Circular on Banking (Amendment) Ordinance 2001

Our Ref:
Circulars
10 Jan 2002
Banking (Amendment) Ordinance 2001
G4/26/5C
B1/15C
10 January 2002
To: The Chief Executive
All authorized institutions
The Chief Representative
All local representative offices
The Chief Executive
All money brokers
Dear Sir / Madam,
Banking (Amendment) Ordinance 2001
I write to inform you of the enactment of the Banking (Amendment) Ordinance 2001 (BAO 2001), a copy of which is attached at Annex 1, and of the need to take steps to comply with the new provisions under this Ordinance. The BAO 2001 was enacted on 19 December 2001 and published in the Gazette on 28 December 2001. The main provisions contained therein include those which aim at:
Control over authorized institutions' places of business a. Extending the definition of "local branch" to cover any place of business in Hong Kong at which an authorized institution (AI) carries on banking business or any other business which involves the incurring of financial exposures as specified under section 81(2) of the Banking Ordinance (BO). As a result of the amendments, establishment of a place of business to conduct activities such as the granting of loans or credit facilities will require prior approval of the Monetary Authority (MA) under section 44 of the BO. In accordance with the new section 44(3A), existing offices of AIs which would be regarded as a local branch because of the expanded definition will be grandfathered. AIs will be required to provide the HKMA with a list of such branches upon the commencement of BAO 2001; b. Introducing a term "local office" which is defined as a place of business in Hong Kong from which any business of an AI is promoted or assisted and to which members of the public ordinarily have physical access for the purpose of such business (e.g. sales and

service centres). Under the new section 45A(1), AIs are required to notify the MA not less than 7 days before commencing business at a local office. However, no fee is payable for the establishment or maintenance of such an office. In accordance with
section 45A(2), AIs shall provide the MA with a list of their existing local offices within 3
months after BAO 2001 comes into operation. AIs should therefore consider whether there are any of their existing offices which would fall within the definition of "local office" and start compiling the list; Advertising materials for deposits issued over the internet
c. Enhancing the existing section 92 of the BO to ensure that no person, other than those
exempted under this section, can issue advertising materials through the internet or other new technological means to solicit deposits from members of the public in Hong Kong. The new provisions also make clear that only advertisements which target at members of the public in Hong Kong would be caught under the legislation. A guideline on this issue is being prepared and will be issued after commencement of the new provisions; Fitness and propriety of managers d. Re-defining "manager" as any individual, other than a director or chief executive (including alternate chief executive), who is appointed by the AI or any third party to be principally responsible for the conduct of the key businesses or affairs specified in the new Fourteenth Schedule. Under the revised definition, only those senior executives of AIs who are in charge of key businesses or affairs, such as retail banking, corporate banking, internal audit, risk management, compliance and information technology etc., will be regarded as "managers". The objective of the amendment is to ensure that only those individuals whose functions are central to the safety and soundness of AIs will be captured under the definition of "manager"; e. Introducing a new authorization criterion which requires AIs to maintain adequate systems of control to ensure the fitness and propriety of their "managers". The relevant standards and requirements for such systems are specified in the statutory guideline "Systems of Control for the Appointment of Managers" (see Annex 2) to be issued upon the commencement of the BAO 2001; and f. Introducing a new section 72B which requires AIs to notify the MA and the person who has been appointed as a manager not later than 14 days after the appointment was made. The notification requirement under section 72B also applies to subsequent changes to such appointments, including cessation of existing appointments and changes in the responsibilities of existing managers. The other amendments seek to improve the working of individual provisions of the BO in the light of experience. A summary of these amendments is at Annex 3. AIs should now take steps to prepare themselves for compliance with the new provisions. As a large part of the BAO 2001 relates to the new definition of managers, its commencement would depend on AIs' readiness in complying with the requirements under the new regulatory regime relating to the appointment of managers. In particular, AIs should review their existing management structure and identify all managerial positions which are occupied by individuals who would fall within the revised definition of "manager". In considering how the definition would apply to their organisation,

Encl.:
c.c. they should refer to the general guidance given in the guideline mentioned above. In case of doubt, AIs may consult the relevant case officers in the HKMA or their legal advisers. After completing the review, AIs are required to submit a list of such individuals using the form at
Annex 4, together with the latest organisation chart, to the HKMA for review by 6 March
2002. The purpose of this exercise is for individual AIs to agree with the HKMA the list of
managerial positions captured under the new definition. Once this exercise is fully completed (probably by the end of April), we will designate a commencement date for the whole BAO 2001 (probably in early May). As in the past, I shall advise you again when the exact commencement date of BAO 2001 has been fixed. AIs will then be required to make relevant notifications to the HKMA and the individuals concerned under the new section 72B within 14 days of the commencement of BAO 2001. Should you have any questions relating to BAO 2001, please contact Ms Linda Yiu at 2878 8280 or Mr Raymond Chan at 2878 1846. Yours faithfully, ( D T R Carse ) Deputy Chief Executive
Annex 1 (English Version, pdf file, 119KB)
Annex 1 (Chinese Version, pdf file, 368KB)
Annex 2 (MS Word, 776KB)
Annex 3 (MS Word, 23KB)
Annex 4 (MS Word, 21KB)
The Chairman, HKAB
The Chairman, DTCA
The Chairman, HKFEDBA
SFS (Attn: Miss Clara Tang)
Last revision date : 01 August 2011

---

BANKING (AMENDMENT) ORDINANCE 2001
CONTENTS
Section Page
1. Short title and commencement ........................................................................ A771
2. Interpretation .................................................................................................. A771
3. Functions of Monetary Authority .................................................................. A781
4. Part heading amended ..................................................................................... A781
5. Control of establishment, etc. of local branches ............................................. A781
6. Fees in respect of local branches ..................................................................... A783
7. Section added
45A. Notification of commencement of business at local offices ............ A783
8. Control of establishment, etc. of local representative offices .......................... A785
9. Fees in respect of local representative offices .................................................. A785
10. Powers of Monetary Authority ....................................................................... A785
11. Examination and investigation of authorized institutions, etc. ....................... A787
12. Production of authorized institution’s, etc., books, etc. .................................. A787
13. Examination by authorities outside Hong Kong ............................................ A787
14. Restrictions on and sale of shares ................................................................... A787
15. Punishment for attempted evasion of restrictions ........................................... A787
16. Section substituted
71. Chief executives and directors require Monetary Authority’s
consent ........................................................................................ A789
17. Section added
72B. Notification of appointment of manager, etc. ................................ A795
18. Certain persons prohibited from acting as employees of authorized institutions
except with consent of Monetary Authority ............................................... A797
19. Section substituted
92. Offence to issue advertisements, etc. relating to deposits ............... A797
20. Restrictions on use of name “bank” ............................................................... A803
21. Defence where director, etc. prosecuted .......................................................... A803
22. Appeals ........................................................................................................... A803
23. Power to amend Schedules .............................................................................. A805
24. Consequential amendments to principal Ordinance arising from the fact that
new definition of “manager” does not include chief executive .................... A805
25. Fees ................................................................................................................. A805
26. Requirements applicable to prescribed advertisements ................................... A805
27. Minimum criteria for authorization ................................................................ A807
28. Powers of Manager of authorized institution ................................................. A807
BANKING (AMENDMENT) ORDINANCE A767 Ord. No. 32 of 2001

29. Fourteenth Schedule added
Fourteenth
Schedule Affairs or business of authorized institutions specified
for purposes of definition of “manager” ........................ A807
Section Page
BANKING (AMENDMENT) ORDINANCE A769 Ord. No. 32 of 2001

An Ordinance to amend the Banking Ordinance.
[]
Enacted by the Legislative Council.

