Guide to Hong Kong Monetary, Banking and Financial Terms

Specific US dollar assets of the Exchange Fund that have been designated to back the Monetary Base. A statement of the Currency Board Account, which shows the value of the Backing Assets and the Monetary Base, has been published monthly since March 1999.

The ratio between the Backing Assets and the Monetary Base. When the Currency Board Account was first set up, sufficient US dollar assets were transferred to the Currency Board Account to provide a 105% backing of the Monetary Base (Backing Portfolio). Movements in the Backing Ratio are subject to the effects of changes in the Monetary Base, revaluation gains or losses due to interest rate change, and the size of the net interest income. Net interest income refers to the excess of interest earnings from US dollar assets over interest payments on Exchange Fund paper. Under the Linked Exchange Rate System, although specific Exchange Fund assets have been designated for the Backing Portfolio, all Exchange Fund assets are available to support the Hong Kong dollar exchange rate.

Under a new arrangement approved by the Financial Secretary in January 2000, when the Backing Ratio reaches 112.5% (the upper trigger point), assets will be transferred out of the Backing Portfolio to the Investment Portfolio of the Exchange Fund assets to reduce the ratio to 110%. Conversely, should the ratio drop to 105% (the lower trigger point), assets will be injected from the Investment Portfolio to restore it to 107.5%. This arrangement enables a higher investment return on excess assets while ensuring sufficient liquid assets in the Backing Portfolio.

See also Backing Assets/Backing Portfolio .

A statutory write-off, cancellation, conversion into equity or modification of certain liabilities of a failing financial institution, in order to absorb losses of the institution and restore its capital position so as to enable it to carry on business for a reasonable period and maintain market confidence in it. It is one of the stabilization options available under the Financial Institutions (Resolution) Ordinance.

A statistical statement that summarises, for a specific period, the economic transactions of an economy with the rest of world. A complete BoP account comprises the current account and the capital and financial account. In Hong Kong, while the quarterly BoP account is compiled from the reference period of the first quarter of 1999, the annual BoP account dates back to the reference period of 1998.

One of the three types of authorized institution in Hong Kong under the Banking Ordinance. Banks are the only institutions permitted to carry on banking business.

See also deposit-taking company, licensed bank, restricted licence bank and Three-tier Banking System.

An international organisation founded in 1930 to foster international monetary and financial co-operation and serves as a bank for central banks. The BIS provides secretariat support for G-10 and other central banking committees, which include the Basel Committee on Banking Supervision, the Committee on the Global Financial System, the Committee on Payment and Settlement Systems, the Markets Committee, and the Central Bank Governance Steering Group looking into issues relating to the promotion of global financial stability. The HKMA joined the BIS in 1996. In July 1998, the BIS opened its first representative office for Asia and the Pacific in Hong Kong. Between September 1999 and March 2006, the HKMA chaired the Central Bank Governance Steering Group. The HKMA now participates in BIS Annual Meetings, and in some of its committee and working group meetings.

A forum established in 2001 to provide a vehicle for communication between the Asian and Pacific members of the Bank for International Settlements (BIS) and its Board and management on matters of interest and concern to the Asian central bank community. The forum comprises the Governors of the BIS member central banks in the Asia-Pacific region. The HKMA is a member; it chaired the forum from June 2003 to June 2005.

A committee established under the Banking Ordinance to advise the Chief Executive of the Hong Kong Special Administrative Region (CE/SAR) on matters relating to the Banking Ordinance, in particular in relation to banks and the carrying on of banking business. The BAC is chaired by the Financial Secretary. Its members include the Monetary Authority and persons appointed by the Financial Secretary under the delegated authority conferred by the CE/SAR.

See also Deposit-Taking Companies Advisory Committee.

This refers to the on-balance sheet assets and off-balance sheet exposures held by the authorized institutions other than assets and exposures categorised under the trading book.

Under the Banking Ordinance, banking business means the business of either or both of the following:

(a) receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than three months;

(b) paying or collecting cheques drawn by or paid in by customers.

