Monetary Authority appoints an Advisor to advise the affairs of Octopus Cards Limited

The Hong Kong Monetary Authority (HKMA) announced today (16 February) that, after consultation with the Financial Secretary, the Monetary Authority (MA) has appointed Professor Andrew Chan Chi-fai of the Faculty of Business Administration of the Chinese University of Hong Kong and the Chairman of the Hong Kong Deposit Protection Board as an Advisor under Section 52(1)(B) of the Banking Ordinance (BO) to advise the management of Octopus Cards Limited (OCL).

The MA has also served notice to OCL under Section 59(2) of the Banking Ordinance, requiring the company to submit to him an independent auditor's report on the operation of add-value services through EPS as well as OCL's operational risk control environment.

The Advisor will advise OCL on:

• the management of the affairs, business and property of OCL in such a way as to ensure the interests of holders of Octopus Cards are properly protected and safeguarded in the operations of OCL including but not limited to the charging and add-value transaction processes;
• matters that may arise from the independent auditor's report; and
• recommendations on the implementation of any remedial measures that may be identified in the independent auditor's report.

The action has been taken following an inquiry by OCL, at the request of the HKMA, into the problems experienced with add-value transactions involving EPS. Although it was originally believed that problems began with the upgrade of the EPS add-value system on 5 December 2006, the inquiry revealed a limited number of failed add-value transactions arising before that date with refunds outstanding.

In the meantime, the MA has urged and the company has agreed to:

• review all relevant transactions and make refunds to customers proactively and without delay;
• disclose all relevant information to the public;
• continue to suspend all EPS add-value transactions in MTR and KCR stations and, as soon as practicable, take immediate steps to also suspend all EPS add-value transactions outside MTR and KCR stations, until all issues relating to the arrangement of refund of failed add-value transactions have been identified and resolved;
• keep the public informed of progress in addressing those issues.

An HKMA spokesperson said that although the problem appeared to be restricted to a limited number of EPS add-value transactions, it had been decided to call for an independent review of OCL's operations and the appointment of an Advisor to ensure that the interests of cardholders are safeguarded.

The spokesperson explained that the decision to appoint an Advisor was related solely to the discrepancies in add-value transactions through EPS and has nothing to do with the financial soundness of OCL. He added that OCL has been cooperative in working with the HKMA in the investigation.

For further enquiries, please contact:
Sara Yip, Manager (Press), at 2878 8246 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
16 February 2007