On 16 October 2017, the Hong Kong Monetary Authority (HMKA) issued a circular on management responsibilities for Hong Kong licensed banks which conduct regulated activities (registered institutions). The circular is intended to supplement the existing management prudential regime under the Banking Ordinance framework.
Pursuant to the circular, registered institutions are required to notify the HKMA and the Securities and Futures Commission (SFC) of details of the individuals who are responsible for their regulated activity business. Certain related information also needs to be provided, including an organisational chart showing the registered institution’s management and governance structure and certain information in relation to the designated individuals.
The circular provides that the designated individuals are expected to be chief executives (including alternate chief executives), managers (i.e. managers under the existing section 72B framework of the Banking Ordinance) and, in the case of Hong Kong incorporated registered institutions, executive directors (the HKMA does not expect non-executive directors to be responsible for the day-to-day management of any business of a registered institution). This approach as to seniority is not unexpected, and ensures the requirements of the circular align with the existing management prudential regime under the Banking Ordinance framework.
Market participants will note that the circular closely follows some aspects of the SFC’s Manager-In-Charge regime (MIC regime). The MIC regime became effective on 17 October 2017. As the MIC regime only applies to licensed corporations, it is not surprising that the HKMA and the SFC have decided to impose similar requirements on registered institutions.
Perhaps the principal reason why the circular imposes fewer requirements than the MIC regime is because of the existing management prudential regime under the Banking Ordinance. In particular, pursuant to the existing requirements under Part XIII of the Banking Ordinance, chief executives (including alternate chief executives), executive officers and, in the case of Hong Kong incorporated registered institutions, directors, must be approved by the HKMA. The HKMA approval will focus on whether the relevant candidates are fit and proper to be appointed to the relevant role. Additionally, the HKMA needs to be notified of the appointment of a manager by a registered institution. Whilst the HKMA does not assess such individuals for fitness and properness, a registered institution’s chief executive and directors need to conduct this assessment before appointing an individual as a manager.
There is, however, a distinction between the management prudential regime under the Banking Ordinance and the requirements under the circular. Whereas the management prudential regime imposes vetting requirements on senior management, the circular is principally focused on enabling the HKMA and the SFC to obtain additional information on the regulated activities and individual business for which management of registered institutions are responsible.
The circular also highlights the HKMA’s and the SFC’s continued focus on senior management responsibility and demonstrates that this topic remains a regulatory priority.
Registered institutions are required to submit the relevant information to the HKMA and the SFC by 16 April 2018. Thereafter, updates are required to be submitted to the HKMA and the SFC within 14 days of the relevant changes taking effect.
A copy of the guidance from the circular can be found here.