People’s Republic of China––Hong Kong Special Administrative Region: Report on the Observance of Standards and Codes

Hong Kong Special Administrative Region (HKSAR) has a very high level of compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision. The Hong Kong Monetary Authority (HKMA) complements its high supervisory standards with a sustained commitment to the international regulatory reform agenda where it is an early adopter of many standards. HKMA supervises a major international financial center which was affected, though not significantly so, by the financial crisis. The banking system is characterized by the dominant presence of institutions with foreign ownership, including the systemic banks, which puts a premium on the HKMA's role as a host supervisory authority. The HKMA is an authoritative supervisor, operating with de facto independence and conducting a close and continuous supervisory approach which places strong weight on clear communication with the industry and the expectation of high standards of corporate governance. Despite safeguards, however, the independence of the HKMA is not as fully protected by law as it could be. Some regulatory tightening is warranted to ensure the HKMA has afull suite of supervisory powers and is using the most appropriate regulatory definitions.