23 December 2003

Dear Sir / Madam,

Annual Self-Assessment on Compliance with the Code of Banking Practice 2002/03

The industry has completed the annual self-assessment on compliance with the Code of Banking Practice covering the period from 1 June 2002 to 31 May 2003. I write to inform you of the results of this exercise.

The self-assessment was completed by 186 AIs. 80% of AIs reported full compliance, 19% reported five or less instances of non-compliance, and only one AI (less than 1%) reported over five instances of non-compliance. The corresponding figures last year were 63%, 27% and 10%.

In terms of systems of control for monitoring compliance with the Code, the majority of AIs reported that they had adequate internal procedures and management oversight to ensure compliance. New products were also subject to adequate review before they were launched to ensure compliance with the Code.

The results of this year's self-assessment are encouraging. The overall state of compliance by the industry has significantly improved during the period under review, with 99% of AIs reporting either full, or almost full¹ , compliance with 188 provisions of the Code.

Nonetheless, non-compliance with the Code should be taken seriously. Where non-compliant areas are identified during the self-assessment process, AIs should develop a plan to rectify the situation. A report should be submitted to the HKMA before 31 January 2004 to confirm that all non-compliant areas have been rectified, or if not, the reasons why full compliance cannot be achieved. The report should be sent to the attention of the institution's usual contact in the Banking Supervision Department.

Should you have any questions, please contact Ms Carman Chiu at 2878 1474 or Miss Gillian Hui at 2878 1275.

Yours faithfully,

William A. Ryback
Deputy Chief Executive

1. Almost full compliance refers to the reporting of five or less instances of non-compliance.