Regulators in Hong Kong
The Hong Kong financial sector is supervised by three bodies:
Regulatory Environment — Hong Kong
Our reporting solution for Hong Kong is designed to satisfy the reporting requirements of the Hong Kong Monetary Authority (HKMA) for Hong Kong Authorised Institutions including licensed banks, restricted licensed banks and deposit-taking-companies.
Balance sheet reporting
Balance sheet reporting provides information on the financial position of a bank and is required by the HKMA on a monthly and quarterly basis. Under this type of reporting all the banks in Hong Kong are required to submit the reports on assets and liabilities in Hong Kong and in overseas branches as well as all the supplementary information.
Profit and loss reporting
Capital adequacy reporting
Interest rate risk reporting
Loans and advances and provisions reporting
Large exposures reporting
Return of Renminbi (RMB) business activities
Foreign currency position reporting
External position reporting
Direct transactional reporting
Firms are faced with investing time, effort and resource to:
So how can we help you?
Wolters Kluwer Financial Services provides regulatory reporting solutions throughout the world for banks, insurance companies, and other financial institutions. By leveraging a global data model (DataFoundation), a standardised integral development environment, fully integrated calculation capabilities and a global runtime engine for reporting, we can provide local reporting efficiently consistently for any jurisdiction.
The main benefits of the our regulatory reporting solution include:
As leaders in the field of risk and regulatory solutions Wolters Kluwer Financial Services understands your business needs. Our heritage in and in-depth knowledge of the financial market enables the development of our solutions to be so flexible that they meet the needs of ALL firms whatever the size or complexity.
Wolters Kluwer Financial Services leads the way in risk and regulatory compliance solutions and can provide full coverage to all banks legally bound to report to the HKMA, SFC and/or DPS in Hong Kong.
Asset & Liability Management (ALM)
ALM is being embraced as more than just a tool to monitor and manage interest rate risk in the banking book. It is a process for managing balance sheets against other risks that affect earnings and portfolio valuations of banks, shifts in customer behavior, future balance sheet growth, and impact of business strategies (pricing, hedging, growth, and planning).
In light of the financial crisis, firms of all shapes and sizes are re-evaluating their ALM model. In order to earn an adequate return, the need to assess and mitigate the adverse value and income impact of changes in the market has become even more vital.
So how do different types of financial institutions manage their ALM requirements today?
Large, tier one firms typically develop their ALM systems in-house, a luxury few smaller firms can’t afford. These systems typically include sophisticated and finely tuned functionality for value exposure, value-at-risk, dynamic simulation, earnings-at-risk, and treasury view.
In the past, smaller firms have found solutions for meeting ALM requirements to be over-complicated, difficult to integrate with incumbent systems, resource-dependent and cost-prohibitive. For these reasons they have resorted to using alternative methods such as spreadsheets or independent consultants, neither of which is ideal.
Until now the sheer cost of developing and supporting an in-house ALM system has been restrictive to smaller firms but the need to have accurate visibility into the future position of the firm is critical.
Our heritage and in-depth knowledge of the market have enabled the configuration of our solution to be so flexible that it meets the needs of ALL firms; from those with highly complex derivatives to those with a vanilla approach.
Our ALM solution provides a comprehensive range of capabilities covering the following areas:
And for the smaller firm
Our rich ALM solution offers functionality that delivers immediate return on investment by taking a ‘compact’ approach with risk management features that absorb complexity. Along with evaluating a mismatch between assets and liabilities, our ALM solution also manages risks arising due to liquidity and interest rate in banking books.
With our ALM solution firms can:
The 6-step process for ALM
Embracing advanced Basel II approaches and capital management practices
While some countries in Asia-Pacific and Japan were initially content with implementing basic and standardised approaches to Basel II, the trend towards more complex approaches to credit risk and market risk management has evolved as the Basel Committee on Banking Supervision continued to enhance its guidance for more sophisticated approaches to managing market, credit, and operational risk.
Hong Kong proactively adopted Basel II for all Authorized Institutions (AIs) from 1 January, 2007. The Hong Kong Monetary Authority (HKMA) believes that Basel II implementation is an important element in maintaining Hong Kong’s position as a reputable and well-supervised international financial centre. It is also an important framework for strengthening risk management practices for banks.
Hong Kong has implemented the simplest as well as at least one advanced approach for risk calculation. Unlike other developed countries, the Hong Kong Monetary Authority (HKMA) has decided to stay with the Internal rating Based (IRB) approach for calculating operational risk rather than adopting the Advanced Measurement Approach (AMA).
The Wolters Kluwer Financial Services solution provides a sophisticated Basel II module with the ability to calculate the capital charge for market and credit risk as required under Pillar 1. For Pillar 2, interest rate risk in the banking book, liquidity risk and concentration risk are covered. DataFoundation enables the reporting requirements set out in Pillar 3.
Adoption of the IFRS7 and IAS 32, 39
Employ dynamic ALM for better balance sheet management
Several Asian Countries: Malaysia, Indonesia, Thailand and South Korea have introduced adoption plans for member banks to comply with international accounting treatments (or slight variations of them). The standards include information on how to value, categorise and account for financial instruments. In addition, the standard gives details of the accounting treatment for positions that qualify for hedge accounting. As these standards continue to evolve, it is incumbent that banks have a process in place to keep up with the latest developments.
The Wolters Kluwer Financial Services IFRS solution is made up of both RiskPro and RegPro elements. FRSGlobal RiskPro enables the classification of financial instruments and the calculation of the valuation using either fair value or amortised cost as appropriate. RiskPro also supports several methods for testing and estimating impairment as required by IAS 39.
Read more about the IFRS solution here.
T: +852 2610 7053
Hong Kong LM2 Overview
The global financial crisis in 2007 exposed key deficiencies in the global banking risk management system. In response to the situation, the HKMA issued a Liquidity Management 2 (LM2) document last year to all Authorized Institutes (AIs) in Hong Kong. The LM2 initiative is closely aligned with international practices in liquidity risk management.
In summary, an AI’s liquidity risk management framework should enable the AI to identify, measure, monitor and control liquidity risk, and to maintain adequate liquidity resources to cover the nature and level of liquidity risk to which it is or may be exposed. The framework should also be comprehensive and commensurate with then nature, scale and complexity of the AI’s business activities, and should comprise the following areas:
Governance of liquidity risk management
Identification, measurement and control of liquidity risk
Liquidity risk disclosure
Added to the above is the need for an AI to make pertinent disclosure about itsliquidity risk management framework and liquidity risk position. Adequate public disclosure helps reduce market uncertainty concerning an AI’s financial condition and enables relevant stakeholders to make an informed judgement of the AI’s ability to meet its liquidity needs, both in times of stress and normal circumstances. The HKMA will in due course consider setting minimum disclosure requirements (e.g. through amending the Banking (Disclosure) Rules) to reinforce the effectiveness of the standards.
Under HKMA guidelines, all local incorporated AIs and AIs that are foreign banks operating in Hong Kong through branches will be expected to apply the LM2 standards to their Hong Kong operations, depending on their nature and systemic importance of their local operations to Hong Kong; effectiveness of their risk management policies and framework; the overall liquidity risk position of their banking group; and the relevant home country supervising the liquidity risk of their banking group on a consolidated basis.
The HKMA expects all AIs to complete all necessary changes in different areas of LM2 Governance within 12 months agreed with AIs from mid- 2011, i.e. mostly within 2012(except Liquidity Cushion, to be decided).
T: +852 2610 7053