5
THURSDAY, APRIL 8, 1993
"THIS MEANS, AMONGST OTHER THINGS, THAT THEIR LOAN DOCUMENTS SHOULD BE SUCH AS TO MAKE IT CLEAR THAT THE APPLICATION MONEYS ARE LEN'T ON 'PURPOSE' TRUSTS AND REFUND MONEYS ARE THEREFORE HELD ON TRUST FOR THE LENDING BANK.
"AUTHORISED INSTITUTIONS SHOULD TAKE THEIR OWN LEGAL ADVICE ON
THIS.
"THEY SHOULD ALSO ENSURE THAT ALL APPLICATIONS AND REFUND MONEYS RECEIVED BY THEIR OWN NOMINEE
EXPLAINED.
ARE SUBMITTED COMPANIES,"
HE
THE THIRD RECOMMENDATION IS THAT EACH AUTHORISED INSTITUTION'S LENDING POLICY SHOULD SET A CAP ON THE MAXIMUM EXPOSURE WHICH IT IS PREPARED TO INCUR ON LENDING TO INDIVIDUAL BROKERS AND CUSTOMERS.
"HOWEVER, FOR LOCALLY INCORPORATED AUTHORISED INSTITUTIONS SUCH EXPOSURES CANNOT IN ANY CASE BE MORE THAN 25 PER CENT OF CAPITAL BASE EXCEPT TO THE EXTENT THAT THEY ARE SECURED BY CASH DEPOSITS, MR YAM SAID.
"THE SAME SHOULD APPLY TO OVERSEAS INCORPORATED INSTITUTIONS IN RELATION TO PARENTAL CAPITAL.
"HOWEVER, THE 25 PER CENT LIMIT SETS THE
AUTHORISED EXPOSURES:
INSTITUTIONS SHOULD CONSIDER APPROPRIATE IN RELATION TO EACH INDIVIDUAL BROKER OR ADDED.
UPPER CAP FOR WHETHER IT IS HE CUSTOMER,
17
INSTITUTIONS
THE FOURTH RECOMMENDATION IS THAT IT WOULD BE PRUDENT FOR
ΤΟ TO MAKE IT THEIR STANDARD PRACTICE
TAKE
AUTHORISED ADEQUATE MARGIN.
THE WORKING GROUP BELIEVED THAT 10 PER CENT WOULD BE A SUITABLY CONSERVATIVE FIGURE, MR YAM SAID.
FIFTH, HE SAID, LENDING BANKS SHOULD ALSO HAVE A LIMIT ON THEIR OVERALL EXPOSURE TO BROKERS AND CUSTOMERS IN RESPECT OF EACH ISSUE.
THE
"SINCE THIS IS EFFECTIVELY A CREDIT RISK ON THE RECEIVING BANK, OVERALL LIMIT SHOULD BE SET IN RELATION TO EACH AUTHORISED INSTITUTION'S NORMAL CREDIT LIMIT ON RECEIVING BANK, HE ADDED.
"
THE SIXTH RECOMMENDATION IS THAT THE EXPOSURE OF THE RECEIVING BANK TO INDIVIDUAL LENDING BANKS TO WHICH IT RECYCLES APPLICATION MONEYS SHOULD BE NO HIGHER THAN ITS NORMAL CREDIT LIMIT FOR AUTHORISED INSTITUTION IN QUESTION.
THE
"THE FINAL RECOMMENDATION IS THAT ANY TEMPORARY INCREASE ABOVE NORMAL INTER BANK LIMITS SHOULD BE CAREFULLY JUSTIFIED AND CONTROLLED, AND SHOULD NOT IN ANY CASE RESULT IN THE EXPOSURE TO AN INDIVIDUAL COUNTER PARTY BEING INCREASED TO MORE THAN 25 PER CENT OF THE
INSTITUTION'S OR THE PARENT BANK'S CAPITAL BASE,' AUTHORISED
MR
YAM
SAID.
/IN CONCLUSION,