20 May 2008
The Chief Executive
All Locally Incorporated Authorized Institutions
Dear Sir / Madam,
At the request of the Financial Stability Forum (FSF), the
Senior Supervisors Group (SSG)1
undertook a review of disclosure practices regarding exposures to
certain instruments that the marketplace now considers to be
high-risk or to involve more risk than previously thought, and as a
result of the review observed some leading disclosure practices
among twenty large, internationally oriented firms. Such
instruments include collateralised debt obligations, residential
mortgage-backed securities, commercial mortgage-backed securities,
other special purpose entities, and leveraged finance. A copy of
the SSG Report to the FSF is attached.
The FSF believes that enhanced disclosure by financial firms of
more meaningful and consistent quantitative and qualitative
information about risk exposures, valuations, off-balance sheet
entities and related policies would be very useful in restoring
market confidence. Therefore, the FSF in its Report on Enhancing
the Resilience of Markets and Financial Institutions strongly
encourages financial institutions, at the time of their upcoming
mid-year 2008 reports, to make robust risk disclosures that follow
the leading disclosure practices summarised in the SSG Report.
The HKMA supports the above recommendation of the FSF. We
encourage authorised institutions which have exposures to the
activities covered in the SSG Report and are subject to the
disclosure requirements under the Banking (Disclosure) Rules (BDR)
to adopt the leading disclosure practices set out in the Report, at
the time of their interim financial disclosures of 2008.
The Basel Committee on Banking Supervision (BCBS) is expected to
issue further guidance to strengthen disclosure requirements under
Pillar 3 of the Basel II framework by 2009. The HKMA will monitor
closely the BCBS's initiative in this area and consider further
refinements to the BDR as and when necessary.
Y. K. Choi
Deputy Chief Executive
1 The Senior Supervisors Group
consists of senior financial supervisors from France, Germany,
Switzerland, the United Kingdom and United States.