Frequently Asked Questions  
28/09/2010 
 

Part 2 : Regulatory Matters (advised by HKMA and SFC)
 

2.1 Can a personal customer exchange more than RMB20,000 per day with banks, given banks can take RMB position now?  Is the requirement applicable to non-bank financial institutions as well?
  

There is no change to the requirement for banks to observe the RMB 20,000 daily limit when conducting conversions with personal customers.  It is a requirement under the Clearing Agreement that banks have entered into with the Clearing Bank for RMB Business in Hong Kong.

For non-bank financial institutions, given that they are not using the services provided by the Clearing Bank, the terms in the Clearing Agreement will not be relevant.

In addition, brokers who intend to exchange RMB with their clients are reminded to ensure compliance with the applicable law and regulations on currency exchange and prudently manage the risks of exchange rate fluctuation and currency mismatch.
   

2.2 Can brokers arrange credit lines with banks to support their settlement activities?
 
There is no specific restriction on the provision of credit by banks to non-personal customers, including brokers.  It will be a commercial decision of the banks, having taken into account credit and other relevant considerations.
 
2.3

Can banks provide RMB margin finance to personal customers?  How about brokers?
 

Under the requirements of the Clearing Agreement between banks and the Clearing Bank for RMB Business in Hong Kong, provision of financing by banks to personal customers is not permissible for the time being.  Banks are expected to conduct business (e.g. when granting RMB loans to corporates) in a manner that will not contravene such requirements. 

For non-bank financial institutions (being not a party to the Clearing Agreement), their provision of financing to customers should follow the usual regulatory requirements and prudent risk management considerations.

In addition, brokers who intend to provide margin loans to clients for dealing in listed RMB denominated products should pay special attention to the risks of currency mismatch and exchange rate fluctuations on top of credit risk in designing their margin call systems. Furthermore, brokers who intend to obtain RMB credit facilities from banks for funding their margin financing business should take note of the above restrictions on RMB lending by banks.
   

2.4 Can brokers accept RMB as collateral for offering trading line?
 

Brokers may accept cash collateral denominated in RMB from their clients provided that such collateral is received and held in Hong Kong and that proper agreement is entered into with the relevant client and proper safeguard is in place to ensure timely return of the collateral to the client in accordance with the terms of the collateral agreement.

Brokers should note that if the cash collateral falls within the definition of "client money" in Part 1 Schedule 1 of the Securities and Futures Ordinance and the scope of application of the Securities and Futures (Client Money) Rules as set out in section 3(1) of the Rules, the broker should comply with the Rules in handling such client money.

Brokers accepting cash collateral denominated in RMB should properly manage the risks of currency mismatch and exchange rate fluctuations in designing its margin call system.
   

2.5 Can RMB and RMB-denominated assets listed or traded in Hong Kong be counted as "liquid asset" under the FRR? 
  

Section 18(2) of the Securities and Futures (Financial Resources) Rules ("FRR") provides that "a licensed corporation shall not include in its liquid assets-

(a)     any asset that is an amount of a currency that is subject to exchange control; or

(b)     any assets the proceeds of which upon realization are not freely remittable to Hong Kong,

unless the licensed corporation reasonably believes that approval for the remittance of such currency or proceeds to Hong Kong can be obtained from the relevant authority within one week of application by it for such approval."

Brokers are reminded to comply with the above FRR requirement when calculating their liquid capital.

On 19 July 2010, the People's Bank of China and Bank of China (Hong Kong) Limited as the Clearing Bank for RMB banking business in Hong Kong ("Clearing Bank") signed a revised "Settlement Agreement of the Clearing of RMB Businesses" ("the revised Settlement Agreement"). The revised Settlement Agreement relaxed a few policies on the RMB business in Hong Kong. On the same day, the Hong Kong Monetary Authority issued a circular to all authorized institutions on this change. Among other matters, the circular clarified that authorized institutions participating in RMB business ("Participating AIs") can open RMB deposit account for any corporate customers for general purpose, RMB can now be transferred between different accounts for any purpose, whether within the same AI or not and regardless of whether related to trade settlement. There is also no restriction on conversion services provided by Participating AIs to corporate customers other than for the purposes of or arising from cross-border trade settlement if they do not square the corresponding open position with the Clearing Bank, or if they seek to square such open position with other Participating AIs.

In light of the new scope of RMB business in Hong Kong, RMB cash notes held by licensed corporations in Hong Kong or RMB deposits held by licensed corporation in bank accounts in Hong Kong with Participating AIs would not be considered as assets falling within section 18(2)(a) of the FRR provided that they are not subject to any restriction on conversion with Participating AIs in Hong Kong.

Regarding RMB-denominated assets listed or traded in Hong Kong, any such RMB-denominated assets the proceeds of which upon realization are payable in Hong Kong would not be considered as assets falling within section 18(2)(b) of the FRR provided that such proceeds are not subject to any restriction on conversion with Participating AIs in Hong Kong.

The above guidance is subject to any change in the policies on RMB business in Hong Kong and the respective terms of the revised Settlement Agreement and of the agreement between the Clearing Bank and the Participating AIs.