The Government and the financial regulators, namely the Hong Kong Monetary Authority, the Securities and Futures Commission and the Insurance Authority, today (January 7) launched the first stage of public consultation for three months on establishing an effective resolution regime for financial institutions, including financial market infrastructures, in Hong Kong.
"The establishment of an effective resolution regime for financial institutions in Hong Kong is required to meet the latest international standards for the regulation and supervision of financial institutions. An effective resolution regime will provide the authorities with powers to resolve non-viable financial institutions without severe systemic disruption whilst protecting taxpayers,"a government spokesman pointed out.
"The consultation launched today seeks views from the public and the financial services industry on initial thinking and some proposals for establishing a resolution regime in Hong Kong. We will analyse the views and comments received in order to further develop the proposals for the second stage of public consultation,"the spokesman noted.
"We aim to conduct the second stage of public consultation later this year on the more specific details and operation of the resolution regime. Subject to the outcome of public consultation, we will seek to introduce legislative proposals into the Legislative Council in 2015,"he added.
Following the recent global financial crisis, in which governments in a series of jurisdictions spent unprecedented amounts of public money rescuing failing financial institutions, a series of international regulatory reform initiatives have been pursued to enhance the resilience and stability of the financial system.
Tasked by the Group of Twenty leaders to develop measures to address the systemic and moral hazard risks posed by the failure of systemically important and "too-big-to-fail" financial institutions, the Financial Stability Board (FSB) issued the "Key Attributes of Effective Resolution Regimes for Financial Institutions" (Key Attributes) in November 2011. As a member jurisdiction of the FSB, and a major international financial centre, it is incumbent upon Hong Kong to meet the new standards set out in the Key Attributes.
Hong Kong’s existing statutory framework does not provide for all of the powers that the FSB considers necessary for an effective resolution regime. Legislative amendments will thus be required to bring the existing arrangements in line with the standards in the Key Attributes. By doing so, in the unlikely event that it becomes necessary, the financial regulators will be better placed to carry out orderly resolution of a failing financial institution without severe systemic disruption whilst protecting taxpayers in Hong Kong.
The proposed resolution regime for financial institutions in Hong Kong seeks to meet the standards set by the FSB, including in relation to scope, governance arrangements, resolution powers and options, safeguards, funding, cross-border cooperation and information sharing.
In drawing up the proposals, the Government and the financial regulators have taken into account the local circumstances and made reference to developments in overseas jurisdictions.