HKMA proposes simplification of three-tier banking system

It aims to simplify DTCs to second-tier institutions.   

The Hong Kong Monetary Authority (HKMA) published the consultation conclusions relating to the review of the three-tier banking system, presenting the comments received in the consultation and their responses and proposals. 

A total of seven submissions from the banking industry, professional bodies and relevant organisations in the consultation were received.

Considering the feedback, HKMA introduced new parameters to the proposal with a view to streamlining the transition and minimising the impact on existing customers of the deposit-taking companies (DTCs).

Herewith, HKMA intends to adopt an arrangement whereby, without a need for them to submit fresh licence applications.

Existing DTCs will be converted to restricted licence banks (RLB), upon demonstrating to the satisfaction of the HKMA that they have met the minimum capital requirement of an RLB before the end of the 5-year transition period.

Moreover, converted RLBs may continue to hold and renew or roll over outstanding deposits taken before the upgrade, up to the end of the 5-year transition period, subject to the pre-existing deposit size and maturity requirements of DTCs of $12,830 (HK$100,000) and three months respectively.

The HKMA launched a three-month public consultation on 26 June 2023, proposing to simplify the current three-tier banking system by merging deposit-taking companies (DTCs) into second-tier institutions. 

“The new second-tier institutions will be subject to minimum deposit size and capital requirements at the existing levels applicable to RLBs whereas the restriction that RLBs should not operate checking accounts or savings accounts will remain a principal distinction between LBs and the new second-tier institutions,” said HKMA.