For Hong Kong regulator, HSBC presents major challenges

Mon Apr 27, 2015 7:50am EDT
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By Michelle Price and Lawrence White

HONG KONG (Reuters) - A move by British banking giant HSBC to relocate its headquarters back to Hong Kong would present major challenges to the city's banking watchdog, regulatory experts said.

The Hong Kong Monetary Authority (HKMA) is regarded as one of Asia's leading regulators and has experience with subsidiaries and branches of large banks. But it has never been the primary regulator of a systemically important global financial institution.

HSBC's $2.6 trillion balance sheet is nearly eight times the size of Hong Kong's economic output. So the HKMA would have to scale up its regulatory operations, analysts and regulatory experts said.

"Can HKMA regulate an institution the size of HSBC? They would have to hire in more staff, expand the scope of their coverage and communicate more with other regulators," said Jim Antos, bank analyst at Mizuho Securities Asia Ltd in Hong Kong.

HSBC said on Friday it had ordered a review into whether it should move its headquarters out of Britain and potentially back to its former home in Hong Kong, saying the move came in response to shareholder prompting. HSBC shares have rallied in London more than 5 percent since Thursday.

After the collapse of Lehman Brothers in 2008, the Group of 20 leading economies agreed that the world's largest global banks should be subject to tougher capital requirements and closer supervision compared with other lenders.

That means regulators overseeing those institutions need to devote many more resources to supervising them than they would have done a decade ago.

"One of the major issues for primary regulators is ensuring banks are not too big to fail. The relocation of such a big, global institution to Hong Kong would bring a range of new risk management challenges for the HKMA," said Benedict Cheng, managing consultant and chief operating officer at financial consultancy GreySpark Partners in Hong Kong. "They have expertise, but it would be a steep learning curve."   Continued...

A branch of HSBC bank is seen near Westminster Abbey, in central London March 6, 2011. REUTERS/Stefan Wermuth