22 July 1999

Dear Sir/Madam,

Banking (Amendment) Ordinance 1999

This letter informs you of the enactment of the Banking (Amendment) Ordinance 1999 ("BAO") and sets out the main provisions of the Ordinance for your reference. Enclosed please find a gazette copy of the BAO.

The BAO was passed by the Legislative Council on 7 July and published in the Gazette on 16 July 1999. It is aimed to bring the existing banking supervision framework in Hong Kong fully in line with the Basle Committee's Core Principles for Effective Banking Supervision ("Core Principles") which are accepted as the main international standards for banking supervision. A number of amendments to the Banking Ordinance ("the Ordinance") are also required to improve the operation of the Ordinance in light of market developments.

The main provisions which aim to improve compliance with the Core Principles are as follows:

1. the introduction of a new provision to require a local authorized institution ("AI") to seek the Monetary Authority's ("MA") prior approval for any major acquisition or investment in a company (including establishment of a company) which constitutes 5% or more of the capital base of the AI. It should be noted that this new requirement may be applied to an institution on a solo, consolidated or both bases (section 87A);
   
   
2. removal of the restriction on disclosure of individual customers' information to overseas supervisory authorities. Instead, the MA would be empowered to attach a condition to any disclosure made under section 121 that the MA's consent would be required for any onward transmission of such information. Such a condition would be made mandatory in the case of any disclosure of individual customers' information (section 121(3)); and
   
   
3. the introduction of a new provision to give the MA the right to attend a court hearing on a winding-up petition in respect of an AI and to support or oppose such a petition. This is to address the issue that the MA's supervisory power to bring about timely corrective actions on a problem AI may be disrupted by a winding-up petition against the AI presented by creditors (section 122(7)).

Other amendments seek to bring other provisions of the Ordinance up to date with changing market developments and the introduction of new banking products. These include:

1. removing the requirements for local AIs to publish their accounts in local newspapers (section 60);
   
   
2. providing the MA with a discretionary power to require all AIs to publish or disclose information relating to their financial affairs, and to specify the disclosure requirements and the manner and timing of disclosure by way of subsidiary legislation (section 60A);
   
   
3. allowing foreign AIs to lodge either a copy of their audited annual accounts or, with the MA's prior approval in writing, a copy of the consolidated accounts of their holding company (section 60(5A));
   
   
4. enabling the MA to impose conditions on existing controllers of AIs should the need arise (section 70);
   
   
5. amending section 73 such that only the first employment with another AI immediately following the employment (as a director or in management position) with an AI which has been wound up or whose licence has been revoked needs the MA's consent;
   
   
6. giving the MA the general power to specify by way of subsidiary legislation from time to time any new items of risk exposure as financial exposure (section 81(2));
   
   
7. empowering the MA to grant consent to AIs to exceed the limit under section 85 either generally or in any particular case in relation to the aggregate unsecured facilities granted to an employee; and
   
   
8. granting a specific exemption from section 81 in respect of exposure to The Hong Kong Mortgage Corporation Limited under its Mortgage Insurance Programme.

Most provisions of the BAO 1999 are expected to commence operation as soon as practicable, except sections 60, 60A, 87A and 121(3).

These latter provisions will come into effect on a later date subject to the issue of supervisory guidelines or enactment of subsidiary legislation.

I shall advise you again when the exact commencement dates of the BAO 1999 have been finalised.

Encl.