The Monetary Authority today issued a public consultation paper on the review of the three-tier banking system, inviting interested parties to submit their comments on or before September 25.

The current three-tier structure of the banking system, for example licensed banks (LBs), restricted licence banks (RLBs) and deposit-taking companies (DTCs), had a history of four decades and aimed to strike a balance between flexibility of market entry and protection of small depositors.

The authority noted that it has recently conducted a review of the three-tier banking system to ensure it remains fit for purpose.

Based on the review’s results, the authority proposes to simplify the three-tier banking system into two tiers.

One of the main proposals in the consultation paper is to maintain LBs as the first-tier institutions and merge DTCs into the second-tier institutions, which will continue to be called RLBs.

The requirements of the minimum $100 million capital, the minimum $500,000 deposit size and no restriction on deposit maturity concerning the second-tier institutions will remain unchanged.

The authority also proposed to provide a transition period of five years for existing DTCs to upgrade to the second-tier institutions.

The authority’s Chief Executive Eddie Yue explained the goal behind the review of the three-tier banking system.

“The review aims to simplify the structure of Hong Kong's banking system, enhancing its vital role in strengthening Hong Kong’s status as an international financial centre, and to revitalise institutions in the category of deposit-taking companies and enhance their flexibility and efficiency in conducting business and meeting customers' needs.”

Click here for the consultation paper.