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INTERSHORES I HKMA’s Proposal To Restructure Hong Kong’s 3-tier Banking System To 2-tier

The HKMA (Hong Kong Monetary Authority) has issued a public consultation paper proposing to simplify the structure of the Hong Kong banking system.  The current three-tier structure of the banking system – i.e. licensed banks (LBs), restricted licence banks (RLBs) and deposit-taking companies (DTCs) – has been in place since the 1980s, introduced to strike a balance between flexibility of market entry and protection of small depositors.


The HKMA has recently conducted a review of the three-tier banking system in Hong Kong to ensure it remains fit for purpose. Based on the results of the review, the HKMA proposes to simplify the three-tier banking system into two tiers.


Under the new proposed structure, LBs would be maintained as “first-tier institutions”, which are allowed to offer the full range of banking services, including to retail customers. They will continue to be subject to a HKD 300 million capital requirement.


The DTCs category would be merged into the RLBs category, creating a single “second-tier institutions” category. These institutions would be subject to a HKD 100 million minimum capital requirement as well as a HKD 500,000 minimum deposit size requirement.


Currently, Hong Kong’s 15 RLBs – mainly merchant banks serving the capital markets – are already subject to a HKD 100 million minimum capital requirement, while DTCs are subject to a HKD 25 million capital requirement.


The HKMA proposes to provide a transition period of five years to allow existing DTCs to upgrade to LBs or RLBs and meet the new capital requirement. Currently there are only 12 remaining DTCs need to upgrade to a higher tier or exit the market completely.


While “second tier institutions” cannot accept retail deposits, they may take large deposits of HKD 500,000 or above without restriction on maturity, the HKMA said. Currently DTCs can only accept deposits of HKD 100,000 and they must be held for at least three months.


“The review aims to simplify the structure of Hong Kong's banking system, enhancing its vital role in strengthening Hong Kong's status as an international financial centre.   The changes would also “revitalise institutions in the category of DTCs and enhance their flexibility and efficiency in conducting business and meeting customers’needs.


The consultation is open for comments until end September 2023.


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Whilst reasonable care has been taken in provision of information above, it does not constitute legal or other professional advice. INTERSHORES does not accept any responsibility, legal or otherwise, for any error omission and accepts no responsibility for any financial or other loss or damage that may result from its use.  In particular, readers are advised to take appropriate professional advice before committing themselves to any involvement in jurisdictions, vehicles or practice.










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