HK Deposit Protection Scheme Enhanced

by Mary Swire, Tax-News.com, Hong Kong

13 April 2010

Following completion of a review of Hong Kong’s Deposit Protection Scheme (DPS), an amendment bill has been published which will implement enhancements identified in the review.

In the light of developments in international and local financial markets since the outbreak of the global financial crisis in 2007, and experience gained from operating the DPS since 2006, the Hong Kong Deposit Protection Board completed a review of the DPS and conducted extensive public consultations on the findings of the review last year.

The review concluded that the existing design features of the DPS in Hong Kong were already in substantial compliance with international best practices, but that areas for improvement to the DPS were identified to address the latest market developments, in particular, to meet heightened public expectations for better deposit protection.

It was confirmed that the proposed enhancements in the bill received broad support during the final public consultations.

The major enhancements include raising the DPS’s protection limit from HKD100,000 (USD12,900) to HKD500,000; improving the clarity of its coverage by protecting secured deposits; and introducing cost-mitigating measures to prevent the additional costs required from being transferred to depositors.

Secretary for Financial Services and the Treasury, Prof. KC Chan, said raising the DPS’s protection limit to HKD500,000 will bring the percentage of depositors fully covered to about 90%, which meets the higher end of international standards, and brings the level of deposit protection in Hong Kong closer to those in other major markets in absolute terms.

The administration also disclosed that the bill contains proposals to enhance the DPS's operating efficiency and provides for the making of additional rules by the Deposit Protection Board on the representation, disclosure and acknowledgement requirements in relation to deposits and other financial products.

It was emphasized that the scheme’s new detailed rules will be made in consultation with the banking industry and other parties, under the new powers to be introduced by the bill.

It is expected that the bill will be tabled in the Legislative Council on April 21. Subject to its passage, the government plans to implement the enhancements covered in the bill on January 1, 2011.

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