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In the case of banks incorporated in Hong Kong and for which the HKMA is the lead regulator, this involves the exercise by the HKMA of consolidated supervision of such banks, including their operations outside Hong Kong. In this connection, Hong Kong is one of 12 jurisdictions which have so far met the US Federal Reserve Bank's requirement that home supervisors should conduct "comprehensive and consolidated supervision".
The HKMA is engaged in a continuous process of enhancing the banking supervisory framework in Hong Kong. The Barings collapse has given added impetus to this, particularly in relation to the supervision of banks' derivative activities. Specifically, as an immediate step, the HKMA has written to all authorised institutions to require them to conduct an urgent review of the controls over trading in derivatives and to report on the results of this to the HKMA by 3 April 1995. Institutions which do not currently trade in derivatives are required to consult with HKMA before beginning such activities.
The HKMA has issued a guideline on the risk management of derivative activities back in December 1994. It intends to issue a further detailed guideline later this year. To facilitate preparation of this guideline, the HKMA is currently conducting a series of visits to the treasury operations of major participants in derivative activities in Hong Kong.
As an international financial centre, Hong Kong benefits enormously from the presence of a wide range of foreign banks in the territory. Occasionally, problems may arise in such banks which affect their operations in Hong Kong. In such cases the HKMA tries to reduce any adverse impact on depositors through its direct supervision of the operations in Hong Kong and through the use of its powers under the Banking Ordinance, e.g. to assume control of an institution in trouble.
A key factor in the success of such measures is the ability to obtain timely warnings and assistance from the home supervisor of the foreign bank in question. In the case of Barings, for example, the Bank of England kept closely in touch with the HKMA and sent one of its representatives to Hong Kong. Such co-operation is consistent with the improved arrangements for the supervision of international banks introduced in recent years. It is the intention of the HKMA to develop such co-operative links with other supervisors, both through bilateral discussion and through international organisations such as the Bank for International Settlements.