Financial Disclosure Standards in Hong Kong
Depositors and shareholders and bank counterparties should be provided with relevant, reliable and timely information on banks to enable them to assess banks' performance and risk profile. Increased transparency in financial reporting also serves to enhance Hong Kong's position as an international financial centre, demonstrating the financial strength of Hong Kong's banks as well as providing relevant and comparable information to financial analysts and credit rating agencies.
Since 1994, when the Best Practice Guide on Financial Disclosure was issued, the HKMA has aimed to ensure that the standards of financial disclosures in Hong Kong remain in line with those required in other leading financial centres. In 2001, detailed disclosure requirements for locally and overseas incorporated authorized institutions were specified under three sets of Financial Disclosure Guidelines issued as modules of the Supervisory Policy Manual. On 1 January 2007 the Banking (Disclosure) Rules ("the Rules") entered into force, replacing the guidelines with a statutory disclosure regime.
The Rules updated the disclosure regime by taking into account the risk-based disclosures recommended in Basel II, as well as the enhanced disclosures resulting from the adoption of International Accounting and Financial Reporting Standards in Hong Kong. They prescribe the minimum standards for public disclosure which the authorized institutions must make in respect of their profit and loss, state of affairs and capital adequacy ratio.
To provide authorized institutions with supplementary guidance on how certain provisions of the Rules should be interpreted, the HKMA issued a Supervisory Policy Manual module CA-D-1 "Guideline on the Application of the Banking (Disclosure) Rules" on 30 May 2007. The HKMA also issued a supplementary Questions & Answers document to assist with application of the Banking (Disclosure) Rules and the Guidelines.
Annual and Interim Financial Disclosure by Locally Incorporated Authorized Institutions
Under the revised disclosure regime, authorized institutions incorporated in Hong Kong (except for the smaller restricted licence banks and deposit-taking companies) are required to disclose certain financial information (both on an interim and annual basis) relating to their income statements and balance sheets.
Authorized institutions are also subject to different levels of annual disclosure requirements, both qualitative and quantitative, depending on which of the credit risk calculation approach under the HKMA’s capital adequacy regime – Basic, Standardized or Internal-Ratings Based (IRB) approach– they adopt. For example, authorized institutions using the standardized approach are required to make quantitative disclosures, covering such matters as derivatives and counterparty risk, credit risk mitigation, asset securitisation, operational risk, market risk, interest rate risk in the banking book and exposures to non-bank Mainland counterparties. Authorized institutions using the IRB approaches are required to make disclosures broadly similar to those required of the standardized approach but in a greater level of detail, to enable third parties to form a considered view of the robustness and effectiveness of their internal risk-management systems.
Half-yearly Financial Disclosure by Overseas Incorporated Authorized Institutions
In view of the prominence of overseas incorporated authorized institutions in the Hong Kong banking sector, the Rules also contain minimum disclosure standards to be observed by these institutions. The Rules are applicable to the larger overseas incorporated authorized institutions and require them to disclose selected key financial information every six months in line with the disclosure requirements applicable to locally incorporated institutions, covering size and performance of their operations in Hong Kong and the quality of their assets. Certain key financial information (such as capital, assets, loans and deposits) of the overseas institution as a whole are also required to be disclosed to help place the operation of the local branch within the context of the whole institution.
The HKMA will continue to keep the disclosure framework up-to-date, taking account of international best practices and accounting developments in Hong Kong and other leading financial centres.