Our Standards and Regulation

 

 

The Hong Kong Financial Trading Authority is committed to providing open, transparent regulatory frameworks and requirements, which are consistent with international best practice, and to applying and enforcing these requirements sensibly and consistently in a firm but fair manner.

 

Risk-based Regulator

Underpinning our supervisory work program is our risk-based philosophy.  This ensures that our standards are appropriately calibrated to Hong Kong ’s wholesale and domestic financial markets and that our supervisory resources are applied to those firms which pose the greatest risk. This risk-based approach has been endorsed by a variety of international regulatory and standard setting bodies including, most recently, the International Monetary Fund in its 2007 assessment of Hong Kong ’s regulatory regimes for the financial services sector. 

 

Risk-based Framework

The Hong Kong Financial Trading Authority uses a risk-based framework to conduct its supervisory program, which enables us to:

 

• Carry out the responsibilities placed on the Hong Kong Financial Trading Authority by various Acts in an effective and efficient manner
• Allocate supervisory resources to where risk is most pertinent
• Observe and adhere to international best practices while monitoring and responding to external developments, taking into consideration the nature of the country’s market

 

Supervisory Process

Using the risk-based framework allows us to detect problems at an early stage and take regulatory action on a timely basis. If an entity fails, the risk-based framework seeks to ensure that it either returns to compliance or its exit from the market is timely and efficiently managed. The framework considers four main components when assessing risk:

 

• Identification of risks
• Assessment of risks
• Prioritization and resource allocation
• Regulatory response to mitigate risks

 

Supervisory Tools

Hong Kong Financial Trading Authorityhas developed separate risk-based supervisory processes for use in assessing entities in the banking, trust and investment sectors and the insurance market, since the risks presented by companies in each category vary. However, Hong Kong Financial Trading Authorityuses core common supervisory tools across sectors for the purposes of risk assessment:

 

• Fundamental Monitoring. This involves primarily off-site, desk-based review and analysis of financial data and statutory returns received from firms. This work provides an early opportunity to flag any concerns that may result from that analysis for further examination and follow-up action.
• Prudential Visits. As part of its routine supervisory activities, Hong Kong Financial Trading Authority conducts regular prudential meetings with firms’ senior management; this is in addition to the thorough off-site and on-site assessments and analysis that it undertakes in relation to regulated entities. These meetings ensure that the Hong Kong Financial Trading Authority maintains detailed monitoring of industry developments via building relationships with key management, as well as identifying any specific corporate issues.
• Identifying risk impact groups and prioritization. This involves categorizing firms according to their risk profile and assists in determining the level and frequency of supervision that they will require.
• Supervisory Actions. Based on the results of its assessments Hong Kong Financial Trading Authority will determine what supervisory actions may be required with respect to a firm’s operations and take specific actions accordingly. This could involve employing enhanced oversight, or requiring changes to be made to a firm’s operations to ensure all regulatory requirements are being met.