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Hong Kong To Enhance Depositor Protection Scheme

by Mary Swire, Lowtax.net, Hong Kong
17 September, 2014

The Hong Kong Monetary Authority (HKMA) and Hong Kong's Financial Services and the Treasury Bureau (FSTB) have issued a consultation paper on proposed enhancements to Hong Kong's Deposit Protection Scheme (DPS).

The DPS is considered to be a key component of the financial safety net that contributes to the general stability of the financial system in Hong Kong. It is a statutory scheme operated by the Hong Kong Deposit Protection Board and was established to protect depositors and reduce the risks of bank runs during a banking crisis.

Originally established in 2006, enhancements to the DPS are now to be implemented to provide a more reliable safeguard for depositors against the event of a bank failure.

The HKMA and FSTB have noted that a key focus of relevant reforms internationally in recent years has been to strengthen the capacity to make prompt payouts when a DPS is triggered. In view of this and recent assessment results from the International Monetary Fund, the Government proposes to accelerate the process of making deposit compensation to depositors when a bank fails.

For example, a "gross payout" approach would be adopted to determine DPS compensation. A depositor would be compensated an amount up to the DPS protection limit, currently HKD500,000 (USD64,500), without the need to set-off the depositor's liabilities against his/her protected deposits in the same bank at the time of determining and distributing the payouts, and more certainty would be provided for determining the reference date used for calculating the deposit compensation amount to accelerate the calculation.

A government spokesperson said: "The proposed enhancements to the DPS will strengthen the financial safety net for general depositors, and further consolidate Hong Kong's status as an international financial center."

A public consultation on the proposal will last for three months, until December 12, 2014.

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