Hong Kong Monetary Authority

Transcription

1 Hong Kong Monetary Authority HKMA - Approach to Resolution Planning A G-SIB host country perspective The World Bank FinSAC Workshop 19 April 2017

2 HKMA s function as Resolution Authority HKMA established, on 1 April 2017, a new permanent Resolution Office (RO), headed by a Commissioner who reports directly to the Chief Executive of the HKMA The RO works to ensure the Hong Kong resolution regime is operational for banks. Its priorities are to i. Establish resolution policy standards for banks; ii. Define resolution strategies and conduct resolvability assessments of banks; iii. Work with banks to remove impediments to resolvability; and iv. Develop the operational capability necessary to execute orderly resolution Resolution Office Chief Executive Norman Chan Commissioner of Resolution Stefan GANNON Head, Resolution Eamonn WHITE Banking Supervision Deputy Chief Executive (Banking) Prudential Policy Policy team Execution team Banking Conduct Enforcement & AML

3 2. HKMA approach to resolution planning

4 Resolution planning lifecycle* Initiation of resolution Increasing proximity to failure A. Resolution Planning in BaU (ongoing) B. Contingency Planning (when significant threat to the safety and soundness of the bank is identified) C. Resolution Execution 1. Information gathering 2. Resolution strategy setting 3. Resolvability assessment 4. Removal of impediments Detailed transaction design, information requests, legal analysis, cross-border coordination, execution readiness Application of stabilization tools; or recognition of cross-border actions Ongoing coordination between resolution and supervision teams Increasing intensity of authorities resources utilisation * Stylised resolution planning lifecycle for an FI 4

5 HKMA approach to resolution planning Prepare (or update) information Set preferred resolution strategy and develop resolution plans Assess resolvability Address firm specific impediments to resolution AI to prepare core information and provide to HKMA AI to prepare supplementary information (requirement set according to preferred strategy by HKMA) HKMA to set preferred resolution strategy for AI HKMA to develop operational resolution plans based upon preferred strategy HKMA to assess whether resolution strategy is feasible and credible with reference to relevant standards 2 AI to participate in bilateral workstreams to facilitate assessments AI to propose measures to remove or mitigate impediments Once agreed with HKMA, AI to implement measures to address impediments Next steps for local resolution planning: (i) The core information requirements which underpin resolution planning for AIs is expected to be published around the FIRO comes into effect within (ii) The resolution office will advance resolution planning based on a phased approach with individualaiswithafocusonthoseposingthegreatestsystemicriskinhongkong.

6 Resolution Planning Cross-border issues Home/Host Resolution Planning Firms tend to prefer the primacy of the home resolution plan and a single set of resolution planning requirements e.g. information submissions, actions to address barriers to resolvability Risk of overlap or duplication in home and host authorities resolution requirements: Scope of group versus regional resolution information Development of complementary resolution planning workstreams scopes e.g. operational continuity definition of critical services for mapping dependencies Conversely, challenge for home authorities to assess the whether firms are taking the required action in host jurisdictions in a consistent agreed manner by relying on group management evidence and analysis only 6

7 Resolution Planning Cross-border issues Defining Host role and effective CMGs Although, home authorities take the lead in resolution planning with G-SIBs and coordinating with hosts via CMGs etc., host authorities can: engage the CMG and with regional management to get assurance that home resolution plan for the banking group as a whole is consistent with their resolution objectives support the CMG s work by providing information/analysis on firm resolution work in host jurisdictions and insights into any local specificities that need to be considered provide independent verification of whether the banking group is taking action to implement to address barriers to group resolution plan locally Essential for hosts to have regular engagement with regional management on CMG resolution planning priorities and to conduct regional information gathering and analysis to assess whether actions agreed by CMG to improve resolvability are being implemented locally. There is a well established model for host engagement in CMGs between developed capital market economies (e.g. US/UK/HK) 7

8 Resolution Planning Cross-border issues Key issue for Hosts Coordinating home/host work with group and regional management Some good examples in CMGs of home/host authorities agreeing ex-ante scope of workstreams with group or regional management of firms This provides a mechanism for coordinating home/host resolution planning work, ensures consistent messages and direction to firms. Resolvability Assessments & RAP process Home CMG materials provide the basis for cooperation and agreement between home and host e.g. home presentations, BRRD Plan and Assessment docs, firm presentation etc. RAP templates provide hosts with a structured and quantitative way of understanding resolvability and tracking progress For RAP reporting, consistency and granularity varies across CMGs 8

9 Resolution Planning Cross-border issues Key issues for Hosts TLAC/i-TLAC Deposit funding banks in HK and depth of interest in local issuance non-capital TLAC Timing on distribution of TLAC at Holdco and link to hosts TLAC regulations i-tlac and loss transfer mechanism - host/home need to agree loss transfer mechanisms for the relevant debt instruments i-tlac, material sub-group definition and designations based on Term Sheet Principle 17D material to the exercise of the firm s critical functions Funding in resolution Liquidity/collateral analysis important for hosts need to be involved in setting behavioural/regional modelling assumptions Time zone issues: HK market opens before home for most G-SIBs - modelling capability needs to be tailored to identify such liquidity needs 9

10 Resolution Planning Cross-border issues Key issues for Hosts Operational Continuity in Resolution Critical function versus jurisdictional/business mapping Recognition powers and comparability of compensation arrangements Hong Kong creditors must be eligible to claim compensation under an arrangement with the foreign resolution authority which has broadly consistent eligibility criteria for compensation under FIRO Important to ensure a comparable basis for conducting NCWOL valuations in home and host jurisdictions Resolution Valuation Need to consider in CMGs consistency in valuation methodologies Home and host to agree how to coordinate the valuer for the group as a whole, ensuring access to regional/local management 10

11 Resolution Planning Cross-border issues Key issues for Hosts Legal entities structures Increasing legal entity simplification and alignment of business lines with legal entities in UK/UK/Switzerland (e.g. IHCs, retail ring-fencing, Swiss lifeboat) with potential benefits for resolution Many cases of G-SIBs organising their businesses in APAC across regional divisions covering multiple jurisdictions While from a SPE bail-in perspective, branch operations or cross-jurisdictional divisions not a barrier, there is an increased importance of regional APAC regulatory coordination on resolution requirements to ensure consistency 11

12 Thank you