to provide licensed banks with more US dollar liquidity to meet their US dollar funding needs. This is part of the concerted efforts by central banks to help alleviate tightness in the global US dollar interbank money markets in light of the considerable volatilities and uncertainties in the global financial markets caused by the spread of COVID-19. In principle, the Facility is underpinned by the Federal Reserve’s FIMA Repo Facility.
The US dollar liquidity will be provided to licensed banks through competitive tender in the form of repurchase transactions for a term of 7 days, settled on the day following the tender.
From 6 May 2020, the HKMA will conduct a competitive tender every week (normally on Wednesday) for licensed banks to submit bids for US dollar liquidity. Currently a total of US$10 billion is available under the Facility. A licensed bank may submit one valid bid in each tender, and the bid must be at least US$100 million or an integral multiple of US$100 million. The HKMA will contact successful banks to confirm and arrange transfer of eligible assets as collateral to the HKMA, and tender notices and tender results will be published on a designated page on the HKMA website. The names of the banks participating in the tenders or those allotted with funds, and individual allotment amounts will not be disclosed.
The HKMA intends to maintain the Facility until 30 September 2020, and will make a separate announcement if the end date changes. The HKMA may revise any of the parameters of the Facility at any time as necessary, taking into account market conditions, use of the Facility and other relevant factors. Banks may contact the Monetary Operations Division of the HKMA at 2878 8104 or at USDfacility@hkma.iclnet.hk if they have any questions about the operation of the Facility.
Please see the press release announcing the Facility’s release here
Please see the annexes to the circular for more details regarding the facility:
The HKMA published a circular referring to the SFC’s circular to issuers of SFC authorized paper gold schemes (PGS). The HKMA reminded authorized institutions (AI) providing PGS services to comply with the SFC’s circular, the Code of Banking Practice, and the Treat Customers Fairly Charter. In particular, the HKMA reminded AIs to
- treat customers honestly and fairly;
- take into account customers’ interest and be responsible for upholding financial consumer protection;
- provide appropriate information at all stages of the relationship with the customers (including any untoward circumstances relating to PGS services and corresponding impact on customers); and
- rectify any operational incident having significant impact on continued provision of PGS services.
The HKMA further reminded AIs which issue PGS to immediately report to the HKMA and SFC any untoward circumstances relating to PGS services that may have material customer impact, including any decision to suspend subscription and/or redemption, and uplift suspension/resume dealing.
Please see the SFC’s circular here.
(also covered in item 22 of the SFC circulars/guidelines above)
Please also see the HKMA’s previous press release dated 16 April 2020 for further details of the Special 100% Loan Guarantee here
(also covered below in item 59)
The HKMA published a circular announcing the launch of the Pre-approved Principal Payment Holiday Scheme (Scheme) on 1 May 2020. The Scheme is intended to provide immediate relief to eligible small-to-mid-sized corporates facing financial issues in the wake of the COVID-19 outbreak.The HKMA expects all authorized institutions (AIs) to participate in the Scheme, and has confirmed that all of the 11 major lenders in the Banking Sector SME Lending Coordination Mechanism will participate.
Under the Scheme, participating AIs will pre-approve deferment of loan principal payments falling due between 1 May 2020 and 31 October 2020 of eligible small-to-mid-sized corporates for up to 6 months. All corporate borrowers that have an annual sales turnover of HK$800mn or less (estimated to cover more than 80% of all corporate borrowers in Hong Kong), and that have no outstanding loan payments overdue for more than 30 days are eligible for the Scheme. Applications by borrowers are not required so that financial relief can be provided to corporates in the timeliest manner. In accordance with the HKMA’s loan classification guidelines, deferments of principal payments under the Scheme will not by themselves render a loan account to be downgraded to a lower category.
For corporate customers not currently covered by the Scheme or have payment falling due before 1 May 2020, the HKMA expects AIs to adopt a sympathetic stance and proactively reach out to those customers to understand whether they require similar assistance and assess, on a case-by-case basis, whether it is in line with established risk management principles to provide such arrangements.
The HKMA will issue FAQs about the operation of the Scheme. AIs may approach the HKMA through their usual contacts at the Banking Supervision Department for any question about this circular.
The HKMA published a press release reporting that Hong Kong Mortgage Corporation Insurance Limited (HKMCI) had announced the launch of its Special 100% Loan Guarantee under the SME Financing Guarantee Scheme (SFGS) and would begin receiving applications from 20 April 2020. The guarantee arrangement is intended to help ease the cash flow issues of enterprises affected by the COVID-19 outbreak.
