- Our Ref:
- B9/60C
11 August 2003
The Chief Executive
All Authorized Institutions
Dear Sir / Madam,
Commercial Credit Reference Agency
The Hong Kong Monetary Authority (HKMA), the Hong Kong
Association of Banks and the DTC Association have recently
announced the plan for the establishment of a Commercial Credit
Reference Agency (CCRA) in Hong Kong. This letter provides
authorized institutions (AIs) with the HKMA's regulatory guidance
on the sharing and use of commercial credit data through a CCRA. It
is expected that the guidance contained in this letter will be
incorporated into a Supervisory Policy Manual (SPM) module to be
issued in due course when the CCRA is to come into operation.
Structure of the proposed CCRA
The proposed CCRA in Hong Kong will collect credit data of small
and medium-sized enterprises (SMEs) and make this information
available to AIs to facilitate their credit assessment. In general,
business enterprises will be regarded as SMEs if they are unlisted
companies with an annual turnover not exceeding HK$50 million.*
Information collected by the CCRA will cover data relating to the
credit facilities an SME has obtained from lenders, such as the
limits of these facilities and information about defaults on loans.
If everything goes smoothly, the CCRA is expected to be up and
running in the third quarter of 2004. Your Association will soon
provide you with more details about the proposed scheme together
with the implementation timetable. A briefing session for AIs is
also being organised.
Participation
The effectiveness of any credit information sharing arrangement
depends on the full participation of all AIs. The HKMA therefore
expects all AIs that are involved in the provision of SME lending
to participate as fully as possible in the sharing and use of
commercial credit data through a CCRA. We are of the view that the
use of information provided by a CCRA will form an important part
of an AI's credit management system. As part of its regular
supervision, the HKMA will monitor AIs' participation in the
sharing and use of commercial credit data.
Customer consent
Unless the existing terms and conditions of AIs already contain
an appropriate consent clause, AIs should seek SME customers'
consent to disclose their credit data to the CCRA for the purpose
of conducting credit checks or assisting other AIs to conduct
credit checks. A standard consent clause has been developed by the
Industry Working Group on CCRA and will soon be provided to you by
your Association.
It is recognised that the usefulness of a CCRA lies in the
comprehensiveness of its database which, in turn, hinges on SME
customers' willingness to allow their credit data to be reported to
the CCRA. AIs' efforts in seeking customer consent are therefore
very important. The HKMA will monitor, through its normal
examination process, that AIs are not selective in seeking the
consent of customers. This will help to ensure a level playing
field and comprehensiveness of the database. To achieve these
objectives, the HKMA expects all AIs to observe the following
ground rules in seeking customer consent:
| (i) |
AIs should seek the relevant consent of an SME customer as
defined above upon application for new credit facilities (including
application for an increase in the credit limit of existing
facilities). Such consent should be incorporated as part of the
terms and conditions of the facility, which is in line with the
practice in relation to consumer lending. |
| (ii) |
AIs should also seek the relevant consent of an SME customer as
defined above upon renewal of the existing credit facilities of the
customer. They should endeavour to incorporate such consent as part
of the terms and conditions of the facility. Where an SME customer
refuses to give consent, AIs should inform it that this may provide
grounds for lending institutions to decline to renew its
facilities. However, in recognition of the fact that these are
existing facilities which were previously granted with no such
requirement in place, the HKMA accepts that it would be difficult
for AIs to insist on incorporating such a consent clause if the
customer refused to do so. Although some flexibility is provided
for such customers, the HKMA still expects AIs to make their best
efforts to persuade their customers to give consent and not to opt
out of the reporting arrangement. |
| (iii) |
In addition to (i) and (ii) above, AIs should also stand ready
to revise their existing loan documentation at any time upon
request by any SME customers who voluntarily approach them to seek
to be included in the CCRA database before their current facilities
come up for renewal. |
In preparation for the launch of the CCRA in the third
quarter of 2004, AIs should start seeking customer consent from 2
October 2003. This will enable AIs to start reporting data
to the CCRA once the system is set up, thereby shortening the lead
time required for building up the database. I attach herewith a copy of an educational pamphlet explaining the
potential benefits of the scheme which should help AIs to seek
their customers' consent. Additional copies are available from your
respective industry Association.
The HKMA will monitor SME customers' response rate of each
institution so that we can check whether some institutions might
have been more selective than others in seeking consent from their
customers. To facilitate this, AIs are required to provide
information on their SME customers' participation rate through the
submission of a quarterly return, which will be issued to all AIs
shortly.
Data protection
For any credit information sharing arrangement to be effective
and credible, the data must be properly safeguarded with regard to
the confidentiality, accuracy, relevance and proper utilisation of
the information. The SPM module being developed by the HKMA will
set out the minimum standards for adequate systems of control to
properly protect customers' data when AIs share such data through a
CCRA. In addition, the SPM will require AIs to only use the service
of a CCRA which meets the relevant data protection requirements
specified in the SPM. The HKMA will play an active role in ensuring
that customer complaints against AIs or the CCRA in respect of the
data sharing arrangements are properly handled and that the data
protection rules are complied with by all AIs.
The establishment of a CCRA will be an important addition to
Hong Kong's banking infrastructure. It will bring about significant
benefits to the banking industry's credit risk management, thereby
enhancing the safety and soundness of our banking system. The HKMA
and the two industry Associations fully support this initiative. We
hope that all AIs will make their best efforts in preparing for the
commencement of the scheme.
Should you have any questions relating to this letter, please do
not hesitate to contact Mr Jim Wong on 2878 1659 or Miss Ivy Wong
on 2878 1599.
Yours faithfully,
D T R Carse
Deputy Chief Executive
* If the company is part of a larger group, the HK$50 million
limit applies to the group as a whole.
- encl.:
- Educational
pamphlet (English version, 256KB)
Educational pamphlet (Chinese version,
1.5M)
- c.c.
- Chairman, Hong Kong Association of Banks
Chairman, The DTC Association
Chairman, Industry Working Group on CCRA
SFST (Attn: Mr Edmond Lau)
Director-General of Trade and Industry (Attn: Mr Eugene Fung)