1. Short title and commencement
   (1) This Ordinance may be cited as the Banking (Amendment) Ordinance 2001.
   (2) This Ordinance shall come into operation on a day to be appointed by the Secretary for Financial Services by notice published in the Gazette.
2. Interpretation
   Section 2 of the Banking Ordinance (Cap. 155) is amended—
   (a) in subsection (1)—
   (i) by repealing the definition of “advertisement” and substituting— “ “advertisement” (廣告) includes every form of advertising, whether made orally or produced mechanically, electronically, magnetically, optically, manually or by any other means;”; (ii) by repealing the definition of “automated teller machine” and substituting— “ “automated teller machine” (自動櫃員機) means a terminal device, whether installed by an authorized institution or by some other person, which is linked directly or indirectly to a computer system used by an authorized institution and which provides facilities to customers of the institution;”; BANKING (AMENDMENT) ORDINANCE A771 Ord. No. 32 of 2001 HONG KONG SPECIAL ADMINISTRATIVE REGION ORDINANCE NO. 32 OF 2001 TUNG Chee-hwa Chief Executive 27 December 2001 L.S.

(iii) by repealing the definition of “document” and substituting— “ “document” (文件) includes any publication (including a newspaper, magazine, journal or other periodical publication, a poster or notice, a circular, brochure, pamphlet or handbill, or a prospectus)— (a) directed at, or likely to be accessed or read (whether concurrently or otherwise) by, members of the public; and (b) whether produced mechanically, electronically, magnetically, optically, manually or by any other means;”; (iv) by repealing the definition of “issue” and substituting— “ “issue” (發出), in relation to any advertisement, invitation or document, includes publishing, circulating, distributing or otherwise disseminating the advertisement, invitation or document, whether— (a) by any visit in person; (b) in a newspaper, magazine, journal or other periodical publication; (c) by the display of posters or notices; (d ) by means of circulars, brochures, pamphlets or handbills; (e) by an exhibition of photographs or cinematography films; (f) by way of sound broadcasting or television; (g) by computer or other electronic device; or (h) by any other means, whether mechanically, electronically, magnetically, optically, manually or by any other medium, or by way of production or transmission of light, image or sound or any other medium, and also includes causing or authorizing the advertisement, invitation or document to be issued;”; (v) by repealing the definition of “local branch” and substituting— BANKING (AMENDMENT) ORDINANCE A773 Ord. No. 32 of 2001

“ “local branch” (本地分行), in relation to—
(a) an authorized institution which is a bank, means— (i) in the case of a bank incorporated in Hong Kong, a place of business thereof in Hong Kong, other than its principal place of business in Hong Kong or any automated teller machine, at which it carries on— (A) banking business; or (B) any other business whereby it may incur financial exposure mentioned in section 81(2), and to which members of the public ordinarily have physical access for the purposes of that business; (ii) in the case of a bank incorporated outside Hong Kong, a place of business thereof in Hong Kong, other than its principal place of business in Hong Kong or any automated teller machine, at which it carries on— (A) banking business; or (B) any other business whereby it may incur financial exposure mentioned in section 81(2), and to which members of the public ordinarily have physical access for the purposes of that business; and (b) an authorized institution which is a deposit-taking company or a restricted licence bank, means a place of business in Hong Kong of the deposit-taking company or the restricted licence bank, other than its principal place of business in Hong Kong or any automated teller machine, at which it carries on— (i) the business of taking deposits; or (ii) any other business whereby it may incur financial exposure mentioned in section 81(2), BANKING (AMENDMENT) ORDINANCE A775 Ord. No. 32 of 2001

and to which members of the public ordinarily have physical access for the purposes of that business;”; (vi) by repealing the definition of “manager” and substituting— “ “manager” (經理)— (a) subject to paragraph (c), in relation to an authorized institution incorporated in Hong Kong, means any individual, other than a director or chief executive of the institution, appointed by the institution, or by a person acting for or on behalf of or by an arrangement with the institution, to be principally responsible, either alone or with others, for the conduct of any one or more of the affairs or business of the institution specified in the Fourteenth Schedule; (b) subject to paragraph (c), in relation to an authorized institution incorporated outside Hong Kong, means any individual, other than a chief executive of the institution, appointed by the institution, or by a person acting for or on behalf of or by an arrangement with the institution, to be principally responsible, either alone or with others, for the conduct of any one or more of the affairs or business in Hong Kong of the institution specified in the Fourteenth
Schedule;
(c) does not include a person, or a person belonging to a class of persons, declared in a notice under subsection (14)(cb) not to be a manager, or a class of managers, as the case may be, for the purposes of this definition;”; (vii) by adding— “ “invitation” (邀請) includes an offer and an invitation, whether made orally or produced mechanically, electronically, magnetically, optically, manually or by any other means; “local office” (本地辦事處), in relation to an authorized institution— BANKING (AMENDMENT) ORDINANCE A777 Ord. No. 32 of 2001

(a) subject to paragraph (b), means a place of business of the institution in Hong Kong from which any business of the institution is promoted or assisted and to which members of the public ordinarily have physical access for the purposes of that business; (b) does not include— (i) the institution’s principal place of business in Hong Kong; (ii) a local branch established or maintained by the institution; (iii) an automated teller machine; (iv) a place of business of the institution used solely for the purposes of the administration of the affairs or business of the institution or the processing of transactions; or (v) a place of business of the institution, or a place of business of the institution belonging to a class of places of business, declared in a notice under subsection (14)(ca) not to be a place of business, or a class of places of business, as the case may be, for the purposes of this definition; “public” (公眾人士) means the public of Hong Kong, and includes any class of that public; “require” (要求) means reasonably require;”; (b) in subsection (2)— (i) in paragraph (b), by adding “, invitation or document” after “advertisement”; (ii) in paragraph (c)— (A) by repealing “or document” where it twice appears and substituting “, invitation or document”; (B) by adding “, invitation or document” after “contains an advertisement”; (iii) in paragraph (d ), by adding “, invitation” after “advertisement” where it twice appears; BANKING (AMENDMENT) ORDINANCE A779 Ord. No. 32 of 2001

