HK to Implement New Capital Standard for Banks' Equity Investments in Funds

Hong Kong's Banking (Capital) (Amendment) Rules 2022 (BCAR 2022) were published in the gazette recently.

The amendments in the BCAR 2022 are mainly to implement the capital standard for banks' equity investments in funds, as issued by the BCBS (Basel Committee on Banking Supervision).

The capital standard, finalised after a November 2020 consultation which concluded in February 2021, introduces a hierarchy of three approaches with varying degrees of risk sensitivity for setting capital requirements for banks' equity investments in funds: the look-through approach; the mandate-based approach; and the fall-back approach.

"The standard contributes to the broader international effort to strengthen the oversight and regulation of shadow banking activities, including those conducted through funds, by ensuring that banks' exposures to funds are supported by adequate capital," reads an official statement from the government.

The BCAR 2022 also contain an amendment to designate the HKECIC (Hong Kong Export Credit Insurance Corporation) as a domestic public sector entity for preferential risk-weighting treatments by local banks.

The preferential capital treatment will encourage banks to provide more financial support to exporters (including SMEs) when their trade exposures are guaranteed or covered by insurance policies issued by the HKECIC. This is expected to contribute to Hong Kong's export trade.

"We strive to bring the financial regulatory and supervisory policy frameworks in Hong Kong up to date and in line with international standards, with a view to safeguarding Hong Kong's financial stability and consolidating Hong Kong's position as an international financial centre," said a government spokesperson.

The BCAR 2022 is being tabled before LegCo (Legislative Council) for negative vetting Today (27 April).

The subsidiary legislation is expected to come into operation on 1 July 2022.

Source: Regulation Asia