Financial and Monetary Affairs 1 77
The HKMA continued to improve the banking sector infrastructure to further strengthen the stability of the banking system. Following the enactment of the Deposit Protection Scheme Ordinance in 2004, the Hong Kong Deposit Protection Board is preparing for the launch of the scheme. It is expected that the scheme will start providing deposit protection in the second half of 2006.
The launch of two-factor authentication for Internet banking in Hong Kong was officially announced in a press conference jointly held by the HKMA, the Hong Kong Association of Banks (HKAB) and the Hong Kong Police Force on May 30. Hong Kong is one of the first jurisdictions among the developed financial markets to establish such a regulatory requirement, which contributes to the safety of Internet banking. By end of the year, 21 Als had introduced two-factor authentication and around 940 000 customers had registered for the service. A multi-channel consumer education programme was also launched by the HKMA, HKAB and the Police Force in late May to promote public awareness of two-factor authentication. To cater for visually impaired customers, alternative solutions (including security tokens with voice output and a one-time password delivered through a dedicated phone-banking hotline) have been identified by Als. The Als concerned plan to test and roll out services for the visually impaired in the first half of 2006.
The HKMA issued a circular to Als in November setting out recommended measures should there be an influenza pandemic. An industry task force has been established by the authority and HKAB to monitor developments in the event of an outbreak and review and recommend appropriate business continuity planning practices for the banking sector.
One of the functions of the HKMA is to promote and encourage high standards of conduct and sound and prudent business practices among Als, primarily by way of the Code of Banking Practice. The code is issued by the industry associations and endorsed by the HKMA. It sets out the minimum standards to be followed by Als in their dealings with personal customers. The code is reviewed from time to time by the Code of Banking Practice Committee, which is convened by the industry associations.
The Clearing and Settlement Systems Ordinance, which became effective in November 2004, empowers the HKMA to designate and oversee clearing and settlement systems that are material to the monetary or financial stability of Hong Kong or to the functioning of Hong Kong as an international financial centre. Five clearing and settlement systems, including the CMU and Hong Kong dollar Clearing House Automated Transfer System (CHATS), Continuous Linked Settlement System, US dollar CHATS and euro CHATS, have been designated. Each system was issued a certificate of finality, which provides statutory backing to the finality of settlement for transactions made through the system. The HKMA completed its first-year oversight activities for the designated systems in 2005 and found they were all in compliance with the ordinance.