Hong Kong Monetary Authority Confirms Launch of System for Cross-Currency Securities Transactons with Bank of Japan Financial Network System

The Hong Kong Monetary Authority (HKMA) has confirmed the launch of the delivery-versus-payment (DvP) link for cross-currency securities transactions between the Hong Kong dollar (HKD) CHATS and the Bank of Japan (BoJ) Financial Network System.

These transactions wll reportedly involve Japanese Government Bond (BOJ-NET JGB) Services.

As first reported by Fintech News HK, the Clearing House Automated Transfer System (CHATS) is described as a real-time gross settlement (RTGS) system for completing transactions in Hong Kong.

The link is expected to support DvP settlement of the HKD sale and also the repurchase transactions with Japanese Government Bonds (JGB) serving as collateral. This could assst with eliminating settlement risk by supporting simultaneous or concurrent delivery of HK dollars in Hong Kong and JGBs in Japan.

The DvP link, by offering a type of settlement infrastructure, will assist banking institutions in carrying out cross-currency repo transactions in order to acquire the HKD funds.

HKMA officials stated that this type of funding tool could be quite useful, especially during times of stress, as banks especially international institutions, might mobilize their foreign currency debt securities so they can use them for transactions in Hong Kong.

The link is managed by the BoJ and by the Hong Kong Interbank Clearing Limited (HKICL) in Hong Kong. The HKICL takes cares of the interbank clearing systems in Hong Kong, and is co-owned by the HKMA and the Hong Kong Association of Banks.

The HKMA has been working many different initiatives to enhance Hong Kong’s financial services sector.

As reported in January 2021, the HKMA had released its Regtech Adoption Report for improving AML/CFT activities. The HKMA’s report identifies key opportunities that regulatory technology or Regtech provides that can transform or enhance anti-money laundering and related (combating the financing of terrorism) CFT efforts.

Overall, the HMKA report notes that the adoption of Regtech solutions for AML/CFT is “generally more mature than in some other risk disciplines.” But simultaneously, the HKMA is of the opinion there are significant opportunities for banks to further adopt solutions in AML/CFT, and to explore new solutions as they emerge. The HKMA says it will keep Regtech as a key focus in its 2021 AML/CFT supervisory program.

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