(c) in subsection (14), by adding—
“(ca) declare a place of business, or a class of places of business, not to be a place of business, or a class of places of business, as the case may be, for the purposes of the definition of “local office”; (cb) declare a person, or a class of persons, not to be a manager, or a class of managers, as the case may be, for the purposes of the definition of “manager”;”; (d) by adding— “(17) For the avoidance of doubt, it is hereby declared that any reference in this Ordinance to the commission of an offence by every director, every chief executive and every manager of an authorized institution or other company (including any grammatical variations or cognate expressions of such reference) means that one or more than one of any such director, chief executive and manager may be prosecuted for the offence.”.
3. Functions of Monetary Authority
Section 7(2)(b) is amended by adding “local offices,” after “local
branches,”.
4. Part heading amended
The heading to Part VIII is amended by adding “LOCAL OFFICES,” after “LOCAL BRANCHES,”.
5. Control of establishment, etc. of
local branches
Section 44 is amended—
(a) by adding—
“(3A) Approval under subsection (1) shall be deemed to have been granted in respect of any local branch falling within paragraph (a)(i)(B) or (ii)(B) or (b)(ii) of the definition of “local branch” lawfully established prior to the commencement of section 2(a)(v) of the Banking (Amendment) Ordinance 2001 (32 of 2001).”; (b) in subsections (4) and (5), by adding “or (3A)” after “subsection (3)”. BANKING (AMENDMENT) ORDINANCE A781 Ord. No. 32 of 2001

6. Fees in respect of local branches
   Section 45 is amended by adding—
   “(3) An authorized institution that is maintaining, at the commencement of section 2(a)(v) of the Banking (Amendment) Ordinance 2001 (32 of 2001), a local branch to which section 44(3A) applies shall, so long as the branch continues to be maintained by the institution, pay to the Director of Accounting Services the fee specified in the Second
   Schedule on the anniversary in each year of the date on which the
   institution was authorized.”.

7. Section added
   The following is added—
   “45A. Notification of commencement of business at local offices (1) An authorized institution shall, not less than 7 days before commencing business at a local office established or maintained by it, give notice in writing to the Monetary Authority of— (a) the address of the local office; (b) the nature of the business of the institution to be promoted or assisted from the local office; and (c) the proposed date of commencement of business at the local office. (2) Where on the commencement of this section an authorized institution has established or is maintaining a local office at which business has commenced, then the institution shall, not later than 3 months after that commencement, give notice in writing to the Monetary Authority of— (a) the address of the local office; and (b) the nature of the business of the institution to be promoted or assisted from the local office. (3) Every director, every chief executive and every manager of an authorized institution which contravenes subsection (1) or (2) commits an offence and is liable— (a) on conviction upon indictment to a fine at tier 7; or (b) on summary conviction to a fine at tier 5, and, in the case of a continuing offence, to a further fine at tier 2 for every day during which the offence continues.”. BANKING (AMENDMENT) ORDINANCE A783 Ord. No. 32 of 2001

8. Control of establishment, etc. of
   local representative offices
   Section 46 is amended—
   (a) by adding—
   “(2A) Approval under subsection (1) shall be deemed to have been granted in respect of any local representative office— (a) which falls within that subsection by virtue of paragraphs (a) and (b)(i) of the definition of “bank” in subsection (9); and (b) lawfully established prior to the commencement of section 8(c) of the Banking (Amendment) Ordinance 2001 (32 of 2001).”; (b) in subsections (4) and (5), by adding “or (2A)” after “subsection (2)”; (c) by repealing subsection (9)(b) and substituting— “(b) either— (i) is authorized or recognized as a bank in the place where it is incorporated; or (ii) may, whether or not in or outside the place where it is incorporated, lawfully take deposits from the general public, whether or not on current account.”.

9. Fees in respect of local
   representative offices
   Section 48 is amended by adding—
   “(4) A bank that is maintaining, at the commencement of section 8(c) of the Banking (Amendment) Ordinance 2001 (32 of 2001), a local representative office to which section 46(2A) applies shall, so long as the representative office continues to be maintained by the bank, pay to the Director of Accounting Services the fee specified in the Second Schedule on 1 April of each year.”.

10. Powers of Monetary Authority
    Section 52(3D)(b)(ii) is amended by adding “or local office” after
    “branch”.
    BANKING (AMENDMENT) ORDINANCE A785 Ord. No. 32 of 2001

11. Examination and investigation of
    authorized institutions, etc.
    Section 55(1) is amended by adding “local office,” after “local branch,”.

12. Production of authorized institution’s,
    etc., books, etc.
    Section 56 is amended—
    (a) in subsection (1) and the proviso thereto, by adding “local office,” after “local branch,”; (b) in subsection (2), by adding “local offices,” after “local branches,”; (c) in subsection (3), by adding “local office,” after “local branch,”.

13. Examination by authorities
    outside Hong Kong
    Section 68(a) is amended by adding “or local office” after “local branch”.

14. Restrictions on and sale of shares
    Section 70B is amended—
    (a) in subsection (10), by adding “(including an order that the holder of the shares shall cause the shares to be transferred to a nominee of the Monetary Authority specified in the order and within the period specified in the order)” after “fit”; (b) in subsection (11), by adding “, unless otherwise specified by the Court of First Instance,” after “shall”; (c) by adding— “(15) It is hereby declared that— (a) the operation of subsection (3)(b) shall not of itself cause any person to contravene section 70; (b) an order under subsection (10) in relation to the shares may be made at the same time as an order under subsection (7) in relation to the shares.”.

15. Punishment for attempted evasion
    of restrictions
    Section 70D(1)(a), (b), (c) and (d ) is repealed and the following
    substituted—
    BANKING (AMENDMENT) ORDINANCE A787 Ord. No. 32 of 2001

“(a) exercises or purports to exercise any right to dispose of any shares, or of any right to be issued with any such shares, knowing that to do so contravenes any restrictions under section 70B(3) to which the shares are subject; (b) votes in respect of any such shares as holder or proxy knowing that to do so contravenes any such restrictions; (c) appoints a proxy in respect of any such shares knowing that to vote in respect of any such shares would contravene any such restrictions; (d ) being the holder of any such shares, fails to notify of their being subject to those restrictions any person whom he does not know to be aware of that fact but does know to be entitled (apart from the restrictions) to vote in respect of those shares whether as holder or as proxy; or (e) being the holder of any such shares, or being entitled to any right to be issued with other shares in right of them, or to receive any payment on them (otherwise than in a liquidation), enters into any agreement which is void under section 70B(4) or (5),”.
16. Section substituted
Section 71 is repealed and the following substituted—
“71. Chief executives and directors require Monetary Authority’s consent (1) Subject to section 53C(5), no person shall— (a) become— (i) the chief executive of an authorized institution; or (ii) a director of an authorized institution incorporated in Hong Kong, without the consent in writing of the Monetary Authority; (b) if he becomes such chief executive or director without such consent, act or continue to act as such chief executive or director, as the case may be, without such consent; (c) fail to comply with a condition attached under subsection (2)(b) or (5) as such condition is in force from time to time; or (d ) act or continue to act as such chief executive or director after such consent has been withdrawn under subsection (4). BANKING (AMENDMENT) ORDINANCE A789 Ord. No. 32 of 2001

