FINANCIAL AND MONETARY AFFAIRS
The HKMA's policy objectives are to maintain currency stability, within the framework of the Linked Exchange Rate System, through sound management of the Exchange Fund, monetary policy operations and other means deemed necessary; to ensure the safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of authorised institutions; and to promote the efficiency, integrity and development of the financial system, particularly payment and settlement arrangements.
The HKMA is an integral part of the Hong Kong Special Administrative Region (HKSAR) Government, but can employ staff on terms different from those of the civil service to attract personnel of the appropriate experience and expertise. Its staff and operating costs are charged directly to the Exchange Fund instead of the general
revenue.
The HKMA is accountable to the Financial Secretary, who is advised by the Exchange Fund Advisory Committee on matters relating to the control of the Exchange Fund. The committee's involvement in respect of monetary and investment matters has become much stronger. It functions like a management board, meets monthly and advises the Financial Secretary on, among other things, the HKMA's annual budget.
The HKMA is organised into six departments, namely Banking Supervision Department, Banking Policy Department, External Department,
Department, Reserves Management Department, Monetary Policy and Markets Department, Research Department, as well as the Legal Office.
Authority for the prudential supervision of banks, restricted licence banks and deposit-taking companies is vested in the HKMA. Its authority is derived from the Banking Ordinance, the provisions of which relate to the supervision of authorised institutions. The ordinance's main objectives are to provide a measure of protection to depositors and to promote the general stability and effective operation of the banking system.
The HKMA's supervisory approach is based on a policy of 'continuous supervision'. This involves monitoring authorised institutions using a wide variety of techniques aimed at detecting any problems at an early stage. Consolidated supervision is exercised by the HKMA on a global basis over institutions which are incorporated in Hong Kong.
Prudential supervision in Hong Kong is carried out mainly through on-site examinations, off-site reviews and prudential meetings. On-site examinations provide the HKMA with the opportunity to assess at first hand how an institution is managed and controlled. They are particularly useful for assessing asset quality and the adequacy of internal controls. Off-site reviews involve the analysis of 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. They are followed by prudential interviews with the senior management of the institutions, at which their business, prospects and potential areas of concern are discussed. This approach enhances the HKMA's ability to identify potential areas of concern, which can be followed up by on-site examinations.
As an international financial centre, Hong Kong follows banking supervisory policies that are in line with international standards, especially those recommended by the Basle Committee on Banking Supervision. The recent major supervisory
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