HKMCI welcomes all lenders under the SFGS to participate in the guarantee arrangement. The following lenders will receive applications from 20 April 2020: Bank of China (Hong Kong) Limited, Bank of Communications (Hong Kong) Limited, Chong Hing Bank Limited, DBS Bank (Hong Kong) Limited, Hang Seng Bank Limited, Nanyang Commercial Bank, Ltd., OCBC Wing Hang Bank Limited, Standard Chartered Bank (Hong Kong) Limited, The Bank of East Asia, Limited and The Hongkong and Shanghai Banking Corporation Limited. Other lenders have also indicated their interest in joining.
The HKMA published a circular informing locally incorporated authorized institutions (AI) of its decision to lower the regulatory reserve (RR) requirement on locally incorporated AIs by 50% with immediate effect. The HKMA noted that the decision was taken partly in light of the need to provide AIs with more lending headroom to support customers in coping with the COVID-19 outbreak, and encouraged AIs to do so. The HKMA expects that AIs should not use the RR release for dividend distribution, share buyback or payment of bonus to senior management. The HKMA will continue to assess the situation to determine if any further adjustments are necessary. AIs may approach the HKMA through their usual contacts at the Banking Supervision Department for any question about this circular.
The RR requirement was implemented under the Hong Kong Financial Reporting Standard 9 (HKFRS 9) since January 2018. The HKMA observes that locally incorporated AIs have made good progress in enhancing their expected loss provisioning models, systems and controls, and in general reported notable increases in their accounting provisions for the second half of 2019 given the deterioration in the economic environment. This indicates that the “expected loss” provisioning requirement under HKFRS 9 is robust and responsive to changes in external conditions. Accordingly, the need for locally incorporated AIs to maintain an RR on top of accounting provisions has diminished. This also plays a part in the HKMA’s decision to lower the RR requirement.
63
The HKMA and the banking sector join forces to help Hong Kong’s economy overcome the outbreak of COVID-19
The HKMA published a press release summarizing the results of a meeting with Hong Kong Mortgage Corporation Insurance Limited (HKMCI), major banks, and representatives from the commercial sector regarding measures by banks and the HKMA to support SMEs in the wake of the COVID-19 outbreak. The HKMA noted that a number of previous measures had seen success and provided statistics in this regard. The HKMA and HKMCI also suggested 5 more measures to further support SMEs in addressing cash-flow pressure.
3 April 2020
Please also see Legal Update here.
64
Liquidity measures in response to Covid-19 outbreak
The HKMA published a circular outlining liquidity measures taken to ensure the continued operation of the interbank market and banking system. The measures taken focus on three aspects, namely the HKMA’s Liquidity Facilities Framework, the Federal Reserve’s temporary Financial Services Instant Messaging Association (FIMA) Repo Facility, and the HKMA’s supervisory expectations on the use of liquidity buffers under the liquidity coverage ratio (LCR) and liquidity maintenance ratio (LMR) regimes. The HKMA also reminded authorized institutions (AI) to ensure they have the appropriate internal policies and processes in place when using the HKMA’s liquidity facilities and buffers, and the HKMA will reach out to AIs to ensure compliance.
3 April 2020
Please also see the Annex to the circular containing clarifications on the HKMA’s Standby Liquidity Facilities (SLF) framework here.
65
Deferral of Basel III implementation and HKMA’s supervisory actions in response to COVID-19
The HKMA published a circular in response to the decision by the Group of Central Bank Governors and Heads of Supervision (GHOS) to defer the implementation of Basel III by one year, to allow banks time to deal with current issues arising from the COVID-19 outbreak. The HKMA stated that it would accordingly delay its own implementation of Basel III to 1 January 2023, in line with GHOS.
30 March 2020
66
Requirements under section 60 of the Banking Ordinance (Cap. 155) and disclosure requirements under the Banking (Disclosure) Rules (Cap. 155M)
The HKMA published a circular regarding the requirement for authorized institutions (AIs) incorporated in or outside Hong Kong to file audited annual accounts and other documents with the HKMA under section 60 of the Banking Ordinance. The HKMA will allow AIs to apply in writing for an extension of the deadline to do so, if necessary due to operational difficulties caused by the COVID-19 outbreak.
7 February 2020
67
Measures to relieve impact of the novel coronavirus
The HKMA published a circular outlining measures that authorized institutions (AI) should implement to relieve the impact of COVID-19 on their customers. The measures include temporary relief measures to lessen the impact of financial stress, such as principal moratorium for residential and commercial mortgages and fee reduction for credit card borrowing. The HKMA also suggested AIs should adopt a sympathetic stance in dealing with customers facing financial stress, and communicate their policies to relevant staff to ensure consistent treatment of customers.
6 February 2020
[ad_2]
Source link