A piece of subsidiary legislation made by the Monetary Authority under section 97C of the Banking Ordinance to prescribe capital requirements for authorized institutions incorporated in Hong Kong, taking into account the risks associated with the institutions.

A piece of subsidiary legislation made by the Monetary Authority under section 60A of the Banking Ordinance to set out the minimum standards for public disclosure which authorized institutions must make in respect of their state of affairs, profit and loss and financial resources (including capital resources and liquidity resources).

The Banking (Disclosure) Rules apply to both locally incorporated and overseas incorporated authorized institutions, except for those falling within certain exemption criteria as specified in the Banking (Disclosure) Rules.

A licence granted by the Monetary Authority under the Banking Ordinance to a body corporate incorporated in or outside of Hong Kong wishing to carry on banking business in Hong Kong. Under the minimum criteria for authorization, certain conditions must be satisfied before a banking licence can be granted.

The statute providing the legal framework for banking supervision in Hong Kong. The Banking Ordinance provides for the authorization and supervision of authorized institutions so as to provide a measure of protection to depositors and to promote the general stability and effective working of the banking system. The Banking Ordinance also provides for the approval and supervision of money brokers. The Banking Ordinance is regularly reviewed in the light of practical experience and to take account of developments in the banking industry.

A tribunal established under section 101A(1) of the Banking Ordinance to hear appeals brought up by authorized institutions against certain decisions made by the Monetary Authority under the Banking Ordinance or its subsidiary legislation in relation to capital, liquidity and disclosure requirements, recovery planning and limitations on exposures and interests.

The HKMA announced in July 1999 a three-year reform programme to further develop the banking sector in Hong Kong. The objectives of the reform programme are twofold: first, to encourage market liberalisation and enhance competitiveness in the banking sector; and, secondly, to strengthen banking infrastructure with the objective of enhancing the safety and soundness of the sector. The package of policy initiatives includes, among others, the removal of the "one-building" condition, deregulation of the Interest Rates Rules, a consultancy study on enhancing deposit protection and a study on the establishment of a commercial credit reference agency. All the policy initiatives contained in the reform programme have been completed.

A committee established in 1996 within the HKMA to consider, advise and make recommendations to the Monetary Authority on major authorization matters under the Banking Ordinance. The principal objectives of the Committee are to ensure that decisions on authorization matters are taken in a fair and reasonable manner and to strengthen internal checks and balances.

A note issued by a bank promising to pay the bearer the par value of the note on demand.

The interest rate forming the foundation upon which the Discount Rates for repurchase-agreement transactions through the Discount Window are computed. The Base Rate is currently set at 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month HIBORs, whichever is the higher. The HKMA announces the Base Rate every day before the interbank market opens in Hong Kong.

A framework published by the Basel Committee on Banking Supervision in June 2004 for regulating the capital adequacy of banks. Replacing the Capital Accord (also known as Basel I) issued in 1988, Basel II offers implementing jurisdictions a more comprehensive and risk-sensitive framework that aligns regulatory capital requirements of banks more closely with the inherent risks they face. It consists of three pillars:

• minimum capital requirements
• supervisory review process
• market discipline.

See also internal ratings-based approach and standardized (credit risk) approach.

A package of regulatory reforms introduced by the Basel Committee on Banking Supervision (Basel Committee), including (i) various enhancements to the international regulatory capital standards and (ii) new international liquidity standards, with a view to promoting the resilience of banks and banking systems to financial stress.

The primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability. It comprises representatives of central banks and supervisory authorities from 28 jurisdictions. The Hong Kong Monetary Authority became a member in 2009.

One of the approaches set out in the Banking (Capital) Rules that authorized institutions incorporated in Hong Kong may choose for the calculation of minimum capital requirements for their credit risk. This approach is essentially a modification of the Capital Accord issued in 1988 (Basel I) and is mainly intended for use, with the prior approval of the HKMA, by authorized institutions with small, simple and straightforward operations.

See also standardized (credit risk) approach.

