Global Financial Strategy - HKMA relaxes RMB bank regulations

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HKMA relaxes RMB bank regulations

Wednesday 18 January 2012 – by Karina Whalley

The Hong Kong financial watchdog says conditions are “ripe” to relax regulation on banks trading the Chinese renminbi currency in a bid to make HK an offshore RMB business centre.

On Tuesday, the Hong Kong Monetary Authority announced changes to the limit on RMB net open positions and risk management, which will take effect immediately.

HKMA chief executive Norman Chan said during a speech: “With the continued growth in both turnover and depth of the offshore RMB market in HK, the HKMA considers that conditions are now ripe to appropriately relax certain regulatory requirements on the RMB business of banks in HK.”

The maximum limit for RMB net open positions will be raised from 10 per cent to 20 per cent of a bank’s total RMB assets or liabilities, Chan said.

The RMB risk management limit requires authorised institutions to hold more than a quarter of its total RMB customer deposits in cash.

But the regulator will now allow two more categories of RMB assets to be included in calculating the limit; RMB sovereign bonds issued in HK and RMB bond investments through the Chinese interbank bond market.

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“They will help expand the scope of development for offshore RMB business in HK and provide banks with a greater flexibility in RMB asset management,” said the HKMA head.

The body also imposed restrictions on some RMB assets as liquid assets when calculating the statutory liquidity ratio, but as the adjustments are “complicated and technical”, Chan said the details will be announced at a later date.

The HKMA and the UK Treasury recently announced the launch of a joint private-sector forum aimed to enhance development of offshore renminbi business.

UK chancellor George Osborne said on Monday that he plans to make London the primary offshore centre for trading RMB due to the country’s well-suited regulatory structure and developed markets.

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