XN000022-1996-05-22 — Page 8

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Banking (Amendment) Bill to be gazetted

The Banking (Amendment) Bill 1996 will be published in the Gazette on Friday (May 24).

A government spokesman said the main purpose of the Bill was to introduce a legal framework for the regulation of the issue of multi-purpose stored value cards (MPCs) and of foreign exchange and deposit brokers (money brokers) operating in the wholesale foreign exchange and deposit market, and to effect a number of other changes designed to improve the workings of the ordinance.

The issue of prepaid MPCs was akin to the taking of deposits or, for certain types of MPC scheme, to the issue of bank notes, the spokesman said.

A proliferation of MPCs would also have significant implications for the payment system and might create new opportunities for money laundering.

For these reasons, it is considered necessary to introduce a legal framework to regulate the issue of MPCs.

The proposed legal framework, however, would not apply to single purpose stored value cards which are similar to prepayments for specific goods and services and are currently not subject to regulation.

Explaining the legal framework, the spokesman said the central issue was which entities should be eligible to issue MPCs.

"We need to strike the right balance between the broad public interest of product innovation and convenience that may be served by the application of the smart card technology and the need to maintain the stability of the payment system.

"Allowing non-bank entities to issue MPCs has the effect of opening up parallel payment systems which, if allowed to proliferate, would have significant systemic implications. Such extension of the payment system needs to be carefully controlled," said the spokesman.

The spokesman said having regard to the above and the business restrictions applicable to authorised institutions under the current three-tier structure of authorisation under the Banking Ordinance, the Bill proposed that:

(a)

licensed banks would be deemed to be approved to issue or facilitate the issue of MPCs (i.e. they will not require specific approval under the Banking Ordinance);