G4/26/6C
CC 1/42
7 January 2005
Mr. Simon Topping
Executive Director (Banking Policy)
Hong Kong Monetary Authority
55th Floor, Two International Finance Centre
8 Finance Street
Central, Hong Kong
Banking (Amendment) Bill 2005
Thank you for your letter of 16 December 2004 inviting the Consumer Council to provide comments on the draft Banking (Amendment) Bill 2005.
The Council welcomes the opportunity to comment on the draft Bill. On the whole, the Council supports the proposed legislative amendments to the Banking Ordinance (BO) for implementing Basel II in Hong Kong, with a view to promoting the safety and soundness of the banking system. The Council would like to raise the following points for the consideration of the Hong Kong Monetary Authority (HKMA).
1. Level playing field
The Council fully supports the proposed additions to sections 58A and 71C of the BO to make it clear that the HKMA may publish its disciplinary actions against relevant individuals and executive officers of authorized institutions ('AIs') and bank holding companies, in a manner followed by the Securities and Future Commission. The Council believes that market transparency can be enhanced through such amendments. More importantly, such amendments may bring about a level playing field between AIs and securities firms as far as securities business is concerned.
In addition, the Council is of the view that the HKMA should consider widening the scope of disclosure by publication of disciplinary actions in respect of not just securities operation-related misconduct but also other misconduct (e.g. non-compliance of the banking code) that would be detrimental to consumers' interests and pose a threat to the integrity of the banking system.
2. Quality of public disclosure
It is noted that the amended section 60A and the new section 74J concern disclosure of information to the general public by AIs and bank holding companies relating to their financial affairs. The Council considers the proposed rule-making approach acceptable and should be more effective to cope with future revisions in the capital framework. However, to achieve the maximum benefit of public disclosure, the information prescribed to be disclosed should enable the public to compare across AIs and bank holding companies. The Council urges the HKMA to prescribe disclosure of sufficient information to facilitate the general public's assessment of the respective financial strength and performance of individual AIs and bank holding companies.
Another suggestion is for the HKMA to consider enhancing transparency by a review of the quality of public disclosure of AIs and bank holding companies. A review mechanism can serve as a key means of ensuring supply of reliable information and compliance with disclosure requirements.
The trustworthiness of public disclosure suffers if a bank holding company concealing negative information or providing false information is not effectively sanctioned. The Council therefore supports the sanctions in section 74H relating to false disclosures in line with those for personnels of AIs.
To strengthen market discipline, it is important that users of financial information, particularly the general public, can fully appreciate the information disclosed by AIs and bank holding companies. In this regard, the Council suggests that the HKMA can take a leading role in promoting understanding among the public of financial information to be disclosed.
3. Corporate governance information
To accurately evaluate the information disclosed by AIs and bank holding companies about their financial position, financial performance and risks, the general public not only need financial data about the AIs and bank holding companies, but also fundamental information about the institutions' corporate governance and internal control. Such information can help provide the appropriate perspective, particularly for assessing the institutions' future prospects. The Council therefore urges the HKMA to prescribe rules requiring the institutions concerned to make such disclosure.
Mrs. CHAN WONG Shui
Chief Executive
