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FINANCIAL AND MONETARY AFFAIRS
The authority for the prudential supervision of banks, restricted licence banks and deposit-taking companies, collectively called authorised institutions, is vested in the Commissioner of Banking. His authority is derived from the Banking Ordinance which replaced earlier banking and deposit-taking companies ordinances in 1986. The provisions of the ordinance relate to the regulation of banking business, particularly the business of taking deposits, and the supervision of authorised institutions, so as to provide a measure of protection to depositors and to promote the general stability and effective operation of the banking system.
The Commissioner's Office has broadened its approach to supervision which has hitherto been reliant on on-site examinations. Examinations are still an integral part of the supervisory process, but are supplemented by off-site reviews and prudential meetings with authorised institutions. Off-site reviews involve the analysis of the regular statistical returns, and accounting and other management information supplied by institutions with a view to assessing their performance and compliance with the Banking Ordinance. Such reviews are followed by prudential interviews with institutions' senior management, at which the business, prospects and potential areas of concern of institutions are discussed. This broader approach to supervision is enhancing the office's ability to identify potential areas of concern which can be followed up by on-site examinations. The principles of the revised concordant issued by the Committee on Banking Regulations and Supervisory Practices, which meets regularly at Basle in Switzerland, and the principles of worldwide - supervision of banking groups based in Hong Kong, are accepted and practised.
Following a review of the arrangements for the co-ordination of banking supervisors in the supervision of international banking groups, the Basle Committee issued in June 1992 a set of minimum standards that the G-10 countries have agreed to apply in the supervision of international banking groups and their cross-border establishments. These standards are designed to provide greater assurance that no international bank can operate in future without being subject to effective consolidated supervision. Hong Kong's authorisation and supervisory regime are already largely in conformity with these standards. To ensure full compliance with the new standards, changes were introduced in September to the criteria dealing with home supervision for bank licence applications from overseas incorporated banks. The home supervisor of a foreign applicant must have established, or be working to establish, the necessary capabilities to meet the minimum standards.
The Securities and Futures Commission, which was established in May 1989 in response to the weakness in Hong Kong's financial markets at the time of the October 1987 world stock market crash, exercises prudential supervision of the securities, financial investment and commodities futures industry in Hong Kong. It administers the Securities and Futures Commission Ordinance, the Securities Ordinance, the Protection of Investors Ordinance, the Commodities Trading Ordinance, the Stock Exchanges Unification Ordinance, the Securities (Disclosure of Interests) Ordinance and the Securities (Insider Dealing) Ordinance.
The Securities Ordinance and the Stock Exchanges Unification Ordinance, together with the Securities and Futures Commission Ordinance, provide a framework within which dealings in securities are conducted and the Stock Exchange operates, enabling trading in securities to be regulated. They require the registration of dealers, dealing partnerships, investment advisers and other intermediaries and provide for the investigation of suspected malpractice in securities transactions and the maintenance of a compensation fund to compensate clients of defaulting brokers.