HKMA preparing law amendments for proposed two-tier bankings system

The central bank has published results of its consultation and new parameters added.

The Hong Kong Monetary Authority (HKMA) is preparing legislative amendments for its planned overhaul of the banking system into a two-tier system, from the current three-tier.

In a statement posted in August 2024, HKMA chief executive Eddie Yue noted “broad support” from consultation respondents for the two-tier banking system. 

Under the new system, deposit-taking companies (DTC) and second-tier institutions (restricted licence banks or RLBs) will be merged into one tier.

A transition period of 5 years has been proposed to help affected institutions meet the minimum capital of HK$100m and minimum deposit size of HK$500,000.
 
HKMA received a total of seven inquiries during the three-month consultation period from June to September 2023. After considering feedback, two new parameters were added to its proposal.

First, existing DTCs will be converted into an RLB upon meeting the minimum capital requirement of an RLB before the end of the 5-year transition period. They do not need to apply for a fresh license, the central bank said.

Converted RLBs may continue to hold and renew or roll over outstanding deposit taken before the upgrade, up to the end of the 5-year transition period. This is subject to pre-existing deposit sizes and maturity requirements of DTCs of HK$100,000 and 3 months, respectively. 

"The HKMA will provide guidance to the DTCs in their transition. Following the issuance of the consultation conclusions, the HKMA will work with the relevant parties to prepare the proposed legislative amendments to implement the proposal," Yue said.