A legally enforceable arrangement between two parties under which, in the event of a party's default, the amount the non-defaulting party is to receive from (or pay to) the defaulting party is a net sum determined by netting the amounts receivable from and the amounts payable to the defaulting party under all transactions covered by the arrangement.

A company created for the purpose of receiving a transfer, under the Financial Institutions (Resolution) Ordinance, of all or part of a failing financial institution’s issued securities, assets, rights or liabilities and effecting a timely disposal of the same to a purchaser.

An internationally recognised framework for assessing the Capital adequacy, Asset quality, Management, Earnings and Liquidity of banks. The primary purpose of CAMEL is to help identify institutions whose weaknesses require special supervisory attention. The overall rating is expressed on a scale of one to five in ascending order of supervisory concern: "1" indicates the highest rating and least degree of concern; "5" represents the lowest rating and highest degree of concern. The HKMA has adopted the CAMEL rating system to assess the financial condition and overall soundness of authorized institutions in Hong Kong.

An accord reached by the Basel Committee on Banking Supervision in 1988 (now commonly known as Basel I), which has been applied to Hong Kong since 1989. The Capital Accord sets out the framework for measuring the capital adequacy of banks, by requiring them to hold a minimum level of capital for their exposures to credit risk, expressed as a minimum ratio between a bank's capital base and its risk weighted assets. The Capital Accord promotes soundness and stability in the international banking system and aims at reducing sources of competitive inequality among international banks. It has been revised to address the issues of bilateral netting, multilateral netting and market risks arising from banks' open positions in various financial instruments.

CAR is a collective term referring to the three risk-weighted capital ratios, namely the (a) Common Equity Tier 1 capital ratio; (b) Tier 1 capital ratio; and (c) Total capital ratio, prescribed under Basel III. The ratio is intended to be a measurement of a bank’s capital position in respect of its exposures to credit risk, market risk, operational risk and sovereign concentration risk. The Banking (Capital) Rules made under section 97C of the Banking Ordinance stipulates that locally incorporated authorized institutions must maintain a Common Equity Tier 1 capital ratio of not less than 4.5%, a Tier 1 capital ratio of not less than 6% and a Total capital ratio of not less than 8%, but the Monetary Authority may under section 97F of the Ordinance increase the minimum above ratios applicable to an authorized institution, taking into account the risks associated with the institution. Each locally incorporated authorized institution is assigned a set of minimum ratios on an unconsolidated (solo) basis or on both a consolidated and unconsolidated basis.

The method based on which a locally incorporated authorized institution should calculate its CAR is set out in detail in the Banking (Capital) Rules. The standards set out in the Rules are in line with the international capital standards released by the Basel Committee on Banking Supervision.

Consolidated basis: In the calculation of the consolidated CAR, the consolidated position of the institution covers its local and overseas branches and the subsidiaries specified by the HKMA.

Solo basis: In the calculation of the solo CAR, the combined position of the institution's local and overseas branches is covered.

Capital buffers consist of three components: 1) the capital conservation buffer, 2) the countercyclical capital buffer and, 3) for authorized institutions considered as systemically important by the Monetary Authority, a higher loss absorbency buffer.

The capital buffers, which must be met by Common Equity Tier 1 capital, are intended to bolster resilience of the banking sector against adverse economic developments and, in the case of the higher loss absorbency buffer, to limit potential negative externalities posed by systemically important authorized institutions were they to become non-viable. If any of the capital buffers maintained by an authorized institution is lower than the level prescribed in the Banking (Capital) Rules, the institution will be subject to restrictions on its ability to make distributions so that it can restore the capital buffer to the desired level.

A function carried out by a central counterparty through which financial performance of financial contracts is guaranteed, thereby mitigating the counterparty credit risk faced by the sellers and the buyers of the contracts.

An entity that interposes itself between the buyers and the sellers of financial contracts such that it becomes the buyer to every seller and the seller to every buyer of the contracts for the purposes of clearing and settling the contracts.

