Management Summary
- Purpose / Background: The HKMA has issued two new chapters to the Code of Practice (CoP) under the Financial Institutions (Resolution) Ordinance (Cap. 628) (“FIRO”) to standardize the valuation framework during a resolution event. These chapters detail the HKMA’s approach to valuation and the requisite capabilities Authorized Institutions (AIs) must maintain to ensure robust and timely valuation data.
- One-line conclusion: AIs must align their internal resolution planning and data capabilities with the new VIR-1 and VIR-2 standards to ensure the HKMA can perform accurate valuations under resolution scenarios.
- Key Changes:
- VIR-1 (Approach): Formalizes the methodologies, processes, and outputs expected for valuations required under FIRO.
- VIR-2 (Capabilities): Mandates that AIs establish specific operational and data arrangements to support valuation processes.
- RA-1 Update: Housekeeping revision to "Operational Independence of the Monetary Authority as Resolution Authority" for better alignment and clarity.
- Key Dates / Deadlines: Effective immediately (issued 24 July 2026).
- Applicability / Impact scope: All Authorized Institutions (AIs) in Hong Kong.
- Recommended management actions:
- Conduct a gap analysis of current data systems against the requirements in VIR-2.
- Integrate VIR-1 valuation methodologies into existing resolution planning and recovery/resolution templates.
- Ensure senior management oversight of "valuation in resolution" readiness as part of the broader resolution planning framework.
- Review internal operational procedures to ensure compatibility with the updated RA-1 document.
Detailed Summary
1) Document overview
The HKMA, as the Resolution Authority, issued new CoP chapters pursuant to section 196 of the FIRO. The objective is to provide transparency on how the MA conducts valuations and to set clear expectations for the institutional capabilities required to facilitate those valuations.
2) Main requirements
- VIR-1 (Approach): Outlines the specific statutory valuations required under FIRO. It provides clarity on the methodology, the end-to-end process, and the anticipated outputs that the MA will rely upon during a resolution process.
- VIR-2 (Capabilities): Details the expectations for AIs to build and maintain operational readiness. This includes the ability to produce necessary data and analysis in a timely manner to support the MA’s valuation requirements. It also describes the MA’s general approach to monitoring the implementation of these capabilities.
3) Key changes
- Introduction of VIR-1 and VIR-2 (new chapters).
- Revision of RA-1 (Operational Independence): The update is primarily "housekeeping," involving the removal of outdated references, alignment of document formatting with newer CoP chapters, and improvements to the bilingual translation quality.
4) Important dates & transition
- The chapters were issued on 24 July 2026 and are available via the HKMA’s public and Supervisory Communication websites. No specific grace period for implementation was explicitly stated; AIs are expected to move toward compliance immediately.
5) Impact and risks
- Operations: Potential need to enhance data management systems to ensure data availability during a crisis.
- Compliance: AIs must demonstrate that their internal capabilities satisfy the standards set out in VIR-2.
- Strategy: Valuation methodologies identified in VIR-1 should be reflected in the institution's resolution planning strategy.
6) Compliance action checklist
- Download and review VIR-1 and VIR-2 from the HKMA website.
- Perform a self-assessment against the capabilities outlined in VIR-2.
- Update internal "Resolution Readiness" playbooks to reflect the methodologies documented in VIR-1.
- Brief the Board/Senior Management on the implications of the new valuation requirements.
7) Appendices/attachments summary
- VIR-1 & VIR-2 (New CoP Chapters): These function as the core regulatory standards for valuation in resolution; they codify the expectations for institutional data readiness and the MA’s technical approach to resolution valuations.
- RA-1 (Updated): This document clarifies the operational independence of the MA as a Resolution Authority; the updates are purely administrative and do not introduce new substantive compliance requirements.