Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 19

Measures which may be taken by Monetary Authority if authorized institution using IMM approach no longer satisfies specified requirements

(1) Where—

   (a)  an authorized institution uses the IMM approach to calculate its
        market risk; and

   (b)  the Monetary Authority is satisfied that, if the institution were to
        make a fresh application under section 18(1) for approval to use the
        IMM approach to calculate its market risk, the approval would be
        refused by virtue of section 18(3), the Monetary Authority may take
        one or more of the measures set out in subsection (2).

(2) The measures referred to in subsection (1) are that—

   (a)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to use the STM approach instead
        of the IMM approach to calculate its market risk in respect of
        general market  risk or specific risk, or both, for its positions in
        all risk categories or all of its business, or such risk categories or
        such part of its business as specified in the notice, beginning on
        such date, or the occurrence of such event, as specified in the
        notice;

   (b)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to—

        (i)    submit to the Monetary Authority a plan, within such period

(being a period which is reasonable in all the circumstances of the case) as
specified in the notice, which satisfies the Monetary Authority that, if it
were implemented by the institution, the institution would cease to fall
within subsection (1)(b) within a period which is reasonable in all the
circumstances of the case; and

        (ii)   implement the plan;

   (c)  the Monetary Authority may, by notice in writing given to the
        institution, advise the institution that the Monetary Authority is
        considering exercising the Monetary Authority's power under section
        101 of the Ordinance to vary the capital adequacy ratio of the
        institution by increasing it;

   (d)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to calculate its
        market risk capital  charge by the use of such higher multiplication
        factor as specified in the notice in accordance with section 319(3);
        and

   (e)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to reduce its market risk
        exposures in such manner, or to adopt such measures, specified in the
        notice which, in the opinion of the Monetary Authority, will cause the
        institution to cease to fall within subsection (1)(b) within a period
        which is reasonable in all the circumstances of the case, or will
        otherwise mitigate the effect of the institution falling within that
        subsection.

(3) An authorized institution shall comply with the requirements of a notice
given to it under subsection (2)(a), (b), (d) or (e).

(4) For the avoidance of doubt, it is hereby declared that—

   (a)  the requirements specified in Schedule 3 are also applicable to and in
        relation to an authorized institution using the IMM approach to
        calculate its market risk in respect of the use by the institution of
        an internal model to which a significant change referred to in
        section 18(4) relates (whether or not the institution has, in respect
        of that change, been given the prior consent referred to in
        section 18(4)), and subsection

(1)(b) and the other provisions of this section apply to the institution
accordingly; and

   (b)  subsection (2)(c) does not operate to prejudice the generality of the
        circumstances in respect of which the Monetary Authority may exercise
        the power under section 101 of the Ordinance in the case of an
        authorized institution to which that subsection applies.