On 20 Dec 2024, the HKMA issued revised guidance (CA-B-3 V2) superseding its 2015 version to clarify how locally incorporated Als must allocate private sector credit exposures to jurisdictions for CCyB calculations. The guidance mandates allocation on an 'ultimate risk basis,' detailing rules for CISs, securitisations, collateral treatment, and jurisdictional designations by the HKMA. The revised framework takes effect 1 January 2025.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
Market Misconduct Tribunal: A Guide to Penalties and Other Consequences for Misuse of Insider Information
Market Misconduct Tribunal proceedings for mishandling of insider information can result in fines and disgorgement orders
Disclosure Of Material Non-Public Price Sensitive Information (MNPI): A Guide For Hong Kong Listed Companies
New legislation in Hong Kong introduces a statutory regime for the disclosure of price sensitive information by SEHK listed companies. The regime substantially
SPOTLIGHT ON
FAMILY OFFICES
Purpose and Scope
On 20 Dec 2024, the Hong Kong Monetary Authority (HKMA) issued a revised Supervisory Policy Manual (SPM) module CA-B-3 V2, superseding the 2015 version, to provide updated guidance for locally incorporated Authorised Institutions (Als) on determining the geographic allocation of private sector credit exposures for Countercyclical Capital Buffer (CCyB) calculations within Hong Kong's capital adequacy framework. The guidance clarifies how Als must allocate exposures to jurisdictions on an ultimate risk basis to calculate their Al-specific CCyB ratio, as required under the Banking (Capital) Rules (BCR).
Key Regulatory Updates
The revised guidance clarifies critical aspects of geographic allocation under BCR §30(2) and §3N, focusing on determining the jurisdiction where risk ultimately lies. It specifies that Als must allocate exposures to the jurisdiction of the 'ultimate obligor' (not merely the immediate counterparty) in cases involving credit protection (e.g., guarantees, credit derivatives) or collateral. For collective investment schemes (CISs) and securitisation exposures, the geographic location is determined by the jurisdiction where obligors represent the highest proportion (minimum 30%) of underlying exposures, or proportionally if no single jurisdiction meets the threshold. The guidance also details treatment for collateral: securities collateral (excluding cash/gold) allocates to the issuer's jurisdiction, while cash/gold collateral or non-private obligor securities exclude the covered portion from CCyB calculations. Additionally, the HKMA reserves the right to designate specific jurisdictions (e.g., offshore centres without Basel III CCyB frameworks) where exposures must be allocated to Hong Kong, unless Als provide evidence of a genuine economic nexus.
Implementation and Effective Date
The revised module replaces CA-B-3 V1 (2015) and takes effect from 1 January 2025. Als must apply the updated methodology to aggregate risk-weighted amounts (RWAj) for private sector credit exposures across both banking and trading books to calculate their Al-specific CCyB ratio. The guidance explicitly states that RWAj calculations must exclude RWA for Credit Valuation Adjustment (CVA) risk and adhere to BCR requirements regardless of the output floor. Als are expected to use RWA calculated under specified BCR Parts (e.g., Part 4 for STC, Part 8 for market risk charges) for CCyB purposes.
View the full article:Source
