HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
istration requirements under the CWUMPO, the SFO and the Hong Kong Stock Exchange, as applicable; while a private offering may be exempted from such requirements, an offering memorandum is often used for similar disclo - sures in a transaction involving a broad investor base. Most securitisation transactions in Hong Kong, however, involve an issuance in the pri - vate market to professional investors only. 4.3 Credit Risk Retention HKMA Guidance There is no specific credit risk retention require - ment under Hong Kong law. The HKMA has published a supervisory policy manual module (CR-G-12) on “Credit Risk Transfer Activities”, providing guidance to authorised institutions (eg, banks) on the vital elements of an effective risk management system for credit risk transfer activities. In particular, where an authorised institution acts as the originator in a securitisation, it is required to carry out the following actions, among others: • assess its risk exposures to the subject transaction on an arm’s length basis accord - ing to its normal assessment and approval processes; • apply a due diligence process, credit under - writing criteria and standards of analysis to the assets of the securitisation transaction that are as rigorous as those for assets that are originated or acquired by the institution for its own retention; and • ensure that investors in the securitisation transaction have access to all materially rel - evant data concerning the transaction. In addition, unless otherwise agreed with the HKMA, an authorised institution should refrain from making investments in, or incurring expo -
sure to, a securitisation transaction where the originator has not disclosed its compliance with applicable risk retention requirements – ie, requirements designed to ensure originators in securitisations retain certain economic exposure to the transactions for the purposes of aligning the parties’ interests. Non-compliance Module CR-G-12 is a non-statutory guide - line issued as a guidance note, and the above actions are recommendations by the HKMA. No penalties are stipulated for non-compliance with Module CR-G-12. If acting as underwriters or investors, authorised institutions in Hong Kong are required to com - ply with statutory limitations on exposures and risk concentrations. In summary, an authorised institution must not incur exposures to a single counterparty or a group of linked counterparties that exceed 25% of its Tier 1 capital as per the Banking (Exposure Limits) Rules (Cap. 155S). The HKMA has power to vary the prescribed limit, and make other amendments to reflect updates in regulatory standards or adaptations to new financial environments and practices. HKMA is the principal regulator of authorised institutions – eg, banks. 4.4 Periodic Reporting The Code on Unlisted Structured Investment Products requires continuing reporting in respect of certain matters. For instance, the issuer is required to inform the SFC and all investors if it ceases to meet any of the core requirements specified in this code (including that the issuer should have a net asset value of not less than HKD2 billion and that it should not be the sub - ject of any winding-up, dissolution or bankruptcy proceedings). The issuer should also notify the
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