On 24 Oct 2024, the HKMA proposed revised LAC disclosure requirements mandating semi-annual reporting via Template CCA(A) for resolution entities to detail features of capital instruments and non-capital LAC debt. The proposals introduce a new Section 3a requiring non-Hong Kong law instruments to specify enforceability mechanisms (Contractual/Statutory), and mandate grouping instruments by purpose (regulatory capital only, LAC only, or both) to enhance transparency on loss-absorbing capacity.
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Introduction
On 24 Oct 2024, the Hong Kong Monetary Authority (HKMA) issued revised standard LAC disclosure template (Template CCA(A)) and updated Code of Practice chapter LAC-1, proposing amendments to the existing loss-absorbing capacity (LAC) disclosure requirements under the Financial Institutions (Resolution) (Loss-absorbing Capacity Requirements — Banking Sector) Rules.
Scope and Application
The revised Template CCA(A) is mandatory for all resolution entities and material subsidiaries under the LAC Rules to disclose the main features of Common Equity Tier 1 (CET1), Additional Tier 1 (AT1), Tier 2 (T2) capital instruments, and non-capital LAC debt instruments included in their external or internal loss-absorbing capacity. The template replaces prior disclosure formats and applies to all instruments recognized under the LAC Rules, with specific exemptions for Hong Kong-incorporated Authorised Institutions (AIs) that may use Table CCA instead for regulatory capital instruments included in both capital and LAC requirements.
Key Reporting Requirements
The template mandates semi-annual qualitative and quantitative disclosures covering 34 specific fields, including instrument type, governing law, capital treatment, conversion/write-down triggers, and subordination. Critical new requirements include Section 3a, which mandates resolution entities to specify whether non-capital LAC debt instruments governed by non-Hong Kong law meet enforceability criteria under Section 13 of the TLAC Term Sheet via 'Contractual' or 'Statutory' legal bases (with 'NA' for Hong Kong-governed instruments). Instruments must be grouped into three categories: (i) meeting only regulatory capital requirements; (ii) meeting both regulatory capital and LAC requirements; or (iii) meeting only LAC requirements.
New Requirements for Non-HK Instruments
The proposals introduce a mandatory compliance mechanism for non-Hong Kong law instruments under Section 3a, requiring resolution entities to obtain independent legal advice acceptable to the HKMA confirming enforceability of resolution powers. Entities must report the legal basis (Contractual/Statutory/NA) for non-HK instruments, addressing a gap in prior disclosure frameworks. This aligns with the LAC Rules' requirement for loss-absorbing capacity to be effective across all jurisdictions.
Implementation Details
Disclosures must be updated semi-annually or upon material changes (e.g., issuance, redemption, conversion, or write-down triggers), with web links to instrument issuances included. Accompanying full terms must be posted on the entity’s website. The template allows flexible formatting but requires standardized inputs for 22 fields (e.g., instrument type, coupon structure, conversion triggers) using predefined options. Resolution entities may post disclosures on group company websites with prior approval, though Hong Kong AIs must use their holding company’s site for certain instruments.
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