The new regime aims to be in line with the latest international standards set out by the Financial Stability Board.
Late last week, the four regulators – the Hong Kong Monetary Authority, the Financial Services and Treasury Bureau, the Security and Futures Commission and the Insurance Authority – jointly published the outcome of a three-month consultation, which ended on 20 April 2015.
The paper said the authorities will be able to extend their “designation powers” to both regulated and unregulated financial institutions (FIs).
Not inconceivable
“It is of course clearly desirable that an unregulated FI should first be brought within the regulatory perimeter before being made subject to the resolution regime,” the document reads.
“However, it is not inconceivable that future financial innovation could swiftly result in the creation of new entities or structures that rapidly interpose themselves into the financial system, gaining a significant foothold, before the case for regulation becomes apparent.”
The regime aims to reflect the risks that failed financial institutions pose on Hong Kong’s financial stability.
Unduly long
The rules proposed that a resolution authority will be given a 14-day window to consider whether to initiate resolution before a winding-up petition can be filed with the court.
However, some respondents expressed concern that 14 days might be “unduly long”, meaning the proposed period has been shortened from 14 to seven days.
Claw-back
Under the proposed regime, Hong Kong resolution authorities will be able to apply to the court to claw-back remuneration from FIs at any time.
There were mixed views on whether claw-back should apply to both fixed and variable remuneration, and on how far back in time the claw-back power should reach.
“On balance the authorities are inclined to limit claw-back to the period of three years preceding the initiation of resolution, but extendable by the court for up to three further years back in cases of dishonesty,” the paper reads.
Most respondents were in favour of cross-border collaboration and information sharing between home and host resolution authorities, however, many argued that foreign-led resolution action should not be automatic.