(2) The Monetary Authority—
(a) shall refuse to give consent under subsection (1) unless the Monetary Authority is satisfied that the person concerned is a fit and proper person to be the chief executive or a director of the authorized institution concerned; (b) may give consent under subsection (1) subject to such conditions as the Monetary Authority thinks proper to attach thereto for the purpose of securing, or further securing, that the person concerned will continue to be a fit and proper person to be the chief executive or a director of the authorized institution concerned. (3) Where the Monetary Authority gives consent, or refuses to give consent, under subsection (1), he shall, as soon as is reasonably practicable, thereafter give notice in writing— (a) in the case of the consent, to the person concerned and the authorized institution concerned and specifying any conditions attached to the consent; (b) in the case of the refusal, to the person concerned and the authorized institution concerned and specifying his reasons. (4) Where the Monetary Authority— (a) has decided that he has ceased to be satisfied that the chief executive or a director of an authorized institution is a fit and proper person to be such chief executive or director; (b) has given to the chief executive or director not less than 7 days’ advance notice of his decision, specifying his reasons, and accompanied by a copy of this section; and (c) has taken into account any written representation received by him from the chief executive or director, the Monetary Authority may, by notice in writing served on the chief executive or director and the institution, withdraw the consent. (5) Where the Monetary Authority— (a) has decided that he is satisfied that conditions need to be attached to a consent given under subsection (1), or that conditions attached to any such consent need to be amended, for the purpose of securing, or further securing, that the chief executive or director of the authorized institution to whom the consent relates will continue to be a fit and proper person to be such chief executive or director; (b) has given to the chief executive or director not less than 7 days’ advance notice of his decision, specifying his reasons, and accompanied by a copy of this section; and (c) has taken into account any written representation received by him from the chief executive or director, BANKING (AMENDMENT) ORDINANCE A791 Ord. No. 32 of 2001

the Monetary Authority may, by notice in writing served on the chief executive or director and the institution, attach conditions to the consent, or amend conditions attached to the consent, as the case may be. (6) Any person who contravenes subsection (1) commits an offence and is liable— (a) on conviction upon indictment to a fine at tier 7 and to imprisonment for 2 years; or (b) on summary conviction to a fine at tier 5 and to imprisonment for 6 months, and, in the case of a continuing offence, to a further fine at tier 2 for every day during which the offence continues. (7) A person shall not be regarded for the purposes of subsection (1) as becoming the chief executive or a director of an authorized institution if he is appointed to serve as such chief executive or director immediately on the expiration of a previous term by him as such chief executive or director. (8) For the purposes of this section, where a person has the consent of the Monetary Authority under subsection (1) to be the chief executive of an authorized institution, and is such chief executive, he is not required to have the consent of the Monetary Authority under subsection (1) to be a director of the institution. (9) Where immediately before the commencement of section 16 of the Banking (Amendment) Ordinance 2001 (32 of 2001) a person had, or was regarded as having, the Monetary Authority’s consent (“former consent”) under this section as then in force (“former section”) to be the chief executive or a director of an authorized institution, then, on and after that commencement— (a) the former consent shall be deemed to be the Monetary Authority’s consent (“deemed consent”) under subsection (1) for the person to be that chief executive or director, as the case may be; and (b) any conditions attached under the former section to the former consent shall be deemed to be conditions attached under subsection (2)(b) to the deemed consent, and subsections (4), (5) and (8) shall apply accordingly.”.
17. Section added
The following is added—
BANKING (AMENDMENT) ORDINANCE A793 Ord. No. 32 of 2001

“72B. Notification of appointment of manager, etc.
(1) Subject to subsections (2) and (3), an authorized institution shall, not later than 14 days after the date on which a person— (a) became a manager of the institution; (b) ceased to be a manager of the institution; or (c) in his capacity as a manager of the institution, became principally responsible, either alone or with others, for any of the affairs or business of the institution specified in the Fourteenth Schedule in addition to, or in place of, any other such responsibility he has or had in that capacity, give notice in writing to the Monetary Authority and the person of— (i) that date; (ii) particulars of the affairs or business of the institution in relation to which the person became or has ceased to be such manager (including any case which falls within paragraph (c)); and (iii) in the case of the notice to the Monetary Authority, such other particulars of the person as the Monetary Authority may require for the exercise of his functions under this Ordinance. (2) Subject to subsection (3), an authorized institution is not required to comply with subsection (1) in respect of a manager appointed bona fide on a temporary basis. (3) Where in respect of the appointment of a manager— (a) an authorized institution has not complied with subsection (1) by virtue of subsection (2); and (b) the appointment subsequently ceases to be on a temporary basis, then— (i) subsection (1) shall, on the date on which that cesser occurs, apply in respect of the manager; and (ii) that date shall be the date mentioned in subsection (1) from which the period mentioned in that subsection shall be calculated within which the institution shall comply with that subsection in respect of the manager. (4) Every director, every chief executive and every manager of an authorized institution which contravenes subsection (1) commits an offence and is liable— (a) on conviction upon indictment to a fine at tier 7 and to imprisonment for 2 years; or BANKING (AMENDMENT) ORDINANCE A795 Ord. No. 32 of 2001

(b) on summary conviction to a fine at tier 5 and to imprisonment for 6 months, and, in the case of a continuing offence, to a further fine at tier 2 for every day during which the offence continues.”.
18. Certain persons prohibited from acting as employees
of authorized institutions except with consent of Monetary Authority
Section 73(1)(c) and (1A)(c) is amended by repealing “concerned in the
management” and substituting “a chief executive or manager”.
19. Section substituted
Section 92 is repealed and the following substituted—
“92. Offence to issue advertisements, etc. relating to deposits (1) Subject to subsection (2), no person shall issue, or have in his possession for the purposes of issue, whether in Hong Kong or elsewhere, an advertisement, invitation or document which to his knowledge is or contains an invitation to members of the public— (a) to make any deposit; or (b) to enter into, or offer to enter into, any agreement to make any deposit. (2) Subsection (1) shall not apply in relation to any advertisement, invitation or document— (a) to the extent that the advertisement, invitation or document is or contains an invitation to members of the public— (i) to make a deposit with an authorized institution; or (ii) to enter into, or offer to enter into, any agreement to make a deposit with an authorized institution; (b) to the extent to which section 4(1) of the Protection of Investors Ordinance (Cap. 335) does not apply to the advertisement, invitation or document by virtue of section 4(2)(fb ), (fc ), (g) or (h) of that Ordinance; BANKING (AMENDMENT) ORDINANCE A797 Ord. No. 32 of 2001

(c) to the extent that the advertisement, invitation or document is or contains any prescribed advertisement which complies with the requirements specified in the Fifth Schedule applicable to the prescribed advertisement; or (d ) to the extent that the advertisement, invitation or document relates to the taking of a deposit which is not, by virtue of
section 3(1) or (2), a taking to which Part III applies.
(3) Subject to subsection (5), a person who contravenes subsection (1) commits an offence and is liable— (a) on conviction upon indictment to a fine at tier 7 and to imprisonment for 2 years; or (b) on summary conviction to a fine at tier 5 and to imprisonment for 6 months. (4) For the purposes of any proceedings under this section, an advertisement, invitation or document in which a person named in the advertisement, invitation or document holds himself out as being prepared to take in Hong Kong any deposit shall, subject to subsection (5), be presumed, unless such named person proves to the contrary, to have been issued by him. (5) A person shall not be taken to contravene subsection (1) in relation to an advertisement, invitation or document to which that subsection applies— (a) by reason only that he issues, or has in his possession for the purposes of issue, to purchasers, or to members of the public and free of charge, copies of any newspaper, magazine, journal or other periodical publication of general and regular circulation, which contains the advertisement, invitation or document; (b) by reason only that he issues, or has in his possession for the purposes of issue, the advertisement, invitation or document in the course of providing— (i) a service which consists of the transmission in a communication network of information provided by a customer or any other independent person; or (ii) access to such a network; (c) if he is a person whose business is to issue or arrange for the issue of advertisements and he proves that— (i) he received the advertisement, invitation or document for issue in the ordinary course of his business; (ii) the content of the advertisement, invitation or document was wholly devised by a customer of the person or by a person acting on behalf of a customer of his; BANKING (AMENDMENT) ORDINANCE A799 Ord. No. 32 of 2001