A clearing system operated by the HKMA. The CMU comprises computerised clearing, settlement and custodian facilities for Exchange Fund Bills and Notes, bonds issued by the Government of the Hong Kong Special Administrative Region, and debt securities issued by both public and private sector entities.

A certificate issued to designated systems meeting certain criteria specified under the Clearing and Settlement Systems Ordinance. The certificate provides statutory backing to the finality of settlement for transactions made through designated systems by protecting the settlement finality from insolvency laws or any other laws.

Certificates issued by the Financial Secretary under the Exchange Fund Ordinance, to be held by note-issuing banks as cover for the banknotes they issue. The note-issuing banks are required to submit US dollars to the HKMA in return for the Certificates at the rate of HK$7.80 to US$1.

The ratio of the total amount of loans written off during a period to total outstanding amount of loans at the end of that period. This ratio measures the gross credit loss of a loan portfolio over a specified period of time. Charge-off policies vary from institution to institution. For credit card lending, normally, an account will be written off when the receivable has been overdue for more than 180 days or when the ultimate repayment of the receivable is unlikely (e.g. the cardholder is bankrupt or cannot be located). To better assess the asset quality of the credit card lending portfolio, the credit card charge-off ratio should be read in conjunction with the delinquency ratio. The charge-off ratio is annualised, whereas the delinquency ratio is measured by using the period-end position.

The CHATS Optimiser is a system mechanism that settles paper cheques and large-value Clearing House Automated Transfer System (CHATS) payments simultaneously and in an offsetting manner. Paper cheques are settled daily in a bulk run at a specific time by multilateral netting. When the amounts required to settle paper cheque payments are substantial, banks, having known their net cheque settlement positions, may make use of the CHATS Optimiser to make offsetting CHATS payments to their counterparties during the bulk settlement run. This helps the banks to manage their liquidity positions more efficiently and relieves them from the need to sit on substantial amounts of money for meeting their payment obligations in the bulk settlement run.

A regional multilateral arrangement under the aegis of ASEAN+3 to provide US dollar support through currency swaps to participants facing liquidity shortages and/or balance of payments difficulties.

Loans that are classified as "substandard", "doubtful" or "loss" under the HKMA's Loan Classification System.

The account maintained by banks with the central bank, or clearing house, for the purpose of paying and settling transactions between the banks themselves or between the banks and the central bank.

A system established for (i) the clearing or settlement of payment obligations, (ii) the clearing or settlement of obligations for the transfer of book entry securities, or the transfer of such securities.

A computer-based system established in Hong Kong for the electronic processing and settlement of interbank fund transfers. CHATS operates in a Real Time Gross Settlement mode between banks in Hong Kong and is designed for large-value interbank payments. Banks using CHATS are connected to the clearing house computer operated by Hong Kong Interbank Clearing Limited.

A free trade agreement entered into between the Government of the Hong Kong Special Administrative Region and the Central People's Government of the People's Republic of China on 29 June 2003 giving preferential access to the Mainland market for Hong Kong companies. CEPA aims at strengthening trade and investment co-operation between the Mainland and Hong Kong through progressively reducing tariff and non-tariff barriers on trade in goods and services, and facilitating trade and investment activities. CEPA is designed to offer new business opportunities on the Mainland for Hong Kong enterprises and professionals and increase Hong Kong's attractiveness to overseas investors.

A website https://www.cmu.org.hk developed by the Central Moneymarkets Unit (CMU) of the HKMA to increase product and pricing transparency in the bond market. It allows banks and financial institutions to quote indicative bid and offer prices for bonds and to provide related bond information, making it easier for retail investors to participate in the bond market.

A voluntary code jointly produced by the Hong Kong Association of Banks and the DTC Association with the endorsement of the HKMA. The Code took effect on 14 July 1997. It sets out the minimum standards for a wide range of personal banking services provided by authorized institutions, including the operation of accounts and loans, card services, payment services and debt collection. The HKMA requires all authorized institutions to comply with the Code and monitors authorized institutions' compliance with the Code as part of its regular supervision. The Code is subject to review and revision from time to time.

