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Following is the speech by the Secretary for Financial Services, Mr Stephen Ip, in moving the second reading of the Banking (Amendment) Bill 2000 in the Legislative Council today (November 29):

Madam President,

I move the second reading of the Banking (Amendment) Bill 2000 (the Bill).

As I pointed out in moving the Second Reading of the Securities and Futures Bill (the SF Bill) a moment ago, with the introduction of a new licensing regime for intermediaries regulated by the Securities and Futures Commission (SFC), it is necessary to make corresponding changes to the Banking Ordinance (BO) to enhance the Hong Kong Monetary Authority's (HKMA) regulatory functions in relation to the securities business of authorized institutions (AIs) that are exempt under the SF Bill.

Our guiding principles in developing this new regulatory framework are to provide, as far as possible, adequate protection to investors, minimize regulatory overlap thus reducing unnecessary regulatory costs, and level the playing field between exempt AIs and SFC licensees.

Under the scheme of co-operative supervision agreed by the HKMA and SFC, the HKMA will remain the front line regulator in respect of exempt AIs. HKMA will perform its regulatory functions in a manner and according to standards that are consistent with those applied by the SFC to its licensees.

The main provisions of the Bill include:

(a) specify that the Monetary Authority's (MA) supervisory powers cover the whole of exempt AIs businesses, that is, not simply banking and deposit-taking businesses. The amendment seeks to put the MA's supervisory powers over exempt AIs' "regulated activities" beyond doubt;

(b) allow the MA to share supervisory information in relation to exempt AIs' "regulated activities" with the SFC;

(c) empower the MA to publicly or privately reprimand exempt AIs which have committed misconduct. This will enable investors to better assess the quality of the "regulated activities" of the institutions with which they are dealing. As any such reprimand is specific to the related "regulated activities", depositors and other market participants are not expected to mix up the quality of the "regulated activities" of an AI with its other businesses, quality of its operation and its financial soundness. The Bill also provides that the channel of appeal by AIs to the Chief Executive in Council now under the BO will be applicable to the above reprimands;

(d) in line with the SF Bill, introduce a "management responsibility" concept whereby each exempt AI has to appoint at least two executive officers to be responsible for directly supervising its "regulated activities". A person can become an executive officer only with the consent of the MA; and

(e) require the MA to keep for public inspection a register of persons employed by exempt AIs to act for them in respect of their "regulated activities".

The Banking (Amendment) Bill 2000 seeks to strengthen the regulatory functions of the MA corresponding to the introduction of the regulatory regime by the SF Bill, to ensure that regulation of the securities business of exempt AIs is carried out in a more effective and fair manner. This will be conducive to enhancing Hong Kong's status as an international financial centre. I hope that Members will support the Bill.

Thank you, Madam President.

End/Wednesday, November 29, 2000

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