Resolution Standards

In order for resolution to be both feasible and credible, relevant financial institutions need to be organised and managed at all times in a way that facilitates the effective use of the resolution powers in the event of their failure or likely failure. The Monetary Authority (MA) sets resolution standards with which authorized institutions (AIs) need to comply in order to enhance their resolvability.

In 2017, the HKMA issued standards defining the core information that a relevant AI will be requested to submit to the HKMA to inform bank specific resolution planning (Code of Practice chapter: Resolution Planning – Core Information Requirements (CI-1)). This helps the HKMA devise a preferred resolution strategy and identify impediments to resolvability for that AI under that strategy.

The MA sets resolution standards which relevant AIs need to comply with in order to remove impediments to resolvability. Based on these standards and any future HKMA resolution standards as they are established, the MA works with relevant AIs to identify and address impediments to orderly resolution of the institutions under their respective preferred resolution strategies.

The table below lists the typical impediments to resolvability, and for each impediment describes the status of the HKMA’s current progress in developing resolution standards as well as the relevant international standards on which they are based. 

Banks’ impediments to resolvability

Status of development of HKMA resolution standards

International resolution standards

  1. Insufficient loss absorbing capacity (external and internal)
  1. Inability to maintain operational continuity
  • Draft Code of Practice chapter on Operational Continuity in Resolution - scheduled for consultation in 2019
  1. Inability to avoid disorderly early termination of financial contracts
  • Proposals for rules imposing contractual requirements in relation to early termination rights – scheduled for consultation in 2019
  1. Inability to support timely and robust resolution valuation
  • HKMA resolution valuation framework and standards on AIs’ valuation capabilities to be developed
  1. Inability to assess funding needs and access funding
  • Work to operationalise funding in resolution arrangements under development
  • Standards on AIs’ capabilities to be developed
  1. Inability to maintain access to payment, clearing and settlement services from FMIs & banks
  1. Inability to support timely post-stabilisation restructuring
  • Draft Code of Practice chapter on Operational Continuity in Resolution - scheduled for consultation in 2019
  • Standards on AIs’ restructuring capabilities to be developed

 

Last revision date : 26 August 2019