On 6 October 2017, the Hong Kong Monetary Authority (HKMA) issued a circular to announce the publication of two revised Supervisory Policy Manual (SPM) modules, namely CG-1 “Corporate Governance of Locally Incorporated Authorised Institutions” (CG-1) and IC-1 “Risk Management Framework” (IC-1). Revisions were made to the modules to incorporate guidelines issued by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB) on corporate governance and risk management principles, thereby bringing Hong Kong more into line with international standards.
Impacted authorised institutions (AIs) will be expected to implement the new requirements with effect from 1 January 2018.
Corporate governance and senior management accountability continue to be hot topics in Hong Kong (as well as globally) since the Securities and Futures Commission (SFC) issued its circular on the Manager in Charge regime in December 2016 (please see our briefing on this topic here). The HKMA has also issued the following guidance in relation to corporate governance:
KEY CHANGES TO THE CORPORATE GOVERNANCE MODULE (CG-1)
CG-1 applies to locally incorporated AIs but some of the guidelines will serve as a helpful reference guide to AIs incorporated outside of Hong Kong.
In CG-1, the HKMA has provided more elaborate guidance in relation to the following areas:
We set out below some examples of the enhanced guidance.
Responsibilities of the board and senior management
Role of the chair and composition of INEDs
Governance issues in group structures
KEY CHANGES TO RISK MANAGEMENT MODULE (IC-1)
IC-1 applies to all AIs (ie, locally incorporated and non-locally incorporated AIs).
The HKMA has provided more elaborate guidance in relation to the following areas:
The finalisation of the amendments to CG-1 form part of an increased focus on the role of the board and senior management. Read in conjunction with the HKMA’s earlier guidance on the role of INEDs and the SFC’s Manager in Charge regime, senior management should be in no doubt that this is a focus which will continue.
Whilst boards and senior management will have already started a review of their existing governance frameworks, committee structures and membership in light of the HKMA’s earlier guidance around INEDs, impacted AIs should ensure that any amendments made adequately address the HKMA’s new guidance in CG-1 and IC-1.