On 5 June 2026, the Hong Kong Government published the Banking Legislation (Miscellaneous Amendments) Bill 2026 in the Gazette. The Bill covers a number of amendments to the Banking Ordinance (Cap. 155), including the regulation and supervision of bank holding companies, engagement of skilled persons, modernisation of enforcement provisions, and (the focus of this briefing note) the simplification of the current three-tier banking system into a two-tier system.
We have set out below the key changes and potential impact of the proposed simplification of Hong Kong’s banking structure, under which the existing three-tier system comprising licensed banks (“LBs”), restricted licence banks (“RLBs”) and deposit-taking companies (“DTCs”) will be replaced by a two-tier system by maintaining LBs as first-tier institutions and merging DTCs into the second-tier RLB category.
The current three-tier structure has been in place for around four decades and was originally designed to strike a balance between flexibility of market entry and protection of small depositors.
However, the market share of DTCs has dropped significantly over the past three decades and, as of 31 December 2023, the existing DTCs only had 2,500 deposit customers in total, with DTCs’ assets accounting for only 0.07% of the banking sector.
As stated by the Chief Executive of the Hong Kong Monetary Authority (the “HKMA”) when the consultation was launched:
“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.”
Against this backdrop, the HKMA proposed to replace the current three-tier system with a two-tier structure. The key elements of the proposal included:
On 5 August 2024, the HKMA published its consultation conclusions on the review of the three-tier banking system, setting out the key feedback received, the HKMA’s responses and its proposal for implementing the new two-tier system.
The HKMA noted that the industry was broadly supportive of the proposal. Having considered the feedback, the HKMA introduced additional parameters aimed at streamlining the transition and minimising impact on existing DTC customers.
The key refinements are as follows:
For existing DTCs, the proposed amendments are significant; they will need to assess whether they can meet the RLB requirements within the five-year transition period.
In particular, DTCs should consider:
The ability for existing DTCs to convert to RLBs without fresh licence applications and to maintain certain legacy DTC deposits during the transition period should minimise operational and customer impact.
The proposed reform is expected to have limited to no substantive impact on existing RLBs. The HKMA has indicated that the second-tier institution requirements will remain unchanged, including the HK$100 million minimum capital requirement and HK$500,000 minimum deposit size requirement. There will continue to be no restrictions on deposit maturity.
The proposed change from a three-tier to a two-tier banking system marks an important structural reform for Hong Kong’s banking sector. For the market as a whole, the reform should simplify the licensing framework and improve regulatory clarity. However, for existing DTCs, the practical impact will depend on their ability to meet the RLB requirements and manage the transition of existing customer arrangements.
The Bill is scheduled for first reading in the Legislative Council on 17 June 2026. We will continue to monitor the legislative process and any further HKMA guidance on the transition arrangements for existing DTCs.
If you have questions about the potential impact these proposals may have on your business, please feel free to reach out to us.
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