Banking (Amendment) Bill 2005

The Chief Executive in Council has approved the Banking (Amendment) Bill 2005 (the "Bill") for introduction into the Legislative Council on 6 April 2005. The Bill will be published in the Government Gazette tomorrow (4 March 2005).

The main purpose of the Bill is to amend the Banking Ordinance (the "Ordinance") to provide for the implementation of the revised international capital adequacy framework promulgated by the Basel Committee on Banking Supervision in June 2004, commonly known as "Basel II", in Hong Kong. In particular, the Bill proposes that locally incorporated authorized institutions' (AIs') capital adequacy ratio (CAR) shall be calculated, and information on financial affairs including CAR shall be disclosed, in a manner according to rules prescribed by the Monetary Authority (MA) under the Ordinance. Such rules will be developed based on the requirements of Basel II and will have the status of subsidiary legislation and hence will be subject to negative vetting by the Legislative Council.

The Bill also contains a small number of proposals to enhance the operation of individual provisions of the Ordinance in the light of experience. They include

(a) confining the liability of a manager of an AI, for certain contraventions under the Ordinance, to cases where the contravention results from an act or omission on the part of the manager himself or of a person under his control;

(b) expressly providing that the MA may disclose to the public certain details of his disciplinary action taken against a relevant individual who is engaged in securities business on behalf of an AI or an executive officer who is responsible for directly supervising the securities business of an AI; and

(c) extending the ceiling of the minimum CAR of licensed banks from 12% to 16%.

Mr William Ryback, Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA), said, "With greater risk sensitivity and inclusion of a wider range of risks, Basel II will further strengthen the safety and stability of the banking sector, and the Bill will provide express statutory backing for its implementation in Hong Kong. In developing the Bill and the Basel II implementation plans, the HKMA has been guided by a Basel II Consultation Group that includes representatives from the banking industry, the accounting profession and other experts. The Bill and the Basel II implementation proposals have also been the subject of full consultation with other interested parties. The HKMA will continue to work closely with the banking industry to ensure the implementation of the Basel II requirements in Hong Kong in accordance with the Basel timetable, i.e. by the end of 2006."

Looking ahead, the HKMA will seek to complete the drafting of the detailed capital rules and disclosure rules in consultation with the industry by the end of this year to facilitate AIs' early preparation for the implementation of the revised capital adequacy framework.

A fuller description of the Bill may be found in the brief issued to the Legislative Council, a copy of which and the gazetted Bill will be made available at the HKMA website (http://www.hkma.gov.hk). A summary of the consultation comments on the Bill and the HKMA responses is also available at the HKMA website.

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Kevin Ip, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
3 March 2005