(iii) he did not select, modify or otherwise exercise control over the content of the advertisement, invitation or document prior to its receipt or issue; and (iv) he did not know and had no reason for believing that the issue of the advertisement, invitation or document would constitute an offence; or (d ) if— (i) he was a broadcaster; (ii) the advertisement, invitation or document was broadcast live by him as a broadcaster; (iii) he did not select, modify or otherwise exercise control over the content of the advertisement, invitation or document prior to its broadcast; and (iv) he has, in relation to the broadcast, acted in accordance with the terms and conditions of the licence, if any, by which he became entitled to broadcast and with any code of practice or guidelines (howsoever described) issued under or pursuant to the Broadcasting Ordinance (Cap. 562) or the Telecommunications Ordinance (Cap. 106) and applicable to him as a broadcaster. (6) The Monetary Authority may from time to time cause to be prepared and published by notice in the Gazette, for the guidance of persons who issue, or have in their possession for the purposes of issue, advertisements, invitations or documents, guidelines not inconsistent with this Ordinance, specifying the factors the Monetary Authority takes into account to determine whether or not, in his view, an advertisement, invitation or document is an advertisement, invitation or document to which subsection (1) applies. (7) In this section and the Fifth Schedule— “broadcast” (廣播), in relation to any material (howsoever described), includes having the information contained in the material broadcast; “broadcaster” (廣播業者) means a person who lawfully— (a) establishes and maintains a broadcasting service within the meaning of Part IIIA of the Telecommunications Ordinance (Cap. 106); or (b) provides a broadcasting service as defined in section 2(1) of the Broadcasting Ordinance (Cap. 562); “broadcast live” (直播), in relation to any material (howsoever described), means having the material broadcast without its being recorded in advance; BANKING (AMENDMENT) ORDINANCE A801 Ord. No. 32 of 2001

“prescribed advertisement” (訂明廣告) means any advertisement, invitation or document which is or contains an invitation— (a) to make any deposit outside Hong Kong; or (b) to enter into, or offer to enter into, any agreement to make any deposit outside Hong Kong.”.
20. Restrictions on use of name “bank”
Section 97 is amended—
(a) in subsection (1)(i), by repealing “12 months” and substituting “2 years”; (b) by adding— “(1AA) Where the Monetary Authority gives consent, or refuses to give consent, under subsection (1), he shall, as soon as is reasonably practicable, thereafter give notice in writing of the consent or the refusal to the person who sought the consent and, in the case of the refusal, shall specify his reasons in the notice for the refusal.”.
21. Defence where director, etc.
prosecuted
Section 126 is amended—
(a) in subsection (1), by repealing “all” where it twice appears; (b) by repealing subsection (2) and substituting— “(2) Subsection (1) shall not apply to an offence under
section 18(11), 22(12), 24(12), 25(10), 47(3), 50(6), 53C(14),
53H, 63(7), 64(5), 72A(4), 73(2), 93(1), 97(1), 117(7), 118(5), 120(6), 123, 124 or 125(4).”.
22. Appeals
Section 132A(1) is amended—
(a) by repealing paragraph (f) and substituting— “(f) a refusal to give consent under section 71(1) or 73(1) or (1A), conditions attached under section 71(2)(b) to a consent under section 71(1), the withdrawal under
section 71(4) of a consent under section 71(1),
conditions attached under section 71(5) to a consent under section 71(1) or the amendment under section 71(5) of any such conditions, by the Monetary Authority;”; BANKING (AMENDMENT) ORDINANCE A803 Ord. No. 32 of 2001

(b) by adding—
“(fb ) a refusal by the Monetary Authority to give consent under section 97(1);”; (c) in paragraph (h), by repealing “金” and substituting “產”.
23. Power to amend Schedules
Section 135(3) is amended by repealing “or Twelfth” and substituting
“, Twelfth or Fourteenth”.
24. Consequential amendments to principal
Ordinance arising from the fact that new definition of “manager” does not include chief executive (1) Sections 12(6), 14(5), 16(8), 18(9) and (10), 20(7) and (8), 22(10) and (11), 24(10) and (11), 25(8) and (9), 44(8), 47(4), 49(8), 50(4) and (5), 51A(8), 52(4), 56(2) and (3), 59(5), 59A(3), 60(9) and (10), 63(5) and (6), 64(4) and (6), 65(2), 66(2), 67(2), 69(4), (5) and (6), 70D(2), 72A(6), 74(2), 80(3), 81(9), 83(7), 85(3), 86(5), 87(3), 87A(7), 88(6), 90(3), 91(3), 95(3), 96(3), 99(3), 100(5), 103(3), 104(5), 106(4) and 132(3) are amended by adding “, every chief executive” after “director” wherever occurring. (2) Section 64(1)(b) is amended by repealing “or manager of the institution” and substituting “, chief executive or manager of the institution”. (3) Section 123 is amended by adding “chief executive,” after “director,”. (4) Section 60A(3) of this Ordinance as amended by section 6 of the Banking (Amendment) Ordinance 1999 (42 of 1999) is amended by adding “, every chief executive” after “director”.
25. Fees
The Second Schedule is amended—
(a) in items 9 and 11, by repealing “45(1) and (2)” and substituting “45(1), (2) and (3)”; (b) in item 13, by repealing “and (3)” and substituting “, (3) and (4)”.
26. Requirements applicable to
prescribed advertisements
The Fifth Schedule is amended by repealing “[ss. 92(5)(c)” and substituting “[ss. 92(2)(c)”. BANKING (AMENDMENT) ORDINANCE A805 Ord. No. 32 of 2001

27. Minimum criteria for authorization
The Seventh Schedule is amended by adding—
“5A. The Monetary Authority is satisfied that the company has, and will if it is authorized continue to have, adequate systems of control to ensure that each person who is, or is to be, a manager of the company is a fit and proper person to hold the particular position which he holds or is to hold.”.
28. Powers of Manager of authorized
institution
The Ninth Schedule is amended, in paragraph 6(b), by adding “or local office” after “branch”.
29. Fourteenth Schedule added
The following is added—
“FOURTEENTH SCHEDULE [ss. 2, 72B &
135(3)]
AFFAIRS OR BUSINESS OF AUTHORIZED
INSTITUTIONS SPECIFIED FOR
PURPOSES OF DEFINITION
OF “MANAGER”
1. In this Schedule—
“banking or other financial services” (銀行或其他財務服務) includes the taking of deposits, the provision of payment and remittance services, the issuance of credit, debit or multi￾purpose cards, facilities for the purchase or sale of foreign currencies, securities or other financial instruments, the provision of financial advice and the incurring of financial exposure mentioned in section 81(2) of this Ordinance; “corporate banking” (公司銀行業務), in relation to an authorized institution, means the provision by the institution of banking or other financial services to companies, but does not include such services so provided as part of the institution’s retail banking; “institutional banking” (機構銀行業務), in relation to an authorized institution, means the provision by the institution of banking and other financial services to authorized institutions, banks incorporated outside Hong Kong which are not authorized institutions or other financial institutions; “international banking” (國際銀行業務), in relation to an authorized institution incorporated in Hong Kong, means the provision of banking or other financial services through overseas offices or subsidiaries of the institution; “private banking” (私人銀行業務), in relation to an authorized institution, means the provision by the institution of banking or other financial services to individuals who are considered by the institution to be of high net worth, but does not include such services so provided as part of the institution’s retail banking; “retail banking” (零售銀行業務), in relation to an authorized institution, means the provision by the institution of banking or other financial services to individuals, firms, partnerships, unincorporated businesses or companies; BANKING (AMENDMENT) ORDINANCE A807 Ord. No. 32 of 2001

