HKMA proposes revised Basel disclosure templates, issues other updates

The Hong Kong Monetary Authority (HKMA) issued several regulatory updates for banks. One among them is the consultation, which ends on March 13, 2023, on the new or revised disclosure templates and tables to align with the final Basel III reforms package. These templates and tables relate to the key prudential ratios, credit risk for non-securitization exposures, credit valuation adjustment risk, market and operational risks, comparison of modeled and standardized risk-weighted assets, and asset encumbrance. The report frequency for these could vary—quarterly, semi-annual, or annual. Other key updates discuss leveraging the Commercial Data Interchange for digitalization of banking processes, set out next steps to the work underway on crypto-assets and stablecoins, announce the HKMA intention to incorporate the Basel Committee responses to the FAQs on climate risk into its supervisory framework, and note the HKMA decision to keep the countercyclical capital buffer (CCyB) ratio for Hong Kong unchanged at 1%.

With respect to the Commercial Data Interchange (CDI), authorized institutions are being encouraged to make the best use of CDI to digitalize and streamline the banking processes and to develop innovative products for corporate customers, especially the small and medium-size enterprises (SMEs). CDI, which was launched in October 2022, is an innovative, consent-based data infrastructure to facilitate corporates to share their data at different service providers with authorized institutions. It is observed that institutions have been actively leveraging business data of corporates offered via the CDI, in combination with internal data, to streamline their operation and enhance their risk management processes. A promising CDI use case is to facilitate the credit assessment process for lending to SMEs. Apart from the linkage with alternative credit data, such as those available on e-trade declaration and e-commerce platforms, the connection between the CDI and the Commercial Credit Reference Agency (CCRA) has come into production. Several entities have successfully connected to the CCRA via the CDI gained access to machine-readable credit reference data of corporates for more automated customer onboarding, credit approval, and ongoing credit review and monitoring processes. Institutions with material SME business are required to share, before April 30, 2023, their plans for connecting to this with the Fintech Facilitation Office (FFO) of HKMA. Additionally, the connection with the Companies Registry, which is targeted to go live by the end of 2023, will provide institutions with automated access to key data needed for their Know-Your-Customer (KYC) processes, such as company name, company number, individual directors, shareholders and members, address, country, and date of incorporation.

HKMA also published the conclusion to an earlier-issued consultation on crypto-assets and stablecoins, also outlining the next steps on this. A more detailed consultation, with more granular information about the regulatory regime, will be conducted in due course with a view to hammering out the major parameters that will be covered in the draft legislation. HKMA will conduct further assessments on certain issues such as whether to introduce a new legislation or amend existing laws to implement the proposed regulatory regime, how to minimize possible regulatory overlaps, addressing risks that may be posed by provision of multiple or bundled financial services by affiliated entities, and the local incorporation requirement. In parallel, HKMA will also work closely with other stakeholders to implement the regulatory regime through an appropriate legislative exercise. In addition to these, HKM is consulting the banking industry, until March 08, 2023, on amendments to the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism and has issued a guidance paper on transaction monitoring screening, and suspicious transaction reporting.