The Hong Kong Monetary Authority (HKMA) has released the conclusions of its public consultation on the review of the three-tier banking system, which includes proposals for a new two-tier structure requiring a minimum capital of HK$100 million and a minimum deposit size of HK$500,000.

The conclusions paper outlines the key comments received, the HKMA’s responses, and the proposed implementation of the new system.

The HKMA initiated a three-month public consultation on 26 June 2023, suggesting the merger of deposit-taking companies (DTCs) into restricted license banks (RLBs) over a five-year transition period.

This proposal includes applying the current RLB requirements during the transition period.

Seven submissions were received from the banking industry, professional bodies, and other relevant organizations, with general support for the proposal.

In response, the HKMA has introduced measures to streamline the transition and minimise the impact on existing DTC customers.

These new parameters include converting existing DTCs to RLBs without requiring fresh license applications, provided they meet the minimum capital requirement by the end of the transition period.

This conversion will be upon demonstrating to the satisfaction of the HKMA that they have met the minimum capital requirement of an RLB before the end of the five-year transition period.

Additionally, converted RLBs will be allowed to maintain and renew deposits taken before the upgrade, within the existing DTC requirements.

This includes holding, renewing, or rolling over outstanding deposits taken before the upgrade, up to the end of the five-year transition period, subject to the pre-existing deposit size and maturity requirements of DTCs of HK$100,000 and 3 months respectively.

“We are pleased to note the broad support of the respondents of the proposed simplification of the three-tier banking system into two-tier. We have carefully considered the suggestions received and adopted them as appropriate.

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,”

said Eddie Yue, Chief Executive of the HKMA.

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