June 25, 2019

Financial Stability Surveillance Division
Hong Kong Monetary Authority
55/F Two International Finance Centre
8 Finance Street, Central
Hong Kong
Supervision of Markets Division
Securities and Futures Commission
35/F Cheung Kong Center
2 Queen’s Road Central
Hong Kong
Comments on the joint consultation paper onenhancements to the OTC derivatives regulatory regime for Hong Kong

Dear Sirs/Madams:
We, the Japanese Bankers Association (JBA), would like to express our gratitude for thisopportunity to comment on the joint consultation paper on enhancements to the OTC derivatives
regulatory regime for Hong Kong issued on April 10, 2019 by the Hong Kong Monetary
Authority (HKMA) and the Securities and Futures Commission (SFC).
Although we recognise that the proposal to mandate the use of UTIs provides flexibility
considering international trends, there is still room of further examination in terms ofdetermining the UTI generation responsibility and the implementation timeline, as commented
hereinafter. We respectfully expect that the following comments will contribute to your further
discussion in finalising the proposals.
(1) Determining the UTI generation responsibility
We welcome the proposed bilateral agreement as it allows financial institutions to takeflexible approaches at their discretion in a situation where national authorities are currently
working to establish a UTI framework in their own jurisdictions. However, since it is consideredthat negotiations to reach a bilateral agreement will impose significant burdens on financial
institutions in practice, the HKMA/SFC are requested to maintain close dialogue with1

authorities in other jurisdictions on this issue to develop rules that automatically determine theresponsibility for UTI generation in a manner that is internationally consistent and is sufficientlypracticable.
(Rationale)
With respect to the well-intentioned rule for assigning responsibility for generating UTIs,
the consultation paper proposes that:
1. Counterparties bilaterally agree on who would generate the UTI for theirtransactions (counterparties may also bilaterally agree to adopt the list of factors
shown in Annex 1); and2. In cases where a bilateral agreement cannot be reached or has not been reached,counterparties should follow Annex 1 that is based on the CPMI/IOSCOTechnical Guidance.
We support this proposed rule as it provides flexible approaches to cross-bordertransactions while there is an uncertainty about specific requirements of UTI regulation that areexpected to be released by other jurisdictions in due course. This rule, however, would require
financial institutions to agree individually with all counterparties on who would be the UTIgenerator before executing a transaction or by the reporting deadline to a trade repository. This
would impose significant burdens on financial institutions for their negotiations. Therefore, inorder to avoid such burdens, it is preferable that the HKMA/SFC, in coordination withauthorities in other jurisdictions, will develop rules that automatically assign the responsibility
for UTI generation in a manner that is internationally harmonised and is sufficiently practicable.
Nonetheless, it should be taken into account that practical concerns are being expressed for theCPMI/IOSCO generation party logic (i.e. Annex1) as noted in comments submitted by ISDA
and GFMA, etc.1(2) Proposed requirements for reporting UTIs
We support the proposal that relevant rules of counterparties’ jurisdiction are regarded ascompliant with the Hong Kong UTI requirements. The HKMA/SFC, however, are requested tocontinue taking flexible approaches to help realise uniform rules that are harmonised
internationally, including the Hong Kong requirements.
(Rationale)
We understand that the proposal that regards reliance on relevant rules of counterparties’
jurisdiction as compliant with the Hong Kong UTI requirements is intended to implement theuse of UTIs in a smooth manner under the current situation where national regulations are notharmonised across jurisdictions, and hence we support the proposal. However, from the1https://www.gfma.org/wp-content/uploads/0/83/91/219/ea2b0439-1e17-4311-92ea-bbe720dd3f88.pdf

2perspective of financial institutions engaging in cross-border transactions, there is a concern thatthey will not be able to comply with all local regulations due to conflicts (e.g., fragmented
jurisdiction-by-jurisdiction approach) if the global regulatory harmonisation is not achieved.
Even if the absence of global regulatory harmonisation does not lead to such conflicts, different
regulations across jurisdictions will require such financial institutions to understand and address
not only the regulatory requirements that the reporting entity is subject to but also all of theregulatory requirements that respective counterparties are subject to (including the jurisdictionsof the both parties’ head office as well as the jurisdictions of their branches). Financial
institutions would also need to develop operations, systems, and industry rules and to reachbilateral agreements that satisfy all requirements of those regulations, which would create anundue burden. Therefore eventually it is preferable to realise uniform rules that are harmonised
internationally, including the Hong Kong requirements.
(3) Timeline
The HKMA/SFC are requested to provide a sufficient preparation period between thepublication of the consultation conclusions and implementation date. As development of UTI
rules is progressing in respective jurisdictions, financial institutions will need to undertake
compliance efforts in consideration of developments in jurisdictions other than Asia as well.
Given this, the implementation timeline could be changed to December 2020, which is theimplementation deadline under the international agreement, or other appropriate time.
(Rationale)
The consultation paper describes that mandating the use of UTIs will be initiated from
April 2020 for those transactions without a Unique Swap Identifier (USI) and a Unique TradeID (TID), and consultation conclusions will be published at least six months prior to that
proposed implementation date.
In practice, financial institutions will embark on system and operational preparations, aswell as negotiations with counterparties to determine who generates UTIs and entering into anagreement with them, after conclusions are published and technical specifications aredetermined. Since it is certain that these preparations will take a considerable period of time, itis preferable to allow a certain preparation period from the publication of conclusions.
Furthermore, while there is a possibility that the content of rules that are currently underdevelopment in other jurisdictions may differ from that of Hong Kong’s, different timeline may
additionally cause confusion to market participants. We would like to mention that efforts madeby each jurisdiction to align the implementation timelines of the margin requirements for OTC
derivatives brought about successful avoidance of confusion. We request the HKMA/SFC toalign the implementation timelines with not only jurisdictions in Asia but also other jurisdictions
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to the extent possible.
Therefore, we would like to suggest that the timing of mandatory use of UTIs be changed
to December 2020 (i.e. the implementation deadline under the international agreement) or otherappropriate time, instead of the proposed April 2020.

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