The Panel on Financial Affairs of the Legislative Council met on 7 October 2024 to consider LC Paper No. CB(1)1298/2024(02), briefing LegCo members on (a) the Government’s plans to amend the Banking Ordinance (“BO”) and (b) two of the proposed legislative amendments to the BO, namely (i) simplifying the three-tier banking system into two-tiers; and (ii) allowing the sharing of information among authorized institutions (“AIs”) about customers, accounts and transactions for the purposes of preventing and detecting financial crime.
For the agenda, please see here. To access a full copy of LC Paper No. CB(1)1298/2024(02), please see here.
The Hong Kong Monetary Authority (“HKMA”) has conducted a public consultation on the aforementioned two BO enhancement proposals.
1. Simplification of the Three-tier Banking System
- On 5 August 2024, the HKMA published the conclusions on the public consultation relating to the review of the three-tier banking system.
The current banking system in Hong Kong has three-tiers, comprising of licensed banks (“LBs”), restricted licence banks (“RLBs”) and deposit-taking companies (“DTCs”). The HKMA launched a three-month public consultation on 26 June 2023. In the consultation, the HKMA proposed to merge DTCs into the second-tier institutions, i.e. RLBs, with a transition period of five years, with the current requirements relating to RLBs in respect of minimum capital (i.e. HK$100 million) and minimum deposit size (i.e. HK$500,000) to be extended to DTCs.
Having considered the feedback from the consultation, the HKMA has introduced the following new parameters to the proposal with a view to streamlining the transition and minimising the impact on existing customers of DTCs:
a. the HKMA intends to adopt an arrangement whereby, without the need for them to submit fresh licence applications, existing DTCs will be converted into RLBs, upon demonstrating to the satisfaction of the HKMA that they have met the minimum capital requirement of an RLB before the end of the 5-year transition period; and
b. converted RLBs (i.e. ex-DTCs) to continue to hold and renew or roll-over outstanding deposits taken before the upgrade, up to the end of the 5-year transition period, subject to the pre-existing deposit size and maturity requirements applicable to DTCs of HK$100,000 and 3 months respectively.
For the press release, please see here. To access a full copy of the consultation paper, please see here.
2. Information Sharing among AIs for Crime Prevention and Detection
The HKMA issued a consultation document on 23 January 2024 to seek views from the banking sector and the public regarding the proposal to enable AIs to engage in the sharing of customer account information. (Please see here for our previous article). The consultation closed on 29 March 2024 and the proposal received general support from respondents.
To combat financial crime, including fraud, money laundering (“ML”), terrorist financing (“TF”) and proliferation financing (“PF”), it has been proposed that:
a. AIs be permitted to share information, as requested by another AI or on an AI’s own initiative, where:
(i) a disclosing/requesting AI has observed activity that it has reasonable grounds to believe may indicate possible involvement in ML/TF/PF;
(ii) a disclosing AI has reasonable grounds to believe that the information will assist receiving AI(s) in detecting or preventing ML/TF/PF; and
(iii) a requesting AI has reasonable grounds to believe that AI(s) to which the request is sent have information likely to assist in detecting and preventing ML/TF/PF;
b. legal protection be provided to AIs sharing information (i.e. sharing will not be considered a breach of confidentiality requirements under the law, rules of conduct or in contracts), although AIs will be required to act with reasonable care and in good faith;
c. to the HKMA be empowered to designate platforms to be used for sharing, and to permit AIs to access, and maintain a database; and
d. AIs be obliged to protect confidentiality of information received, except for necessary onward disclosure, and maintain adequate systems and controls.
