MONDAY, AUGUST 1, 1994
RISK MANAGEMENT OF FINANCIAL DERIVATIVE ACTIVITIES
THE HONG KONG MONETARY AUTHORITY TODAY (MONDAY) ISSUED TO THE TWO INDUSTRY ASSOCIATIONS FOR COMMENT A GUIDANCE PAPER PRODUCED BY THE BASLE COMMITTEE OF BANKING SUPERVISION ON THE MANAGEMENT OF RISKS INVOLVED IN FINANCIAL DERIVATIVE ACTIVITIES.
THE BASLE COMMITTEE BELIEVES THAT THE ESSENTIAL ELEMENTS OF A SOUND RISK MANAGEMENT SYSTEM SHOULD INCLUDE THE FOLLOWING:
AWARENESS AND PROPER UNDERSTANDING BY MANAGEMENT OF THE MARKET AND CREDIT RISKS INVOLVED IN DERIVATIVES.
APPROPRIATE OVERSIGHT BY BOARDS OF DIRECTORS AND SENIOR MANAGEMENT.
CONTINUOUS MONITORING, REVIEW AND CONTROL OF THE RISKS INVOLVED.
RELIABLE MANAGEMENT INFORMATION SYSTEMS WHICH PROVIDE TIMELY REPORTING TO SENIOR MANAGEMENT; AND
COMPREHENSIVE INTERNAL CONTROL AND AUDIT PROCEDURES.
AND PAPER,
"THE BASLE INTERNATIONAL ORGANISATION OF SECURITIES
THE A
A SIMILAR PAPER ISSUED BY
COMMISSION, REPRESENT
SUPERVISORS GLOBAL CO-ORDINATED INITIATIVE BY BANKING AND SECURITIES TO PROMOTE BETTER RISK MANAGEMENT OF FINANCIAL DERIVATIVE ACTIVITIES," THE EXECUTIVE DIRECTOR (BANKING SUPERVISION), MR ALBERT CHEOK, SAID.
IN
"RECENT YEARS HAVE SEEN BANKS IN HONG KONG BECOMING MORE ACTIVE
DERIVATIVE FINANCIAL
ACTIVITIES, SUCH AS
SWAPS AND FUTURES,
OPTIONS.
WHILE FINANCIAL DERIVATIVE
AN
ADDITIONAL
ACTIVITIES COULD PROVIDE
AN FOR HEDGING RISKS AS WELL AS PROVIDE ADDITIONAL TOOL SOURCE OF BUSINESS, IT COULD ALSO BRING ADDED RISKS TO BANKS.
"THE GUIDANCE OFFERED BY BASLE PROVIDES AN INDICATION MINIMUM STANDARDS WHICH BANKS SHOULD MEET IN THE MANAGEMENT
ARISING FROM FINANCIAL DERIVATIVE ACTIVITIES, EXPOSURES SAID.
OF THE OF RISK MR CHEOK
THE HONG KONG ASSOCIATION OF BANKS AND THE DEPOSIT-TAKING COMPANIES ASSOCIATION HAVE BEEN ASKED TO COMMENT BY SEPTEMBER 15.
A REFLECTING
COMMON SUPERVISORY
THE INTEREST, AUTHORITY WILL ALSO BE CONSULTING WITH THE SECURITIES COMMISSION.
AND
MONETARY FUTURES
FOLLOWING THESE CONSULTATIONS, THE MONETARY AUTHORITY CONSIDER HOW AND TO WHAT EXTENT THE BASLE PAPER SHOULD FORM THE FOR FORMAL
FOR AUTHORISED INSTITUTIONS ON THE GUIDELINES MANAGEMENT OF THEIR FINANCIAL DERIVATIVE BUSINESS.
/COPIES OF
WILL
BASIS
RISK