FINANCIAL AND MONETARY AFFAIRS
flexibility for authorised institutions to take commercial decisions. Since 1999, Hong Kong's framework of banking supervision has been fully in line with the Core Principles for Effective Banking Supervision promulgated by the Basel Committee. In addition, the Banking Ordinance regulates the issuance of multi-purpose stored value cards and money brokers operating in the wholesale foreign exchange and deposit markets.
A Banking (Amendment) Bill was introduced in November, putting forward amendments to the Banking Ordinance corresponding to the proposals of the Securities and Futures Bill. The bill aims at enhancing the HKMA's regulatory framework for the securities business conducted by authorised institutions that are exempt under the Securities Ordinance and bringing it in line with the regulatory standards set by the Securities and Futures Commission in the regulation of securities dealers and investment advisers.
The HKMA's supervisory approach is based on a policy of 'continuous supervision' through a combination of on-site examinations, off-site reviews, prudential meetings and co-operation with external auditors. Since the beginning of 2000, the HKMA has been implementing a more formalised risk-based supervisory framework. The approach puts emphasis on evaluation of the quality of risk management practices and internal controls of various types of risks faced by authorised institutions. The eight major types of inherent risk factors identified by the HKMA under the risk-based methodology are credit, interest rate, market, liquidity, operational, legal, reputation and strategic risks.
In July 1999, the HKMA announced a reform programme to further develop Hong Kong's banking sector. The objectives of this programme are to encourage market liberalisation and enhance competitiveness in the banking sector, and to strengthen banking infrastructure with the objective of enhancing the safety and soundness of the sector. A number of the policy initiatives have been implemented according to the programme schedule. In June 1999, the HKMA issued a policy statement to clarify its role as lender of last resort to the banking sector. In September 1999, the HKMA relaxed the 'one branch' policy to allow foreign banks previously subject to the restriction to carry out business in not more than three buildings. The HKMA will review the situation and consider further relaxation of this policy in 2001. Since May, restricted licence banks have been permitted to join the Real Time Gross Settlement system, Hong Kong's interbank payment system.
The Interest Rates Rules (IRRs) made by the Hong Kong Association of Banks, which govern retail deposit rates offered by licensed banks in Hong Kong, were first relaxed during 1994–95. As part of the current reform programme, the HKMA has undertaken to deregulate the remaining IRRS in two phases. The first phase of deregulation covering time deposits with a maturity of less than seven days and the prohibition on benefits for all deposits (except Hong Kong dollar savings and current accounts) took effect in July. Following this, all time deposit rates are now deregulated. The remaining IRRS, covering savings and current account deposits, are scheduled for removal in July 2001, provided that the economic and financial environment at that time is not unfavourable.
A public consultation on the establishment of a commercial credit reference agency (CCRA) in Hong Kong was concluded in September. The initiative seeks to address the need for authorised institutions to have better information about the creditworthiness and overall indebtedness of their corporate customers, thereby
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