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Following is the speech (translation) by the Acting Secretary for Financial Services and the Treasury, Ms Julia Leung, on Second Reading debate on the Banking (Amendment) Bill 2011 at the Legislative Council meeting today (February 29):
Acting Madam President,
I move to resume the Second Reading of the Banking (Amendment) Bill 2011 (the Bill).
The Bill seeks principally to amend the Banking Ordinance (BO) so as to provide for the implementation of the Basel III regulatory reform package issued by the Basel Committee on Banking Supervision (the Basel Committee) in December 2010. According to the Basel Committee's transitional timetable, implementation of the new Basel III standards should begin from January 1, 2013, with the requirements being phased in over the following six years to achieve full implementation by January 1, 2019.
Through the implementation of Basel III, we seek to improve the local banking sector's ability to absorb shocks arising from financial and economic stress, thus reducing the risk of spill-over from the financial sector to the real economy. Also, as a major international financial centre and a member of the Basel Committee, it is important that Hong Kong commits to adopting and implementing Basel III in a timely fashion. The implementation of Basel III will ensure that the capital and liquidity frameworks for authorised institutions in Hong Kong are consistent with international standards and that our authorised institutions will not be disadvantaged vis--vis their peers overseas.
Currently in Hong Kong, locally incorporated authorised institutions are required to maintain a minimum capital adequacy ratio of 8% and all authorised institutions are required to maintain a minimum liquidity ratio of 25%, as provided for in the BO. The Basel III regulatory package introduces a broader, and more technically complex, set of regulatory capital and liquidity requirements.
Legislative Approach
We propose, in the Bill, to build upon the existing rule-making powers of the Monetary Authority (MA) to prescribe the methodology for calculation of authorised institutions' capital adequacy ratios and the accompanying disclosure requirements, which have worked effectively to date. We propose to include liquidity as well as capital requirements within the ambit of the rules and to include the various Basel III ratios and buffer ranges into the rules alongside their calculation methodologies. The rules will be subject to negative vetting by the Legislative Council and this approach will cater for the highly technical nature of the Basel III requirements on the one hand, and address the need for timely response to international requirements on the other. Also, it is similar to the approach adopted by other comparable local legislation and those overseas jurisdictions which, to our knowledge, table the calculation of their banks' capital and liquidity requirements before their parliaments.
Internationally, there is now much greater expectation of timely implementation of international standards by individual jurisdictions at the national level. This is due to fears of contagion arising from global interconnectedness and of regulatory arbitrage as well as level playing field concerns. We must ensure that our regulatory framework is swiftly responsive to international requirements and capable of being adapted to new situations and new requirements expeditiously.
The proposed rules for the implementation of Basel III will only be made by the MA after consultation with the industry. Also, in line with the established practice, we will brief and consult the relevant Legislative Council Panel on the draft rules before tabling them at the Legislative Council for negative vetting. This procedure allows for consideration by the Legislative Council in an effective and expeditious manner and should enable us to comply with international timelines for the implementation of Basel III. It provides the most appropriate balance in terms of satisfying the need for scrutiny and due process against the need for flexibility and timely responsiveness in regulation.
Other Amendments Covered by the Bill
Turning to some other specific elements of the Bill, we propose to broaden the scope of the present Capital Adequacy Review Tribunal and rename it the "Banking Review Tribunal" so as to better reflect and accommodate the new Basel III standards. The Tribunal will be the designated forum to hear appeals against decisions by the MA to vary capital or liquidity requirements for individual authorised institutions, or to require remedial actions by individual authorised institutions when they have failed to comply with the capital or liquidity requirements applicable to them. We also propose that specified decisions made by the MA under the new capital, liquidity and disclosure rules should be reviewable by the proposed Banking Review Tribunal.
Also, we have taken the opportunity to propose an amendment to section 106 of the BO to require an authorised institution to notify the MA of any criminal proceedings instituted against it, in addition to civil proceedings, if those criminal proceedings materially affect, or could materially affect, its financial position.
Committee Stage Amendments
Having regard to the comments raised by the Legal Adviser to the Legislative Council when scrutinizing the Bill, I will be moving certain Committee Stage Amendments for tackling some drafting and technical points.
Acting Madam President, I call for Members' support for the passage of the Bill, including the Committee Stage Amendments which I will be moving shortly, in order to put in place the legal framework for implementing Basel III in Hong Kong in line with the Basel Committee's timetable. As a major international financial centre and a member of the Basel Committee, it is important that Hong Kong implements Basel III to safeguard the resilience and competitiveness of our banking system. To ensure a smooth migration to the new capital and liquidity standards, the MA will maintain its ongoing dialogue with the banking industry to ensure authorised institutions' readiness for the implementation of Basel III.
Thank you, Acting Madam President.
Ends/Wednesday, February 29, 2012
Issued at HKT 15:40
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