Guide to Hong Kong Monetary, Banking and Financial Terms

An agreement reached in July 1988 between the Financial Secretary, as the Controller of the Exchange Fund, and the Hongkong and Shanghai Banking Corporation Limited (HSBC), as the Management Bank of the Clearing House of the Hong Kong Association of Banks. The agreement required HSBC to open an account with the Exchange Fund. The balance in that account could only be altered by the HKMA, (or its predecessor, the Office of the Exchange Fund). The Accounting Arrangements required HSBC to manage the Net Clearing Balance (NCB) of the rest of the banking system, having regard to the level of the balance of HSBC's account with the HKMA. If the NCB exceeded the balance, the HKMA would charge HSBC punitive interest on the excess amount, which represented the sum that HSBC had over-lent to the rest of the banking system. If the NCB was negative, a punitive interest rate would also be charged on the debit balance. The Accounting Arrangements came to an end with the introduction of the Real Time Gross Settlement system in December 1996, which requires all banks to maintain a clearing account with the HKMA.

The total net profit earned by an entity as an on-going business. The Accumulated Surplus of the Exchange Fund is the total net profit earned by the Exchange Fund since 6 December 1935.

A component (other than Common Equity Tier 1 capital) of an authorized institution’s Tier 1 capital, which is intended to absorb losses of an authorized institution on a going concern basis. It includes capital instruments issued by an authorized institution that meet the qualifying criteria set out in Schedule 4B to the Banking (Capital) Rules, share premium resulting from the issue of Additional Tier 1 capital instruments and the amount of minority interests arising from Additional Tier 1 capital instruments issued by consolidated bank subsidiaries of the authorized institution and held by third parties.

The sum of balances in the clearing accounts and reserve accounts kept with the central bank. In Hong Kong, this refers to the sum of the balances in the clearing accounts kept with the HKMA. The Aggregate Balance is a part of the Monetary Base. Since June 1998, the HKMA has been disclosing forecast changes in the Aggregate Balance attributable to the HKMA's foreign exchange transactions as well as issuance of and interest payments on Exchange Fund paper on a real time basis through Reuters and Bloomberg.

See also Currency Board System and Linked Exchange Rate System.

An Ordinance that:
(a) provides for the imposition of requirements relating to customer due diligence and record-keeping on specified financial institutions and designated non-financial businesses and professions;
(b) provides for the powers of the relevant authorities and regulatory bodies to supervise compliance with those requirements and other requirements under the AMLO;
(c) provides for the regulation of the operation of a money service and the licensing of money service operators;
(d) provides for the regulation of the operation of a trust or company service and the licensing of trust or company service providers;
(e) establishes a review tribunal to review certain decisions made by the relevant authorities under the AMLO; and
(f) provides for incidental and related matters.

Interest rate arbitrage: Activities that seek to profit from the deviation between the interest rate differential and interest equivalent of the spread between the forward exchange rate and spot exchange rate. In a broader context, interest rate arbitrage activities may seek to take advantage of the interest rate differential between two currencies. Funds may be switched from one currency to another until the interest rate gap reflects the expected appreciation or depreciation of one currency against the other.

Currency note arbitrage: Activities that seek to profit from the deviation between the official exchange rate applicable to the issue and redemption of banknotes and the market exchange rate. For example, when the market exchange rate is stronger than the official exchange rate, banks can buy foreign currency in the foreign exchange market, surrender it to the Currency Board in exchange for domestic currency at the fixed exchange rate, and thereby make a profit from the differential between the two rates.

A regional macroeconomic surveillance organization, established under the Chiang Mai Initiative Multilateralisation (CMIM) Agreement, to support the implementation of CMIM, and monitor the macroeconomic and financial soundness of all CMIM parties.

Established in 1989, the goal of APEC is to advance Asia-Pacific economic dynamism and sense of community. Hong Kong is a member of APEC and HKMA representatives attend the APEC meetings for finance and central bank officials.

An inter-governmental organisation, consisting of over 40 member jurisdictions in the Asia Pacific region, focused on ensuring that its members effectively implement the international standards against money laundering, terrorist financing and proliferation financing related to weapons of mass destruction. The APG is one of the nine FATF-style regional bodies which are the associate members of the FATF. Hong Kong was one of the founding member of the APG in 1997.

A fund initiated by the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP) in 2002, with the aim of broadening and deepening regional and domestic bond markets in Asia. The ABF consists of two phases. In June 2003, EMEAP launched the first phase (ABF1), which invests in a basket of US dollar-denominated bonds issued by Asian sovereign and quasi-sovereign issuers in eight EMEAP economies (China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand). Building on the success of ABF1, EMEAP has worked to extend the ABF concept to bonds denominated in local currencies. It announced the launch of the second phase of ABF (ABF2) in December 2004.

ABF2 comprises the ABF Pan Asia Bond Index Fund (PAIF) and eight Single-Market Funds. The PAIF is a single bond fund investing in sovereign and quasi-sovereign local currency-denominated bonds issued in eight EMEAP markets. The eight Single-Market Funds will each invest in sovereign and quasi-sovereign local currency-denominated bonds issued in the respective EMEAP markets. The Single-Market Fund of Hong Kong, the ABF Hong Kong Bond Index Fund, is the first ever bond exchange-traded fund in Asia. Both the ABF Hong Kong Bond Index Fund and the PAIF are listed on the Stock Exchange of Hong Kong.

A multilateral development finance institution founded in 1966 by 31 member governments to promote the social and economic progress of the Asia-Pacific region. It now has 65 members - 47 from within the region and 18 from outside. Hong Kong has been a member of the ADB since 1969. The HKMA is responsible for matters relating to Hong Kong's participation in the ADB. HKMA officials attend the ADB's Annual Meetings and contribute to discussions on policy issues of common interest. Under the name "Hong Kong, China", the HKMA has continued to participate actively in the ADB's activities after 1 July 1997.

A description of the degree of financial strength and risk in a bank's assets, typically loans, investments, placements, and off-balance sheet items. Asset quality is normally measured by the level of a bank's classified assets, as well as overdue and rescheduled assets. The higher the level of classified assets and overdue and rescheduled assets, the lower the asset quality of a bank.

See also Loan Classification System.

A Sub-Committee established under the Exchange Fund Advisory Committee to review and report on the HKMA's financial reporting process and the adequacy and effectiveness of the internal control systems of the HKMA. The Sub-Committee reviews the HKMA's financial statements, and the composition and accounting principles adopted in such statements. It also examines and reviews with both the external and internal auditors the scope and results of their audits.

An institution authorized under the Banking Ordinance to carry on the business of taking deposits. Hong Kong maintains a Three-tier Banking System, which comprises banks, restricted licence banks and deposit-taking companies. Authorized institutions are supervised by the HKMA.

The main device under a Currency Board System for maintaining currency stability. Under Hong Kong's Currency Board System, when banks sell US dollars to the HKMA, the inflow of funds causes the Aggregate Balance, and hence the Monetary Base, to expand. This expansion takes place because, in settling the deals, the HKMA credits the clearing accounts of these banks with the Hong Kong dollars required for settlement. Conversely, when banks sell Hong Kong dollars to the HKMA, the HKMA debits the clearing accounts of these banks, causing the Aggregate Balance, and hence the Monetary Base, to shrink. The expansion or contraction of the Monetary Base causes domestic interest rates to fall or rise respectively, thus creating the market conditions necessary to counteract the initial capital flows and restore exchange rate stability.

See also Linked Exchange Rate system.

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 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. The website has now been replaced by the CMU OmniClear Limited website (www.CMUOmniClear.com).

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 authorized institutions through the HKMA's Private Website.

Electronic money products are defined as stored value or prepaid products in which a record of the funds or value available to the consumer is stored on an electronic device in the consumer's possession. This includes both prepaid cards (sometimes called electronic purses) and prepaid software products that use computer networks such as the Internet (sometimes called digital cash). These products differ from so-called access products that allow consumers to use electronic means of communication to access otherwise conventional payment services (for example, use of the Internet to make a credit card payment or for general "on-line banking").

A stored value facility that allows users to use a mobile device or a computer to make purchases or payments to another person using value stored in the user’s account. Some e-wallets also allow users to link other channels (e.g. credit /debit card, bank account etc.) as a funding source.

A set of common and transparent competency standards that enables more effective training for new entrants and professional development for existing practitioners, which is conducive to enhancing the level of core competence and on-going talent development of banking practitioners. The ECF covers six professional work streams: (i) Anti-money Laundering and Counter-Financing of Terrorism, (ii) Cybersecurity, (iii) Treasury Management, (iv) Retail Wealth Management, (v) Credit Risk Management and (vi) Risk Management and Compliance.

Environmental, Social and Governance (ESG) are factors that can impact sustainability of a company and they cover non-financial considerations, including environmental protection, climate change, pollution, social impact, governance, and anti-corruption.

See also responsible investment.

A clearing system introduced in Hong Kong in April 2003 to improve settlement efficiency and reduce settlement risk of euro transactions in Asian time. Like the Hong Kong Dollar, US Dollar and Renminbi Clearing Systems, the Euro Clearing System offers Real Time Gross Settlement for euro payments and payment versus payment settlement for EUR/USD, EUR/RMB and EUR/HKD foreign exchange transactions. The system is also linked to the Central Moneymarkets Unit to provide delivery versus payment settlement of euro-denominated debt securities and repurchase agreement facilities.

See also Hong Kong Dollar Clearing System, US Dollar Clearing System and Renminbi Clearing System.

