Application of exceptional treatment in extraordinary circumstances

4.3.1. Applying a higher jurisdictional CCyB rate and/or shorter advance announcement period. The MA may by notice in writing given to all AIs (see BCR §3P(11)) require AIs to adopt in respect of an overseas jurisdiction:

1. where the jurisdictional CCyB rate as announced by the relevant authority in that jurisdiction is lower than 2.5%, a higher applicable jurisdictional CCyB rate (of not more than 2.5% of RWA) than the jurisdictional CCyB rate set by the said relevant authority (see BCR

§3P(3)(b) and (4)(a));²³ and/or

2. a shorter advance announcement period (of not less than 6 months) for an announced CCyB rate increase to become effective than the period determined by the relevant authority in that jurisdiction (see BCR

§3P(5)(b), (9) and (10)),

where the MA reasonably considers that:

i. the jurisdictional CCyB rate has been set by the relevant authority at a level (including where the rate is zero because no jurisdictional CCyB rate has been set) which is insufficient to adequately bolster AIs’ resilience in view of the risks posed to AIs by reason of the excessive credit growth being experienced in that jurisdiction; and/or

ii. with a view to ensuring adequate resilience of authorized institutions, or the effective working of the banking system in Hong Kong, the effective date of the applicable jurisdictional CCyB rate should be different from that of the jurisdictional CCyB rate as

23 See para. 4.2.2 for the case where the MA recognises a jurisdictional CCyB rate above 2.5%.

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announced by the relevant authority of the jurisdiction concerned.

Without limiting the discretion provided by BCR §3P(4) and (5)(b), the above might be the case e.g. if:

A. with respect to i, the relevant authority in the respective jurisdiction has set a jurisdictional CCyB rate that is lower than that corresponding to the Basel Common Reference Guide calculated for that jurisdiction, and the MA does not see sufficient justification for the relevant authority doing so. In such a case, the MA could decide to apply an applicable jurisdictional CCyB rate in respect of the respective jurisdiction that corresponds to the Basel Committee Common Reference Guide calculated for that jurisdiction; or

B. with respect to i and/or ii, the relevant authority in the respective jurisdiction has set a jurisdictional CCyB rate that is not lower than that corresponding to the Basel Common Reference Guide calculated for that jurisdiction and an advance announcement period that is not longer than 12 months, but the MA’s analysis of available relevant information strongly suggests that the systemic risk affecting AIs’

exposures in the respective jurisdiction is higher than suggested by the indicators and/or analysis used by the relevant authority in that jurisdiction in setting its jurisdictional CCyB rate and/or the date for its becoming effective.²⁴

The MA will consider on a case by case basis whether to consult with the industry Associations in respect of CCyB decisions under this paragraph, depending on factors such as the insights the industry could offer based on business/exposure levels in the jurisdiction concerned, the magnitude of the difference between the MA’s

24 The likelihood of the actual application of the course of action described in case B is very remote. It would only be in rare circumstances that the MA would likely consider that it had a sufficiently strong case for overriding CCyB rate decisions in overseas jurisdictions in the circumstances described in para. B, given that the information available to the national authorities in the relevant jurisdictions is likely to be greater than that available to the MA.

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proposed buffer and that prevailing in the jurisdiction and the concerns underlying the consideration by the MA of the need for a higher applicable CCyB rate for the relevant jurisdiction.

4.3.2. Applying a longer advance announcement period. The MA may, in respect of an overseas jurisdiction, by notice in writing given to all AIs (see BCR §3P(11)), determine for application by AIs a longer advance announcement period (of not more than 12 months and, in the case of an applicable CCyB rate increase, not less than 6 months) for an announced applicable jurisdictional CCyB rate to become effective than the period determined by the relevant authority in that jurisdiction, where the MA reasonably considers that, with a view to ensuring adequate resilience of AIs, or the effective working of the banking system in Hong Kong, the effective date of the applicable jurisdictional CCyB rate should be different from that of the jurisdictional CCyB rate as announced by the relevant authority of the jurisdiction concerned (see BCR §3P(5)(b), (9) and (10).

Without limiting the discretion provided by BCR §3P(5)(b), the above might be the case e.g. if:

A. the relevant authority in the respective jurisdiction has set a date for an announced jurisdictional CCyB rate to become effective that is less than 12 months after the announcement, and the MA does not see sufficient justification for the relevant authority doing so; and/or

B. the MA’s analysis of available relevant information suggests that systemic conditions in Hong Kong (e.g. AIs’ capacity to adjust without unduly impairing credit provision in Hong Kong) call for a longer advance announcement period.

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Annex 1 – Calculating the Basel Common Reference Guide for Hong