FINANCIAL AND MONETARY AFFAIRS
Banking Supervision in June. The proposed new Accord aims to refine and broaden the scope of application of the 1988 Accord. It will affect banks in terms of the capital adequacy ratio and funding costs. The HKMA is studying the new Accord in consultation with the HKAB and the Hong Kong Association of Restricted Licence Banks and Deposit-taking Companies. In addition, a joint industry-HKMA working party was set up to have a full exchange of views between institutions and the HKMA on the issues raised in the new Accord.
Following the implementation in 1998 of a market risk capital adequacy regime based on the Basle Committee Capital Accord, the HKMA conducted several model recognition visits to institutions which sought the HKMA's approval to adopt their internal risk management models to generate value-at-risk figures for calculating market risk capital charges. In these visits the HKMA sought to ascertain that both qualitative and quantitative criteria for the models approach set by the Basle committee were met. The number of institutions that have applied to the HKMA and received the consent to use the internal model approach remains small.
In line with the increasingly sophisticated financial markets, the HKMA continues to take a proactive approach to the supervision of authorised institutions' derivatives. activities. The derivative specialist team of the Banking Supervision Department continues to conduct regular treasury visits to examine the derivatives and trading activities of institutions and their risk management systems.
With the increasing magnitude and complexity of the activities of highly leveraged institutions (HLIs), such as hedge funds, and the expanding scope of interactions between HLİs and financial institutions, international regulators have recognised the need to fully understand and control the risks associated with these activities, both in terms of credit risk and systemic risk. The focus is currently on increasing the transparency of HLIs' activities. The HKMA will continue to closely monitor international developments in this area and formulate appropriate supervisory strategies and disclosure requirements in Hong Kong which are consistent with international standards.
The Banking (Amendment) Ordinance 1999 was enacted in July to bring the existing banking supervisory framework in Hong Kong fully in line with the Basle Committee's Core Principles for Effective Banking Supervision (Core Principles) which are accepted as international standards in banking supervision. The main provisions include a new provision to require a locally incorporated authorised institution to seek the Monetary Authority's prior approval of any major acquisition or investment in a company (including the establishment of a company) which constitutes 5 per cent or more of the capital base of the authorised institution; to provide for disclosure of individual customers' information to overseas supervisory authorities subject to conditions of data protection; and to give the Monetary Authority the right to attend a court hearing on a winding-up petition in respect of an authorised institution and to support or oppose such a petition. A number of amendments to the Banking Ordinance are also introduced to improve its operation in the light of market developments.
The HKMA continues to strive to increase the transparency of the banking sector by improving the level of financial disclosure by authorised institutions. The HKMA has recommended further disclosure measures in respect of the 1999 year-end financial statements. These measures aim primarily at bringing the relevant disclosure requirements in line with the Statement of Standard Accounting Practice (SSAP)
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