Romain Costaseca / Hans Lucas

Financial Secretary Christopher Hui said at the London Bullion Market Association (LBMA) Global Precious Metals Conference in Sorrento, Italy, that Hong Kong’s central gold clearing and settlement system would officially begin operations in the first quarter of 2027. The system has been running a pilot programme since July this year, with 11 banks serving as provisional direct participants. Other banks have also expressed an interest in joining.

Hui said the authorities were completing the final stage of work to connect the system with Hong Kong’s Hong Kong dollar real-time gross settlement (RTGS) system, enabling delivery-versus-payment (DvP) to reduce settlement risks and operational friction. He was the first Hong Kong official to attend the conference. During the visit, he met LBMA chairman Peter Zöllner, with the two sides discussing specific co-operation on delivery standards. The LBMA will also co-host its Asia conference in Hong Kong in April with the Hong Kong Special Administrative Region Government and Hong Kong Precious Metals Central Clearing Limited. Hui will then travel to Ticino, Switzerland, to visit several gold refineries meeting international standards.

How the system works

The system is operated by Hong Kong Precious Metals Central Clearing Limited, which is wholly owned by the government, and will handle the clearing and settlement of bilateral and over-the-counter (OTC) gold trades. Under the clearing rules, accounts will be managed on an unallocated basis, while eligible gold will consist of bars weighing about 400 troy ounces and meeting international standards. The rules do not directly name the LBMA list, but the market generally understands the requirement to refer to the London Good Delivery standard. Bloomberg also reported that some participating banks had asked dealers to deliver bars meeting the standard to Hong Kong.

The list of 11 provisional direct participants was announced in April. They are Agricultural Bank of China, Hong Kong Branch; ANZ; Bank of China (Hong Kong); Bank of Communications (Hong Kong); China Construction Bank (Asia); Citibank (Hong Kong); Industrial and Commercial Bank of China (Asia); JPMorgan; Standard Chartered Bank (Hong Kong); HSBC; and UBS. The group comprises five mainland Chinese banks, four foreign banks and two Hong Kong banks. The banks are also members of the company’s board, which additionally includes representatives from the Shanghai Gold Exchange and regulatory bodies. Hui serves as chairman.

Vaulting and tax incentives remain the next hurdles

On supporting infrastructure, the first phase of the expansion of the precious metals storage facility at the airport will bring its capacity to 200 tonnes. The government plans to expand this to 1,000 tonnes, with the goal of increasing Hong Kong’s total gold storage capacity to more than 2,000 tonnes within three years. In terms of refining capacity, companies are already exploring the possibility of establishing plants in Hong Kong.

On taxation, the government is considering tax incentives for eligible institutions conducting gold trading and settlement in Hong Kong. The specific form, scope and timetable of the incentives have yet to be announced.

The market will be watching three developments: the actual trading volumes of the first participating banks, the final design of the tax incentives, and progress on expanding storage capacity.