A code approved by the Monetary Authority under section 97M of the Banking Ordinance to provide guidance in respect of any of the provisions in any rules made by the Monetary Authority under section 60A(1), 81A(1), 97C(1) or 97H(1) of the Banking Ordinance in relation to disclosure requirements, limitations on exposures and interests, capital requirements and liquidity requirements applicable to authorized institutions.

A voluntary code jointly produced by eight payment card scheme operators in Hong Kong with the endorsement of the HKMA. The Code of Practice for Payment Card Scheme Operators (the Code) took effect in 2007 with a revision on 13 November 2015. The Code specifies general principles for the scheme operators to observe in order to promote the general safety and efficiency of payment cards in Hong Kong and to foster public confidence in them.

A statute enacted in 1994 to make provision for the issue of legal tender coins in Hong Kong.

See also Legal Tender Notes Issue Ordinance.

See credit reference agency.

A committee hosted by the Bank for International Settlements that sets international standards to promote, monitor and make recommendations about the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy.

Formerly known as the Euro-Currency Standing Committee, the CGFS is one of the four standing committees under the Bank for International Settlements. The Committee has three major tasks: systematic short-term monitoring of global financial system conditions; long-term analysis of the functioning of financial markets; and the articulation of policy recommendations aimed at improving market functioning and promoting stability. The Committee meets quarterly in Basel. The HKMA is not a member but has been regularly invited to participate in CGFS meetings.

Common Equity Tier 1 capital is generally regarded as having the highest loss absorption capacity among different types of an authorized institution’s capital. It includes capital instruments that meet the qualifying criteria set out in Schedule 4A to the Banking (Capital) Rules, share premium resulting from the issue of Common Equity Tier 1 capital instruments, retained earnings, other disclosed reserves, and minority interests arising from Common Equity Tier 1 capital instruments issued by consolidated bank subsidiaries of the authorized institution and held by third parties.

See also capital buffers and Tier 1 capital.

A ratio, expressed as a percentage, of the amount of the authorized institution’s Common Equity Tier 1 capital to the sum of the institution’s total risk-weighted amount for credit risk, market risk, operational risk and sovereign concentration risk, as determined in accordance with the Banking (Capital) Rules.

See also capital adequacy ratio.

The global supervision by the HKMA of locally incorporated authorized institutions. The supervision embraces, among other matters, capital adequacy, concentration of exposures, and liquidity. It covers an institution's subsidiaries as well as local and overseas branches. The main objective is to enable the HKMA to assess any weaknesses within a banking or financial group that may affect the authorized institution itself, and, if possible, to initiate preventive or remedial action.

A global clearing and settlement system for cross-border foreign exchange transactions. The System is operated by CLS bank International which is owned by over 70 global banking and financial institutions. It enables foreign exchange transactions involving the CLS eligible currencies to be settled through the CLS System on a payment-versus-payment basis, thus eliminating the settlement risk in these transactions. The Hong Kong dollar is an eligible currency of the CLS System.

An undertaking by a central bank or Currency Board to convert domestic currency into foreign currency and vice versa at a fixed exchange rate. In Hong Kong, the HKMA operates Convertibility Undertakings on both the strong side and the weak side of the Linked Rate of 7.80. Under the strong-side Convertibility Undertaking, the HKMA undertakes to buy US dollars from licensed banks at 7.75. Under the weak-side Convertibility Undertaking, the HKMA undertakes to sell US dollars at 7.85. Within the Convertibility Zone between 7.75 and 7.85, the HKMA may choose to conduct market operations consistent with Currency Board principles with the aim of promoting the smooth functioning of the money and foreign exchange markets.

The four broad principles governing these operations are

(1) All operations within the Convertibility Zone should be carried out in strict accordance with Currency Board rules: that is, both the stock and changes in the Monetary Base should be fully backed by US dollar assets.

(2) The primary objective of any operations should be to preserve exchange rate stability implied by the Linked Exchange Rate system and to maintain confidence in the system.