A fund established in 1935 by the Currency Ordinance (later renamed the Exchange Fund Ordinance) as a reserve to back the issue of Hong Kong's banknotes. In 1976, the bulk of the foreign exchange assets of the Government's General Revenue Account and all of the assets of the Coinage Security Fund (i.e. funds received against the issue of coin) were transferred to the Exchange Fund and debt certificates were issued in exchange. Thus, the resources available to regulate the exchange value of the Hong Kong dollar were centralised in the Fund. The Exchange Fund is under the control of the Financial Secretary and is used primarily for 'affecting, either directly or indirectly the exchange value of the currency of Hong Kong'. In addition, it may be used to maintain the stability and integrity of the monetary and financial systems of Hong Kong with a view to maintaining Hong Kong as an international financial centre. The Exchange Fund may be held in Hong Kong currency, foreign exchange, gold or silver, or in such securities or assets as the Financial Secretary considers appropriate after having consulted the Exchange Fund Advisory Committee. The Monetary Authority is appointed by the Financial Secretary to manage the Exchange Fund, among other duties.

Under section 3(1) of the Exchange Fund Ordinance, the Financial Secretary exercises control over the Exchange Fund in consultation with an Exchange Fund Advisory Committee (EFAC). The Financial Secretary is ex-officio chairman of EFAC. The other members are appointed by the Chief Executive of the Hong Kong Special Administrative Region. EFAC advises the Financial Secretary on general policy on the investment of the Exchange Fund.

EFAC is assisted in its work by five sub-committees, which monitor specific areas of the HKMA's work and report and make recommendations to the Financial Secretary through EFAC. The Governance Sub-Committee monitors the performance of the HKMA and makes recommendations on remuneration and human resources policies, and on budgetary, administrative and governance issues. The other four Sub-Committees are the Audit Sub-Committee, Currency Board Sub-Committee, Investment Sub-Committee and Financial Infrastructure and Market Development Sub-Committee.

Exchange Fund Bills and Notes (EFBNs) are Hong Kong dollar debt securities issued by the HKMA. They constitute direct, unsecured, unconditional and general obligations of the Hong Kong Special Administrative Region Government for the account of the Exchange Fund and have the same status as all other unsecured debt of the Government.

The EFBN Issuance Programme ensures the supply of a significant amount of high-quality Hong Kong dollar debt papers, which can be employed as trading, investment and liquidity management instruments. Banks that maintain Hong Kong dollar clearing accounts with the HKMA may arrange repurchase agreements using their holdings of Exchange Fund papers (and other eligible securities) as collateral to obtain overnight liquidity from the HKMA through the Discount Window.

The HKMA publishes indicative pricings for Exchange Fund Bills and Notes (EFBNs) two times a day. The indicative pricings are calculated by Reuters based on indicative bid and ask quotes provided by the Eligible Market Markers designated by the HKMA .

EFIL is a private limited company established in October 1998 under the Companies Ordinance by the Government of the Hong Kong Special Administrative Region to i) manage the Hong Kong equity portfolio of the Exchange Fund (consisting of the Hang Seng Index constituent stocks acquired in theHKMA's August 1998 market operation and the portfolio transferred from the Land Fund to the Exchange Fund in November 1998), and ii) to dispose of the Exchange Fund's Hong Kong equity portfolio (other than a long-term Investment Portfolio) with minimum disruption to the market. A total of HK$140.4 billion worth of Hong Kong stocks was disposed of through the initial public offering of the Tracker Fund of Hong Kong (TraHK) and the subsequent quarterly Tap Facility of TraHK. The disposal programme was completed on 15 October 2002. The HKMA took over responsibility for the management of the Exchange Fund's Hong Kong equity portfolio from EFIL in January 2003.

A statute originally enacted as the Currency Ordinance of 1935. The Exchange Fund Ordinance makes provision for the establishment and management of the Exchange Fund and the employment of its assets. The Ordinance requires that the Exchange Fund "shall be used primarily for such purposes as the Financial Secretary thinks fit affecting, either directly or indirectly the exchange value of the currency of Hong Kong and for other purposes incidental thereto." The Financial Secretary may, having regard to that primary purpose and with a view to maintaining Hong Kong as an international financial centre, use the Exchange Fund for maintaining the stability and integrity of the monetary and financial systems of Hong Kong. It also empowers the Financial Secretary to appoint the Monetary Authority to manage the Exchange Fund, among other duties.

A listed bond or equity fund that seeks to achieve a total return corresponding to that of its benchmark index by investing in all or a representative sample of the constituent securities of the benchmark index (benchmark securities).

One of the unique features of an ETF is the provision of an in-kind creation and redemption mechanism, which helps ensure that the trading price of fund units will be close to the net asset value per unit. Under this mechanism, units of the ETF can be created by surrendering a specified basket of benchmark securities to the fund. In the case of redemption, the fund will provide a basket of benchmark securities in exchange for the units being redeemed. In most cases, there is a minimum size for in-kind transactions.

See also Tracker Fund of Hong Kong.

In relation to an authorized institution incorporated in Hong Kong, directors who have definable management responsibilities in addition to their functions as directors.

See also independent directors and non-executive directors.

An individual appointed by a registered institution to directly supervise the conduct of one or more regulated activities of that registered institution. Such officer must have received prior written consent from the Monetary Authority. “Executive officer” has the meaning set out in §2 of the Banking Ordinance.

A forum of central banks and monetary authorities in the East Asia and Pacific region established in 1991. Executives' Meeting of East Asia-Pacific Central Banks (EMEAP)'s primary objective is to strengthen co-operation among its members. The eleven members include the Reserve Bank of Australia, People's Bank of China, the HKMA, Bank Indonesia, Bank of Japan, Bank of Korea, Bank Negara Malaysia, Reserve Bank of New Zealand, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore and Bank of Thailand. Three working groups have been established, on payments and market infrastructures, financial market development, and banking supervision. The HKMA participates in all three working groups as members.

A system launched by the HKMA in September 2018 to address the increasing market needs for more efficient retail payment services. Both banks and stored value facilities (SVF) in Hong Kong may participate in the FPS. It enables their customers to make cross-bank/SVF payments easily, by entering the mobile phone number or the email address of the recipient, with funds available to the recipient almost immediately. The FPS operates on 24x7 basis and supports payments in the Hong Kong dollar and the renminbi.

Since 1 April 2007, the Financial Secretary introduced a new fee arrangement on the fiscal reserves placed with the Exchange Fund. The fee is based on a fixed rate for the year determined every January and is also applicable to most of the other placements with the Exchange Fund. The rate is the average annual investment return of the Investment Portfolio for the past six years, or the average annual yield of three-year Government Bond for the previous year subject to a minimum of 0%, whichever is higher.

See also placements with the Exchange Fund .

An inter-governmental body established in 1989. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering,terrorist financing and financing of proliferation of weapons of mass destruction, and other related threats to the integrity of the international financial system.

The FATF has developed a series of recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. In order to ensure full and effective implementation of its standards at the global level, the FATF monitors compliance by conducting evaluations on jurisdictions and undertakes stringent follow-up after the evaluations, including identifying high-risk and other monitored jurisdictions which could be subject to enhanced scrutiny by the FATF or counter-measures by the FATF members and the international community at large.

Hong Kong has been a member of the FATF since 1991 and is obliged to implement the latest FATF recommendations.

A non-profit making organisation established to administer an independent, impartial, transparent, efficient and affordable financial dispute resolution scheme providing mediation and arbitration services as an alternative to litigation, in order to facilitate the resolution of monetary disputes between financial institutions and their customers in Hong Kong.

Financial inclusion means that the general public and small- and micro- enterprises are able to open and maintain bank accounts and have access to basic banking services to meet the basic needs of their daily lives or the needs of fund transfers for their business operations.

A Sub-Committee established under the Exchange Fund Advisory Committee to make recommendations on measures to further develop Hong Kong’s status as an international financial centre and strengthen the international competitiveness of Hong Kong’s financial services, including promoting the development, operational excellence, safety and efficiency of the financial infrastructure in Hong Kong; and promoting the development of Hong Kong as an offshore renminbi centre and fostering the development of other enabling factors. It also makes recommendations on initiatives for the HKMA and monitors the work of the HKMA. The Sub-Committee is formerly called the Financial Infrastructure Sub-Committee.

An Ordinance establishing a cross-sectoral resolution regime for financial institutions in Hong Kong with a view to avoiding or mitigating the risks otherwise posed by their non-viability to the stability and effective working of the financial system in Hong Kong, including to the continued performance of critical financial functions. The FIRO confers statutory powers on the Monetary Authority, the Securities and Futures Commission and the Insurance Authority as resolution authorities for those financial institutions within the scope of the FIRO that operate under their respective existing regulatory purviews.

A system that facilitates the clearing, settling, or recording of payments, securities, derivatives or other financial transactions. The five major types of FMIs are systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories.

Financial sanctions refer to measures imposed by international organisations and governments prohibiting the provision of financial services towards, or in support of, certain persons, organizations, activities or regimes.

Financial sanctions may be imposed multilaterally or unilaterally and cover a broad spectrum ranging from comprehensive sanctions against entire regimes to narrowly defined prohibitions on activities involving targeted individuals and entities.

A comprehensive and in-depth analysis of the financial sector of a country or jurisdiction. FSAP assessments are the joint responsibility of the International Monetary Fund (IMF) and World Bank in developing economies and emerging markets and of the IMF alone in advanced economies. An FSAP includes two major components: a financial stability assessment, which is the responsibility of the IMF, and a financial development assessment, the responsibility of the World Bank. The FSAP analyses the resilience of the financial sector, the quality of the regulatory and supervisory framework, and the capacity to manage and resolve financial crises. Based on its findings, the FSAP produces recommendations of a micro- and macro-prudential nature, tailored to the specific circumstances of the country or jurisdiction assessed.

Hong Kong is a member of the FSB, formerly the Financial Stability Forum (FSF). The FSF, which was established by the G7, first convened in April 1999 with a view to reducing vulnerability and safeguard the smooth functioning of financial markets through enhanced information exchange and co-operation in financial supervision and surveillance. Hong Kong's inclusion in the FSF, together with four other non-G7 economies (Australia, the Netherlands, Singapore and Switzerland) is a recognition of its status as a systemically important financial centre. The HKMA regularly attends meetings of the FSF to exchange views on potential vulnerabilities in the international financial system.