“treasury” (財政管理), in relation to an authorized institution, means the management by the institution of the liquidity and funding of the institution and the trading of foreign currencies, securities or other financial instruments.
2. The carrying on of business of any of the following descriptions or of any of their
equivalents within an authorized institution—
(a) retail banking;
(b) private banking;
(c) corporate banking;
(d ) international banking;
(e) institutional banking;
(f) treasury; or
(g) any other business which is material to the institution.
3. The maintenance of the accounts or the accounting systems of an authorized institution.
4. The maintenance of systems of control of an authorized institution, including those
systems intended to manage the risks of the institution.
5. The maintenance of systems of control of an authorized institution to protect it against
involvement in money laundering.
6. The development, operation and maintenance of computer systems for an authorized
institution.
7. The conduct of internal audits or inspections of the institution’s affairs or business.
8. The function of ensuring that an authorized institution complies with laws, regulations
or guidelines that are applicable to it.”.
BANKING (AMENDMENT) ORDINANCE A809 Ord. No. 32 of 2001

---

This module should be read in conjunction with the Introduction and with the Glossary, which contains an explanation of abbreviations and other terms used in this Manual. If reading on-line, click on blue underlined headings to activate hyperlinks to the relevant module.

—————————

Purpose

To specify the systems of control that an AI should have for ensuring the fitness and propriety of individuals appointed as managers[1] of the institution

Classification

A statutory guideline issued by the MA under the Banking Ordinance, §16(10)

Previous guidelines superseded

This is a new guideline.

Application

To all AIs

Structure

1. Introduction

1.1 Importance of management

1.2 Legal background

2. Definition of manager

2.1 §2 of the Banking Ordinance

2.2 The Fourteenth Schedule

2.3 Application of definition

2.4 Legal obligations

3. Fit and proper criteria

3.1 General

3.2 Probity, reputation and character

3.3 Knowledge, experience and competence

3.4 Financial soundness and independence

4. Systems of control

4.1 Major principles

4.2 Major assessment procedures

5. Role of the the HKMA

5.1 Regular review and examination

5.2 Exercise of powers under the the Banking Ordinance

6. Notification requirements

6.1 General

6.2 Temporary appointments

—————————

1. Introduction

1.1 Importance of management

1.1.1 Senior The senior management of an AI, under the supervision of its directors and chief executive, plays a pivotal role in ensuring the financial soundness and efficient operation of the AI. The Board of Directors and the chief executive have the primary responsibility for appointing persons who are fit and proper to manage the AI’s key business activities and functions.

1.2 Legal background

1.2.1 The minimum authorization criterion under para. 5A of the Seventh Schedule to the Banking Ordinance provides that the MA should be satisfied that an AI has adequate systems of control to ensure that each individual who is, or is to be, a manager of the AI is fit and proper to hold the particular position he holds or is to hold.

1.32.2 Failure to adhere to the standards and requirements set out in this module may call into question whether the AI continues to satisfy the relevant authorization criterion under the Banking Ordinance. Such failure may also cast doubt on the fitness and propriety of individual directors or the chief executive of the AI.

2. Definition of manager

2.1 §2 of the Banking Ordinance

2.1.1 Under §2 of the Banking Ordinance, a “manager” of a locally incorporated AI means any individual (other than a director or chief executive[2]) appointed by the AI, or by a person acting for or on behalf of or by arrangement with the AI, to be principally responsible, either alone or with others, for the conduct of any one or more of its affairs or business specified in the Fourteenth Schedule to the Ordinance.

2.1.2 For an overseas incorporated AI, a “manager” means any individual (other than the chief executive) appointed by the AI, or by a person acting for or on behalf of or by arrangement with the AI, to be principally responsible, either alone or with others, for the conduct of any one or more of its affairs or business in Hong Kong specified in the Fourteenth Schedule to the Ordinance.

2.1.3 The MA may declare in a notice under §2(14)(cb) that an individual, or a class of individuals, is not a manager, or a class of managers, for the purposes of the definition.

2.2 The Fourteenth Schedule

2.2.1 The business or affairs specified in the Fourteenth Schedule for the purposes of the definition of a manager are:

• the carrying on of retail banking, private banking, corporate banking, international banking, institutional banking, treasury or any other business which is material to the AI;

• the maintenance of the accounts or the accounting systems of an AI;

• the maintenance of systems of control of an AI, including those systems intended to manage the risks of the AI;

• the maintenance of systems of control of an AI to protect it against involvement in money laundering;

• the development, operation and maintenance of computer systems for an AI;

• the conduct of internal audits or inspections of the AI’s affairs or business; and

• the function of ensuring that an AI complies with laws, regulations or guidelines that are applicable to it (i.e. the compliance function).

2.2.2 The terms describing the specific types of business mentioned above are defined in the Fourteenth Schedule (see the table below). AIs may use other terms (such as “commercial banking”, “wholesale banking” or “investment banking”) to define their business activities. What matters is the nature of the underlying activity or function rather than what it is called. AIs should therefore ensure that all relevant business activities, however described or named, are identified for the purposes of determining the managers who fall within the definition.

Type of business	Details
Corporate banking	The provision of banking or other financial services[3]
	to companies, but excluding such services provided under
	retail banking
Institutional banking	The provision of banking or other financial services to
	AIs, and banks incorporated outside Hong Kong which are
	not AIs or other financial institutions
International banking	The provision of banking or other financial services
	through overseas offices or subsidiaries of an AI
Private banking	The provision of banking or other financial services to
	individuals who are considered by an AI to be of high
	net worth, but excluding such services provided under
	retail banking
Retail banking	The provision of banking or other financial services to
	individuals, firms, partnerships, unincorporated
	businesses or andand companies
Treasury	The management of the liquidity and funding of an AI and
	the trading of foreign currencies, securities or other
	financial instruments

2.2.3 AIs should also identify any other business that is material to them but is not specifically defined in the Fourteenth Schedule. Materiality to an AI can be in terms of the size of the business, the profits that it contributes, the risks that it incurs or the resources that it commands. There is no standard measure of materiality as it varies among AIs. They may, however, have regard to the following indicators when comparing the relative significance of each type of business:

• the proportion of the AI’s total operating income (net of interest expense) or net profit before taxation contributed by the business;

• the value of assets accounted for by the business in relation to the AI’s total assets or capital base; or

• the operating costs (including staff expenditure) attributable to the business in relation to the AI’s total operating costs.