(3) Operations might be undertaken to support such interest rate adjustments as would maintain exchange rate stability under the Linked Exchange Rate system, and would avoid destabilising behaviour in interest rates.

(4) Operations might also be undertaken in order to remove market anomalies.

See also Currency Board System.

An institution-specific cross-border cooperation agreement between the institution’s home and relevant host resolution authorities that need to be involved in the planning and crisis resolution stages of the institution. Pursuant to Key Attribute 9, COAGs should be in place for all global systemically important financial institutions at a minimum.

A ratio, expressed as a percentage, of the amount of a category 2A institution’s “available core funding” to the amount of the institution’s “required core funding”.

A set of minimum standards for sound prudential regulation and supervision of banks and banking systems issued by the Basel Committee on Banking Supervision. They are used by jurisdictions as a benchmark for assessing the quality of their supervisory systems and for identifying future work to achieve a baseline level of sound supervisory practices. They are also used by the International Monetary Fund and the World Bank, in the context of the Financial Sector Assessment Program, to assess the effectiveness of jurisdictions’ banking supervisory systems and practices.

Corporate governance refers to the processes and the related organisational structures, by which organisations are directed, controlled and held to account. It involves a set of relationships between a company's management, its board, its shareholders, and other stakeholders. In the banking industry, corporate governance signifies the manner in which the business and affairs of individual banks are directed and managed by their board of directors and senior management. It also provides the structure through which the objectives of the institution are set, the strategy of attaining those objectives is determined and the performance of the institution is monitored.

The HKMA has issued a number of guidelines on corporate governance applicable to all authorized institutions in Hong Kong since 2000. These guidelines are reviewed by the HKMA on a regular basis to take into account international developments and to keep in pace with international best practice.

The CCyB is a part of the Basel III regulatory capital framework. In essence it is a mechanism to build up additional capital during periods of excessive credit growth when risks of system-wide stress are observed to be growing markedly. This capital can then be “released” when the credit cycle turns to absorb losses and enable the banking system to continue lending in the subsequent downturn.

See also capital buffers.

A credit risk that the counterparty to a financial contract could default before the final settlement of the cash flows of the contract. The key difference between CCR and the credit risk incurred by granting a loan is that the amount of CCR exposure will vary with the market value of the contract throughout its life and either counterparty to the contract may suffer a loss.

An entity that engages in the collection, maintenance and dissemination of information about borrowers' creditworthiness to facilitate credit assessment by credit providers. The handling of consumer credit information is governed by the Personal Data (Privacy) Ordinance and the Code of Practice on Consumer Credit Data issued thereunder. In Hong Kong, the credit reference agencies that handle consumer and/or commercial credit information are privately owned. The establishment of a commercial credit reference agency (CCRA) is one of the policy initiatives contained in the Banking Sector Reform Programme. The initiative aims to address the need for authorized institutions to have better information about their corporate customers, particularly in relation to small and medium sized enterprises. The CCRA in Hong Kong commenced operation in November 2004.

The risk of a borrower or counterparty failing to meet its obligations.

An institution-specific group maintained by the institution’s home and key host resolution authorities, with the objective of enhancing preparedness for, and facilitating the management and resolution of, a cross-border financial crisis affecting the institution. Pursuant to Key Attribute 8, CMGs should be in place for all global systemically important financial institutions.

An activity or operation carried on, or a service provided, by a financial institution on which an entity (other than a group company of that financial institution) relies; and that, if discontinued, would be likely to i) lead to the disruption of services that are essential to the economy of Hong Kong; ii) undermine the general confidence of participants in the financial market in Hong Kong; or iii) give rise to contagion within the financial system of Hong Kong.

The Currency Board Account lists the various liabilities and assets relating to the operations of the Currency Board System. On the asset side, it shows US dollar assets designated to back the Monetary Base. On the liability side, it shows the Monetary Base, which includes banknotes and coins issued, the Aggregate Balance, and the outstanding amount of debt paper issued by the Currency Board.