In April 2009, the FSF was re-established as the FSB with an expanded membership and broadened mandate. The structure of the FSB consists of a Chairperson, a Steering Committee, a Plenary, and a Secretariat. Under this structure, three Standing Committees on: (a) Assessment of Vulnerabilities;, (b) Supervisory and Regulatory Cooperation; and (c) Standards Implementation; were established to carry out the work of the FSB. Hong Kong is a member of the Plenary meeting and participates in all three Standing Committees.
 

Proliferation financing refers to the provision of funds or financial services related to weapons of mass destruction (WMD) in contravention of national and/or international laws. The term covers a broad range of activities, such as those in support of the development of WMDs or activities relating to the procurement of materials (e.g. dual-use goods) intended to be used in the manufacturing of such weapons.

A supervisory arrangement that allows banks and their partnering technology firms to conduct pilot trials of their fintech initiatives without the need to achieve full compliance with the HKMA's supervisory requirements.

The account held by the Government of the Hong Kong Special Administrative Region for accumulating its fiscal surpluses. In 1976 the bulk of the foreign exchange assets of the Government's General Revenue Account were transferred to the Exchange Fund. From then onwards, the Government has placed the surpluses of the General Revenue Account with the Exchange Fund.

The HKMA must be satisfied that any person who is, or is to be, a chief executive, director or controller or an executive officer (defined as an individual who is responsible for supervising regulated securities and futures activities) of an authorized institution should be a 'fit and proper' person to hold that position. In applying the fit and proper test, the HKMA generally takes into account the following factors: the person's reputation and character, the person's knowledge and experience, and past record, if any, of non-compliance or criminal activity.

The HKMA must also be satisfied that an authorized institution has adequate systems of control to ensure that each person who is a "manager" of the institution is a fit and proper person. A "manager" is an individual who is principally responsible for the conduct of any major affairs or business of the institution.

Stored value remaining on the stored value facility (SVF), but does not include SVF deposit. For legal definition of the term, please refer to section 2 of the Payment Systems and Stored Value facility Ordinance.

Records of transactions in financial assets and liabilities among various sectors of an economy or among these sectors and non-residents during a period of time. They are useful for analysing the interrelationship between the supply of credit and economic activity, and the effects of changes in interest rates on borrowing and holdings of financial assets.

The stock of assets denominated in foreign currency or currencies held by a government as investments, and used, where necessary, in financial transactions to support the exchange rate of the domestic currency. Foreign currency reserves are also used for making payments in foreign currencies without the need to sell the domestic currency in the market.

Deposits which involve customers buying foreign currencies in the spot market and placing them as deposits with authorized institutions, while at the same time entering into a contract to sell these foreign currencies (principal plus interest) forward in line with the maturity of such deposits. For most analytical purposes, these deposits should be regarded as Hong Kong dollar time deposits. money supply figures for the Hong Kong dollar are adjusted to include foreign currency swap deposits, while those for foreign currency are adjusted to exclude these deposits.

The risks of loss associated with the settlement of foreign exchange transactions, which include principal risk, replacement cost risk, liquidity risk, operational risk and legal risk. Of these risks, the most important risk type is principal risk, in which one party pays the currency it sold but does not receive the currency it bought (also called the “Herstatt risk”).

The Future Fund was established on 1 January 2016. Placements by the Future Fund comprise an initial endowment from the balance of the Land Fund and periodic top-ups from the General Revenue Account as directed by the Financial Secretary. These placements are divided into two portions: one linked with the performance of the Investment Portfolio and another linked with the performance of the Long-Term Growth Portfolio.

See also Land Fund.

An authorized institution (AI) would be considered a G-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 global financial system were the AI to become non-viable.

See also Systemically Important Authorized Institution (SIB).

A Sub-Committee established under the Exchange Fund Advisory Committee to monitor the performance of the HKMA and make recommendations on remuneration and human resources policies, and on budgetary, administrative and governance issues.

The HKMA issues coins and $10 currency notes on behalf of the Government. An agent bank is responsible for the storage and distribution of coins and currency notes to the public. The transactions between the HKMA and the agent bank are settled in US dollars at the rate of HK$7.80 to one US dollar. Coins and currency notes in circulation are therefore fully backed by foreign currency reserves held in the Exchange Fund. Changes in the circulation are automatically matched by corresponding changes in the foreign currency reserves.

See also banknote.

A debt instrument where the funds raised are channelled to fund projects or investments that contribute to environmental sustainability.

A publication by the HKMA providing guidance to institutions seeking authorization under the Banking Ordinance about the scheme of supervision contained in the Ordinance and the policies and approach of the Monetary Authority in implementing it.

This capital buffer is applicable to an authorized institution (AI) designated by the Monetary Authority as Global Systemically Important Authorized Institution (G-SIB) or Domestic Systemically Important Authorized Institution (D-SIB). The HLA requirements must be met with Common Equity Tier 1 capital.

See also capital buffers.

The monitoring of authorized institutions by the banking supervisory authority in the place where the authorized institution is incorporated. The HKMA is the home supervisor to authorized institutions incorporated in Hong Kong and exercises consolidated supervision over these authorized institutions, their subsidiaries and their local and overseas branches.

See also host supervisor.

A statutory body established in 1981 under the Hong Kong Association of Banks Ordinance (HKAB Ordinance) to replace the Hong Kong Exchange Banks Association. All banks are required to become members of HKAB and to observe the rules made by the Association under the HKAB Ordinance. The main objects of HKAB, among others, are to further the interests of banks, to make rules for the conduct of the business of banking, to act as an advisory body to its members in matters concerning the business of banking, and to provide facilities for the clearing of cheques and other instruments.

See also DTC Association and Hong Kong Interbank Clearing Limited.

Hong Kong Association of Banks (HKAB) Hong Kong dollar Interest Settlement Rates are commonly known as the Hong Kong Interbank Offered Rate or HKD HIBOR. The benchmark fixing for the HKAB HKD interest settlement rates is the estimated offer rate at which deposits in HKD for the Contract Period are being quoted to prime banks in the Hong Kong interbank market at 11:00 a.m. on the relevant business day. This is calculated by averaging the middle quotes after excluding the highest three quotes and lowest three quotes received from the 12-20 contributing banks, which are appointed by HKAB. While HKAB is the benchmark owner of the HKD interest settlement rates, the Treasury Markets Association is the benchmark administrator.

A statutory body created under the Deposit Protection Scheme Ordinance to establish and maintain the Deposit Protection Scheme in Hong Kong. The Board’s functions include the following: (i) maintaining the Deposit Protection Scheme; (ii) collecting contributions payable by Scheme members; (iii) managing the Deposit Protection Scheme Fund; (iv) making payments to depositors in the event of a failure of a Scheme member; and (v) recovering payments made to depositors from the assets of the failed Scheme member.

To enable safe and efficient settlement of interbank payments denominated in the Hong Kong dollar, the HKMA has introduced the Hong Kong Dollar Clearing System since 1996. Interbank payments are settled on a Real Time Gross Settlement basis. In addition, the system offers a range of advanced and sophisticated clearing and settlement functions. The key functions include a delivery versus payment (DvP) facility for Hong Kong dollar-denominated shares, payment versus payment for RMB/HKD, USD/HKD and EUR/HKD foreign exchange transactions, and processing of Hong Kong dollar cheques. The system is also linked to the Central Moneymarkets Unit to cater for the DvP of Hong Kong dollar-denominated debt securities and repurchase agreement facilities.

See also US Dollar Clearing System, Euro Clearing System and Renminbi Clearing System.

Hong Kong Financial Reporting Standards (HKFRS) include the following pronouncements issued by the Hong Kong Institute of Certified Public Accountants:

• Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards
• Interpretations.

• International Financial Reporting Standards and International Accounting Standards
• Interpretations.

An institute established in August 1999 by the HKMA with the objective of conducting research in the fields of monetary policy, banking and finance that is of strategic importance to Hong Kong and the Asian region. With the establishment of the Hong Kong Academy of Finance (AoF) in June 2019, the HKIMR becomes a subsidiary of the AoF and expands its monetary and financial economic research to cover also Applied Finance Research and Thought Leadership. The Institute hosts distinguished visiting scholars and researchers to undertake research on monetary and financial issues and carry out projects that are highly relevant to questions of interest to the financial industry and regulators in Hong Kong and that provide the financial industry in Hong Kong with ideas regarding its strategic development in the long run.

A private company jointly owned by the HKMA and the Hong Kong Association of Banks. HKICL was established in May 1995 to take over in phases the clearing functions provided by the former Management Bank of the Clearing House, The Hongkong and Shanghai Banking Corporation Limited. This process was completed in April 1997. HKICL provides interbank clearing and settlement services to all banks in Hong Kong and operates the computer system of the Central Moneymarkets Unit.

The rate of interest offered on Hong Kong dollar loans by banks in the interbank market for a specified period ranging from overnight to one year.

The government authority in Hong Kong with responsibility for maintaining currency and banking stability. The HKMA was established on 1 April 1993 by merging the Office of the Exchange Fund with the Office of the Commissioner of Banking. Its specific functions and objectives are:

• to maintain currency stability, within the framework of the Linked Exchange Rate system, through sound management of the Exchange Fund, monetary policy operations and other means deemed necessary;
• to promote the safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of authorized institutions; and
• to enhance the efficiency, integrity and development of the financial system, particularly payment and settlement arrangements.

A public limited company incorporated under the Companies Ordinance and wholly owned by the Government through the Exchange Fund. The HKMC was incorporated in March 1997 with a view to developing Hong Kong's secondary mortgage market. Its business is being developed in two phases. The first phase involves the purchase of mortgage loans for its own portfolio, which it funds largely through the issuance of unsecured debt securities. In the second phase, the HKMC securitises mortgages into mortgage-backed securities and offer them for sale to investors. In March 1999, the HKMC also launched the Mortgage Insurance Programme to provide insurance protection to banks against the risk of payment default by borrowers.

