ENG-2019 — Page 101

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Financial and Monetary Affairs

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International Banking Standards

The HKMA seeks to maintain a regulatory framework 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 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.

A set of comprehensive Banking (Exposure Limits) Rules came into effect on 1 July to implement the latest Basel standards on Als' large exposures and update other local risk. concentration limits. The Banking (Liquidity) (Amendment) Rules 2019 were introduced to expand the scope of quality liquid assets under the Liquidity Coverage Ratio and implement a required stable funding requirement on total derivative liabilities under the Net Stable Funding Ratio. The Banking (Capital) Rules were also amended in the year to implement the latest Basel requirements on capital adequacy and capital requirements on sovereign concentration risk to complement the Basel standards on large exposures.

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 HKD RTGS system. The 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 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, which allows overseas investors to access the Mainland interbank bond market through Hong Kong, experienced increasing usage over the past two years 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.

Banks may obtain intra-day and overnight liquidity through repurchase agreements with the HKMA using EFBNs as collateral.

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