A Sub-Committee established under the Exchange Fund Advisory Committee in August 1998 to oversee the operation of the Currency Board System in Hong Kong and to recommend to the Financial Secretary, where appropriate, measures to enhance the robustness and effectiveness of Hong Kong's Currency Board arrangements. The Sub-Committee is chaired by the Chief Executive of the HKMA. Its members include professionals in the financial industry, academics, and senior officials of the HKMA.

A monetary system that complies with the Monetary Rule requiring that any change in the Monetary Base should be matched by a corresponding change in foreign currency reserves in a specified foreign currency at a fixed exchange rate. In operational terms, the Monetary Rule often takes the form of an undertaking by the Currency Board to convert domestic currency into foreign currency reserves at the fixed exchange rate.

See also Automatic/Autopilot Adjustment Mechanism, Aggregate Balance, Convertibility Undertaking and Linked Exchange Rate system.

Specified financial institutions, including Authorized Institutions, and designated non-financial businesses and professions are required under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance to carry out customer due diligence (CDD) measures in certain circumstances, such as before establishing a business relationship with a customer. CDD measures generally include the identification and verification of identity of a customer, any beneficial owner of the customer and any person purporting to act on behalf of the customer, as well as obtaining information on the purpose and intended nature of the business relationship established.

One of the pillars of the Cybersecurity Fortification Initiative (CFI). It provides an effective infrastructure for sharing intelligence on cyber attacks. The timeliness of receiving alerts or warnings from a commonly shared intelligence platform will help the banking sector as a whole to prepare for possible cyber attacks. The platform was launched by the HKMA in collaboration with the Hong Kong Applied Science and Technology Research Institute and the Hong Kong Association of Banks.

One of the pillars of the Cybersecurity Fortification Initiative (CFI). It is a risk-based framework for Authorized Institutions to assess their own risk profiles and benchmark the level of defence and resilience that would be required to accord appropriate protection against cyber attacks.

On the other hand, Stored Value Facilities Licensees are subject to another C-RAF which is specifically designed for them given their different business nature and risk profile. The C-RAF for SVF licensees does not form part of the CFI as the CFI is for Hong Kong’s banking sector.

The Cybersecurity Fortification Initiative (CFI) was implemented with a view to raising the cyber resilience of Hong Kong’s banking system. It is underpinned by three pillars: Cyber Resilience Assessment Framework (C-RAF), Professional Development Programme (PDP) , and Cyber Intelligence Sharing Platform (CISP).

The monthly repayment obligations of the borrower as a percentage of monthly income.

The ratio of the total amount of loans overdue for more than three months to total outstanding amount of loans. This ratio provides an indication of the asset quality of the loan portfolio.

A securities delivery arrangement in which the delivery of securities takes place as soon as payment is made for them and confirmed final and irrevocable.

See also payment versus payment (PvP) .

A scheme to provide statutory protection to bank depositors. Established and maintained by the Hong Kong Deposit Protection Board, the Scheme would help strengthen public confidence in the banking system and contribute to the maintenance of financial stability. All licensed banks in Hong Kong are members of the scheme unless otherwise exempted by the Board.

The Ordinance was enacted on 5 May 2004 to provide for the establishment of a deposit protection scheme in Hong Kong.

A committee to advise the Chief Executive of the Hong Kong Special Administrative Region (CE/SAR) on matters relating to the Banking Ordinance, in particular those relating to the business of deposit-taking companies and restricted licence banks. The DTCAC is chaired by the Financial Secretary and is composed of the Monetary Authority and other members appointed by the Financial Secretary under the delegated authority conferred by the CE/SAR.

See also Banking Advisory Committee.

One of the three types of authorized institutions in Hong Kong under the Banking Ordinance. Deposit-taking companies are restricted to taking deposits of HK$100,000 or more with an original term to maturity of at least three months. These companies are mostly owned by, or otherwise associated with, banks. They engage in a range of specialised activities, including consumer finance, trade finance and securities business.

