On 6 April 2017, the Government and financial regulators in Hong Kong, namely the Hong Kong Monetary Authority (HKMA), the Insurance Authority (IA) and the Securities and Futures Commission (SFC), published their conclusion on the public consultation relating to the protected arrangements regulation, bringing the Financial Institutions (Resolution) Ordinance (Chapter 628 of the Laws of Hong Kong) one step closer to commencement.
The Financial Institutions (Resolution) Ordinance, which establishes the operation of a resolution regime in Hong Kong and confers upon the HKMA, IA and SFC (as resolution authorities), the powers to undertake resolution planning, was enacted by the Legislative Council in June 2016 but has yet to commence as it was considered prudent to have the protected arrangements regulation in place beforehand.
The protected arrangements regulation prescribes requirements to be complied with by a resolution authority in connection with six types of financial arrangements: clearing and settlement arrangements, netting arrangements, secured arrangements, set-off arrangements, structured finance arrangements, and title transfer arrangements. As these financial arrangements are fundamental to the operation of financial markets and are relied upon by financial market participants to mitigate credit risk exposure and to provide sources of liquidity and finance, legal certainty around how such arrangements would be treated by a resolution authority if resolution powers are exercised under the resolution regime is crucial.
With the release of the consultation conclusion, the protected arrangements regulation will now be tabled before the Legislative Council in Q2 of 2017 as subsidiary legislation under the Financial Institutions (Resolution) Ordinance, and the Financial Institutions (Resolution) Ordinance and the protected arrangements regulation are expected to commence during 2017.
Further information on the protected arrangements regulation and the Financial Institutions (Resolution) Ordinance can be found on the websites of the Financial Services Branch of the Financial Services and the Treasury Bureau, the HKMA, the IA and the SFC.
Our previous post regarding the Financial Institutions (Resolution) Ordinance can be accessed here.