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Consultation on regulations for protected arrangements under Financial Institutions (Resolution) Ordinance launched

The Government and the financial regulators, namely the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission (SFC) and the Insurance Authority (IA), today (November 22) launched a two-month public consultation on a set of proposed regulations relating to protected arrangements under the Financial Institutions (Resolution) Ordinance (Cap. 628).

“Under the Ordinance, the Monetary Authority, the SFC and the IA are designated as resolution authorities. They are vested with a range of powers necessary to effect the orderly resolution of a non-viable systemically important financial institution for the purpose of maintaining financial stability, while seeking to protect public funds. The proposed regulations seek to impose some suitably tailored constraints on the resolution authorities in the exercise of their resolution powers to safeguard the economic effect of specific financial arrangements that are vital to the daily functioning of financial markets,” a Government spokesman said.

These financial arrangements, which are identified as “protected arrangements” under section 74 of the Ordinance, are: (i) clearing and settlement systems arrangements; (ii) netting arrangements; (iii) secured arrangements; (iv) set-off arrangements; (v) structured finance arrangements; and (vi) title transfer arrangements.

“The consultation launched today invites views on the scope and the degree of protection for the different classes of protected arrangements, including necessary carve-outs from the protections in order not to overly restrict a resolution authority from achieving orderly resolution. Views are also sought on remedial actions to be taken by a resolution authority should its actions inadvertently result in the constituent parts of a protected arrangement being treated otherwise than as envisaged in the regulations,” the Government spokesman noted.

“The regulations are designed to meet the international standards set by the Financial Stability Board in its Key Attributes of Effective Resolution Regimes for Financial Institutions. In drawing up the proposed regulations, the Government and the financial regulators have taken into account the responses to the two consultations on ‘An Effective Resolution Regime for Financial Institutions in Hong Kong’ launched in January 2014 and January 2015, and made reference to the approaches adopted in overseas jurisdictions. Subject to the outcome of the public consultation, our target is to introduce the regulations as subsidiary legislation under the Ordinance into the Legislative Council for negative vetting in the first half of 2017,” he added.

Enacted by the Legislative Council on June 22, 2016, the Ordinance provides the legal basis for the establishment of a cross-sectoral resolution regime for financial institutions in Hong Kong.  It will come into operation on a date to be appointed by the Secretary for Financial Services and the Treasury at the same time that the regulations are put in place and ready to become operational.

The consultation paper can be downloaded from www.fstb.gov.hk/fsb/ppr/consult/par.htm as well as from the websites of the HKMA (www.hkma.gov.hk), the SFC (www.sfc.hk and the IA (www.oci.gov.hk).

Members of the public and the industry are welcome to send their written comments by mail to Consultation on Protected Arrangements Regulations, Financial Services Branch, Financial Services and the Treasury Bureau, 24/F, Central Government Offices, 2 Tim Mei Avenue, Tamar, Hong Kong, or by fax to 2856 0922 or by email to resolution@fstb.gov.hk on or before January 21, 2017.

 

Ends/ Tuesday, November 22, 2016

Last revision date: 22 November 2016
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