HK Deposit Protection Scheme To Launch September 25

by Mary Swire, for LawAndTax-News.com, Hong Kong

21 September 2006

Hong Kong's Deposit Protection Scheme will launch September 25, with a coverage limit of $100,000 per depositor per bank, the Deposit Protection Board announced this week.

Enacted on May 5, 2004, the Deposit Protection Scheme Ordinance governs the setting up and operation of the scheme. After two years of intensive preparation, the scheme will provide deposit protection and collect contributions from members from the 25th.

All licensed banks, unless otherwise exempted by the board, are required to participate as members.

The main features of the scheme are that:

• Depositors are not required to apply for protection or compensation, eligible deposits held with scheme members will automatically come under the protection of the scheme;
• Both Hong Kong dollar and foreign currency deposits are protected;
• The scheme protects eligible deposits held in scheme members, it does not protect term deposits with a maturity longer than five years, structured deposits, secured deposits, bearer instruments, off-shore deposits and non-deposit products such as bonds, stocks, warrants, mutual funds, unit trusts and insurance policies;
• A Deposit Protection Scheme Fund with a target fund size of 0.3% of the total amount of relevant deposits (translating into a fund size of approximately $1.3 billion) will be built through the collection of contributions from scheme members; and
• Differential contributions will be assessed based on the supervisory ratings of individual scheme members.

Members are also required to notify their customers if a financial product described as a deposit is not protected by the scheme.

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