2.3 Application of definition

2.3.1 The following paragraphs provide AIs with some general guidance on how the definition of manager applies to them. It is however not possible, however, to cover all relevant situations. AIs should consult the HKMA or their legal advisors if they have any doubt as to how the definition should apply in particular cases.

2.3.2 In determining whether an individual falls within the definition of manager, AIs may consider whether that individual possesses the following characteristics:

• he is not a director or chief executive (including an alternate chief executive) of the AI[4]; and

• he is principally responsible, either alone or with others, on a day-to-day basis for the management of a discrete department, division or other business or functional unit which carries on a business or activity that falls within the categories specified in the Fourteenth Schedule to the Banking Ordinance.

2.3.3 That an individual is principally responsible for the conduct of a particular business or activity may be manifested by the following attributes that he may exhibit in relation to that particular business or activity:

• accountability for the achievement of business objectives or targets set by the Board of Directors or the chief executive;

• occupying a position within the AI which is of sufficient authority as to enable the individual to exert a significant influence on the conduct of the business or activity in question. For example, if the individual is under the immediate authority of a director or chief executive (including an alternate chief executive) or has a direct reporting line to such persons, that would be indicative of sufficient authority;

• authority to make decisions (e.g. assume business risks within pre-set limits) for that business or activity;

• authority to allocate resources or incur expenditures in connection with the particular department, division or functional unit carrying on the business or activity; or

• authority to represent the particular department, division or function unit within the AI (e.g. in senior management meetings) or in meetings with outside parties.

2.3.4 While the above characteristics or attributes are useful indicators of whether an individual is a manager, AIs should note that it is not the case that any givenevery manager will necessarily possess all these characteristics or attributes. Every case should be judged on its own circumstancesaccording to the facts.

2.3.5 In general, the intention is to capture the layer of management immediately below the level of chief executive, e.g. “head of retail banking”, “head of corporate banking”, “head of internal audit” etc. It is recognised, however, that managerial appointments within particular AIs may not fall neatly into these categories and that in some cases, it may be necessary to go further down into the organisation. In particular, it should be noted that:

• there may be more than one manager principally responsible for each of the affairs or business specified in the Fourteenth Schedule. For example, the overall business of “retail banking” in some AIs may be split horizontally into two or more separate, parallel units (e.g. retail branch operation and credit card operation) with separate managers appointed for each[5]; and

• the responsibilities of a manager may straddle more than one of the affairs or business specified in the Fourteenth Schedule. For example, the responsibilities of an individual appointed as manager of broad business activities such as “domestic banking” or “commercial banking” may cover both retail banking and corporate banking as defined in the Fourteenth Schedule. This is also a case where it may be necessary to go down to a further layer of management within the organisation. If, for example, underneath the “head of domestic banking” there are also heads of retail banking and of corporate banking, all three such individuals should be regarded as managers for the purposes of the Banking Ordinance[6].

2.3.6 If an AI does not engage in a particular business activity specified in the Fourteenth Schedule, no manager needs to be appointed for that particular business.

2.3.7 A manager does not have to be an employee of the AI. For example, the manager can be an employee of the AI’s parent bank or a group company that supports a particular function (such as internal audit) of the AI.

2.3.8 An AI may also, in some cases, appoint an independent third party to be principally responsible for the conduct of a particular affair or business specified in the Fourteenth Schedule (e.g. the compliance, internal audit or data processing function). If the contracting party is an individual, that individual will be regarded as a manager. If the contracting party is a firm, any individual appointed by the firm (e.g. the designated partner in the case of an external auditing firm) to be principally responsible for that affair or business will be regarded as a manager for the purposes of the definition. The MA may, if there is sufficient justification to do so, exempt any such individuals (or class of individuals) from the definition of manager by way of a legal notice issued under §2(14)(cb) of the Banking Ordinance.

2.3.9 For an AI incorporated outside Hong Kong, a manager is appointed in relation to his responsibility for the conduct of any of the specified affairs or business in Hong Kong. For a locally incorporated AI, the appointment applies to its overall operation, whether located in or outside Hong Kong.

2.3.10 A manager does not need to be ordinarily resident in Hong Kong, although this is expected to be the case in most instances.

2.3.11 The length of the appointment is not a factor for determining whether an individual is a manager. AIs should not therefore appoint any individual as manager, even for a temporary period, if they have doubt about his fitness and propriety. The notification requirement is, however, waived if an individual is appointed bona fide on a temporary basis to perform the functions of a manager (see subsection 6.2 below for details).

2.4 Legal obligations

2.4.1 In addition to directors and the chief executive, managers of an AI may be held personally accountable for non-compliance with many of the provisions of the Banking Ordinance (see Annex A of CG-1 “Corporate Governance of Locally Incorporated Authorized Institutions”).

2.4.2 It is therefore important for an AI to make sure that those of its staff that are appointed as managers are aware of and fully understand their obligations under the Banking Ordinance.

3. Fit and proper criteria

3.1 General

3.1.1 AIs should have regard to a number of factors when assessing the fitness and propriety of an individual that they wish to appoint as a manager. The most important considerations of an individual’s fitness and propriety are:

• probity, reputation and character;

• knowledge, experience and competence; and

• financial soundness and independence.

These considerations are also relevant for assessing the continuing fitness and propriety of a manager.

3.1.2 AIs should be satisfied that individuals appointed as managers meet the fit and proper criteria on and after appointment. The relevant factors that AIs should take into account are detailed in subsections 3.2 to 3.4 below.

3.1.3 If an AI becomes aware of any information that may call into question the fitness and propriety of a prospective or existing manager, it should conduct a thorough assessment and/or investigation of such information to determine whether the individual is fit and proper. The assessment, including the results of any investigation, should be properly documented. Any doubt about the individual’s fitness and propriety should be cleared before he can beis appointed as a manager or allowed to carry on his existing duties as a manager.

3.1.4 In considering an individual’s fitness and propriety, the weight that AIs should attach to adverse events of the types listed in subsections 3.2 to 3.4 below will depend on a number of factors. These include the nature, circumstances and seriousness of, and the extent of the individual’s involvement in, the event in question.

3.2 Probity, reputation and character

3.2.1 Factors that AIs should consider include, but are not limited to, the following:

• whether the individual has been convicted of any criminal offence or is the subject of unresolved criminal charges which are of direct relevance to fitness and propriety. Particular weight should be given to offences due toinvolving dishonesty, fraud, incompetence, malpractice or contravention of any provision of banking, insurance, securities and other legislation designed to protect members of the public against financial loss;

• whether the individual has a record of non-compliance with various non-statutory codes or has been reprimanded, censured, disciplined or publicly criticised by professional or regulatory bodies;

• whether the individual has been concerned with the management of an institutionan institution AI which has been reprimanded, censured, disciplined, or publicly criticised or whose authorization has been revoked by any regulatory authority;

• whether the individual has been concerned with the management (i.e. as controller, director, chief executive or manager) of an institutionn institution AI which was found guilty of fraud or has been the subject of an investigation by the government, regulatory authorities and professional bodies;

• whether the individual has been disqualified by a court of competent jurisdiction from being a director;

• whether the individual has been a controller, director, chief executive or manager of ann institutioninstitutionAI which has been wound up or adjudicated bankrupt by a court;

• whether the individual has been a controller, director or concerned in the management of any AI which has been wound up by a court or whose licence or registration has been suspended or revoked; and

• whether the individual has been dismissed or requested to resign from any office or employment, subject to disciplinary proceedings by his employer or barred from entry to any profession or occupation.

