Regulatory Alerts2022-01-18
Added · Updated
Revised SPM Module TA-2: Foreign Exchange Risk Management
The Hong Kong Monetary Authority issued a revised Supervisory Policy Manual module TA-2 to align its foreign exchange risk management requirements with the Basel Committee on Banking Supervision's guidance. This update aims to specify regulatory expectations more granularly, particularly regarding risks associated with the settlement of foreign exchange transactions. Authorized Institutions must achieve full compliance within one year of the circular's date, with the regulator encouraging the use of payment-versus-payment arrangements to mitigate settlement risks.
Banking Policy Department Our Ref: B1/15C B4/1C B1/21C B4/9C S4/8C 18 January 2022 The Chief Executive All Authorized Institutions Dear Sir/Madam, Revised SPM Module TA-2: Foreign Exchange Risk Management I am writing to inform you that, following consultation with the two industry Associations, the Monetary Authority is issuing a revised version of its Supervisory Policy Manual (SPM) module TA-2 “Foreign Exchange Risk Management” as a guidance note today. The changes in the revised SPM module are mainly to incorporate the BCBS’ Supervisory guidance for managing risks associated with the settlement of foreign exchange transactions1 (BCBS guidance). The HKMA’s current regulatory and supervisory frameworks have already broadly covered the major requirements set out in the BCBS guidance, though at a slightly less granular level. This update aims to more specifically state the requirements in the SPM in order to better align it with the BCBS guidance. The start of full compliance should be commensurate with AIs’ exposures to foreign exchange settlement-related risks but not be reached later than one year from the date of this circular. As stated on previous occasions, the HKMA encourages AIs to settle foreign exchange transactions through available payment-versus-payment (PvP) arrangements in an effort to reduce their foreign exchange settlement-related risks.
1 https://www.bis.org/publ/bcbs241.pdf
2 The revised SPM module can be accessed on the HKMA’s public website (https://www.hkma.gov.hk/eng/regulatory-resources/regulatory-guides/supervisory-policy-manual) or through the Supervisory Communication Website (https://www.stet.iclnet.hk). Should you have any questions relating to this letter or the revised SPM module, please feel free to contact Mr Horace Lee (2878 1540, hhwlee@hkma.gov.hk) or Mr Steven Yu (2878 1324, schyu@hkma.gov.hk). Yours faithfully, Daryl Ho Executive Director (Banking Policy) Encl cc: The Chairperson, The Hong Kong Association of Banks The Chairperson, The DTC Association FSTB (Attn: Mr Justin To)
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