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Financial and Monetary Affairs

Financial Reporting Council

The Financial Reporting Council is an independent regulator established under the Financial Reporting Council Ordinance. Since the commencement of the new auditor regulatory regime on 1 October 2019, the council has been discharging its expanded functions of inspection, investigation and discipline concerning auditors of Hong Kong-listed entities, recognition of overseas auditors of listed entities and oversight of the performance of specified functions of the Hong Kong Institute of Certified Public Accountants. In 2020, the council completed its first cycle of inspections, seven investigations and its first oversight report on the institute's specified functions.

Cross-regulator Coordination

The government maintains regular dialogue with financial regulators through cross-sectoral platforms, including the Council of Financial Regulators chaired by the Financial Secretary and the Financial Stability Committee chaired by the Secretary for Financial Services and the Treasury, to work towards the common objective of promoting efficiency and effectiveness in the regulation and supervision of financial institutions, and maintaining financial stability in Hong Kong. The government also holds meetings with financial regulators to discuss regulatory and supervisory issues and monitor the financial markets.

Monetary Policy

The objective of Hong Kong's monetary policy is currency stability, defined as a stable external exchange value of the Hong Kong dollar (HKD), in terms of its exchange rate in the forex market against the US dollar (USD), at around HK$7.80 to US$1. This objective is achieved through the Linked Exchange Rate System, introduced in 1983. The government is fully committed to maintaining this system, which is a cornerstone of Hong Kong's monetary and financial stability, and observing the strict discipline of the system's currency board arrangements.

The system is characterised by currency board arrangements requiring the HKD monetary base to be at least 100 per cent backed by, and changes in it to be 100 per cent matched by corresponding changes in, USD reserves held in the Exchange Fund at the fixed exchange rate of HK$7.80 to US$1. In Hong Kong, the monetary base includes the amount of currency notes and coins issued, the aggregate balance and the outstanding amount of Exchange Fund Bills. and Notes (EFBNs). Under the currency board system, HKD exchange rate stability is maintained through an interest rate adjustment mechanism and the HKMA's commitment to honour Convertibility Undertakings. In particular, the HKMA undertakes to buy USD from licensed banks at HK$7.75 to US$1 (strong-side Convertibility Undertaking) and sell USD at HK$7.85 to US$1 (weak-side Convertibility Undertaking). The expansion or contraction in the monetary base arising from these currency board operations will cause interest rates for the domestic currency to fall or rise respectively, creating the monetary conditions that automatically counteract the original capital movements and ensuring exchange rate stability.

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Aggregate balance is the sum of the balances of the clearing accounts kept with the HKMA.

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