HONG KONG MONETARY AUTHORITY Annual Report 1996
HONG KONG MONETARY AUTHORITY
These agreements aim at enhancing the liquidity of foreign reserves to maintain currency stability in the region in the face of volatile capital flows.
Such pro-active measures complemented the good performance of the Exchange Fund, which continues to hold one of the largest foreign exchange reserves in the world. If the Land Fund were also included, the combined foreign exchange assets would place Hong Kong's reserves among the world's top five. Total assets of the Exchange Fund at $534.5 bn represent an increase of 16% over the past year. Accumulated surplus of the Exchange Fund grew 7.9 % in 1996, which was a good return in the climate of a relatively unfavourable bond market.
BANKING SUPERVISION
On the supervisory front, 1996 was a year of broad progress. In a climate of increasing globalisation of financial markets, banking risks around the world have to be properly understood and prudently managed. In line with our efforts to promote proper control systems for derivatives among authorised institutions, we strengthened the resources of our specialist team on derivatives, and issued industry guidelines on risk management for derivatives and other traded instruments. We also introduced a reporting framework for market risk exposures of authorised institutions. Following our Memorandum of Understanding with the Securities and Futures Commission in 1995, we established a new division in 1996 to supervise authorised institutions which are active in securities business. Further progress was made on enhancing financial disclosure of institutions, thereby improving their transparency and accountability and bringing Hong Kong's disclosure standard in line with other major international financial centres. The HKMA has been strengthening co-operation with other supervisory authorities in the region and during the year chaired a Study Group on Banking Supervision for the Executives' Meeting of East Asia and Pacific Central Banks (EMEAP) forum.
A Code of Banking Practice was drafted during the year, setting out the appropriate minimum standards of conduct by banks towards their customers. The Guideline against money laundering is currently being revised. We also introduced another round of amendments to the Banking Ordinance, establishing legal frameworks for the regulation of the issue of multi-purpose stored value cards and the authorisation of money brokers operating in the wholesale foreign exchange and money markets.
All these measures were introduced in close consultation with the relevant statutory bodies and advisory committees, and other interested parties in a spirit of mutual respect and consensus between the regulator and the regulated.
As one of the world's largest international banking centres, Hong Kong is conscious of the importance of maintaining a supervisory regime which is fair and transparent for all and ensuring that our banking supervisory policy will not change after 1997.