ENG-2001 — Page 118

FINANCIAL AND MONETARY AFFAIRS

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to securities dealers and investment advisers. The Legislative Council has set up a Bills Committee to consider the two bills.

The HKMA continued to implement the policy initiatives contained in the reform programme announced in 1999 in response to the Banking Sector Consultancy Study. In July, the final phase of interest rate deregulation which covered savings and current accounts was implemented. Since then, banks can compete for deposits freely on a price basis. Deregulation of the interest rate rules has the merits of encouraging more innovation in the banking industry and promoting consumer choices.

The HKMA has convened a Working Group to study the implementation of a Commercial Credit Reference Agency (CCRA). The CCRA would help enhance banks' credit risk management and improve companies' access to bank funding as more credit information about them would become available. The Working Group had made good progress on the design features of the CCRA during the year.

The HKMA had also been promoting consumer data sharing arrangements among banks. At present, data sharing is limited to mainly negative data (i.e. default data) under the privacy legislation. Recent market developments, especially the surge in personal bankruptcies, had highlighted the importance of a greater scope of data sharing for credit assessment by banks. The HKMA will continue to pursue this with the banking industry and the Privacy Commissioner.

Another initiative is the Deposit Insurance Scheme. In April, the Executive Council approved in principle the establishment of a Deposit Insurance Scheme in Hong Kong following broad support received in the earlier public consultation exercise. The HKMA had been asked to undertake a more detailed study on the design features of the scheme. It is envisaged that a further round of public consultation will be conducted in early 2002 on the detailed design issues before making the relevant legislation.

In November, the HKMA removed the three-building condition which restricted foreign banks licensed since 1978 to operate from not more than three buildings. The removal of the condition had provided foreign banks with greater flexibility in doing business and would help to promote Hong Kong's status as an open financial centre. Recognising the development of electronic banking (e-banking) services, the HKMA has implemented a comprehensive e-banking and technology risk management supervisory framework to ensure a secure and sound control environment for e-banking development in Hong Kong. Under this framework, the HKMA developed an on-site examination programme focusing on e-banking and technology risk management, having regard to the practices of bank supervisors in other advanced economies and the guidance on e-banking risk management issued by the Basel Committee on Banking Supervision. Three pilot examinations were successfully conducted in 2001.

The HKMA has recently reviewed the retail payment systems in Hong Kong. The review examined issues such as efficiency, pricing and costs, degree of market access and level of competition, and found no factor affecting the systemic stability of the payment systems in Hong Kong. The review nevertheless suggested a progressive approach to improve the regulatory framework. The recommendation was to introduce a self-regulatory approach, under which the market would draw up codes of practices and monitor their compliance, while the HKMA would oversee the overall implementation of such an approach. With the agreement of the Exchange