HKMA Basel III Final Reform Package

On Aug. 30, HKMA amended various banking returns forms.

  • HKMA revised banking returns forms of capital adequacy ratio (MA(BS)3), leverage ratio (MA(BS)27), liquidity position (MA(BS)1E), stable funding position (MA(BS)26).
  • HKMA also made amendment to their corresponding completion instructions (CIs).
  • Follows HK GVT Dec. 2023 gazetted rules regarding Basel III final package, #196408.
  • Also follows HKMA Feb. 2024 issued finalized revisions to various forms, #202582.
  • Revisions
  • The revisions are mainly for implementing the Banking (capital) (amendment) rules 2023 (BCAR) that are intended to come into effect on Jan. 1, 2025, see #196408.
  • In addition, a few minor consequential amendments arising from the implementation of the BCAR have been made to the stable funding position (MA(BS)26) and its CIs.
  • Reporting
  • The STET software for the above return will be available in early Jan. 2025.
  • Reporting institutions should submit the capital adequacy ratio return, leverage ratio return, and stable funding position return via the STET system, from Mar. 31, 2025.
  • They shall submit the liquidity position return to HKMA starting from Jan. 31, 2025.
  • Oct. 10, 2024 Gazettal of Final Reform Package
  • On Oct. 10, 2024, HKMA issued circular on gazettal of Banking (capital) (amendment) rules 2023 (commencement) notice 2024, commencing parts 3 and 5 of BCAR.
  • Main purpose is to incorporate Basel III final reform package into local legislation.
  • Part 3 covers credit risk, output floor, operational risk, sovereign concentration risk.
  • Part 5 concerns amendments on market risk, credit valuation adjustment (CVA) risk.
  • Part 4 of BCAR, minimum haircut requirements for securities financing transactions, not covered by notice; implementation in other major jurisdictions to be considered.
  • Transitional provisions initially included in BCAR excluded from commencement notice.
  • Exclusion due to parts 3 and 5 now commencing operation on same day, Jan. 1, 2025.
  • Parts 3 and 5 to commence Jan. 1, 2025; in addition to consequential amendments to Banking (disclosure) rules, banking (liquidity) rules, Banking (exposure limits) rules.
  • Commencement notice to be tabled before HK PRL on Oct. 16 for negative vetting.
  • Oct. 18, 2024 Basel III Implementation
  • On Oct. 18, 2024, HKMA issued a circular announcing immediate adjustments to the regulatory capital calculations ahead of Basel III final reform package implementation.
  • Allows immediate adoption of a new 85% risk weight under revised standardized approach for non-retail small and medium-sized enterprise (SME) exposures.
  • Permits early adoption of new small business definition for both 75% risk-weighted retail exposures and allocation of new risk weight of 85% to non-retail exposures.
  • Internal ratings-based (which is also referred to as IRB) approach banks may apply these treatments for capital floor calculations and exempted SME exposures; separate SME exposure reporting in adequacy returns; removes current risk-weight floor.
  • Specifically, current risk-weight floor for Hong Kong property residential mortgage loans under IRB approach; applies to mortgages to property-holding shell companies.
  • HKMA adopts accommodative stance on early adoption given brief transition period; banks expected to use additional flexibility to support local SME financing needs.
  • HKMA to maintain engagement with banks active in SME lending to monitor business.
  • Changes in Oct. 18 circular take effect Oct. 18 before full Basel III rollout Jan. 1, 2025.
  • Oct. 24, 2024 Revised Disclosure Templates
  • On Oct. 24, 2024, HKMA released revised set of standard disclosure templates, tables.
  • Issued under sections 6(1)(ab), 88(1)(b) of Banking (disclosure) rules (BDR); revised package is intended for use by authorized institutions (AIs) for disclosures under BDR.
  • The revised package incorporates new templates and tables, reflecting the capital standards in the Basel III final reform package, along with revisions to existing ones.
  • The revised package will take effect on Jan. 1, 2025.
  • Nov. 2024 Negative Vetting Expired
  • On Nov. 15, 2024, HKMA said the 28-day period for the negative vetting has expired.
  • As a result, parts 3 and 5 of the BCAR, excluding certain transitional sections specified in the commencement notice, will come into operation on Jan. 1, 2025.
  • Nov. 21, 2024 Progress
  • On Nov. 21, 2024, HKMA shared industry’s progress in preparing for implementation.
  • HKMA has supported implementation by conducting industry consultations, providing clarifications, monitoring progress through ongoing dialogues and application reviews.
  • Institutions have made significant progress, with most completing system testing for regulatory reporting and undergoing independent quality assurance reviews.
  • HKMA shared good practices like obtaining senior management sign-off, maintaining audit trails, updating internal processes, and training staff for B3F compliance.
  • Perform continuous monitoring of new systems and processes to ensure effectiveness and compliance; HKMA will continue offering guidance to ensure a smooth transition.
  • Dec. 2024 Issuance
  • On Dec. 6, 2024, HKMA published new and amended codes of practice for Basel III.
  • Introduces new Banking (capital) (operational risk) code, amends Banking (exposure limits), Banking (liquidity coverage ratio - calculation of total net cash outflows) codes.
  • All the codes have been published in the gazette and are effective as of Jan. 1, 2025.
  • Dec. 2024 Repeal Transition Provisions
  • On Dec. 13, 2024, HK GVT gazetted the Banking (capital) (amendment) rules 2023 (amendment) rules 2024, to repeal certain provisions that were included in the BCAR.
  • Those provisions provided for the transitional period during which part 3, but not part 5, of the BCAR commenced operation; such provisions are no longer necessary since both parts will commence on the same date per the commencement notice above.

Regulators HKMA
Entity Types Bank; CNSM; SIFI
Reference OG L.N. 182/2024, 12/13/2024; Cir B1/15C, B9/75C, B9/130C, B9/155C, B9/188C, S4/3C, S4/11C, S4/16C, 12/6/2024; Cir B1/15C, B9/75C, 11/21/2024; Cir B1/15C, B9/75C, 11/15/2024; Cir B1/15C, B9/151C, CB/POL/4/5/34, Form, 10/24/2024; Cir B1/15C, B9/25C, B9/75C, B9/228C, 10/18/2024; Cir B1/15C, B9/75C, OG L.N. 132 of 2024, 10/10/2024; Cir B1/15C, B9/75C, B9/143C, S4/3C, S4/16C, 8/30/2024
Functions Compliance; Financial; Legal; Operations; Reporting; Risk; Treasury
Countries Hong Kong
Category
State
Products Banking; Loan; Mortgage; Securities
Regions AP
Rule Type Final
Rule Date 8/30/2024
Effective Date 1/1/2025
Rule Id 224558
Linked to Rule :196408
Reg. Last Update 12/13/2024
Report Section International

Last substantive update on 12/18/2024