HKNPL prints all of the banknotes for Hong Kong's three note-issuing banks. HKNPL's note printing plant at Tai Po was purchased by the Hong Kong Special Administrative Region Government from De La Rue in April 1996 through the Exchange Fund. HKNPL is majority owned by the Government, with minority shareholdings by the three note-issuing banks and China Banknote Printing and Minting Corporation.

HKTR is an electronic system operated by the Monetary Authority for submitting and receiving reports on over-the-counter derivative transactions for the purposes of the reporting obligation under section 101B of the Securities and Futures Ordinance.

A banking supervisory authority in the place where a branch of a foreign incorporated authorized institution is located. In Hong Kong, the HKMA is the host supervisor to branches of foreign banks. The HKMA's approach to the supervision of branches of foreign banks is broadly in line with that applied to locally incorporated institutions except that capital-based supervisory requirements are not applied to such branches.

See also home supervision.

In relation to an authorized institution (AI) incorporated in Hong Kong, non-executive directors who are independent of the AI's management and free from any business or other relationship that could materially affect their independent judgment. Some non-executive directors may represent the interests of the AI's shareholders or have some form of connection with the AI, which means that they cannot be considered as independent. Independent directors are appointed to the board of directors to provide effective checks and balances on the powers of executive directors and the management and to give objective advice on activities of the AI and decisions taken by the board of directors.

The first-time sale of equity shares of a company through public subscription. An active response to an IPO will usually lead to a brief increase in demand for short-term liquidity.

One of the components of the Cyber Resilience Assessment Framework (C-RAF). It is to be applied on top of the traditional penetration testing. Simulation test scenarios will be designed to replicate current real-life cyber attacks based on specific and up-to-date threat intelligence.

The availability of funding for borrowing (to meet short-term payment obligations) or lending (to temporarily dispose of surplus funds productively) in the interbank market.

The market in which banks borrow or lend money among themselves to accommodate short-term shortages or to dispose productively of surplus funds in their clearing accounts.

The risk to an authorized institution’s financial condition resulting from adverse movements in interest rates that affect the authorized institution’s banking book positions.

See Rules on Interest Rates and Deposit Charges.

A widely used metric for measuring the performance of long-term investments, taking into account the time value factor of the total stream of cash flows (including contributions and incomes) during the whole investment period.

One of the approaches for the calculation of minimum capital requirements for credit risk. Under this approach, authorized institutions will be able to use certain outputs of their own internal rating systems to calculate the regulatory capital which they must hold, provided that they can satisfy their supervisors that their systems meet a set of minimum requirements and have obtained supervisory approval for the use of the IRB approach.

See also basic approach and standardized (credit risk) approach.

Established in 1946, the IMF is an international organisation of 184 members to promote international monetary co-operation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries under adequate safeguards to help ease balance of payments adjustment. Although not a member, Hong Kong has participated in the activities or discussions of the IMF as part of the UK Delegation prior to 1 July 1997 and as part of the People's Republic of China Delegation thereafter. The HKMA co-ordinates matters relating to the participation of Hong Kong in the IMF. These include attending its Annual Meetings, handling the IMF Article IV Consultation on Hong Kong, and subscribing to the IMF Special Data Dissemination Standard requirements in the dissemination of official data. In September 2000, the Sub-Office of the IMF's Resident Representative Office in Beijing commenced its operation in Hong Kong. The Sub-Office is responsible for gathering information on financial and monetary developments in Asia and analyzing their impacts on Hong Kong.

Under Article IV of the Articles of Agreement of the International Monetary Fund (IMF), the IMF holds bilateral discussions with member economies, usually every year. A staff team visits the economy, collects economic and financial information, and discusses with officials about the economy's economic developments and policies. On return to headquarters, the staff team prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarises the view of Directors, and this summary is transmitted to the economy's authorities. The HKMA co-ordinates the Consultation on Hong Kong, that takes place in the fourth quarter each year. Hong Kong also participates in the IMF pilot project for the voluntary release of the Article IV Staff Report, the first of which was published in March 2000.

The SDDS was established in 1996 to guide member economies of the International Monetary Fund in the dissemination of economic and financial data to the public. This increases the transparency of economies seeking access to international capital markets. Hong Kong subscribed to the SDDS in early 1997. Hong Kong has complied with the enhanced SDDS and published the first set of data on foreign currency reserves and foreign currency liquidity in the end of May 2000. At present, the HKMA releases every month Hong Kong's latest foreign currency reserve assets figures, analytical accounts of the Exchange Fund, and the Currency Board Account, in addition to the SDDS Template on International Reserves and Foreign Currency Liquidity. The dissemination of these data is made in accordance with the HKMA's policy of maintaining a high level of transparency.

A form of electronic banking where banking services can be accessible by customers through the Internet.

A yardstick for directing the long-term investment strategy and evaluating the investment return on a portfolio. Based on the objectives of the portfolio, the investment benchmark is a basket of investment assets appropriate for the risk tolerance for the portfolio. To evaluate the performance of the investment manager, the actual return of the portfolio is compared to the return on the investment benchmark.

See also reserves management.

The Investment Portfolio (IP) of The Exchange Fund is invested primarily in the bond and equity markets of developed nations to preserve the long-term purchasing power of the assets.

See also Backing Assets/Backing Portfolio, Long-Term Growth Portfolio, Strategic Portfolio and foreign currency reserves.

A Sub-Committee established under the Exchange Fund Advisory Committee to monitor the HKMA’s investment management activities and make recommendations on the investment policy and strategy of the Exchange Fund and on risk management and other related matters.

An unit set up in 1989 and jointly run by the Hong Kong Police Force and the Hong Kong Customs & Excise Department. The JFIU manages the suspicious transaction reporting regime for Hong Kong and its role is to receive, analyse suspicious transaction reports and to disseminate them to the appropriate law enforcement agencies in or outside Hong Kong, or financial intelligence units worldwide.

See also Financial Action Task Force on Money Laundering.

The core elements that the Financial Stability Board (FSB) considers to be necessary for an effective resolution regime. Their implementation should allow authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss from solvency support, while maintaining the continuity of the institutions’ vital economic functions. The Key Attributes were first published by the FSB in October 2011, endorsed by G20 in November 2011 as a new international standard for resolution regimes in response to the “Too-Big-To-Fail” problem, and updated by the FSB in October 2014

The Hong Kong Special Administrative Region (HKSAR) Government Land Fund Trust was established on 13 August 1986. The Trust was set up to facilitate the management of the HKSAR's share of revenue obtained from land sales during the period commencing from the entry into force of the Joint Declaration (27 May 1985) until China's resumption of exercise of sovereignty on 1 July 1997. On the establishment of the HKSAR on 1 July 1997, the assets of the Trust were vested in the HKSAR Government. The Chief Executive of the HKSAR appointed the Financial Secretary as the public officer to receive, hold and manage the Fund as part of the HKSAR Government reserves. Subsequently, the Land Fund was established by a resolution made and passed by the Provisional Legislative Council under section 29 of the Public Finance Ordinance. Between 1 July 1997 and 31 October 1998, under the direction of the Financial Secretary, the fund was managed by the HKMA as a portfolio separate from the Exchange Fund. On 1 November 1998, the assets of the Land Fund were merged into the Exchange Fund and have since then been managed as part of the Investment Portfolio of the Exchange Fund. With effect from 1 January 2016, the assets of the Fund have been held as a notional savings account within the fiscal reserves called the Future Fund which is placed with the Exchange Fund for securing higher investment returns over a ten-year investment period.

See also Future Fund.

The resolution authority designated by the Financial Secretary, pursuant to section 7 of the Financial Institutions (Resolution) Ordinance, as the LRA of a cross-sectoral group to lead the coordination and implementation of resolution-related matters in relation to the cross-sectoral group. Only the LRA may initiate resolution of a within scope financial institution within the cross-sectoral group.

A statute to regulate the issue of banknotes and currency notes. Under the Ordinance, the banknotes issued by Bank of China (Hong Kong) Limited, Standard Chartered Bank (Hong Kong) Limited and The Hongkong and Shanghai Banking Corporation Limited and the HK$10 currency notes issued by the Financial Secretary pursuant thereto since 2002 are legal tender notes within Hong Kong.

See also Coinage Ordinance.

An institution, normally a central bank that stands ready to accommodate demands for funds in times of crisis or liquidity shortage. The institution normally discharges this function either through open-market purchases of assets of acceptable quality from the banking sector or by making loans through the Discount Window to solvent but temporarily illiquid banks, usually at above-market rates and against good collateral.

A capital standard designed to complement the risk-based capital adequacy ratio, the LR is designed to restrict the build-up of excessive leverage in the banking sector. Numerically, the LR is expressed as an authorized institution’s Tier 1 capital to its exposure measure as defined under the Banking (Capital) Rules.

One of the three types of authorized institutions in Hong Kong licensed under the Banking Ordinance. Licensed banks are the only institutions permitted to carry on banking business in Hong Kong. This term is often used interchangeably with bank.

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

A form of Currency Board System adopted in Hong Kong on 17 October 1983 with a view to maintaining a stable external value of the currency of Hong Kong, in terms of its exchange rate in the foreign exchange market against the US dollar, at around HK$7.80 to US$1.

An earlier Hong Kong version of a Discount Window, established in 1992. Under the facility, banks could borrow overnight funds from the HKMA through repurchase agreements of eligible securities at the offer rate set by the HKMA. They could also place surplus funds overnight with the HKMA at the bid rate. The LAF was replaced by the Discount Window in September 1998.

A facility that allows banks to obtain intraday liquidity from the HKMA through repurchase agreements involving Discount Window eligible securities for bulk clearing purpose.

Under the Basel liquidity standards, the LCR is a ratio, expressed as a percentage, of the amount of a category 1 institution’s “high quality liquid assets” to the amount of the institution’s “total net cash outflows” over 30 calendar days.

A ratio, expressed as a percentage, of the amount of a category 2 institution’s “liquefiable assets” to the amount of the institution’s “qualifying liabilities (after deductions)” over a calendar month.

