ENG-2013 — Page 100

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Financial and Monetary Affairs

Basel III Implementation in Hong Kong

Hong Kong follows the international timeline of the Basel Committee on Banking Supervision (BCBS) for implementing the Basel III reform package. The first phase of Basel III capital standards was implemented with effect from 1 January 2013. The associated disclosure standards, alongside further technical refinements to reflect the BCBS's latest guidance on the Basel III capital standards, were implemented with effect from 30 June through the enactment of the Banking (Disclosure) (Amendment) Rules 2013 and the Banking (Capital) (Amendment) Rules 2013.

Regulation of OTC Derivatives

To give effect to the OTC derivative regulatory regime, the Securities and Futures (Amendment) Bill 2013 was introduced to the Legislative Council in July and is being examined by the Legislative Council. The SFC and the HKMA are preparing the related subsidiary legislation. OTC Clearing Hong Kong Limited, a subsidiary of HKEX, has commenced operation in November to provide clearing services for OTC derivatives. Initially it provides clearing services for plain vanilla interest rate swaps and non-deliverable forwards.

Development of an effective Resolution Regime for Financial Institutions in Hong Kong According to the Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) published by the Financial Stability Board in November 2011, relevant authorities are to be vested with the resolution powers in resolving financial institutions in an orderly manner and without exposing taxpayers to the risk of loss from solvency support, while maintaining continuity of their vital economic functions.

In order to meet the standards, it will be necessary for Hong Kong to vest in its relevant authorities the resolution powers set out in the Key Attributes for resolving financial institutions which are deemed systemically significant or critical if they fail. A two-stage public consultation will be launched in 2014 on bridging the gaps in Hong Kong's resolution regimes for different types of financial institutions relative to the Key Attributes (in the first stage) and specific details and operation of the resolution regime (second stage). The government aims to introduce legislative proposals into the Legislative Council in 2015.

Auditor Regulatory Reform

The international trend is that the oversight of the regulation of auditors is independent of the profession itself. The government has been discussing with the Financial Reporting Council and the Hong Kong Institute of Certified Public Accountants reforms to Hong Kong's auditor regulatory regime so that it complies with international standards and the government plans a public consultation on the reform proposals in 2014.

Establishment of an Independent Insurance Authority

The policy objectives of setting up an independent Insurance Authority (IIA) are to modernise the insurance industry regulatory infrastructure to facilitate the industry's stable development, provide better protection for policyholders, and align with international practice that financial regulators should be financially and operationally independent of the government. The government plans to introduce the enabling legislation into the Legislative Council in 2014.

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