Grey policy areas

inSight

15 Feb 2001

Grey policy areas

How far should the HKMA involve itself in two grey areas that are receiving an increasing amount of public attention: consumer protection in the banking industry, and the development of retail payment systems?

In our contacts with the community, directly or indirectly through their elected representatives and our media friends, we sense a general expectation that, as monetary authority, we are responsible for everything concerning money in Hong Kong. This is not an unreasonable expectation, because a monetary authority ought, intuitively, to be responsible for anything that has to do with money.

Yes, we print and, through the three note issuing banks, we issue bank notes. We are responsible for the stability of the currency of Hong Kong through the maintenance of a stable exchange rate - a policy supported by the great majority of the people of Hong Kong. We are responsible for supervising the banking system, which makes money work effectively for the community through channelling it safely and efficiently from those who have surplus of it to those who can put it to productive use. We are tasked with managing the Exchange Fund - the very substantial reserves that belong to the people of Hong Kong. We also get ourselves involved in the building of the infrastructure and the provision of the necessary services to facilitate the movement of money, again safely and efficiently, within the economy and beyond.

But there are many more aspects to money than these. Thankfully, many of them do not involve a role for the HKMA in either the formulation of policy or the supervision of services and other activities. In most cases, the market takes good care of them. But there are, inevitably, grey areas where the need for involvement by the HKMA is a question for debate. Hong Kong, as an international financial centre operating at a time when globalisation and technological revolution are transforming the form and behaviour of money, provides fertile ground for such debate. We welcome such debate, in which issues are discussed openly and transparently, before decisions are taken on whether our involvement is needed and whether indeed such involvement is in the best interests of Hong Kong.

Readers are aware of the current debate, generated by the consultation paper that we issued, on whether or not there is a need for greater depositor protection in the form of a deposit insurance scheme. No doubt the debate on this subject will in time switch to whether or not the HKMA should be running it, in the event that a decision is taken to introduce such a scheme. We have also just set up a Working Group to consider how a Commercial Credit Reference Agency (CCRA) should be structured. There will be debate on this subject about whether the provision of credit information by banks should be compulsory or voluntary, and whether the CCRA should be run by the HKMA or privately.

We have further drawn public attention to the question of how consumer protection issues relating to the provision of banking services should be addressed. Our policy has always been that, supported by disclosure and adequate notice by the banks, the market should, in an adequately competitive environment, provide the best answer. Just in case there is any doubt, may I take this opportunity to assure readers that we have not changed this policy: it is one that has clearly served Hong Kong very well in the past. But there are issues, supported in one case by a Court ruling, in which greater consumer protection is called for. It may be, and I certainly hope, that the disclosure and notice requirements, now being promulgated in the current revision of the Code of Banking Practice, and greater competition among banks will suffice. This would obviate the need for us to face that difficult dilemma in how we as regulator on the one hand foster a healthy banking system in which banks make reasonable profits and on the other hand ensure that the consumer gets a fair deal from the banks. Perhaps the community remains to be fully convinced of this.

Yet another grey area where our involvement is open to debate concerns the development and possible regulation of the retail payment system. With new information technology there are now different forms of money used for retail payments, other than the bank notes and the instruments provided by banks that we supervise. I am of the opinion that, for all retail payment instruments and mechanisms, whether or not they are within our areas of responsibility, there are questions of safety, efficiency and competition that we need to address. More importantly, there may be issues of systemic significance that we can ill afford to ignore, even though nobody has in the strict legal sense any jurisdiction over them. In any case, any retail payment instrument, to the extent that it displaces to a significant degree the bank notes as a medium for transaction, erodes the seignorage, or the profits that we earn for the people of Hong Kong on the reserves backing the issue of bank notes. We do have a responsibility to protect this.

 

Joseph Yam
15 February 2001

 

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