Oversight follows a risk-based approach to continuously monitor and assess the compliance of financial market infrastructures (FMIs) under HKMA’s purview, focusing on areas of high risk using a variety of techniques aimed at detecting problems at an early stage.
The HKMA conducts annual assessments of the compliance of each FMI under its purview. The oversight is conducted through one or more of the following methods:
Off-site reviews and continuous monitoring form the core of the HKMA’s oversight approach. The reviews enable the HKMA to evaluate the degree of compliance of FMIs under its purview with the relevant requirements and to conduct cross-institutional or peer group analysis. Monthly information is collected on transaction volumes and values, system performance statistics, incidents of default and non-compliance with operating rules, and significant events in the coming months, which may have risk implications for each FMI under its purview. In addition, the HKMA also requires the SOs, the SIs and/or the HKTR, as appropriate, of each FMI under its purview to provide supplementary information for off-site reviews. The information includes submissions of periodic independent reviews on various risk areas, business continuity plans, and data on the financial strength and commitment of the SOs, the SIs and/or the HKTR, which should also report any delays or abnormal events of the FMIs under its purview as soon as possible. This should be followed by a written report to the HKMA within a reasonable time specified by the HKMA, explaining the cause and impact of the event, and the remedial action taken.
On-site examinations complement the HKMA’s off-site reviews and provide it with the opportunity to assess at first-hand how the FMIs under the HKMA’s purview are being operated, managed and controlled. On-site examinations are conducted when necessary and their frequencies vary from FMI to FMI. In general, the scope of an on-site examination will focus on priority areas identified through the off-site review. These include high-risk areas or where control process validations are needed. An on-site examination report, identifying any area of weakness or concern and making recommendations for remedial action, will be issued to the SOs, the SIs and/or the HKTR.
To supplement off-site reviews and on-site examinations, the HKMA may request the SOs, the SIs and/or the HKTR, as appropriate, to submit an independent review conducted by professional parties on high-risk areas or other areas of concern to assist the HKMA in deciding whether the FMI is in compliance with the relevant requirements.
The HKMA holds annual meetings with senior management of the SOs, the SIs and/or the HKTR, as appropriate, of each FMI to discuss the findings of the off-site reviews (and on-site examinations if conducted), particularly any significant deficiencies in safety and efficiency identified, or any other matters of concern or mutual interest. The meetings also enable the HKMA to better understand how the SOs, the SIs and/or the HKTR view and control risks and how they assess their business situation and future development.
Following evaluation of the compliance of a FMI under its purview, the HKMA may make recommendations to the SOs, the SIs and/or the HKTR, as appropriate, asking them to take steps to meet the oversight requirements and address the issues of concerns. It will then closely monitor implementation of the recommendations by the SOs, the SIs and/or the HKTR.