On 15 Nov 2024, the HKMA issued a new statutory guideline establishing a risk-based supervisory framework for approved money brokers, requiring adherence to the Treasury Markets Association Code, a 50% revenue threshold for Hong Kong Money Market Businesses, minimum HK$5 million capital, and comprehensive internal controls. The guideline mandates off-site reviews, on-site examinations, and strict compliance with conditions, with non-compliance potentially leading to revocation of approval.
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Introduction
On 15 Nov 2024, the Hong Kong Monetary Authority (HKMA) issued the Supervisory Policy Manual module 'Risk-based Supervision of Approved Money Brokers' (MB-1), establishing a new statutory guideline under the Banking Ordinance §118C(7) to govern the risk-based supervision of all money brokers approved by the HKMA (AMBs). This guideline supersedes all previous guidance on the subject and sets out the HKMA's structured risk-based approach for monitoring AMBs' soundness and compliance.
Key Supervisory Requirements
The guideline mandates AMBs to comply with the Treasury Markets Association Code of Conduct and other HKMA-specified codes, requiring adherence to principles of honesty, diligence, confidentiality, and conflict-of-interest management. AMBs must maintain a business model strictly limited to broking services without proprietary trading or fund management, with at least 50% of total revenue derived from Hong Kong Money Market Businesses (as defined in the Annex). AMBs are required to implement robust internal controls covering operational, credit, liquidity, and compliance risks, including segregation of front/back office functions, anti-money laundering systems, and independent compliance functions. Additionally, AMBs must maintain minimum paid-up capital of HK$5 million and adequate net liquid assets to meet obligations.
Supervisory Process
The HKMA will conduct off-site reviews through periodic financial returns, audited statements, and director attestations of compliance with approval conditions. AMBs must submit incident reports for non-compliance and provide information on specific concerns identified during surveillance. On-site examinations may be conducted under §55(4) of the Ordinance, either generally or targeted at specific risk areas, to assess the effectiveness of AMB policies, procedures, and controls. The HKMA will also enhance cross-border cooperation with other supervisors through formal arrangements to monitor AMB operations beyond Hong Kong.
Compliance and Enforcement
Failure to comply with conditions attached to an AMB's approval, including the 50% revenue threshold for Hong Kong Money Market Businesses, constitutes grounds for revocation of approval under the Twelfth Schedule to the Ordinance. The HKMA will consider remedial actions taken by the AMB before revocation, such as spinning off non-compliant business lines. Directors must attest to compliance through periodic certificates, and AMBs must promptly report all non-compliance incidents with details of impact and remediation measures.
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