Before 1 January 2015, all authorized institutions in Hong Kong were required to meet a minimum monthly average liquidity ratio of 25%. Since 2015, this requirement has been superseded by the requirements relating to the Liquidity Coverage Ratio and the Liquidity Maintenance Ratio.

A system introduced by the HKMA in December 1994 requiring authorized institutions to report on a quarterly basis loans (including investment debt securities) and provisions made against them under the following five categories:

Pass: Loans for which borrowers are current in meeting commitments and for which the full repayment of interest and principal is not in doubt.

Special Mention: Loans with which borrowers are experiencing difficulties and which may threaten the authorized institution's position.

Substandard: Loans in which borrowers are displaying a definable weakness that is likely to jeopardise repayment.

Doubtful: Loans for which collection in full is improbable and the authorized institution expects to sustain a loss of principal and/or interest, taking into account the net realisable value of collateral.

Loss: Loans that are considered uncollectable after all collection options (such as the realisation of collateral or the institution of legal proceedings) have been exhausted.

Loans that are classified as substandard, doubtful or loss are collectively known as classified loans.

The ratio of the amount of loan to the amount of deposit. This is a measure of liquidity in the banking sector.

The ratio of money borrowed to fair market value of collateral, usually in reference to real property.

A bank incorporated outside Hong Kong may apply to the HKMA for approval for the establishment of a local representative office. A local representative office is required to confine its business to representational and liaison activities and must not engage in banking business. Since April 2002, the HKMA's general policy that an overseas bank should maintain a local representative office for a minimum of one to two years before it can be considered for authorization has been removed.

The Long-Term Growth Portfolio (LTGP) was established in 2009 to diversify risks of the Exchange Fund's investments and improve the overall return of the Exchange Fund in the long run. It comprises asset classes including private equity (including infrastructure) and real estate. It focuses on generating good risk-adjusted return for the long term.

See also Backing Assets/Backing Portfolio, Investment Portfolio, Strategic Portfolio and foreign currency reserves .

Financial resource of an entity (including in the form of securities issued by, or loans made to, the entity) that is capable, in the event of the entity ceasing or becoming likely to cease to be viable, of being used to absorb losses of, and to recapitalise, the entity.

See Loan Classification System.

Financial institutions appointed by the HKMA to promote the liquidity of the Exchange Fund Bills and Notes in the secondary market (professional market). Market makers undertake to quote two-way prices on request during normal trading hours of Exchange Fund paper (between 9:00 a.m. to 12:00 noon and 2:00 p.m. to 4:00 p.m. Monday to Friday). The rights and obligations of market makers are stated in the Information Memoranda of Exchange Fund Bills Programme and Exchange Fund Notes Programme.

See also Recognised Dealers for Exchange Fund Bills and Notes.

In relation to the calculation of capital adequacy ratios, market risk is defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices and rates. These risks include the risks pertaining to interest rate related instruments and equities in the trading book, and foreign exchange risk and commodities risk throughout the authorized institutions.

The minimum criteria that new entrants must satisfy in order to be, and continue to be, authorized under the Banking Ordinance. These criteria are listed under the Seventh Schedule to the Banking Ordinance. The criteria cover a broad range of considerations and focus on the general quality and ability of the applicant to conduct banking business or deposit-taking business in Hong Kong. In addition to the general requirement that the applicant's business should be conducted with integrity, prudence and competence, the criteria include such considerations as adequacy of home supervision; the 'fit and proper' test for directors, controllers and chief executives; and adequate accounting systems, financial resources, liquidity, control of large exposures, and provisions against loans.

The person appointed by the Financial Secretary under section 5A of the Exchange Fund Ordinance to assist the Financial Secretary in the performance of his functions under that Ordinance and to perform other functions as assigned. The Monetary Authority is also responsible under the Banking Ordinance for the promotion of the general stability and effective working of the banking system.

See also Hong Kong Monetary Authority.

A part of the monetary liabilities of a central bank. The Monetary Base is defined, at the minimum, as the sum of the currency in circulation (banknotes and coins) and the balance of the banking system held with the central bank (the reserve balance or the clearing balance). In Hong Kong, the Monetary Base comprises Certificates of Indebtedness (for backing the banknotes issued by the note-issuing banks), government-issued currency in circulation, the sum of the balances of the clearing accounts kept with the HKMA (the Aggregate Balance), and Exchange Fund Bills and Notes.

Under a Currency Board System, the Monetary Rule requires changes in Monetary Base (liabilities of the Currency Board) to be matched by corresponding changes in foreign currency reserves in a specified foreign currency (assets of the Currency Board) at a fixed exchange rate.

A statute enacted in 1980 that provides for the collection of statistical information from banks and deposit-taking companies by the Monetary Authority. Every authorized institution is required to submit to the Monetary Authority a return setting out the required statistical information for the purpose of monitoring developments in the monetary sector.

A person who provides dealing services to counterparties, one of which is an authorized institution, in foreign exchange and money market transactions. In Hong Kong, money brokers are required to be approved by the Monetary Authority under the Banking Ordinance.

The process of changing the identity of the source of illegally obtained money (i.e. crime proceeds) so that it appears to have originated from a legitimate source.

Money laundering is a criminal offence under the Laws of Hong Kong. According to the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), Cap.405 and the Organized and Serious Crimes Ordinance (OSCO), Cap.455, a person commits the offence of money laundering if he deals with any property, including money, which he knows or has reasonable grounds to believe to be proceeds of crime.

The total stock of money available in the economy. Hong Kong has three measures of money supply:

Money Supply definition 1 (M1): The sum of legal tender notes and coins held by the public plus customers' demand deposits placed with banks.

Money Supply definition 2 (M2): M1 plus customers' savings and time deposits with banks plus negotiable certificates of deposit (NCDs) issued by banks held outside the banking sector.

Money Supply definition 3 (M3): M2 plus customers' deposits with restricted licence banks and deposit-taking companies plus NCDs issued by these institutions held outside the banking sector.

Among these three series, HK$M1 exhibits a significant seasonal pattern, whereas there is no strong evidence of seasonality in broad money (HK$M2 and HK$M3). Seasonally adjusted series of HK$M1 and its components (i.e. cash held by the public and demand deposits) are compiled and published by the HKMA.

An arrangement that protects lending banks against the risk of mortgage payment default by the borrower. Mortgage insurance in Hong Kong enables the banks to lend more than 70% of the value of the property without incurring additional credit risk, since the portion in excess of 70% loan-to-value ratio ("LTV ratio") is covered by mortgage insurance. In March 1999, The Hong Kong Mortgage Corporation Limited launched a Mortgage Insurance Programme to provide mortgage insurance to banks in Hong Kong up to a LTV ratio of 85%. The Programme was expanded in August 2000 to include loans with 90% LTV ratio, and in July 2004 to include loans with 95% LTV ratio.

Bonds backed by a pool of mortgage loans where the coupon payment and principal repayment rely on the cash flow, in the forms of scheduled instalment payment and unscheduled early principal repayment, of the underlying mortgage loans. The security may be provided with credit enhancement in the form of guarantee, over-collateralisation, senior-subordinate structure, letter of credit or other means to meet investor demand.

A supervisory tool to complement the HKMA’s other supervisory work to test check the business practices of authorized institutions in different aspects.

A term applied to residential mortgage loans where the outstanding loan amount with an authorized institution is higher than the current market value of the mortgaged property. This definition does not take into account other loans which a borrower may have obtained from co-financiers such as property developers, the government or money lenders to finance the purchase.

An unconditional written order to repay a debt, easily transferable from one person to another. Examples of these instruments are negotiable certificates of deposits, securities, bankers' acceptance, bills of exchange, promissory notes and bonds.

The current market value of a security less any realisation costs.

Under the Basel liquidity standards, the NSFR is a ratio, expressed as a percentage, of the amount of a category 1 institution's “available stable funding” to the amount of the institution’s “required stable funding”.

In 2000 the Financial Action Task Force on Money Laundering (FATF) engaged in a process of identifying countries and territories having inadequate rules and practices that impede international co-operation in the fight against money laundering. These countries or territories are designated as NCCTs. The FATF promulgates in its revised 40 Recommendations that financial institutions should give special attention to business relationships and transactions with persons, including companies and financial institutions from countries or jurisdictions which do not or insufficiently apply its recommendations. Between June 2000 and September 2001 the FATF identified a total of 23 NCCTs, of which 20 had been removed from the NCCT list by June 2005 after making significant progress in anti-money laundering measures.

In relation to an authorized institution (AI) incorporated in Hong Kong, directors other than executive directors, that is, directors who are not employees of the AI and do not hold any other office in the AI in conjunction with their office as director. They are appointed to the board of directors to provide effective checks and balances on the powers of executive directors and management and to give objective advice on activities of the AI and decisions taken by the board of directors.

See also independent directors.

Banks that issue banknotes that are legal tender. The current note-issuing banks in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited, Standard Chartered Bank (Hong Kong) Limited, and Bank of China (Hong Kong) Limited. In order to issue banknotes in Hong Kong, the note-issuing banks have to place with the Exchange Fund an equivalent amount of US dollars at the rate of US$1 = HK$7.80 in exchange for Certificates of Indebtedness.

See also Legal Tender Notes Issue Ordinance.

Off-site assessments made by the HKMA of the financial condition and quality of management of an authorized institution. Off-site reviews help to detect emerging problems that can be followed up with on-site examinations and prudential meetings. The scope of an off-site review varies from the regular analysis of banking returns to an extensive annual review of the performance and financial position of a particular authorized institution.

An essential part of the banking supervisory process undertaken by the HKMA. On-site examinations of books, records and internal controls apply to all authorized institutions irrespective of their place of incorporation. In the case of locally incorporated authorized institutions, on-site examinations also extend to their overseas branches and subsidiaries. The frequency of examination varies according to the size, financial standing and internal control systems of the authorized institution concerned. On-site examination provides the opportunity to examine at first hand how an institution is managed and controlled. It is particularly useful for assessing asset quality and the adequacy of internal controls.

