On 27 Nov 2025, the HKMA issued CR-G-9 V.5, replacing all prior versions, to enforce statutory limits on exposures to connected parties: a 15% aggregate ACPE ratio and 5% ACNPE ratio cap on Tier 1 capital, with per-connected-natural-person limits of HK$20 million or 5% of Tier 1 capital. The guidelines mandate board-level oversight, robust internal policies, and strict capital treatment for connected company exposures, requiring deduction under BCR unless proven to be in the ordinary course of business.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction and Scope
On 27 Nov 2025, the Hong Kong Monetary Authority (HKMA) issued CR-G-9 Exposures to Connected Parties (V.5), superseding all previous versions (V.1 to V.4) and providing updated supervisory guidance for authorized institutions (Als) on managing exposures to connected parties under Part 8 of the Banking Ordinance. This statutory guideline mandates systems and controls to identify, measure, monitor, and control such exposures, emphasizing arm's length transactions and compliance with statutory limits.
Statutory Limits and Definitions
The guidelines enforce statutory limits under Rule 87 of the Banking (Exposure Limits) Rules (BELR), requiring Als to maintain an aggregate connected parties exposure ratio (ACPE ratio) not exceeding 15% of Tier 1 capital. For connected natural persons, the aggregate single connected party exposure (ASCP exposure) must not exceed the lower of HK$20 million or 5% of Tier 1 capital, with an aggregate connected natural persons exposure ratio (ACNPE ratio) capped at 5%. Connected parties include directors, employees, controllers, minority shareholders, and entities controlled by these parties, with specific definitions for 'relative' and 'control' under Rule 85(4) and Rule 84(1).
Oversight and Control Requirements
Als must establish board-level oversight, including a dedicated policy on exposures to connected parties covering categories of connected parties (e.g., senior management, subsidiaries, and entities under Al control), exposure calculation methods, and terms not more favourable than non-connected parties. The Board must approve significant exposures, ensure independent monitoring by a designated unit, and implement systems to identify new connected parties (e.g., post-merger/acquisition). A 'Specified Exposure' flexibility applies for private banking exposures meeting strict criteria (arm's length, fully collateralized, and compliant with internal policies), treating such exposures as compliant with Section 3 provisions.
Disclosure, Reporting, and Capital Treatment
Als must disclose connected party transactions per financial reporting standards and accurately report exposures in HKMA’s 'Return of Large Exposures' and 'Certificate of Compliance' forms. Breaches of Part 8 limits require immediate reporting to the HKMA. For capital adequacy, exposures to connected commercial entities must be deducted under Banking (Capital) Rules (BCR) Section 43(1)(n), while exposures to financial sector entities require deduction under Sections 43(1)(o)-(q) unless proven incurred in the ordinary course of business. Als must demonstrate compliance via controls, including independent review of exposures.
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