Continuity of Access to Financial Market Infrastructure Services

In the resolution of an authorized institution (“AI”), the continued performance of critical financial functions by the AI and the effective implementation of the resolution strategy could depend on, among others, the AI’s continued access to critical financial market infrastructure (“FMI”) services (e.g. clearing, payment, settlement and custody services).  The inability of an AI to maintain continuity of access (“CoA”) to critical FMI services, whether such services are provided to an AI either by an FMI, or through an intermediary, is therefore an impediment to the orderly resolution of the AI.  In order to address this impediment to resolution, the Monetary Authority (“MA”) expects an AI to have in place ex-ante capabilities and arrangements for maintaining CoA to critical FMI services in a resolution scenario.

FMI-1 “Resolution Planning – Continuity of Access to Financial Market Infrastructure Services” is a chapter of the Code of Practice issued by the MA under the Financial Institutions (Resolution) Ordinance (Cap. 628).  The chapter sets out the MA’s expectations in relation to the ex-ante capabilities and arrangements an AI should put in place to maintain, in a resolution scenario, the CoA to critical FMI services.

The HKMA works in concert with relevant stakeholders to facilitate the continuity of access to Hong Kong FMIs by an AI in case of resolution. Relevant Hong Kong FMI scheme rules, including the Clearing house rules for the HKD, USD, Euro and RMB Clearing House Automated Transfer System (“CHATS”) as well as the Central Moneymarkets Unit (“CMU”) member agreements and CMU reference manual, have been updated to ensure resolution is not an event of default provided that the applicable substantive obligations continue to be performed.  Hong Kong Interbank Clearing Limited, as CHATS operator, has also published its response to the Financial Stability Board’s questionnaire on CoA to FMIs for firms in resolution, which would facilitate an AI’s understanding of the requirements and conditions for maintaining CoA to relevant Hong Kong FMIs.