31 March, 2020
The outbreak of Covid-19 and associated instability in the financial market is likely to present challenges for regulated firms in Hong Kong, in particular in the context of complying with regulatory reporting deadlines and capital requirements. In light of this, Hong Kong regulators have announced a number of relief measures to alleviate the impact of Covid-19 on regulated firms.
The Hong Kong Monetary Authority (the “HKMA”)
Countercyclical buffer reduced from 2%to 1%
Under the Banking (Capital) Rules (Cap. 155L of the L aws of Hong Kong), a specific countercyclical capital buffer (“CCyB”) requirement is applicable to authorised institutions (“AIs”), expressed as a percentage of their CET1 capital to its total risk-weighted assets. The CCyB requirement aims to increase the resilience of the banking sector in periods of excess credit growth. On 16 March, the HKMA noted that “economic indicators and other relevant evidence have signalled that the economic environment in Hong Kong has deteriorated further since the novel coronavirus outbreak” and reduced the applicable jurisdictional CCyB ratio from 2% to 1% with immediate effect.
In making this decision, the HKMA observed that “lowering the countercyclical capital buffer at this juncture will allow banks to be more supportive to the domestic economy, in particular those sectors and individuals that are expected to experience additional short-term stress due to the impact arising from the outbreak” and that “the banking sector can then act as a ‘shock absorber’ in times of stress, rather than as an amplifier of risk to the broader economy”.
Please click here for the press release by the HKMA.
Base rate cut to 0.86%
The base rate is the interest rate forming the foundation upon which the discount rates for repurchase transactions through the discount window are computed. On 16 March, the HKMA adjusted the base rate downward to 0.86%, mirroring the slightly larger 1% cut by the US Federal Reserve.
Please click here for the press release by the HKMA.
Acknowledgement of difficulties in meeting reporting obligations
As discussed in our Covid-19: An Asia Guide on Commercial and Legal Issues published on 10 February 2020, the HKMA has noted that AIs may encounter operational difficulties in meeting statutory deadlines for the filing of annual accounts and related documents due to the impact of the Covid-19 outbreak; the HKMA has announced that it is open to considering extensions on a case- by-case basis, but AIs should apply in writing as soon as practicable. The HKMA is encouraging AIs to discuss with it as soon as possible should they anticipate any difficulties in making prescribed disclosures under the Banking (Disclosure) Rules (Cap 155M of the Laws of Hong Kong) on time.
Please click here for the announcement by the HKMA.
The Securities and Futures Commission (the “SFC”)
Regulatory Guidance
The SFC and The Stock Exchange of Hong Kong Limited (“SEHK”) have noted that “the challenges arising from the COVID-19 pandemic are unprecedented” and that they are “cognizant of the challenges that market participants have been facing under the circumstances”. Accordingly, the SFC and SEHK have issued a joint statement on 4 February 2020 and a set of FAQs on 28 February 2020 to provide guidance on the publication of preliminary results announcements due on 31 March 2020. On 16 March 2020, the SFC and the SEHK has issued further guidance which provides that if by 31 March 2020 an issuer is able to publish a preliminary results announcement without agreement with its auditors, or its management accounts, then the SEHK will normally not suspend trading in its securities. In all other cases, the issuer should consult the SEHK as soon as possible to discuss its individual circumstances. In all cases, the announcement should also explain how and why the travel and other restrictions have affected the issuer’s ability to meet its reporting deadline.
Separately, in respect of the publication of annual reports due by 31 March 2020 (GEM issuers) and 30 April 2020 (Main Board issuers), the guidance provides that an issuer may defer the publication of its annual report initially for up to 60 days from the date of this statement if the issuer has published, on or before 31 March 2020,
(i) its preliminary results with its auditors' agreement in compliance with Main Board Rule 13.49 or GEM Rule 18.49 (as applicable);
(ii) its preliminary results without its auditors' agreement pursuant to the joint statement;
(iii) its management accounts; or (iv) Material Financial Information (which includes key financial figures and narrative discussions of an issuer’s financial position and performance to supplement the financial figures provided).
Please click here for the guidance dated 16 March 2020 by the SFC and the SEHK.
Extending the deadline on completing the 2019 Asset and Wealth Management Activities Survey (the “Survey”)
A licensed corporation (“LC”) is required to participant in the Survey conducted by the SFC on an annual basis for the SFC to collect information about asset and wealth management activities in Hong Kong for regulatory and market facilitation purposes and to develop a better understanding of the state of the asset and wealth management industry in Hong Kong. In light of the latest situation of Covid-19, the SFC recognises that a LC may require longer time to complete the survey. Accordingly, the response period of the Survey for the year ended 31 December 2019 is extended to 29 April 2020.
Please click here for the press release by the SFC.
Acknowledgment of difficulties in meeting regulatory obligations
As discussed in our Covid-19: An Asia Guide on Commercial and Legal Issues published on 10 February 2020, the SFC has issued a press release on 5 February 2020 acknowledging that there may be delays to “business as usual” operations for both the SFC and the LCs and applicants. While the press release states that the SFC expects generally that all reasonable efforts should be taken to maintain “business as usual” in relation to LCs’ regulatory obligations and all regulatory filing, reporting, and other deadlines, if delays are expected they should be communicated promptly to the usual contact points at the SFC.
Please click here for the press release by the SFC.
For further information, please contact:
Chong Liew, Partner, Linklaters
chin-chong.liew@linklaters.com