HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
Impact on banks in Hong Kong The broader implications of Basel 3.1 for Hong Kong banks include the following. • Capital adequacy adjustments – banks may need to bolster their capital bases to meet the enhanced requirements, impacting profitabil - ity and lending capacities. • Operational changes – implementation of new risk assessment models and reporting sys - tems will require operational adjustments and investment in compliance infrastructure. • Competitive dynamics – the reforms could alter competitive dynamics, particularly between banks with varying capacities to adapt to the new standards. Overall, while Basel 3.1 aims to strengthen finan - cial stability, it presents challenges that Hong Kong banks must navigate to maintain compli - ance and operational efficiency. 4.7 Use of Derivatives No specific laws or regulations apply to the use of derivatives in securitisations or with regard to SPEs, although there are regulations relating to derivatives generally, such as those relating to disclosure and margins. Basel III’s capital requirements should also be considered if deriv - atives are used in securitisations, particularly in terms of credit and counterparty risk. 4.8 Investor Protection The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (the “Code of Conduct”) In Hong Kong, the debt securities market is almost entirely private, and marketed to insti - tutional investors or professional investors by commercial banks or financial firms.
Whilst banks are generally regulated by the Code of Banking Practice, banks and financial inter - mediaries which are registered or licensed with the SFC are also subject to SFC’s Code of Con - duct in their dealings with investors. The Code of Conduct is therefore of general importance in regulating the conducts of financial intermediar - ies and for investor protection in Hong Kong, although it does not specifically target securiti - sations. Investor protection under the SFC regime The Code of Conduct provides some major pro - tections for investors of investment products (ie, applicable to securitisations). For instance, a licensed person (eg, an arranger) is required to take all reasonable measures to establish the following characteristics of an investor: • its true and full identity; • its financial situation and investment experi - ence; and • its investment objectives. When making any investment recommendation or solicitation, the arranger is also required to ensure that the suitability of such recommenda - tion or solicitation is reasonable in all the cir - cumstances for the investor, and to disclose information to the investor that is relevant to the transaction before or at the point of sale, includ - ing the arranger’s capacity, affiliation with the issuer (if any), benefits received by the arranger and terms under which the investor may receive a discount on fees. Where a cooling-off period has been incorpo - rated into a securitisation product, the arranger is also required to execute the investor instruc - tion promptly where the investor decides to exercise its right to back out of the transaction, and the arranger should pass on to the inves -
169 CHAMBERS.COM
Powered by FlippingBook