HKMA amends FX risk guidelines

The HKMA has implemented BIS recommendations for foreign exchange risk management

HONG KONG - The Hong Kong Regulatory Authority (HKMA) has released new recommendations for foreign exchange (FX) risk management. The Hong Kong regulator issued its guidance as a response to last year's FX risk report from the Bank for International Settlements (BIS).

The HKMA's new module, TA-2 'Foreign exchange risk management', updates its supervisory policy manual in response to the BIS report 'Progress in reducing foreign exchange settlement risk' issued in May 2008.

Changes relate to settlement services and payment systems, and are aimed at preventing the underestimation of FX settlement risks for both intraday and overnight settlement exposures. The HKMA has operated the Basel II regime - also produced by the BIS - since January 2007.

The regulator highlights the need for senior management authority and responsibility for FX settlement exposures, and for effective daily management procedures.

The BIS paper also highlighted the necessity of enterprise-wide business policies for choice of settlement methods through appropriate risk measurement and cost-benefit analyses. These should include incentives and controls for business units to follow the policies, and are already covered by previous amendments to the HKMA's handbook.