On 01 Aug 2025, the HKMA updated its CG-1 guidance to mandate enhanced board oversight, stricter INED requirements for systemically important banks, and comprehensive governance disclosures. The guidance requires boards to establish specialized committees chaired by INEDs, implement robust risk appetite frameworks, and disclose detailed governance information annually to ensure sound corporate governance aligned with evolving banking risks.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction and Purpose
On 01 Aug 2025, the Hong Kong Monetary Authority (HKMA) issued the updated Supervisory Policy Manual module CG-1, Corporate Governance of Locally Incorporated Authorized Institutions (V.4), which sets out the minimum standards expected for corporate governance frameworks of locally incorporated authorized institutions (Als). The guidance supersedes previous versions and establishes a principles-based framework to ensure sound governance aligned with the evolving banking landscape, emphasizing the board's ultimate responsibility for financial soundness and risk management.
Board Responsibilities and Structure
The guidance mandates that boards must set and oversee strategic objectives (2.3), establish robust risk governance including a risk appetite framework (2.4), and ensure effective oversight of senior management (2.5). Boards must appoint a Chief Risk Officer, maintain a strong risk culture, and implement independent risk management functions. For systemically important Als (G-SIBs/D-SIBs), the board must comprise at least one-third or three independent non-executive directors (INEDs), with at least two possessing banking/financial expertise (4.2.5).
Committee Requirements and Disclosure Obligations
All Als must establish four specialized committees (nomination, audit, risk, remuneration), chaired by INEDs with relevant expertise (5.2-5.5). The audit committee must include a chair with accounting/banking background. Als are required to disclose key governance information annually, including board composition, risk appetite details, conflicts of interest policies, and complex structures (2.10.2). The Banking (Disclosure) Rules (BDR) mandate formal disclosure policies approved by the board (2.10.4).
Fit-and-Proper Assessment and Supervisory Process
The HKMA will rigorously assess board and senior management suitability through its fit-and-proper test (11.3), requiring Als to provide details of external directorships and management roles. The HKMA may conduct face-to-face interviews with candidates and requires timely notification of any changes affecting a director's fitness. Supervisory reviews will evaluate governance frameworks against the guidance's standards, with systemically important Als subject to annual board-level meetings with the HKMA (11.1.2, 11.2.1).
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