Application programming interface (API) is a computer programming approach for facilitating exchange of information and executing instructions between different computer systems. Open APIs are APIs that allow third parties access to systems belonging to an organisation.

Open APIs allow financial institutions to open up their internal IT systems and data for programmatic access by third party service providers or its counterparts in an open and documented manner. Effective implementation of Open API will enable, for example, information of different banks’ products and services to be aggregated under the same website/app for comparison and financial planning by users with ease. New service providers may also make use of the open information to offer unique products and new customer experience.

The risk of direct or indirect losses resulting from inadequacies or failings in the processes or systems, or of personnel, of an institution; or from external events.

An international organisation established in 1961 to promote policies that will improve the economic and social well-being of people around the world. The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems.

Loans with a specified expiry date where the principal or interest remains unpaid after the expiry date.

In the context of financial market infrastructures,a process undertaken by the HKMA to monitor compliance of the infrastructures under its purview with the oversight requirements set out in the Payment Systems and Stored Value Facilities Ordinance and/or other oversight frameworks to promote the safety and efficiency of these infrastructures.

See Loan Classification System.

A set of instruments, banking procedures and interbank fund transfer systems that ensure the circulation of money. The HKMA is the overseeing authority for Hong Kong's payment system. Since 1994 the HKMA has implemented a number of reforms to Hong Kong's payment system. The most important of these reforms was the launch in December 1996 of the Hong Kong Dollar Clearing System for interbank payments. This system is widely acknowledged to be one of the most advanced and robust of its kind. A US Dollar Clearing System and a Euro Clearing System were launched in 2000 and 2003 respectively to facilitate the efficient settlement of US dollar and euro transactions in Hong Kong and the region. A Renminbi Clearing System was introduced in June 2007 to provide a clearing and settlement platform for the renminbi banking business in Hong Kong.

A tribunal established under the Payment Systems and Stored Value Facilities Ordinance to hear appeals from persons who are aggrieved by a decision of the Monetary Authority on the designation of a clearing and settlement system, the revocation of a designation, the issuance of a certificate of finality , or the suspension or revocation of a certificate of finality. The tribunal is chaired by a judge and consists of a panel of independent members appointed by the Chief Executive of the Hong Kong Special Administrative Region.

The statute providing the legal framework for the designation and oversight of clearing and settlement systems and retail payment systems, as well as the licensing of stored value facilities in Hong Kong. The Ordinance also provides statutory backing to the finality of settlement for transactions made through those designated clearing and settlement systems (known as "designated systems") for which a certificate of finality is issued.

A mechanism in a foreign exchange settlement system to ensure that a final transfer of one currency occurs only if a final transfer of the other currency or currencies also takes place.

See also delivery versus payment (DvP) .

The Exchange Fund, from time to time, accepts placements by fiscal reserves, Government funds and statutory bodies. The interest rate is generally linked to the performance of the Investment Portfolio with the exception of the Future Fund.

See also fee arrangement .

An international regulatory standards on financial market infrastructures, issued jointly by the Committee on Payments and Market Infrastructures of the Bank for International Settlements and the International Organization of Securities Commissions in April 2012. The aim of the principles is to provide for the effective regulation, supervision and oversight of financial market infrastructures to make the infrastructure more resilient to financial crisis and to foster their safety and efficiency.

Authorized institutions which operate as private banks or have dedicated private banking units and maintain a personalised relationship with private banking customers in providing personalised banking services, dealing, advisory or portfolio management services to these customers.

Broadly refers to equity investments not traded frequently or freely in the open market. Generally, this asset class is participated mainly by institutional investors. Examples of private equity investment strategy are leveraged buyout, venture capital and co-investments.

See also Long-Term Growth Portfolio .

An industry association established in 2013 and incorporated as a company limited by guarantee. Its members are authorized institutions and licensed corporations in Hong Kong with dedicated private wealth management businesses providing personalised banking and portfolio management services.

PWMA aims to:

• foster the growth and development of the private wealth management (PWM) industry in Hong Kong;
• promote proper conduct, integrity and high standards of professional competence on PWM practitioners;
• provide industry representation on PWM-related matters; and
• provide a channel for the PWM industry to maintain ongoing dialogue with government officials, regulators and other relevant organizations.

A website introduced by the HKMA in March 1999 and designed for the exclusive use of all authorized institutions in Hong Kong and the HKMA for information dissemination and communication. Through PWS, authorized institutions are able to communicate directly with the HKMA and access all banking returns, application forms, circulars, guidelines and the latest version of software issued by the HKMA.

An independent committee whose members are appointed by the Chief Executive of the Hong Kong Special Administrative Region. The principal objectives of the Committee are to review and advise the HKMA on the adequacy of the HKMA's internal operational procedures and guidelines for applying the standards set under the Payment Systems and Stored Value Facilities Ordinance to designated systems in which the HKMA has a legal or beneficial interest.

One of the pillars of the Cybersecurity Fortification Initiative (CFI). It is a localised certification scheme and training programme for cybersecurity professionals, developed by the HKMA in collaboration with the Hong Kong Institute of Bankers and the Hong Kong Applied Science and Technology Research Institute. It is an integrated and well-structured programme to train and nurture cybersecurity practitioners in Authorized Institutions and the information technology industry, and to enhance their cybersecurity awareness and technical capabilities of conducting cyber resilience assessments and simulation testing.

For the purposes of the HKMA's banking supervision, property lending usually refers to the following types of loans reported in the Quarterly Return of Loans and Advances and Provisions:

a) loans to finance property development, including those for building and construction;

b) loans to finance investments in properties, including uncompleted properties; and

c) loans to professional and private individuals for the purchase of residential properties for own occupation or investment purposes, other than the purchase of flats under the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme.

Individual authorized institutions may adopt a broader definition for their own internal purposes.

A meeting held by the HKMA with the senior management of an authorized institution, following an off-site review. The meeting enables the HKMA to understand how the institution controls its operations and views its business prospects, and to discuss prudential concerns arising from on-site examinations or other sources. A prudential meeting is normally held at least once a year with every authorized institution. In the case of institutions belonging to a banking group, prudential meetings may be held both at the group level and with individual subsidiaries of the group.

The process of ensuring that authorized institutions adhere to minimum prudential standards. These standards are imposed either by the HKMA's regulatory requirements or through the institution's own internal policies, procedures and controls. The HKMA monitors adherence by authorized institutions to prudential standards through a wide variety of techniques, including on-site examinations, off-site reviews, prudential meetings, co-operation with external auditors, and the sharing of information with other supervisors. The objective of prudential supervision is not to prevent all bank failures but to ensure that any that do occur are sufficiently limited and infrequent so as not to threaten the stability of the banking system as a whole.

Real interest rates are nominal interest rates adjusted for expected changes in the price level. Real interest rates are often constructed by subtracting observed consumer price inflation from a nominal interest rate. However, conceptually, the inflation component should reflect a forward-looking measure of expected inflation, as opposed to the backward-looking measures commonly used.

The continuous settlement of payments on an individual-order basis without netting debits with credits across the books of the central bank.

See also payment system.

Recognised Dealers are financial institutions appointed by the HKMA which maintain securities accounts with the HKMA for holding Exchange Fund Bills and Notes, including on behalf of their customers. The rights and obligations of Recognised Dealers are stated in the Information Memoranda of Exchange Fund Bills Programme and Exchange Fund Notes Programme.

See also Market Makers for Exchange Fund Bills and Notes.

The identification and planning for the deployment of a menu of recovery options which an authorized institution could reliably execute when under severe stress to restore its financial strength and viability.

A register containing particulars of all authorized institutions and representative offices of overseas banks, which the HKMA maintains for public inspection under the provisions of the Banking Ordinance.

An authorized institution which is registered under the Securities and Futures Ordinance to conduct securities intermediary activities. The HKMA is the front-line supervisor of registered institutions.

An individual who carries out any regulated function in one or more regulated activities of a registered institution. “Relevant individual” has the meaning set out in §20(10) of the Banking Ordinance.

Limited renminbi-denominated banking services offered by licensed banks in Hong Kong to Hong Kong identity card holders and, for certain types of services, to Designated Business Customers. To be eligible to conduct renminbi banking business, each licensed bank has to enter into an Agreement for Settlement of Renminbi Banking Business in Hong Kong with the Clearing Bank to become a Participating Bank. The Clearing Bank is appointed and authorized by the People's Bank of China (PBoC) to provide renminbi position squaring and clearing services to the Participating Banks. Renminbi banking business commenced in February 2004 with the initial scope of services covering currency exchanges between renminbi and the Hong Kong dollar, remittances, deposits and bank cards denominated in renminbi. The existing limitations on renminbi banking business are subject to progressive change in accordance with the evolution of the PBoC's policy. For example, with effect from December 2005 Participating Banks are allowed to offer renminbi current account services to Hong Kong identity card holders, who may now issue renminbi cheques to pay for consumer purchases in Guangdong Province.

To cater for the settlement needs of the expanded renminbi business and facilitate the efficient settlement of Renminbi transactions in Hong Kong, the Renminbi Clearing System was upgraded from the Renminbi Settlement System in June 2007. The Renminbi Clearing System is built on the same infrastructure as the Hong Kong dollar Real Time Gross Settlement system and offers a range of advanced and sophisticated clearing and settlement functions. The key functions include Real Time Gross Settlement for Renminbi payments, a delivery versus payment (DvP) facility for Renminbi-denominated shares, payment versus payment for RMB/HKD, USD/RMB and EUR/RMB foreign exchange transactions, and processing of renminbi cheques. The system is also linked to the Central Moneymarkets Unit to cater for the DvP of Renminbi-denominated debt securities and repurchase agreement facilities.

See also Hong Kong Dollar Clearing System, US Dollar Clearing System and Euro Clearing System.

