HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
SFC and all investors, to the extent permitted by applicable law, of changes in circumstances (including financial conditions) that could rea - sonably have a material adverse effect on the ability of the issuer (or any guarantor) to perform its obligations under the securities. The SFC is the principal regulator. If the issuer fails to meet any of these requirements, it might be required to cease advertising to or inviting offers from the public in Hong Kong until the situation is rectified. 4.5 Activities of Rating Agencies Code of Conduct for Persons Providing Credit Rating Services (the “CRS Code”) The activities of rating agencies (RAs) are sub - ject to the regulations under the CRS Code. The CRS Code provides for certain requirements that must be met by an RA licensed in Hong Kong, including that an RA may not undertake any business that could potentially cause any conflict of interest in relation to its credit rating business. In connection with this, representa - tives of an RA are prohibited from making rec - ommendations regarding the structural design of structured finance products, including secu - ritisations. An RA is also obliged to encourage the issuer of a securitisation to disclose all relevant informa - tion regarding securitisations for the purposes of enabling the investors and other RAs to con - duct independent analysis. On rating announce - ments, the RA is required to disclose whether the issuer has informed the RA that it is disclos - ing all relevant information or whether any infor - mation remains non-public. The SFC is the principal regulator. The CRS Code is a guiding document for the SFC in consider -
ing whether an RA satisfies the requirement of being fit and proper to be or to remain licensed or registered. The CRS Code does not have the force of law. 4.6 Treatment of Securitisation in Financial Entities Basel III The Hong Kong Monetary Authority (HKMA) has established a phased approach for Basel 3.1 implementation in Hong Kong. • Revised Standards on Credit Risk, Opera - tional Risk, and Output Floor – effective from 1 January 2025. • Revised Standards on Market Risk and Credit Valuation Adjustment (CVA) Risk – reporting- only requirements commence on 1 July 2024, with full implementation by 1 January 2025. Given the complex nature of Basel 3.1 reforms, regulatory bodies in the UK, EU and US continue to assess the readiness of financial institutions and the broader economic implications, which could influence future timelines. Impact on securitisation in Hong Kong Basel 3.1 requirements could influence banks’ securitisation activities in Hong Kong. • Increased capital charges – higher capital requirements for certain asset classes may incentivise banks to utilise securitisation, par - ticularly through significant risk transfer (SRT) transactions, to manage risk-weighted assets and achieve capital relief. • Enhanced risk sensitivity – the reforms aim to improve the risk sensitivity of capital require - ments, potentially affecting the attractiveness of securitisation for specific asset types.
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