The three-month consultation period on deposit insurance came to an end this week. As the HKMA collates and assesses the responses, Simon Topping, Executive Director in charge of Banking Policy, discusses the role of consultation in the formulation of banking policy.
Hong Kong's reputation as one of the world's leading international financial centres derives from a number of factors, one of which is the good reputation of its regulatory systems. These systems aim to ensure that Hong Kong's financial markets are stable and work effectively, and that there is protection for depositors and investors. At the same time, they seek to ensure that regulation does not stifle competition and innovation, both of which are key factors in the Hong Kong success story.
So how are regulatory policies developed? How do we ensure that we get the balance right between over-regulation, which would be contrary to Hong Kong's free market philosophy, and under-regulation, which could be damaging to Hong Kong's reputation as a well regulated and reputable financial centre?
The answer is in two parts.
First, although Hong Kong needs to keep up with global trends in regulation - such as the policies on bank regulation formulated by the Basel Committee on Banking Supervision - we do not blindly implement policies just for the sake of it. Instead, we go to great pains to ensure that any policies we adopt are appropriate to the Hong Kong market and are tailored to the particular characteristics of Hong Kong.
Secondly, we consult extensively before any regulatory changes or major policy changes are introduced. This seeks to ensure that the views of all major interested parties are taken into account in the formulation of policy.
The way this works for banking policies is as follows. First, when drawing up a new policy we typically consult a number of banks early on in the process to get their preliminary views on whether the proposal is of value, whether it is workable, and how they think it will affect them. We also formally consult the Banking Advisory and Deposit-Taking Companies Advisory Committees. These Committees, which meet quarterly under the Chairmanship of the Financial Secretary and comprise representatives of a wide range of local and foreign banks, are a valuable sounding board for ideas and offer invaluable advice on banking matters, including the implementation of policies. We also formally consult the two industry associations - the Hong Kong Association of Banks and the DTC Association - so that they can consult their full membership on any proposals and pass their comments back to us.
Increasingly, we are also making other parties, such as the Consumer Council, aware of the initiatives we are undertaking, and their input is also of great value. Likewise, the views of academics and of the political parties are also of great interest to us - the latter particularly so, since if any legislative changes are required, LegCo's support for the amendments is ultimately necessary. For the consultation on deposit insurance, in an effort to get a good reading of public opinion, we have paid particular attention to briefing and consulting community representatives, such as legislators and district councillors.
So before any proposal on anything significant is finalised there is a fairly extensive consultation process. This seeks to ensure that, before any decision is taken on a proposal, account is taken of the views of a wide range of parties. Of course, that does not mean that the final proposal will necessarily please everybody - indeed, this is very unlikely. But we do our best to be responsive to the views expressed to us, and to try to mould a proposal in such a way that it reflects the general consensus.
In short, therefore, these policies are not created by the HKMA in a vacuum. We are not a secretive body which makes rules in a high-handed manner and passes them down to the banks. On the contrary, we go to great pains to consult as widely as possible, and do our best to ensure that our policies have as wide a support as possible. But, ultimately, the responsibility rests with us to propose the policies we judge necessary to maintain the success of Hong Kong as an international financial centre, and some of these may not always be popular with the banks or with other parties. As professional regulators with considerable experience in this area, we believe we can find that middle ground between over- and under- regulation, and get the balance right. But we shall always listen to others' views.
Simon Topping
Executive Director, Banking Policy
18 January 2001
More information on the Banking Policy and Supervision can be found here.
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