ENG-2006 — Page 100

72 | Financial and Monetary Affairs

Financial Secretary, who is advised by the Exchange Fund Advisory Committee (EFAC) on matters relating to the control of the Exchange Fund.

The authority seeks advice on policy matters routinely from the Banking Advisory Committee and the 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.

The Banking Ordinance provides the legal framework for banking supervision in Hong Kong. Under the ordinance, the HKMA is the licensing authority responsible for granting and revoking the authorisation of all Als, as well as the approval and revocation of money broker licences. The HKMA seeks to maintain a regulatory framework that is fully in line with international standards. 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 flexibility for Als to make commercial decisions. Hong Kong's framework of banking supervision is in line with the Core Principles for Effective Banking Supervision promulgated by the Basel Committee on Banking Supervision.

The HKMA's supervisory approach is based on a policy of 'continuous supervision' through a combination of on-site examinations, off-site reviews, prudential meetings, cooperation with external auditors and meetings with boards of directors. Since 2000, the HKMA has been using a risk-based supervisory framework for all Als. This approach puts emphasis on evaluation of the quality of risk management practices and internal controls in respect of various types of risks faced by Als. On-site examinations are typically focused on areas of higher risk at Als. In addition, as part of the new capital adequacy framework introduced on January 1, 2007, the HKMA has, based on its risk-based supervisory approach, developed a detailed and rigorous assessment framework to help set the minimum capital adequacy ratios and supervisory priorities of individual locally incorporated Als and, where applicable, assess the effectiveness of their internal capital assessments.

On the international front, the authority continues to promote cooperation among central banks in the region, principally through the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP)4, whose activities cover supervisory liaison and cooperation, development of financial markets and infrastructure, and various areas of central bank operations. The HKMA continues to participate in various regional and international forums for banking supervisors.

Recent Developments

In line with its policy of adhering closely to international regulatory standards, the HKMA introduced on January 1, 2007 a capital adequacy framework for all locally

4

The EMEAP Group comprises 11 central banks and monetary authorities in the East Asia and Pacific region: Reserve Bank of Australia, People's Bank of China, Hong Kong Monetary Authority, Bank Indonesia, Bank of Japan, Bank of Korea, Bank Negara Malaysia, Reserve Bank of New Zealand, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore and Bank of Thailand.

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