FINANCIAL AND MONETARY AFFAIRS
70
In response to a series of large over-subscriptions to new share issues, the HKMA established a working group in February to assess implications on the monetary and banking systems. The working group concluded that the monetary and banking systems have been able to cope well with the large over-subscriptions. However, it was not entirely clear that individual institutions had adequately understood and fully managed the risks arising from the financing of the subscriptions to new share issues. As a result, the working group made a number of recommendations which aimed to prevent institutions from over-exposing themselves to such risks. The recommendations include a requirement that institutions should apply a margin requirement of not less than 10 per cent to all their lending for subscriptions of new share issues. This margin requirement should apply to all customers generally, including brokers related to the lending institution. The working group also recommended that the receiving bank of application monies should, when it recycles monies to the interbank market, adhere to the normal credit limits it has assigned to individual banks, which should not be exceeded, unless exceptional circumstances apply, subject to a maximum credit limit of not more than 25 per cent of the capital base of the receiving bank or of its parent bank, as appropriate.
Hong Kong is a member of the Financial Action Task Force, with a mandate of encouraging international efforts in the fight against drug money-laundering. Its system to prevent money-laundering conforms to international standards. To help combat money- laundering, a guideline on the prevention of the criminal use of the banking system for the -purposes of money-laundering was issued in 1989 by the then Commissioner of Banking. This guideline was revised in 1993, in the light of the new anti-money-laundering initiatives taken by the international community. It spells out clearly the HKMA's expectations of the internal policies and procedures which institutions should adopt to guard against money-laundering.
The Commissioner of Insurance and the Securities and Futures Commission (SFC) have also taken initiatives separately to ensure that the insurance and securities and futures industries, respectively, take appropriate measures to guard against money-laundering. This included the issue in December of a guideline by the Commissioner of Insurance and the plan for legislative changes by the SFC to enable it to require appropriate actions to be taken by market players.
1989
The SFC, which was established in 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 Commodities Exchanges (Prohibition) Ordinance, the Securities (Clearing Houses) Ordinance, the Securities (Disclosure of Interests) Ordinance, the Securities (Insider Dealing) Ordinance and part of the Companies Ordinance in so far as it relates to prospectuses and purchases by a company of its own shares. The commission will take on additional regulatory responsibilities when the Leveraged Foreign Exchange Trading Bill comes into effect.
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,