MR CHAN CHUN-YING:
President, in my capacity as Chairman of the Subcommittee on Financial Institutions (Resolution) (Protected Arrangements) Regulation and Financial Institutions (Resolution) Ordinance (Commencement) Notice 2017, I now report on the deliberations of the Subcommittee to this
The purpose of the Financial Institutions (Resolution) Ordinance (Commencement) Notice 2017 is to appoint 7 July 2017 as the date on which the Financial Institutions (Resolution) Ordinance (“FIRO”) (except for certain provisions) will commence. The Financial Institutions (Resolution) (Protected Arrangements) Regulation sets out the requirements to be complied with by a resolution authority when exercising certain resolution powers in order to safeguard the economic effect of specified financial arrangements.
The Subcommittee has held two meetings with the Government to scrutinize the two items of subsidiary legislation. The Subcommittee and the Government have not proposed any amendments to the two items of subsidiary legislation.
In the course of deliberations, the Subcommittee has discussed the specific protection for deposits under FIRO, in particular, how the Hong Kong Monetary Authority (“HKMA”), as a resolution authority, would transfer the protected deposits held by a failed bank and ensure continued protection for such deposits under the Deposit Protection Scheme Ordinance. Some Subcommittee members are concerned that if HKMA transfers the deposits to a private sector purchaser or a bridge institution which is not an authorized institution, the transferred deposits would not be covered under the Deposit Protection Scheme (“DPS”).
The Government has explained that section 12(1) of the Banking Ordinance (“BO”) provides that no business of taking deposits shall be carried on in Hong Kong except by an authorized institution. Under section 12(6) of BO, it is an offence if an entity carries on deposit-taking business in Hong Kong without being authorized as an authorized institution. Given the restriction of section 12(1) of BO and having regard to the objective of the resolution regime, HKMA cannot and will not transfer the deposit-taking business of a failed bank to an entity that is not an authorized institution.
A member of the Subcommittee has expressed concern that “transfer of protected deposits” is not the same as “taking of deposits”, and hence, sections 12(1) and 12(6) of BO may not be applicable. Besides, section 13(1) of BO provides that the Financial Secretary may exempt an entity from section 12(1), in which case HKMA can transfer the deposit to a non-authorized institution through administrative arrangements. The member has stressed the importance of including an explicit provision in FIRO to stipulate that when HKMA effects a transfer of “protected deposits” of a failed bank, it must transfer those deposits to another entity that is authorized under BO and also a member of DPS.
Regarding the concern that “transfer of protected deposits” is not the same as “taking of deposits”, the Government has confirmed its legal position that sections 12(1) and 12(6) of BO are applicable to the “deposit-taking business” which clearly covers deposits transferred by a resolution authority under FIRO.
On the application of section 13(1) of BO on a resolution case, the Government has clarified that it is not the policy intent to request from the Financial Secretary the grant of such an exemption. Moreover, as deposit protection is one of the important objectives of BO, the Financial Secretary would, in any case, have due regard to making sure that the protected deposits in a resolution case would be transferred to a bank, and hence, a member of DPS to achieve continuity of depositor protection.
To address the concern about the lack of an explicit provision to mandate HKMA to transfer protected deposits to an authorized institution, the Government has committed to undertaking a review, as part of a future amendment exercise to FIRO, to identify any statutory amendments which are necessary to address the concern raised and reflect the Government’s position regarding sections 12(1) and 12(6), and section 13(1) of BO with greater statutory certainty.
President, herein below are my views on the two items of subsidiary legislation.
MR CHAN CHUN-YING (in Cantonese):
The Financial Institutions (Resolution) (Protected Arrangements) Regulation (“the Regulation”) prescribes requirements to be complied with by a resolution authority when exercising certain resolution powers. In the course of deliberations, members have expressed concern on how the Monetary Authority, when resolving a non-viable bank, would ensure continued protection for the transferred deposits under the Deposit Protection Scheme Ordinance (“DPSO”).
The Government will respond to members’ concerns and reiterate its position and commitment today. I think the Government’s reiteration of its position and commitment can address members’ concerns. I believe that, under the existing Banking Ordinance, the Monetary Authority, when resolving a non-viable bank, should be able to ensure continued protection for the transferred deposits under DPSO so that the interests of depositors are not affected.
I notice that the concern about deposit protection is not actually derived from the Regulation. Instead, focus should be placed on the provisions of DPSO. Hence, to ensure the effective implementation of the Regulation, I hope the Government will review and amend DPSO expeditiously in respect of its
arrangements relating to deposit protection after the passage of the Regulation.
President, I so submit.