ENG-2000 — Page 112

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FINANCIAL AND MONETARY AFFAIRS

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Exchange Fund, monetary policy operations and other means deemed necessary; to ensure the safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of authorised institutions; and to promote the efficiency, integrity and development of the financial system, particularly payment and settlement arrangements.

The HKMA is an integral part of the Hong Kong Special Administrative Region (HKSAR) Government, but can employ staff on terms different from those of the Civil Service to attract personnel of the appropriate experience and expertise. Its staff and operating costs are charged directly to the Exchange Fund instead of the general

revenue.

The HKMA is accountable to the Financial Secretary, who is advised by the Exchange Fund Advisory Committee (EFAC) on matters relating to the control of the Exchange Fund. The committee functions as a management board, meets monthly and advises the Financial Secretary on, among other things, the HKMA's annual budget.

The HKMA is organised into seven departments - namely the Banking Supervision Department, Banking Policy Department, External Department, Reserves Management Department, Monetary Policy and Markets Department, Research Department and Corporate Services Department as well as the office of the General Counsel.

Under the Banking Ordinance, the HKMA is the licensing authority responsible for the authorisation, suspension and revocation of all authorised institutions, as well as the approval and revocation of money broker licences. The licensing criteria for authorised institutions seek to ensure that only fit and proper institutions are entrusted with public deposits. The HKMA conducts periodic reviews of the authorisation criteria and introduces amendments as appropriate to reflect the changing needs of the regulatory environment and to meet international standards. Checks and balances are provided in the ordinance with the requirement that the HKMA consult the Financial Secretary on important authorisation decisions, such as suspension and revocation. The Chief Executive in Council is the appellant body for hearing appeals against decisions made by the HKMA.

The HKMA seeks advice on policy matters routinely from the Banking Advisory Committee and Deposit-taking Companies Advisory Committee. Both committees are established under the Banking Ordinance. They are chaired by the Financial Secretary and comprise members from the banking industry and other relevant professions. Members of the committees are appointed by the Financial Secretary under the delegated authority conferred by the Chief Executive.

The Banking Ordinance provides the legal framework for banking supervision in Hong Kong. Among other things, authorised institutions are required to maintain adequate liquidity and capital adequacy ratios, submit periodic returns to the HKMA on required financial information, adhere to limitations on loans to any one customer or to connected parties (e.g. directors and employees), and seek approval for the appointment of chief executives and directors. The HKMA seeks to maintain a regulatory framework that is fully in line with international standards, primarily those recommended by the Basel Committee on Banking Supervision. The objective is to devise a prudential supervisory system to help preserve the general stability and effective working of the banking system while at the same time providing sufficient