ENG-2018 — Page 97

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Financial and Monetary Affairs

International Banking Standards

The HKMA seeks to maintain a regulatory framework that is fully in line with international standards. The aim is to maintain a prudential supervisory system to preserve the stability and effective working of the banking system, while at the same time providing flexibility for Als to make commercial decisions.

As a member of the Basel Committee on Banking Supervision and the Financial Stability Board (FSB), Hong Kong is committed to implementing international standards on banking regulation, including the Basel III framework and other post-crisis reform packages. The city implements the international standards through amending the Banking Ordinance and issuing rules supplemented by regulatory guidance.

The Banking (Amendment) Ordinance 2018 was enacted by LegCo in early 2018 for the purposes of implementing the latest Basel standards on Als' financial exposure limits, as well as recovery planning requirements promulgated by the FSB. The Banking (Capital) Rules and the Banking (Exposure Limits) Rules were also amended in the year to implement the latest Basel requirements on capital adequacy and large exposure limits.

Financial Infrastructure

Real-time Gross Settlement Systems

Hong Kong has robust real-time gross settlement (RTGS) interbank payment systems. All banks in the city maintain settlement accounts with the HKMA in the Hong Kong dollar (HKD) RTGS system. The US dollar (USD), euro and RMB RTGS systems enable transactions in these currencies to be settled in real time among banks. All four RTGS systems are linked to enable forex transactions to be settled on a payment-versus-payment basis.

Central Moneymarkets Unit

The HKMA's Central Moneymarkets Unit (CMU) provides clearing, settlement and custodian services for Exchange Fund Bills and Notes (EFBNs), government bonds and other HKD or foreign currency public and private debt securities. Through its seamless interface with the RTGS systems, the CMU system is able to settle securities transactions on a delivery-versus- payment basis. It is linked to a number of international and regional central securities. depositories to enable overseas and local investors to hold and settle securities lodged with the CMU and with overseas systems respectively. Northbound trading of Bond Connect, an arrangement for overseas investors to access the Mainland bond market through Hong Kong, experienced increasing usage over the course of 2018 after its launch in July 2017.

Besides debt securities, the CMU provides a standardised and automated platform for the investment fund industry to streamline the handling of investment fund order instructions.

Stored Value Facilities and Retail Payment Systems

The Payment Systems and Stored Value Facilities Ordinance provides the regulatory regimes for stored value facilities (SVFs) and retail payment systems (RPSs). By the end of 2018, the HKMA

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Banks may obtain intra-day and overnight liquidity through repurchase agreements with the HKMA using Exchange Fund Bills and Notes and government bonds as collateral.

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