FINANCIAL AND MONETARY AFFAIRS
supervisory system to help preserve the general stability and effective working of the banking system while at the same time providing sufficient flexibility for AIs to make commercial decisions. Hong Kong's framework of banking supervision is in line with the Core Principles for Effective Banking Supervision promulgated by the Basel Committee.
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, cooperation with external auditors and meetings with boards of directors. Since 2000, the HKMA has been using a risk-based supervisory framework for all AIs. This approach puts emphasis on evaluation of the quality of risk management practices and internal controls in respect of various types of risks faced by Als. On-site examinations are typically focused on areas of higher risk at AIs.
On the international front, the HKMA continues to promote cooperation among central banks in the region, principally through the Executives' Meeting of East Asia- Pacific Central Banks (EMEAP), whose activities cover supervisory liaison and cooperation, development of financial markets and infrastructure, and various areas of central bank operations. The HKMA currently chairs the EMEAP Working Group on Financial Markets, and has just completed a two-year term (from 2002 to 2003) as chairman of the South-East Asia, New Zealand and Australia (SEANZA) Group of Central Bank Governors, as well as the SEANZA Forum of Banking Supervisors. To facilitate supervisory training in the region, the HKMA is active in organising seminars for regional banking supervisors in collaboration with the BIS Financial Stability Institute. In addition, Hong Kong is an active member of both the Financial Action Task Force (FATF), and the Asia/Pacific Group on anti-money laundering, which are inter-governmental bodies charged with the objective of developing and promoting legal, law enforcement and financial regulation policies to combat money laundering.
Recent Developments
In line with its policy of adhering closely to international regulatory standards, the HKMA is committed to adopting the New Capital Accord in Hong Kong. In view of the complexity of the New Accord, the HKMA will work closely with the industry with a view to agreeing on an implementation approach that is both practicable and appropriate for Hong Kong. The HKMA issued for industry consultation in July 2003 its preliminary implementation proposals, and will carefully consider the industry's feedback and other supervisory priorities before finalising the implementation plans. Recognising the importance of cross-border supervisory cooperation to implementation of the New Accord, the HKMA will continue to take an active part in liaison with other regional supervisors and monitor closely developments in relation to the New Accord and the manner in which it is being implemented in different jurisdictions. Besides, the FSAP exercise concluded in June 2003 noted that Hong Kong had a very high degree of compliance with international best practices in banking regulation and supervision, including the Basel Core Principles for Effective Banking Supervision.
With the commencement of the Banking (Amendment) Ordinance 2002 and the Securities and Futures Ordinance on April 1, 2003, banks are subject to a new securities regulatory framework which, among other things, upholds a level playing field between banks and non-bank intermediaries in the securities market. The HKMA has been reinforcing its role as front-line supervisor of banks through day-to-
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