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Providing stability and reassurance, deposits in Hong Kong banks have been guaranteed for nearly 2 decades now under the Deposit Protection Scheme (“DPS”). One of the conclusions of a recent review of the scheme was among others to increase the limit of protection of deposits by HK$300,000. These and other improvements will be implemented from 1 October 2024 onwards, ensuring continued confidence in banking in Hong Kong. This article provides background and additional notes to this welcomed amendment to the scheme.
Author: Chloe Lau, Associate Solicitor
Deposit protection is considered fundamental and foundational to the stability of a banking system. Since 2006, the DPS was established in Hong Kong pursuant to the Deposit Protection Scheme Ordinance (Cap. 581) (“DPSO”), with the primary objective of protecting depositors from potential default of banks in Hong Kong.
The operation of the DPS is overseen by the Hong Kong Deposit Protection Board (“HKDPB”), an independent statutory body formed under the DPSO.
The notable characteristics of DPS include:
all licensed banks are DPS members, unless exempted by the HKDPB;
most types of deposits, whether in Hong Kong Dollars and foreign currencies, are protected by the DPS alike;
the current limit of protection is HK$500,000 per depositor per bank;
the DPS is backed by the Deposit Protection Scheme Fund (“DPS Fund”) established under DPSO, to which DPS members contribute by way of levies.
The latest review called for improvements, which paved way for the subject amendment.
The HKDPB conducts regular reviews on the DPS to maintain its effectiveness and to ensure that it stays up-to-date with reference to international practice. The latest review called for improvements, which paved way for the subject amendment.
The Amendment: strengthening protection, reinforcing Hong Kong’s financial hub status
Following the recommendations by the HKDPB, the Deposit Protection Scheme (Amendment) Bill 2024 was first introduced to the Legislative Council (“LegCo”) on 8 May 2024.
The Deposit Protection Scheme (Amendment) Ordinance 2024 (“Amendment Ordinance”) was subsequently passed on 3 July 2024, which aims to enhance the abovementioned function of the DPS as the financial safety net, and strengthen the protection offered to depositors banking in Hong Kong.
Some of the prominent amendments are:
raising the limit of protection under the DPS from HK$500,000 to HK$800,000;
providing additional recourses to depositors in the event of a bank merger or acquisition;
enhancing the levy mechanism such that the DPS Fund may reach the target level within a certain period to facilitate the implementation of the increased limit of protection under the amendment; and
requiring mandatorily the display of DPS membership sign on electronic banking platforms of the DPS members; and
streamlining the negative disclosure requirement on non-protected deposit transactions for private banking customers, i.e. clarifying better to customers in case transactions they make are not covered by DPS.
The Amendment Ordinance was gazetted on July 12 and will be implemented in two phases. The first phase will be effective from 1 October 2024, which covers measures calling for less preparatory work, such as the enhancement of protection limit of deposit to HK$800,000, the refined levy mechanism, and the requirements on mandatory display of DPS membership sign. The other amendments will be implemented in the second phase, which comes into effect on 1 January 2025.
The Amendment Ordinance appears to be generally well received and widely welcomed
The Amendment Ordinance appears to be generally well received and widely welcomed, in the hopes that the amendment’s advanced protection and hence confidence to depositors, enhances stability of our banking system, and reinforces Hong Kong’s niche as an international financial hub.
Disclaimer: Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.
For specific advice about your situation, please contact:
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