Hong Kong Monetary Authority Publishes Conclusions on Three-Tier Banking System Review

The Hong Kong Monetary Authority (HKMA) has announced the conclusions of its public consultation on the review of the three-tier banking system, according to the HKMA. The consultation, which began on June 26, 2023, received broad support from the banking industry, professional bodies, and relevant organizations.

Proposed Transition to Two-Tier System

The HKMA has proposed merging deposit-taking companies (DTCs) into the second-tier institutions, known as restricted license banks (RLBs). The transition is expected to be completed within five years, during which existing DTCs will need to meet the minimum capital requirement of HK$100 million and the minimum deposit size of HK$500,000 to qualify as RLBs.

To facilitate a smooth transition, the HKMA has introduced several measures:

• Existing DTCs will be converted to RLBs without needing to submit new license applications, provided they meet the minimum capital requirement within the five-year transition period.
• Converted RLBs will be allowed to hold and renew or roll over outstanding deposits taken before the upgrade, up to the end of the transition period, subject to the pre-existing deposit size and maturity requirements of DTCs (HK$100,000 and three months, respectively).

Industry Feedback and HKMA Response

The consultation received seven submissions from various stakeholders. The respondents generally supported the proposed changes. In response to the feedback, the HKMA has made adjustments to streamline the transition process and minimize the impact on existing DTC customers.

HKMA Chief Executive Eddie Yue expressed satisfaction with the consultation's outcome, stating, "We are pleased to note the broad support of the respondents for the proposed simplification of the three-tier banking system into a two-tier system. We have carefully considered the suggestions received and adopted them as appropriate. The HKMA will provide guidance to the DTCs in their transition."

Next Steps

Following the publication of the consultation conclusions, the HKMA will work with relevant parties to prepare the necessary legislative amendments to implement the proposed changes. The full Conclusions Paper is available on the HKMA website.

Hong Kong Monetary Authority
5 August 2024