Briefing to the Legislative CouncilBriefing to the Legislative Council

Panel on Financial AffairsPanel on Financial Affairs

3 May 20013 May 2001

HONG KONG MONETARY AUTHORITYHONG KONG MONETARY AUTHORITY

DISCUSSION TOPICSDISCUSSION TOPICS

Annual Report 2000Annual Report 2000

Latest DevelopmentsLatest Developments

• Currency

• Banking

• Financial Infrastructure

• Exchange Fund Management

Banking Consumer IssuesBanking Consumer Issues

2

1999 2000

7.60

7.65

7.70

7.75

7.80

7.85

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr

HKD per USD

-200

0

200

400

600

800

1,000

1,200

1,400

b.p.

CURRENCY - Exchange RateCURRENCY - Exchange Rate

HK - US interest rate differential (1 month) (RHS)

Exchange rate (LHS)

1998 20013

• Risks from globalisation persist

• Economic and financial market adjustments in US

• Uncertain economic outlook in Japan and yen weakness

• Problems in emerging markets

• Structural weakness in other Asian financial systems

• Mainland adjustments to WTO and political situation

• Use of Hong Kong markets for proxy hedge

CURRENCY - VulnerabilitiesCURRENCY - Vulnerabilities

4

CURRENCYCURRENCY - Vulnerabilities - Vulnerabilities

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr

Pips

12-month forward points

1997 1998 1999 2000 2001

5

CURRENCYCURRENCY - Vulnerabilities - Vulnerabilities

-300

-200

-100

0

100

200

300

400

500

Oct Nov Dec Jan Feb Mar Apr

Pips

12-month forward points

2000 20016

BANKING - Reform MeasuresBANKING - Reform Measures

• Commercial Credit Reference Agency

• Interest Rate Deregulation

• Consolidation

• Code of Banking Practice

• Deposit Protection

7

BANKING - Reform MeasuresBANKING - Reform Measures

Deposit Protection

• Approved in principle by ExCo

• Preliminary views on design features: Cover all licensed banks Mandatory participation Coverage Cap at HK$100,000 Ex-ante funding preferred Risk-based premium to be further explored Separate legal entity

• Subject to further study and consultation

8

• Banking (Amendment) Bill 2000Banking (Amendment) Bill 2000

being examined by the Bills Committee

• Banking (Amendment) Bill 2001Banking (Amendment) Bill 2001

introduced in the Legislative Council

BANKING - Draft LegislationBANKING - Draft Legislation

9

FINANCIAL INFRASTRUCTUREFINANCIAL INFRASTRUCTURE

US$ Million

US Dollar Clearing SystemUS Dollar Clearing System

Daily Average Turnover

0

1,000

2,000

3,000

4,000

5,000

Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01

US$ RTGS (launched on 21 Aug 2000) PvP (US$/HK$) (launched on 25 Sep 2000)

10

FINANCIAL INFRASTRUCTUREFINANCIAL INFRASTRUCTURE

• Internal review on the provision of retailpayment services Efficiency, pricing, competition, consumer

protection, regulatory framework andsystemic implications

• Making good progress. Expect to becompleted shortly.

Retail PaymentsRetail Payments

11

EXCHANGE FUND PERFORMANCEEXCHANGE FUND PERFORMANCE

1999 2000 2001 Q1 April 2001

(HK$ bn) (HK$ bn) (HK$ bn) (HK$ bn)

Gain/(Loss) on HK equities 90.1 (11.6) (21.5) 3.9

Exchange gain/(loss) (9.9) (11.2) (11.8) 3.2

Total return on bonds etc 23.6 67.9 18.8 (2.1)

Investment income 103.8 45.1 (14.5) 5.0

Other income 0.2 0.2 0.0 0.0

Interest and expenses (10.0) (11.0) (2.8) (0.6)

Net investment income 94.0 34.3 (17.3) 4.4

Treasury’s share (45.4) (18.1) 6.1 (2.0)

Increase/decrease in EF accumulated surplus 48.6 16.2 (11.2) 2.4

12

EXCHANGE FUND - HK Equity PortfolioEXCHANGE FUND - HK Equity Portfolio

(HK$ bn)

Investment in August 1998 118.1

Income from Disposal and Dividends 126.1

Size of remaining portfolio (end-April 2001) 110.9

Disposal 60.9

Long Term Investment ** 50.0

* * IIncluding HK equities transferred from the Land Fundin 1998 (valued at HK$9 bn in 1998)

13

BANKING CONSUMER ISSUESBANKING CONSUMER ISSUES

• Increasing focus on how to address banking consumer protection

• HKMA has no explicit role in consumer protection under the Banking Ordinance

• A comparative study of banking consumer protection arrangements completed

• Report on this comparative study sent to Financial Services Bureau and the Legislative Council Financial Affairs Panel

• Welcome advice on the way forward14

BANKING CONSUMER ISSUESBANKING CONSUMER ISSUES

HIGHLIGHTS OF FINDINGS OF STUDY (HIGHLIGHTS OF FINDINGS OF STUDY (II))

Banking Consumer ProtectionArrangements

UK Australia HK

a) Regulator assigned statutoryresponsibility for consumer protection

b) Self-regulation by non-statutory Code

of Banking Practice

c) Sanctions against non-compliancewith the Code

d) Ombudsman schemes to resolvecustomer complaints

e) Regulation of banks' fees andcharges

f) Specific Government initiatives topromote basic banking services

15

BANKING CONSUMER ISSUESBANKING CONSUMER ISSUES

HIGHLIGHTS OF FINDINGS OF STUDY (HIGHLIGHTS OF FINDINGS OF STUDY (IIII))

Role of regulator in bankingconsumer protection

UK Australia HK

a) Explicit mandate to protect bankingconsumers

b) Power of regulator to regulate marketconduct

c) Monitoring compliance with the Codeof Banking Practice

d) Responsibility in relation to

Ombudsman schemes

e) Setting standards for disputeresolution

16

BANKING CONSUMER ISSUESBANKING CONSUMER ISSUES

HIGHLIGHTS OF FINDINGS OF STUDY (HIGHLIGHTS OF FINDINGS OF STUDY (IIIIII))

Role of Industry Associations inbanking consumer protection

UK Australia HK

a) Issue Code of Banking Practice

b) Drafting and conducting review of theCode

c) Monitoring compliance with the Code

d) Setting up and funding BankingOmbudsman schemes

e) Consumer education

17

BANKING CONSUMER ISSUESBANKING CONSUMER ISSUESWay Forward

• Report only highlights gaps, not policy recommendations

• HKMA and the Government will now proceed to consider the policy implications, including - whether any change to the existing arrangements is needed; if so, what should be done; how should these be achieved; and who should do what.

• HKMA is open-minded on whether it should have a more explicit role

• Will need to consult further and more widely on any policy recommendations

18

Briefing to the Legislative CouncilBriefing to the Legislative Council

Panel on Financial AffairsPanel on Financial Affairs

3 May 20013 May 2001

HONG KONG MONETARY AUTHORITYHONG KONG MONETARY AUTHORITY

19