An agreement between two parties whereby one party sells securities to another party in return for cash and agrees to repurchase equivalent securities at an agreed price and on an agreed future date. Repos may be seen as being akin to collateralised borrowing and lending. Legally, however, the transaction under a repo involves an outright sale of the securities that passes full ownership of the securities to the purchaser. This instrument is widely used between a central bank and the money market as a means of relieving short-term shortages of funds in the money market. It thus represents an important tool in monetary management. In Hong Kong, banks are allowed to obtain temporary liquidity through the Discount Window using repurchase agreements with Exchange Fund Bills and Notes as collateral.

Loans that have been restructured and re-negotiated between authorized institutions and borrowers because of deterioration in the financial position of the borrower or the inability of the borrower to meet the original repayment schedule and for which the revised repayment terms, either of interest or the repayment period, are non-commercial to the authorized institution.

The HKMA manages the Exchange Fund in accordance with the Exchange Fund Ordinance. The day-to-day management of the Fund is carried out by the Exchange Fund Investment Office of the HKMA. The principal investment objectives of the Exchange Fund are:

• to preserve the capital of the Fund
• to ensure that the entire Monetary Base is at all times fully backed
• to ensure sufficient liquidity for maintaining monetary and financial stability
• to achieve returns on the Fund that will preserve the long-term purchasing power of its assets.
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Resolution is an administrative process which enables authorities to manage the failure of a financial institution (FI) in an orderly manner by using the powers available under the resolution regime in circumstances where the failure of the FI could have adverse systemic consequences to the financial system. Resolution differs from insolvency procedures in that it is designed to preserve the continued provision of critical financial functions by an FI whilst still imposing the costs of failure on the shareholders and certain creditors of the FI.

An administrative authority responsible for exercising resolution powers, including initiation of resolution, over financial institutions that are within the scope of the resolution regime. Under the Financial Institutions (Resolution) Ordinance, the Monetary Authority is the resolution authority for banking sector entities including all authorized institutions.

An institution-specific ongoing process of planning for resolution to facilitate an effective use of resolution powers in the event of failure of the financial institution.

Under the Financial Institutions (Resolution) Ordinance, the Monetary Authority is responsible for undertaking resolution planning for banking sector entities which include all authorized institutions.

An institution-specific assessment, being part of the resolution planning, conducted by a resolution authority with a view to evaluating whether it is feasible and credible for the resolution authority to resolve the institution in an orderly manner in accordance with the preferred resolution strategy devised for it. If any significant barriers to orderly resolution are identified from the resolvability assessment, the resolution authority may direct the institution to take action such as making appropriate structural or operational changes to remove such barriers.

Under the Financial Institutions (Resolution) Ordinance, the Monetary Authority is responsible for conducting resolvability assessments of banking sector entities which include all authorized institutions.

An approach that takes into consideration "Environmental, Social and Governance (ESG)" principles in investment decision, with a view to enhancing sustainability of investment return in the long run as well as for better risk management.

See also Environmental, Social and Governance (ESG).

One of the three types of authorized institution in Hong Kong under the Banking Ordinance. A restricted licence bank may take time, call or notice deposits from members of the public in amounts of HK$500,000 and above without restriction on maturity. Restricted licence banks generally engage in activities such as merchant banking and capital market operations.

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

All of the locally incorporated banks plus a number of the larger foreign banks whose operations are similar to those of the locally incorporated banks in that they operate a local branch network and are active in retail banking business.

A system or arrangement for the transfer, clearing or settlement of payment obligations relating to retail activities (whether the activities take place in Hong Kong or elsewhere), principally by individuals, that involve purchases or payments; and includes related instruments and procedures. The Monetary Authority may designate a retail payment system if he is of the opinion that such retail payment system should be designated pursuant to the Payment Systems and Stored Value Facilities Ordinance, and the retail payment system so designated is subject to the oversight by the Monetary Authority. For legal definition of the term, please refer to section 2 of the Payment Systems and Stored Value Facilities Ordinance.

The Banking Ordinance empowers the Monetary Authority to revoke the authorization of an authorized institution if the minimum criteria for authorization are breached. In addition, other grounds for revocation include the provision of materially false, misleading or inaccurate information to the HKMA. The grounds on which authorizations may be revoked are specified in the Eighth Schedule to the Banking Ordinance. A decision by the HKMA to exercise its powers of revocation will usually depend on the scope for remedial measures and on whether revocation would be in the interests of depositors and of the stability of the banking system. The authorized institution concerned must cease to carry on the business that was the subject of its authorization as soon as the revocation becomes effective.

An approach adopted by the HKMA in its supervision of authorized institutions in Hong Kong. Under this approach, the HKMA assesses the risk profile of each institution and ascertains the effectiveness of the institution's systems and procedures to identify, measure, monitor and control risks. A supervisory plan is then formulated for each institution having regard to its risk profile and risk management systems. This approach enables the supervisory process to focus on the areas of greatest risk to an institution and enables the HKMA to be more proactive in taking actions to pre-empt any serious threat to the stability of the banking system, as a result of any current or emerging risks. While banks are subject to many different risks, the HKMA will focus its attention on eight types of banking risks (namely, credit, interest rate, market, liquidity, operational, reputation, legal and strategic risks) in assessing the risk profile of each institution.

A liquidity saving device, launched on 23 January 2006, which increases liquidity efficiency through periodic multilateral offsetting of payment instructions queued in the Real Time Gross Settlement system at each 30-minute interval. Apart from scheduled runs, an RTGS Liquidity Optimiser run will also be triggered by the HKMA when needed, for example during times of large interbank payment flows, to clear outstanding payment queues.

Certain types of Hong Kong dollar deposits offered by banks in Hong Kong were previously subject to IRRs issued by the Hong Kong Association of Banks (HKAB). All banks in Hong Kong, as members of HKAB, were required to observe these rules, which generally related to the maximum rate of interest a bank could offer on certain types of deposits. Progressive deregulation of IRRs has taken place in phases since 1994. Since July 2001, all IRRs have been removed and interest rates on all kinds of deposits are determined by individual banks.

A process in which the credit risk associated with less liquid financial assets (e.g. mortgage loans) is transferred to third party investors through issuance of debt securities whose financial performance depends on the performance of the assets.

The SPDC is a system tool which allows Exchange Fund Bills and Notes (EFBNs) buyers to obtain liquidity from the HKMA using the incoming EFBNs as collateral. This encourages greater use of real-time delivery versus payment to settle EFBN transactions, thus increasing settlement efficiency and reducing settlement and concentration risks at the end-of-day settlement run.

The risk of large losses arising from obligors which are specified sovereign entities of a particular jurisdiction suddenly failing to meet their credit obligations.

A public sector entity outside Hong Kong which is regarded as a sovereign for the purposes of calculating the capital adequacy ratio of a bank by the relevant banking supervisory authority of the jurisdiction in which the entity and the bank are incorporated.

See Loan Classification System.

Means a central government, central bank and sovereign foreign public sector entity of a jurisdiction, but excludes—
(a) the Central People’s Government of the People’s Republic of China;
(b) the People’s Bank of China;
(c) a sovereign foreign public sector entity of the Mainland of China;
(d) the Government of the United States of America; and
(e) the Government.

An option under the Financial Institutions (Resolution) Ordinance that a resolution authority may, subject to certain conditions being met, apply to within scope financial institution in resolving the institution. Under the Financial Institutions (Resolution) Ordinance, there are five stabilization options: i) transfer to a purchaser; ii) transfer to a bridge institution; iii) transfer to an asset management vehicle; iv) bail-in and; v) as a last resort, transfer to a temporary public ownership company.

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 requirement for their credit risk. The main feature of this approach is that the risk weights of authorized institutions’ assets will depend on credit assessments provided by external credit assessment institutions recognised by the HKMA.

See also basic approach and internal ratings-based approach.

A facility which can store monetary value, and provides users with the ability to make purchases or make payment to another person (i.e. P2P payments). Stored value facilities (SVFs) can be single-purpose or multi-purpose. Single-purpose SVFs can be used for purchase goods and services provided only by the issuer of the facility, while multi-purpose SVFs can be used for purchase of goods and services provided by the issuer and third parties who are willing to accept the facility for payment and/or made P2P payments. Multi-purpose SVF is regulated under the Payment Systems and Stored Value Facilities Ordinance. For legal definition of the term, please refer to section 2A of the Payment Systems and Stored Value Facilities Ordinance.

The investment process of the Exchange Fund is underpinned by decisions on two types of asset allocation — the strategic asset allocation and the tactical asset allocation. The strategic asset allocation, reflected in the investment benchmark, represents the long-term optimal asset allocation given the investment objectives of the Exchange Fund. It directs investment in terms of asset distribution and the maturity profile of the assets.

See also tactical asset allocation .

The Strategic Portfolio was established in 2007 to hold shares in Hong Kong Exchanges and Clearing Limited that were acquired by the Government for the account of the Exchange Fund for strategic purposes. It is not included in the assessment of the Exchange Fund’s investment performance because of the unique nature of this Portfolio.

See also Backing Assets/Backing Portfolio, Investment Portfolio, Long-Term Growth Portfolio and foreign currency reserves .

A forward-looking risk management tool used to estimate the potential impact on a financial system, sector, institution, portfolio or product under adverse events or circumstances. It is often used to assess and quantify vulnerability and resilience to stress events or severe shocks, and to enhance decision-making in the management of risks.

The objective of the stress test can be to test an authorized institution’s capital adequacy or liquidity position in the face of a shock or a combination of shocks and it is an important part of the microprudential toolkit. It is also a useful tool in the macroprudential analysis kit.

Computer software introduced by the HKMA in 1995 to facilitate the submission of returns by authorized institutions through floppy diskettes.

See also Submission Through Electronic Transmission.

A software system launched by the HKMA in December 1997 to improve the efficiency and security of the submission of returns by authorized institutions. The system, which replaces Submission Through Electronic Media, allows users to submit returns through electronic transmission. Participating authorized institutions can input and edit banking return data on their computers and transmit the data to the HKMA through a secured private network. The possibility of the message being intercepted by unauthorized parties is therefore reduced. In addition, the STET system eliminates the physical delivery of hard-copy and diskettes of returns.

