MA approach to designating G-SIBs

9.1 General

9.1.1 As mentioned in paragraph 1.3.1, the BCR include a power for the MA to designate an AI as a G-SIB, and to impose an HLA requirement on a G-SIB so designated, if the risks associated with the AI are such that, upon its failure the AI would be capable of having a significant impact on the effective working and stability of the global financial system.

9.2 Assessment methodology

9.2.1 The assessment methodology to identify G-SIBs adopts the Basel Committee’s G-SIB framework as mentioned in paragraph 1.2.1. In parallel with the Basel Committee’s annual assessment, the MA will conduct its own annual G-SIB assessment applying the Basel Committee’s assessment process to any relevant reporting AIs (see paragraph 9.2.2 below) for which the MA is the home regulatory authority.

9.2.2 AIs meeting the following criteria will be required under

§63(2) of the Banking Ordinance to report data on the twelve G-SIB indicators used in the Basel Committee’s G-SIB

16 See Consultative Document on the Review of the Pillar 3 disclosure requirements, issued in June 2014: http://www.bis.org/publ/bcbs286.pdf

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methodology to the MA, using the template and reporting instructions devised by the Basel Committee¹⁷:

(i) AIs of a size (as measured by the leverage ratio measure of exposure) exceeding the Hong Kong Dollar equivalent of 200 billion Euro, based on the exchange rate at the relevant cut-off date;

(ii) any AIs which (although below the threshold in (i)) the MA, in the exercise of supervisory judgement, considers should be added to the reporting group; and

(iii) any AIs which were classified as G-SIBs in the previous year.

9.2.3 Given that the Basel Committee and MA assessments use identical data, methodology and parameters, the outcomes should be consistent. In the unlikely event that the results of the local MA process and global Basel Committee process should differ, the MA will liaise with the Basel Committee with a view to identifying the source of the difference and rectifying the matter.

9.2.4 The Basel Committee’s G-SIB framework also allows for the designation of banks as G-SIBs on the basis of supervisory judgement. If the MA were to consider that a locally incorporated AI (for which the MA is the home authority), which would not otherwise be assessed to be a G-SIB by the application of the Basel Committee’s methodology, should in fact be designated as a G-SIB, the MA may propose the addition to the Basel Committee and provide the MA’s supporting justification for consideration by the Basel Committee and the FSB. However, this would be expected to be a very rare event. The MA envisages that, in general, any designation by the MA of an AI as a G-SIB will be in line with the inclusion of that AI on the list of G-SIBs published annually by the FSB.

9.3 HLA requirement

17 The template and reporting instructions can be found at: www.bis.org/bcbs/gsib/, and may be updated by the Basel Committee from time to time.

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9.3.1 The MA will apply HLA requirements to any AIs that are designated as G-SIBs in a manner commensurate with their degree of systemic importance. §3ZA of the BCR prescribes a G-SIB HLA range of 1–3.5% of risk weighted assets in line with the Basel Committee’s G-SIB framework. The G-SIB will be notified in writing of its HLA requirement.

9.3.2 If a locally incorporated AI is designated as both a G-SIB and D-SIB, the HLA requirement to be applied to the AI will be the higher of the D-SIB or G-SIB HLA requirement (BCR

§3ZD). This is in line Principle 10 of the Basel Committee’s D-SIB framework.

9.4 Disclosure requirement

9.4.1 An AI must disclose information (and will thus be subject to disclosure requirements under the BDR) regarding its group’s systemic importance if it falls into any of the following categories:

(i) it is designated as a G-SIB by the MA in the reporting period or was designated as a G-SIB by the MA in the immediately preceding annual reporting period; or

(ii) the AI’s consolidation group had, at the immediately preceding 31 December, a leverage ratio exposure measure in respect of its group exceeding the Hong Kong Dollar equivalent of 200 billion Euro, and the MA directs the AI to make the requisite disclosure.

9.4.2 The disclosure requirements should be included in the AI’s published financial statements, or the AI should provide a direct link or reference in its annual financial statements to the relevant sections of its public website where the disclosures can be found. The disclosure should be made no later than four months after the financial year-end.

9.4.3 Any locally incorporated G-SIB will be required to disclose its specific G-SIB buffer requirement (or D-SIB buffer requirement if higher) in the MA’s standard capital disclosure template for the purpose of making disclosures on the composition of the AI’s capital base under the BDR.

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Contents Glossary Home Introduction

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Annex 1 QUALITATIVE INDICATORS

1. Anticipated business expansion/contraction 2. Anticipated merger and acquisition

3. Analysis of exposures to a particular banking group across AIs

4. Settlement institution for any payment or clearing system (e.g. RTGS) 5. Banknote issuing banks

6. Extent of retail banking network in Hong Kong 7. Number of overseas branches of the AI

8. Activities in the FX market in Hong Kong in terms of market share

9. Activities in Hong Kong Dollar-denominated bond market in terms of market share

10. Structure of the group a. Number of subsidiaries b. Number of associates

c. Number of special purpose vehicles d. Number of joint ventures

e. Number of local and overseas subsidiaries being designated as D-SIB 11. Involvement in, and scale of, the following types of services provided by the

group:

a. Securities brokerage b. Trustee

c. Insurance

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QUALITATIVE INDICATORS

d. Custodial services for debt and equity securities e. Money lender

f. Money broker

g. Futures trading business h. Bullion trading business

12. Amount and number of non-plain vanilla products/portfolios held 13. Amount of off balance sheet exposures

14. Presence of booking centre outside Hong Kong 15. Degree of mismatch in activity and booking centres