On 19 Dec 2025, the HKMA issued CR-G-9 (V.5), superseding prior versions, to clarify statutory limits (15% ACPE ratio, 5% ACNPE ratio, HK$20M/5% per natural person) and mandate robust controls for banking institutions' exposures to connected parties. The proposals will establish requirements for board oversight, arm’s length terms, CRM monitoring, and accurate regulatory reporting to prevent improper lending and ensure capital adequacy compliance.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction and Purpose
On 19 Dec 2025, the Hong Kong Monetary Authority (HKMA) issued CR-G-9 Exposures to Connected Parties (V.5), superseding previous versions (V.1 to V.4) to provide updated guidance on statutory limits and risk management controls for banking institutions (Als) regarding exposures to connected parties under Part 8 of the Banking (Exposure Limits) Rules (BELR). The proposals will establish clear requirements for identifying, measuring, monitoring, and controlling such exposures to prevent improper lending and safeguard financial stability.
Statutory Limitation on Exposures
The proposals will establish that Als must comply with statutory limits under Rule 87: (i) an aggregate connected parties exposure ratio (ACPE ratio) not exceeding 15% of Tier 1 capital; (ii) an aggregate single connected party exposure (ASCP exposure) to each connected natural person not exceeding the lower of HK$20 million or 5% of Tier 1 capital; and (iii) an aggregate connected natural persons exposure ratio (ACNPE ratio) not exceeding 5%. Exposures protected by recognized credit risk mitigation (CRM) are excluded from these limits, but Als must monitor CRM-protected exposures to prevent breaches.
Required Controls and Oversight
The proposals will mandate that Als implement robust systems including: (i) Board-level oversight of connected party exposures, requiring policies approved by the Board covering categories of connected parties (including senior management, subsidiaries, and controllers); (ii) independent monitoring by a designated unit to identify exceptions and ensure compliance; (iii) policies ensuring exposures are on arm’s length terms, not more favourable than non-connected parties; and (iv) procedures for reporting breaches to the HKMA as 'notifiable events' under Rule 7(2). Als may apply a specified flexibility for private banking exposures meeting strict criteria (e.g., fully secured, arm’s length terms).
Disclosure and Capital Treatment
The proposals will require Als to disclose connected party transactions per financial reporting standards and accurately report exposures in HKMA’s 'Return of Large Exposures' and 'Certificate of Compliance' forms. For capital adequacy, loans to connected commercial entities must be deducted under Banking (Capital) Rules §43(1)(n), while loans to financial sector entities require deduction under §43(1)(o)-(q) unless incurred in the ordinary course of business, which Als must demonstrate via internal controls.
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