Banking Regulatory and Supervisory Regime

Any corporation hoping to operate a banking business or a business of taking deposits must obtain a licence issued by the HKMA. Hong Kong maintains a three-tier system of deposit-taking institutions, comprising licensed banks, restricted licence banks, and deposit-taking companies. They are classified according to the amount and term of deposits accepted and the nature of the business, and are collectively known as authorized institutions.

Under the Banking Ordinance, the HKMA is responsible for the authorization of authorized institutions as well as suspension and revocation of such authorization. The HKMA has a general discretion under the Banking Ordinance to grant or refuse an application for authorization to operate a banking business or a business of taking deposits in Hong Kong. The HKMA is, however, obliged to refuse to authorize an applicant if the minimum criteria specified in the Seventh Schedule to the Banking Ordinance are not fulfilled. The authorization criteria are applicable both at the time of, and after, authorization. The HKMA assesses whether these criteria are being complied with on a continuing basis. The ground for revocation of authorization is set out under the Eighth Schedule to the Banking Ordinance.

The Banking Ordinance provides the legal framework for banking supervision in Hong Kong. Section 7(1) of the Ordinance provides that the principal function of the Monetary Authority is to "promote the general stability and effective working of the banking system".

Banks offer a wide range of products and services. Apart from providing traditional deposit and loan services, banks also sell investment, insurance and MPF products to customers. Therefore, the HKMA needs to work closely with other regulators to ensure comprehensive protection of public interests.

The introduction of virtual banks in Hong Kong is a key pillar supporting Hong Kong's entry into the Smart Banking Era. The HKMA believes that the development of virtual banks will promote fintech and innovation in Hong Kong and offer a new kind of customer experience. In addition, virtual banks can help promote financial inclusion as they normally target the retail segment, including the small and medium-sized enterprises (SMEs).

Any person must be approved by the Monetary Authority before acting as a money broker. A money broker means a person who, for reward, carries on the business in or from Hong Kong, or provides to persons in Hong Kong the service, of negotiating, arranging or facilitating agreements between other persons:

The Banking Sector SME Lending Coordination Mechanism (Mechanism) was established by the HKMA in October 2019. Participants include 11 banks that are most active in lending to small and medium-sized enterprises (SMEs). The Hong Kong Association of Banks and the HKMC Insurance Limited are also represented in the Mechanism.

As one of the Smart Banking initiatives announced in September 2017, the Banking Made Easy initiative aims at reducing regulatory frictions hindering technological innovations. A Banking Made Easy Task Force has been set up by the HKMA to identify and streamline regulatory requirements so as to enhance customers’ experience in the following digital customer journeys:

Climate change is one of the major risks threatening the well-being of mankind. How the banking and financial system operates will clearly have an impact on the way in which climate risk is managed or reduced. The HKMA is committed to promoting green and sustainable finance in order to address climate risk.

In response to the novel coronavirus (COVID-19) outbreak, the HKMA, together with the banking sector, has taken a host of measures to support small-and-medium enterprises (SMEs) and individuals in need, in an effort to help Hong Kong's economy ride through these difficult times. Check out the summary below to learn more about our initiatives and how they have helped corporate and individual bank customers to relieve cash-flow pressures.

Over the past few years, the Financial Stability Board (FSB) has been working with authorities and standard-setting bodies to develop reform proposals to enhance the robustness of interest rate benchmarks. In the UK, the Financial Conduct Authority has stated that it would not persuade or compel panel banks to contribute to the London Interbank Offered Rate (LIBOR) after 2021. As such, LIBOR will likely be discontinued after 2021 and market participants need to prepare for transitioning away from LIBOR to alterative reference rates (ARRs).