XN000022-1995-06-28 — Page 28

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It was argued that news of a temporary suspension would irretrievably damage the institution concerned. I should take this opportunity to restate the Administration's rationale in introducing such powers in respect of all three types of authorised institutions. The present powers of temporary suspension over restricted licence banks and deposit-taking companies date back to the former Deposit- taking Companies Ordinance. They are required because the normal suspension provisions provide for a notice period and a right to be heard before a suspension can be enforced. In the absence of an immediate suspension, there would be nothing to stop the institution concerned from continuing to accept deposits during the notice period, thus jeopardising the interests of depositors and potential depositors.

An alternative to the powers of temporary suspension would be to restrict an institution's ability to take deposits by placing a condition to that effect on its authorisation or by using the powers under Part X of the Ordinance. There would be no need to publicise such means. However, it would be difficult, in practice, to keep confidential the imposition of such a restriction given that the institution concerned would have to decline to take deposits, inevitably giving rise to suspicions of difficulties.

The powers of temporary suspension are therefore required to deal with urgent cases where there are concerns that the institution involved would continue to take deposits and where it is unavoidable or indeed desirable that the public should be so informed. The suspension would take immediate effect for up to 14 days. In the meantime, the Monetary Authority would be considering a longer suspension or revocation and would invite the institution to be heard on such proposed action.

I should assure Members that the right to be heard for institutions will be extended to all other authorisation decisions except for instances involving urgent cases of temporary suspension where we believe that they are justified after balancing the interests of existing depositors and potential depositors.

In view of the serious consequences of a temporary suspension, we have striven to have in place a proper system of checks and balances to ensure that the powers will be exercised in a responsible and reasonable manner. The Monetary Authority is required to have prior consultation with the Financial Secretary before exercising the powers of temporary suspension. In recognition of the concerns expressed by Members and the industry, the Monetary Authority will have first to convince the Financial Secretary that the proposed action is necessary in the interests of depositors or potential depositors. Alternatively, the Financial Secretary must state that it is, in his opinion, in the public interest for urgent action to be taken. This would be consistent with section 52(1)(d) of the Ordinance (concerning the Monetary Authority's powers of control) and would reflect the fact that the Financial Secretary would be in a better position than the Monetary Authority to judge the public interest. This represents a significant tightening of the existing criteria for use of the powers.