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Resolution regime for Hong Kong's banks comes into force

Chris Hamblin, Editor, London, 12 July 2017

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The resolution regime established under the Financial Institutions (Resolution) Ordinance (Cap 628) has begun to operate.

The Ordinance establishes a cross-financial sector resolution regime that is designed to meet the international standards set by the Financial Stability Board. The FSB is on a mission to make the world's financial system more 'resilient,' partly by ensuring that if banks and other financial institutions are to collapse, they must do so in an orderly way, through 'resolution.'

Under the Ordinance, the HKMA, the Insurance Authority and the Securities and Futures Commission will be the resolution authorities. They now have powers to 'resolve' stricken firms by imposing additional losses on their shareholders and creditors, thereby saving public funds. The Ordinance was enacted by the Legislative Council on 22 June last year.

The jurisdiction's financial secretary, in accordance with the Ordinance, has picked the HKMA as the leading resolution authority for 25 cross-sectoral groups which include both banks and securities houses.

Only some of the FSB's member-states – primarily home jurisdictions of "globally systemically important banks" – have bank resolution regimes with comprehensive sets of powers broadly in line with FSB standards. The bank resolution powers that are most often lacking are 'bail-in' powers and powers to impose a temporary stay on the exercise of early termination rights. Most jurisdictions still lack explicit powers by which regulators can require banks to do things to improve their 'resolvability.'

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