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Following is a question by the Hon Tam Yiu-chung and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (April 18):
Question:
It has been reported that earlier, problems arose in a number of transactions relating to adding value to Octopus cards via the EPS add-value terminals. In this connection, will the Government inform this Council:
(a) apart from the Code of Practice for Multi-Purpose Stored Value Card Operation and the Code of Practice for Payment Card Scheme Operators, whether the Hong Kong Monetary Authority has drawn up any terms and conditions governing the debit procedures and operation of Octopus cards; if so, of the details;
(b) whether it knows if the Octopus Cards Limited (OCL) has reviewed the transaction records relating to adding value to Octopus cards via the EPS add-value terminals after each upgrade of the network concerned in the past three years; if it has, of the results of the review; if not, the reasons for that; and
(c) whether it plans to implement the following measures to enhance the overall safety and efficiency of the operations of Octopus cards: devising a statutory code of practice for operators of multi-purpose stored value cards, regularly conducting random checks on the transaction records of Octopus cards, as well as requiring OCL to establish a comprehensive enquiry system on customers' transaction records; if so, of the details of the plan; if not, the reasons for that?
Reply:
Madam President,
The Hong Kong Monetary Authority (HKMA) authorised Octopus Cards Limited (OCL), the issuer of the Octopus cards, as a deposit-taking company in 2000 and has been supervising it as such since then. The primary supervisory objective, in line with the policy and supervisory objective for all other authorised institutions, is to ensure the overall safety and soundness of the institution so as to protect the interests of cardholders, who are akin to depositors in the case of a deposit-taking entity. Our replies to the questions raised by Hon Tam Yiu-chung are as follows:
(a) The supervisory framework does not have specific guidelines on the charging and add-value operations of the Octopus system. Nevertheless, the Code of Practice for Multi-Purpose Stored Value Card Operation (the Code), which was adopted by OCL, requires the company to have controls and procedures to ensure the safety and efficiency of its operation. Specifically, the Code requires OCL to ensure a high degree of security, data integrity and operational reliability of its system. It also requires OCL to have robust clearing and settlement arrangements to ensure efficient, reliable and secure operation of the system. We believe that the provisions under the Code are already adequate in requiring OCL to put in place appropriate controls to ensure the reliability of its charging operation.
The board of directors and management of OCL have the primary responsibility for ensuring full compliance with the Code. Under the Code, OCL is required to conduct self-assessment on an annual basis. The HKMA will ensure that management of OCL has put in place appropriate controls and procedures to ensure the compliance with the Code in its on-going supervision of OCL.
(b) Whether OCL needs to check all EPS add-value transactions after each EPS related system change would depend on the nature of the change. This is a judgement for OCL's management. However, as an authorised institution, OCL is required to have controls and procedures to ensure that the impact of any system change is properly evaluated and all system changes are adequately tested, including simulated transactions testing if necessary, before implementation. The HKMA will ensure that these controls are in place in its on-going supervision of OCL.
(c) The HKMA is fully aware of the public's concerns about the reliability of the Octopus system following the recent failed EPS add-value incidents. It has requested OCL to, as soon as practicable, take appropriate measures, particularly those suggested by Legislative Council members and the Consumer Council, to enhance the protection of cardholders. The HKMA has also, under section 59 of the Banking Ordinance, required OCL to commission an independent auditor to review OCL's EPS add-value services and make recommendations on how OCL should take account of cardholders' interests in its operations and improve its operational controls. In addition, the HKMA has appointed an Advisor under section 52 of the Banking Ordinance to advise OCL on measures to enhance cardholders protection and safeguard their interests. The independent auditor and the Advisor will take into account all relevant suggestions made by Legislative Council members and the Consumer Council in formulating their recommendations. The HKMA will ensure that where appropriate, OCL will take on board these recommendations.
Ends/Wednesday, April 18, 2007
Issued at HKT 12:30
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