See also licensed bank, restricted licence bank and Three-tier Banking System.

The phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk in line with a risk-based approach. De-risking can be the result of various drivers, such as concerns about profitability, prudential requirements, anxiety after the global financial crisis, and reputational risk. It is a misconception to characterise de-risking exclusively as an anti-money laundering issue.

See also Financial Inclusion.

A financial contract whose value is derived from the value of single or multiple underlying assets, indices or events. Common underlying assets include foreign currencies, equities, credit, debt securities, and commodities. Derivatives can be used for hedging, enhancing investment yield, or taking arbitrage opportunities, and cover a wide range of financial contracts including forwards, futures, options, swaps and their various combinations and variations.

A payment system (which is a clearing and settlement system or a retail payment system, as the case may be) designated under the Payment Systems and Stored Value Facilities Ordinance (PSSVFO). A payment system (i) whose proper functioning is material to the monetary or financial stability of Hong Kong or to the functioning of Hong Kong as an international financial centre, or (ii) having regard to matters of significant public interest may become a designated system under the PSSVFO . Designated systems are subject to oversight by the HKMA.

The interest rate at which banks obtain overnight Hong Kong dollar liquidity from the HKMA through repurchase agreements involving Exchange Fund paper or other eligible paper under the Discount Window. The Discount Rate consists of two tiers:

In Hong Kong, the facility through which banks can borrow Hong Kong dollar funds overnight from the HKMA through repurchase agreements using eligible securities as collateral.

See also Discount Rate.

The substitution of the domestic currency by a foreign currency (in most cases, the US dollar) as a unit of account, store of value, and medium of exchange. Dollarisation can be official or unofficial. Official dollarisation refers to the use of a foreign currency as legal tender in the local economy. Unofficial dollarisation refers to the informal, yet popular, use of a foreign currency, usually in parallel with the circulation of the local currency.

An authorized institution (AI) would be considered a D-SIB if in the opinion of the Monetary Authority the risks associated with the AI are such as to render the AI capable of having a significant impact on the effective working and stability of the banking or financial system of Hong Kong were the AI to become non-viable.

See also Systemically Important Authorized Institution (SIB).

See Loan Classification System.

Established in 1981 under the Companies Ordinance, the DTCA was originally known as the Hong Kong Association of Restricted Licence banks and Deposit-Taking Companies. Any restricted licence bank or deposit-taking company may join the DTCA. The objectives of the DTCA include furthering the general interests of restricted licence banks and deposit-taking companies, serving as an intermediary between the Government and members, and acting as a consultative body to the Government on matters concerning the business of taking deposits in Hong Kong.

See also Hong Kong Association of Banks.

The nominal effective exchange rate indices (NEERI) compiled by the Census and Statistics Department of the Government of the Hong Kong Special Administrative Region that measure movements in the weighted average of the nominal exchange rate of the Hong Kong dollar against the currencies of Hong Kong's principal trading partners. The real effective exchange rate index (REERI) measures weighted average of nominal effective exchange rates against the currencies of principal trading partners, adjusted for relative movements in price or cost indicators against those selected trading partners. In effect, the measure reflects the movement of prices of Hong Kong's goods and services relative to those of its major trading partners, and thus is often cited as our indicator of price competitiveness. There is no single measure of REERI, as the index may be constructed using different price indices based on consumer prices, export prices and unit labour costs.

Banking services delivered through a public or private network, including the Internet and wireless communication networks. Customers may gain access to e-banking services using an electronic device, such as a personal computer (PC), personal digital assistant (PDA), automated teller machine (ATM), kiosk, or touch-tone telephone.

See also Internet banking.

A computerised system for clearing and settling various types of electronic payments through Hong Kong Interbank Clearing Limited. These payments include autopay, electronic clearing items generated by the securities clearing and settlement system (the Central Clearing and Settlement System operated by Hong Kong Exchanges and Clearing Limited), and the point-of-sale clearing and settlement system. Settlement by ECG is on a next-day batch-run basis.

A programme for delivering circulars and guidelines to