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The Hong Kong Monetary Authority (HKMA) today (May 19) issued a Guideline on Corporate Governance of Locally Incorporated Authorised Institutions ("Guideline") under section 7(3) of the Banking Ordinance.

This Guideline, which supersedes the Best Practice Guide issued by the HKMA in 1991 on the duties and responsibilities of directors of authorised institutions, sets out the minimum standards that locally incorporated institutions are expected to follow in respect of corporate governance. The issuance of more specific guidelines on corporate governance forms a part of the banking sector reform programme to promote high standards of corporate governance within the banking sector.

The Guideline reasserts the important role played by the board of directors in ensuring sound corporate governance, and outlines the major responsibilities and obligations that the board of directors should fulfil in managing an institution. In addition, the Guideline sets out the following specific requirements:-

* the board should ensure that the institution establishes policies, procedures and controls to manage the various types of risk with which it is faced;

* the board should ensure that the institution fully understands the provisions of section 83 of the Banking Ordinance on connected lending and establishes a policy on such lending;

* the board should ensure that it receives the management letter from the external auditor without undue delay, together with the comments of management;

* the board should maintain an appropriate level of checks and balances against the influence of the management and/or the shareholder controllers, in order to ensure that decisions are taken with the institution's best interests in mind;

* the board should establish an audit committee with written terms of reference specifying its authorities and duties;

* board meetings should be held preferably on a monthly basis but in any event no less than once every quarter;

* individual directors of an institution should attend at least half of board meetings held in each financial year; and

* the HKMA will meet the full board of directors of each local bank every year.

In finalising the above requirements of the Guideline, the HKMA has carefully considered the comments received from the banking industry as well as the particular circumstances of Hong Kong. The HKMA expects all locally incorporated authorised institutions to review their current practices and make every effort to adopt the minimum standards stipulated in the Guideline. The HKMA will monitor institutions' compliance with the Guideline through regular off-site reviews and on-site examinations.

The Guideline is available at the website of the HKMA (http://www.info.gov.hk/hkma).

End/Friday, May 19, 2000

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