On 19 Dec 2025, the HKMA issued Version 5 of CA-G-1, superseding the previous version, to implement the Banking (Capital) (Amendment) Rules 2025 effective 1 January 2026. The framework establishes minimum CAR requirements (4.5%/6%/8%), introduces cryptoasset-specific risk-weighting rules, mandates capital buffers including a 2.5% conservation buffer, and requires Als to maintain non-statutory internal capital targets above statutory minimums. Key updates include enhanced capital instrument eligibility criteria and a phased implementation of the output floor.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 19 Dec 2025, the Hong Kong Monetary Authority (HKMA) published Version 5 of CA-G-1 'Overview of Capital Adequacy Regime for Locally Incorporated Authorized Institutions', superseding Version 4 dated 29 Nov 2024. This update implements the Banking (Capital) (Amendment) Rules 2025, effective 1 January 2026, and provides a comprehensive framework for capital adequacy requirements under Basel III standards for Hong Kong-incorporated authorized institutions (Als).
Capital Adequacy Framework
The framework establishes minimum capital adequacy ratios (CAR) of 4.5% (CET1), 6% (Tier 1), and 8% (Total capital) for Als, calculated against risk-weighted assets (RWAs). It mandates both solo and consolidated capital calculations, with Als required to maintain capital buffers including a 2.5% capital conservation buffer and countercyclical capital buffer (CCyB) ranging from 0% to 2.5% based on systemic risk assessments. Global and domestic systemically important banks (G-SIBs/D-SIBs) face additional higher loss absorbency (HLA) requirements of 1-2.5%.
Risk-Weighting and Capital Composition
The document details risk-weighting methodologies for credit risk (using STC, BSC, or IRB approaches), market risk, counterparty credit risk, and operational risk. It introduces specific rules for cryptoasset exposures (Group 1a/b and 2a/b), requiring conservative treatment for Group 2b exposures and separate risk-weighting for cryptoasset infrastructure. Capital composition is structured into CET1, Additional Tier 1 (AT1), and Tier 2 tiers, with stringent eligibility criteria for capital instruments including point-of-non-viability conversion/writing-down triggers and legal compliance requirements.
Leverage Ratio and Compliance
The minimum leverage ratio (LR) requirement of 3% must be calculated on the same basis as CAR (solo, solo-consolidated, or consolidated). Als are required to maintain non-statutory internal capital targets above statutory minimums and implement robust internal capital adequacy assessment processes (CAAP). The HKMA will monitor compliance through CAR return reviews, external auditor reports, and supervisory review processes (SRP), with breach of requirements potentially triggering enforcement actions including license revocation.
New Regulatory Requirements
Key updates include the introduction of cryptoasset-specific risk-weighting rules (Section 8.7), a 5-year phase-in of the output floor (increasing from 50% to 72.5% by 2030), and enhanced requirements for capital instrument self-assessment and legal compliance (Section 6.4). The framework also clarifies treatment of securitization exposures, CIS investments, and sovereign concentration risk, with specific exemptions for exposures to Hong Kong, Mainland China, and the US.
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