1. © Allen & Overy 2014 1 Order out of Chaos? The Proposed Financial Institution Resolution Regime

2. © Allen & Overy 2014

3. Introduction –What is the FIRR and what is it for? –Who is in-scope? –What are the conditions for resolution? –How can a financial institution be “resolved”? –Why should you care? 3

4. © Allen & Overy 2014 What is the FIRR and what is it for? –Experiences with failing SIFIs during the GFC –Alternative to insolvency –Part of international efforts 4

5. © Allen & Overy 2014 Who is in-scope? Authorized Institutions Most Authorized Insurers Certain SFC- Licensed Corporations Financial Market Infrastructure 5 HK-incorporated Holding Companies Affiliated Companies

6. © Allen & Overy 2014 What are the conditions for resolution? 6 FI enters insolvency. Financial stability condition satisfied? Resolution is required to secure continuity of critical financial services and protect financial stability. Non-viability condition satisfied? The FI is, or is expected to become, non-viable (including in a non-financial sense) with no reasonable prospect of recovery. No resolution; no insolvency. FI enters resolution. No Yes

7. © Allen & Overy 2014 How can a financial institution be “resolved”? Third party transfer Transfer to “bridge” institution Statutory bail-in Temporary public ownership AMV/Liquidation Liquidity? - Share transfer or partial or full business transfer to third party. - Bank/Bank’s business continues under new ownership. - Partial or full transfer of business to government-owned “bridge” institution. - Bank’s business eventually sold off to third party or wound down. - Write-down of equity and unsecured debt followed by debt- for-equity swap. - Bank continues as a re-capitalised entity - Re-capitalisation of Bank using public funds and transfer of shares to government-owned holding company. - Bank eventually returned to private sector. - To deal with the residual parts of the FI.

8. © Allen & Overy 2014 Safeguards – Philosophical and practical issues 8

9. © Allen & Overy 2014 Effect on financial contracts Temporary stay of early termination rights, acceleration Segregation of client assets Collateralisation

10. © Allen & Overy 2014 Why should you care? –Main practical take-away –Global cooperation? –Conclusions? 10

11. © Allen & Overy 2014 HK Resolution Regime – Order out of chaos? For more information please visit: http://www.allenovery.com/publications/en-gb/FIRR/Pages/default.aspx 11

12. © Allen & Overy 2014 Contacts Alan Ewins Partner Hong Kong Tel +852 2974 7151 alan.ewins@allenovery.com Yvonne Siew Partner Hong Kong Tel +852 2974 7271 yvonne.siew@allenovery.com Richard Woodworth Consultant Hong Kong Tel +852 2974 7208 richard.woodworth@allenovery.com

13. © Allen & Overy 2014 13 Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.