ENG-1999 — Page 106

FINANCIAL AND MONETARY AFFAIRS

76

issued by the Hong Kong Society of Accountants, international best practices and the developments in other countries. In particular, the analysis of investments in securities has been revised in accordance with HKSSAP 24. Additional disclosure of components of the capital base has been incorporated to bring the disclosure requirements in line with the recommendations of the Basle Committee's paper 'Enhancing Banking Transparency'. Locally incorporated authorised institutions are also required to make interim disclosures with effect from June 1999. This brings the frequency of disclosure by non-listed locally incorporated authorised institutions in line with that for listed locally incorporated authorised institutions and overseas incorporated authorised institutions.

The trend in the banking industry towards diversifying the lending portfolio from asset backed loans into unsecured loans such as credit cards and personal loans will affect the credit risk of authorised institutions in Hong Kong. The HKMA considers that the use of services of a credit reference agency in Hong Kong would provide authorised institutions with a better means of managing their credit risk. Upon the recommendation of the HKMA, a majority of authorised institutions have participated in the use and sharing of credit information through a credit reference agency. The use of such information is subject to the Code of Practice on Consumer Credit Data issued by the Office of the Privacy Commissioner for Personal Data.

The HKMA will continue to monitor the effectiveness of the credit reference service in Hong Kong, particularly with respect to the amount of credit information disclosed to credit reference agencies and level of participation in sharing credit information by authorised institutions.

Pursuant to the Memorandum of Understanding signed between the HKMA and the Securities and Futures Commission (SFC) in October 1995, the two authorities continued in 1999 to strengthen co-operation to ensure that there will be no gaps in regulation and to minimise unnecessary duplication of effort in their supervision. Regular meetings were held between the two authorities to discuss policy matters and supervisory issues relating to institutions in which they both have an interest.

To prepare the Hong Kong banking sector for the challenges in the new century, in March 1998, the HKMA commissioned a consultancy study to evaluate the strategic outlook of the Hong Kong banking sector and consider the effectiveness of the HKMA's approach to banking supervision. The consultants completed the study and produced a report in December 1998, which was published for a three-month consultation period in early 1999. In response to the recommendations of the study, the HKMA announced in July 1999 a package of policy initiatives to reform the banking sector. The main objectives of this three-year programme are to raise the level of competitiveness of the banking industry and enhance the safety and soundness of the banking system. Specifically, the programme comprises two sets of policy initiatives:

(A) Market reform and liberalisation measures

(i) subject to a stable economic and financial environment, deregulation of the

remaining interest rate rules by two phases in the next two years;

(ii) relaxation of the one-building condition to allow foreign banks to carry out their business in not more than three buildings (completed in September) and consideration of a possible further relaxation of this policy upon a review in 2001;