Currency Conversion Arrangement Involving Onshore RMB (CNY) under Northbound Swap Connect (PDF File, 159.9 KB)Frequently Asked Questions in Relation to the Currency Conversion Arrangement under Swap Connect (PDF File, 461.4 KB)

The Hong Kong Monetary Authority, HKMA, has published a circular primarily addressed at foreign exchange (FX) settlement banks in view of the launch of Swap Connect which provides mutual access between the Hong Kong and Mainland Chinese interest rate swap markets. Therein, the HKMA outlines some issues FX settlement banks must consider when providing currency conversion services to investors that use offshore RMB or other foreign currencies to invest under Swap Connect, particularly with respect to the daily settlement of Northbound interest rate swap contracts. The issues thereby range from the monitoring of eligibility of investors, to the compliance with Mainland rules and regulations, to the implementation of adequate control measures to oversee individual swap transactions.
While the circular is primarily addressed at Foreign Exchange settlement banks, the enclosed new frequently asked questions (FAQs) are also quite relevant for investors which is why we have chosen to report on this circular. The FAQs include questions such as the following – as quoted:
– Question 2: Can Investors change the appointment of Hong Kong FX Settlement Bank?
– Question 3: If an Investor has engaged more than one member of the RMB RTGS system to settle payments with the settlement bank(s) of OTC Clear, and the said members are all Hong Kong FX Settlement Banks, can the Investor appoint all the said members to undertake CNY conversion under Swap Connect?
– Question 6: Is pre-funding allowed? Can Investors keep idle cash in the account for future daily settlements?