FINANCIAL AND MONETARY AFFAIRS
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address the Year 2000 problem in areas more directly related to the banking industry, the securities and futures industry, as well as the utilities and facilities services which are essential to the operation of the financial services sector.
Good progress has been made by the financial services sector in achieving Year 2000 compliance. Internal testing of the major shared financial systems in the banking industry and the securities and futures industry was completed by the end of 1998. Reports submitted to the financial regulators indicate the majority of financial institutions in Hong Kong had already completed rectification of their mission critical systems and internal testing work by the end of 1998. The focus of work in 1999 will be on industry wide testing and contingency planning. In this respect, the securities and futures industry has planned to conduct three rounds of industry-wide tests in the first half of 1999. The banking industry has also planned to conduct two additional rounds of testing of the interbank payment systems in mid-1999 to provide banks with a further opportunity to validate subsequent releases of system amendments since the completion of the full scale tests in November 1998.
The HKMA has placed the Year 2000 issue at the top of its supervisory agenda. It stepped up its supervisory initiatives to ensure that authorised institutions take appropriate steps to address the problem. The HKMA has established December 31, 1998, as the deadline by which institutions were expected to be Year 2000 compliant. This would leave sufficient time to cope with unavoidable slippage and for institutions to complete testing with external parties throughout 1999. Since May 1998, the HKMA has required the chief executives of all authorised institutions to submit formal statements on the progress of their Year 2000 compliance programme on a bimonthly basis. All institutions must also be subject to independent assessment of their Year 2000 compliance process. The HKMA has also held discussions with overseas supervisory authorities to strengthen supervisory co-operation on Year 2000 issues. By December 31, 85 per cent of the authorised institutions reported that they had achieved Year 2000 compliance for their critical systems.
The Insurance Authority (IA) is very concerned about the insurance industry's 'Year 2000' readiness. Appropriate measures have been taken to raise its awareness of this problem and the need to be 'Year 2000' compliant well before the advent of the next century. These included the conduct of two surveys and the requirement for insurers and insurance brokers to report regularly on the progress of their rectification projects. In addition, the IA also carried out on-site inspections systematically on insurers to monitor implementation of these projects.
All financial institutions in Hong Kong are expected to complete contingency plans and rehearsals of such plans before end June 1999 to deal with possible disruptions to their services caused by the Year 2000 problem.
The Hong Kong Dollar Debt Market
The Hong Kong dollar debt market continued to expand in 1998 notwithstanding the financial turmoil in Asia. The outstanding amount of Hong Kong dollar debt instruments stood at $390.1 billion at end-1998, representing a 12.9 per cent increase over 1997 and equivalent to 30 per cent of GDP. Exchange Fund Bills and Notes accounted for 25 per cent of the market while the rest consisted of private sector issues such as negotiable certificates of deposit, bonds, floating rate notes and asset- backed securities.
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