See Loan Classification System.

A manual setting out the HKMA's latest supervisory policies and practices, the minimum standards authorized institutions are expected to attain in order to satisfy the requirements of the Banking Ordinance and recommendations on best practices that authorized institutions should aim to achieve. The Supervisory Policy Manual is available on the HKMA website www.hkma.gov.hk.

A process conducted by the Monetary Authority for the purposes of evaluating and monitoring the capital adequacy of an authorized institution, and determining the capital requirement of the institution for its risks which are not captured or adequately captured in the calculation of the capital adequacy ratio.

Under the Banking Ordinance, where the the HKMA's powers to revoke an authorization become exercisable, the HKMA may, after consultation with the Financial Secretary, suspend the authorization of the institution for a period not exceeding six months (which may be extended upon expiration for a further period not exceeding six months). The suspended authorized institution must cease to carry on the business for which its authorization was granted from the date specified by the HKMA. Suspension may be a step towards, or an alternative to, revocation. While it prevents an institution from carrying on banking or deposit-taking business, suspension allows the institution to retain its authorized status: this could be of assistance in a restructuring or rescue operation, for example by making the institution more attractive to a prospective purchaser.

See also revocation of authorization.

Pursuant to section 25A(1) of the Organized and Serious Crimes Ordinance, Cap. 455 and the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap. 405, as well as section 12(1) of the United Nations (Anti-Terrorism Measures) Ordinance, Cap. 575, where a person knows or suspects that any property (a) in whole or in part directly or indirectly represents any person’s proceeds of, (b) was used in connection with, or (c) is intended to be used in connection with drug trafficking or an indictable offence; or that any property is terrorist property, the person shall as soon as it is reasonable for him to do so, file an STR with the Joint Financial Intelligence Unit.

Deposit placed with the licensee, or another person on behalf of the licensee, for enabling the stored value facility to be used. For legal definition of the term, please refer to section 2 of the Payment Systems and Stored Value Facilities Ordinance .

A licence granted by the Monetary Authority under the Payment Systems and Stored Value Facilities Ordinance to a company to issue stored value facilities (SVF), facilitate the issue of SVF or operate SVF business in Hong Kong. Pursuant to Payment Systems and Stored Value Facilities Ordinance, a licensed bank is regarded as being granted a licence.

SIBs are authorized institutions (AIs) whose impact, in the event of distress or failure, could cause significant disruption to the financial system and ultimately, the broader economy. In recognition of the additional risks posed by SIBs, they are subject to specifically tailored regulatory and supervisory measures.

The Monetary Authority is empowered under the Banking (Capital) Rules to designate AIs incorporated in Hong Kong as global systemically important AIs (G-SIBs) or domestic systemically important AIs (D-SIBs) and to determine the associated higher loss absorbency capital (HLA) requirements.

The investment process of the Exchange Fund is underpinned by decisions on two types of asset allocation — the strategic asset allocation and the tactical asset allocation. While the strategic asset allocation (SAA) directs the medium-to-long term investment strategy, assets are tactically allocated in an attempt to achieve an excess return over the benchmark with a short-to-medium term focus guided by the SAA. As a result of this tactical asset allocation (TAA), the actual allocation is often different from the benchmark, or strategic allocation.

See also strategic asset allocation .

The financing of terrorist acts, and of terrorists and terrorist organisations. It generally refers to the carrying out of transactions involving property owned by terrorists or terrorist organisations, or that has been, or is intended to be, used to assist the commission of terrorist acts.

Terrorist financing is a criminal offence under the Laws of Hong Kong. Under the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO), Cap. 575, a person commits the offence of terrorist financing if he provides or collects property knowing or with the intention that the funds will be used to commit terrorist act(s).

See also Financial Action Task Force

Authorized institutions under the Banking Ordinance comprise banks, restricted licence banks and deposit-taking companies, creating a licensing system with three distinct tiers. Restricted licence banks and deposit-taking companies are restricted in the amounts and terms of deposits they may accept, and only banks may operate current and savings accounts. No distinction is made, however, in the types of lending or investment business in which the different tiers of authorized institutions may engage.

Tier 1 capital consists of Common Equity Tier 1 capital and Additional Tier 1 capital.

A ratio, expressed as a percentage, of the amount of the authorized institution’s 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.

Tier 2 capital is intended to absorb losses of an authorized institution on a gone concern basis. It includes capital instruments issued by an authorized institution that meet the qualifying criteria set out in Schedule 4C to the Banking (Capital) Rules, share premium resulting from the issue of Tier 2 capital instruments, the amount of minority interests arising from Tier 2 capital instruments issued by consolidated bank subsidiaries of the authorized institution and held by third parties, reserves attributable to fair value gains arising from revaluation of an authorized institution’s holdings of land and buildings and regulatory reserves for general banking risks and collective provisions.

The sum of Tier 1 capital and Tier 2 capital of an authorized institution.

A ratio, expressed as a percentage, of the amount of the authorized institution’s Total 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 .

A unit trust launched in November 1999 as a disposal programme of the Exchange Fund Investment Limited for part of the Hong Kong equity portfolio purchased by the Exchange Fund in August 1998 together with the Hong Kong equities transferred from the Land Fund. It was launched in the form of an initial public offering and an international offering and is listed on the Hong Kong Stock Exchange.

See also exchange-traded fund.

A book showing positions in financial instruments and commodities held either with trading intent or for the purpose of hedging other elements of the trading book. The financial instruments held in the trading book should be free of any restrictive covenants on their tradability or able to be hedged completely. In addition, these positions should be frequently and accurately valued, and the portfolio should be actively managed.

See also banking book.

Under the Banking Ordinance, the authorization of an authorized institution may be transferred from that institution to another institution. A transfer of authorization may not take effect until the HKMA agrees that the transferee satisfies the minimum criteria for authorization and grants the transfer. Following the issue of a certificate of transfer by the HKMA, the transferee may exercise the same privileges, and is subject to the same conditions, liabilities and penalties, as the original grantee. The transferor ceases to be authorized, but remains responsible for any liability incurred prior to the transfer.

The TMA was set up in November 2005 through the institutionalisation of the Treasury Markets Forum of Hong Kong, including a merger with ACI-The Financial Markets Association of Hong Kong. The TMA promotes co-operation among market participants with a view to raising the professionalism of practitioners and the overall competitiveness of the treasury markets in Hong Kong. Specifically, the TMA develops and promotes appropriate codes and standards for treasury markets; promotes market and product development; provides training and accreditation of relevant qualifications; and raises the profile of Hong Kong as the preferred hub for treasury market businesses in the region. The TMA consists of both individual and institutional members from the foreign exchange and money markets, debt, derivatives and other treasury markets.

All retail banks in Hong Kong and all member institutions of Private Wealth Management Association signed up to the Treat Customers Fairly Charter in October 2013 and Treat Customers Fairly Charter for Private Wealth Management Industry in June 2017 respectively, which demonstrate the industry’s commitment not only to treating customers fairly but also to fostering a stronger culture towards fair treatment of customers at all levels of banks and at all stages of their relationship with customers.

An annual meeting between the HKMA and an authorized institution and its auditors, normally following the institution's annual audit. The discussion typically includes any matter arising out of the audit, such as identified weaknesses in internal controls, adequacy of provisions, and compliance with prudential standards and the various requirements of the Banking Ordinance.

A security measure which uses a combination of two different factors for validating the identity and authority of an e-banking customer. Typically, the first factor is "something a customer knows" (e.g. user ID and password) and the second factor is "something a customer has" (e.g. one-time passwords generated by a security token, a hardware electronic key, the customer's private key stored in a smart card or other devices in the customer's possession).

Different authorized institutions may offer different types of two-factor authentication methods to customers. Three common types adopted by banks in Hong Kong are digital certificates, SMS-based one-time passwords and security token-based one-time passwords.

To facilitate the efficient settlement of US dollar transactions in Hong Kong and the region and to eliminate the settlement risks that may arise when the two currency legs of a foreign exchange transaction are spread across different time zones, the HKMA has introduced the US Dollar Clearing System in Hong Kong which has been in operation since December 2000. The US Dollar Clearing System is built on the same infrastructure as the Hong Kong dollar Real Time Gross Settlement system and offers a range of advanced and sophisticated clearing and settlement functions. The key functions include Real Time Gross Settlement for US dollar payments, a delivery versus payment (DvP) facility for US dollar-denominated shares, payment versus payment for USD/HKD, USD/RMB and EUR/USD foreign exchange transactions, and processing of US dollar cheques. The system is also linked to the Central Moneymarkets Unit to cater for the DvP of US dollar denominated debt securities and repurchase agreement facilities.

See also Hong Kong Dollar Clearing System, Euro Clearing System and Renminbi Clearing System.

The US federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. Changing the target level or target range for the federal funds rate is the US Federal Reserve’s primary means of adjusting the stance of monetary policy. In Hong Kong, the Base Rate, which is a reference rate for banks to obtain day-end liquidity under the Discount Window, is determined by making reference to the target for US federal funds rate.

Founded in 1944, the World Bank Group consists of five closely associated institutions: the International Bank for Reconstruction and Development (IBRD); International Development Association (IDA), International Finance Corporation (IFC); Multilateral Investment Guarantee Agency (MIGA); and International Centre for Settlement of Investment Disputes (ICSID). The World Bank is the world's largest source of development assistance to help developing countries on to a path of stable, sustainable, and equitable growth. Though not a member, Hong Kong has participated in the activities or discussions of the World Bank as part of the UK Delegation prior to 1 July 1997 and as part of the People's Republic of China Delegation thereafter. The HKMA co-ordinates matters relating to the participation of Hong Kong in the World Bank. In September 2000, the IFC and the IBRD established in Hong Kong a joint regional office for managing the IFC's operations and IBRD's private sector development work in East Asia and the Pacific region.