Authored by: Simon Deane and Jennifer Lok
The HKMA has recently (on 23 March 2022) updated his Guide to Authorisation (the “Guide”) to reflect some earlier changes to his other guidance materials and codes. This therefore seems like an opportune time to provide a reminder about the purposes of the Guide which is a very helpful description of the HKMA’s approach to his supervisory role.
The Guide supplements and provides guidance upon the authorisation and supervision regime under the Banking Ordinance (Cap. 155; “Ordinance”). Both new applicants seeking approval to become authorised institutions or money brokers and existing authorised institutions and approved money brokers should, in addition to the requirements set out in the Banking Ordinance and other regulatory guidelines and codes of practice issued by the HKMA such as the Supervisory Policy Manual (“SPM”), also familiarise themselves with the Guide, as amended, supplemented and updated from time to time by the HKMA. Below is a summary of the topics covered by the Guide.
- Chapter 2 and Chapter 3 provide an overview of the authorisation regime and the legal and policy framework of the supervisory regime under the Ordinance. The HKMA is concerned with the overall business of an authorised institution and not only its banking or deposit-taking business, hence the HKMA is also the front-line regulator and undertakes significant roles in the supervision of other regulated activities such as securities and futures activities, insurance business and over-the-counter derivative activities carried on by an authorised institution under the Securities and Futures Ordinance (Cap.571) and Insurance Ordinance (Cap.41), in cooperation with other regulators such as the Securities and Futures Commission and the Insurance Authority.
- Chapter 4 sets out the HKMA’s interpretation of each of the minimum authorisation criteria set out in the Seventh Schedule to the Ordinance. These authorisation criteria include, among others, the identity, fitness and propriety of directors, controllers, chief executives, executive officers and managers, the institution’s financial resources, ability to fulfil and maintain adequate liquidity, policies on control of large exposures, risk management capabilities, adequacy and effectiveness of accounting systems and systems of control, whether the institution has conducted its business with integrity, prudence and competence, and the adequacy of home supervision if an applicant is incorporated outside Hong Kong. Details of the HKMA’s expectations and supervisory approach in respect of the above criteria are further elaborated in the relevant modules of the SPM and code of practice. If any one or more of the criteria is not fulfilled, the HKMA must refuse the relevant application for authorisation. Further, the HKMA has general discretion to grant or refuse an application for authorisation, and will have regard to other matters such as prudential concerns and the HKMA’s statutory objectives when assessing an institution’s suitability for authorisation. The criteria for authorisation continue to apply after an institution has been authorised. The procedures for applying for authorisation or upgrading an existing authorisation are described in Chapter 8 of the Guide. Prospective applicants are encouraged to consult and discuss with the HKMA before submitting formal applications for authorisation.
- Chapter 9 sets out specifically the principles which the HKMA will take into account in deciding whether to authorise “virtual banks”, i.e. banks that primarily deliver retail banking services through the internet or other electronic channels. In line with the HKMA’s established policy, he expects that a prospective virtual bank applicant will be held through a Hong Kong incorporated holding company, which holding company will be subject to HKMA’s supervisory conditions similar to those in the Seventh Schedule. Upon being authorised, virtual banks are generally subject to the same supervisory standards with suitable adaptations based on a risk-based and technology-neutral approach, including but not limited to the requirements described in this Chapter.
- Chapter 5 deals with the HKMA’s interpretation of each of the grounds for revocation and suspension of authorisation set out in the Eighth Schedule to the Ordinance. The HKMA’s powers to revoke an authorisation become exercisable when any one of the grounds for revocation is established, but when exercising his discretionary powers of revocation and suspension, the HKMA will take into account the circumstances of the breach in each case, and more importantly, the primary need to maintain the stability of the banking system and to protect the interests of depositors and potential depositors of the institution.
- Chapter 6 describes the HKMA’s powers under section 52 of the Ordinance in respect of an authorised institution which is in financial difficulties or contravenes or fails to comply with its statutory obligations, including his power to appoint a Manager to manage the affairs, business and property of such an institution.
- Chapter 7 explains the general statutory restrictions and the requirements for the HKMA’s consent in relation to the use of banking names or descriptions for carrying on business in Hong Kong.
- Chapter 10 focuses on the authorisation of money brokers and describes the legal framework, the HKMA’s interpretation of the minimum approval criteria for money brokers set out in the Eleventh Schedule to the Ordinance and the grounds for revocation of approval of money brokers set out in the Twelfth Schedule to the Ordinance.
To access a full copy of the Guide, please click here.