3.3 Knowledge, experience and competence

3.3.1 Factors that AIs should consider include, but are not limited to, the following:

• whether the individual has sufficient skill and knowledge to carry out the duties in question or has had experience of similar responsibilities previously;

• whether the individual has appropriate qualifications and training;

• whether the individual, particularly in the case of internal promotion, has demonstrated soundness of judgement (i.e. degree of balance, rationality and maturity) in his conduct and decision-taking. For a new appointee, AIs may take into account the individual’s past achievements and reputation in the field and references from his previous employers;

• whether the individual has been reprimanded, censured, disciplined or publicly criticised by professional or regulatory bodies for negligence, incompetence and mismanagement; and

• whether the individual has been dismissed or requested to resign from any office or employment for negligence, incompetence or mismanagement.

3.4 Financial soundness and independence

3.4.1 Factors that AIs should consider include, but are not limited to, the following:

• whether the individual has failed to satisfy any judgment debt under a court order or made any compromise or arrangement with his creditors;

• whether the individual has been adjudged bankrupt by court or served with a bankruptcy petition. In the latter case, AIs should assess the background, nature and details of the petition to determine whether it is a bona fide dispute regarding the payment of a debt rather than the lack of financial soundness; and

• whether the individual is free from any business or other relationship which could materially interfere with the exercise of his judgement when acting in the capacity of a manager (i.e. business decisions not made at arm’s length or in the AI’s best interest).

4. Systems of control

4.1 Major principles

4.1.1 AIs should identify all managerial positions which fall within the definition of “manager” laid down in §2 of the Banking Ordinance and should have procedures for notifying these to the HKMA (see section 6 below for details). In cases of doubt, AIs may wish to discuss the status of a particular position with the HKMA.

4.1.2 The responsibilities of managers should be clearly defined and supported by up-to-date job descriptions, organisation charts and levels of authority.

4.1.3 The qualities required for individual managerial positions in terms of skills, knowledge, experience, and training etc. should be clearly defined.

4.1.4 The responsibilities and procedures for selecting and appointing managers should be clearly defined, including the level at which appointments should be approved and the use and composition of selection panels or promotion boards where appropriate.

4.1.5 AIs should have clearly defined policies and procedures (see subsection 4.2 below) for satisfying themselves about the fitness and propriety of candidates for managerial positions at the time of appointment or recruitment, taking into account the criteria set out in section 3 above.

4.1.6 AIs should maintain a list of approved recruitment agencies and should regularly review the performance of such agencies.

4.1.7 AIs should have clearly defined systems for appraising the performance of managers, including re-assessment where appropriate of the criteria set out in section 3 above. Such systems should not give undue weight to financial performance (e.g. achievement of profitability or market share), but should also take into account other factors, such as compliance with internal guidelines (e.g. on control of risk) and regulatory requirements.

4.1.8 AIs should have clearly defined policies and procedures for investigating apparent breaches of internal guidelines or regulatory requirements by managers or complaints about the conduct of managers and for taking disciplinary action where this is appropriate.

4.1.9 AIs should have clearly defined systems for taking action in respect of, and if necessary replacing, managers whose performance is assessed as unsatisfactory.

4.1.10 Managerial vacancies should be filled promptly and there should be clearly defined arrangements to provide temporary cover in the case of temporary vacancies.

4.1.11 AIs should ensure that managers have adequate training for the particular positions that they hold or are to hold.

4.1.12 AIs should ensure that their systems of control in relation to the appointment of managers are subject to periodic review by Internal the internal Auditaudit function.

4.2 Major assessment procedures

4.2.1 The aAssessment procedures may include, but are not limited to, the following:

• obtaining a self-declaration from the candidate regarding such matters as the existence of any criminal record, public reprimand by any regulatory body or disqualification by any professional body, financial status, personal bankruptcy and judgment debts;

• inspection of the original certificates of the candidate’s original educational or professional qualifications and verification of membership of professional bodies or associations;

• checking public records for evidence of public reprimands, disciplinary actions, personal bankruptcy and judgment debts;

• obtaining details of the candidate’s past and present business interests, if any, including particularly those which may give rise to conflicts of interest with the managerial position in question;

• obtaining and verification ofying references from previous employers and from referees nominated by the candidate; and

• reviewing the record and past performance of the a candidate who is an existing employee.

4.2.2 If an AI intends to assign an existing manager to a new job or change his responsibilities, it would not normally be necessary for the AI to conduct the above assessment procedures as if this is were a new appointment. Nevertheless the AI should be satisfied that the manager has sufficient knowledge, experience and competence to take up the new responsibilities (see subsection 3.3 above).

4.2.3 Where a key function or activity of an AI is supported by individuals designated by the AI’s parent bank or group company or an external firm, it may not be possible to conduct the above assessment procedures at the time of appointment. In such cases, the AI should be satisfied that it can count on the above parties to ensure the fitness and propriety of those individuals designated to be principally responsible for managing the function or activity in question. This does not, however, take awayrelieve the AI’s AI from the responsibility to monitor the performance of such individuals on a continuing basis.

4.2.4 It is not necessary for AIs to conduct the above assessment procedures in respect of those individuals who have already assumed the responsibilities of managers prior to the commencement of Banking (Amendment) Bill 2001, although they may wish to do so for their own purposes.

4.2.5 AIs are not required to employ the full extent of the above assessment procedures in respect of temporary acting appointments (i.e. appointments that provide temporary cover for existing managers who are away from office). They should, however, take appropriate steps to satisfy themselves regarding the suitability of the individuals concerned before they are allowed to act as managers on a temporary basis.

5. Role of the the HKMA

5.1 Regular review and examination

5.1.1 The role of the HKMA is to verify that AIs have adequate systems of control for the appointment of managers.

5.1.2 The HKMA willwill request AIs to submit relevant policies and procedures for its review and, if necessary, check the adequacy of the systems in place during on-site examinations.

5.2 Exercise of powers under the Banking Ordinance

5.2.1 Where there are significant weaknesses in an AI’s systems of control for the appointment of managers, the HKMA’s normal reaction will be to request the AI to take appropriate remedial action. Where this is not done or is ineffective, this it may call into question whether the AI continues to satisfy the relevant authorization criterion (i.e. para. 5A) under the Seventh Schedule to the Banking Ordinance. At the same time, this it may cast doubt on the fitness and propriety of individual directors or the chief executive of the AI. Based on the circumstances of the case, the HKMA could will consider whether formal supervisory action should be taken against the AI[7] or the individuals concerned.

5.2.2 The MA may also exercise his powers under §52(1)(c) of the Banking Ordinance, after consultation with the Financial Secretary, if the conditions for exercising such powers are met (e.g. the AI is carrying on its business in a manner detrimental to the interests of its depositors). Where the AI’s problems are directly attributable to the conduct or acts of certain managers, the MA may direct the AI to remove such managers from their present positions or to take such other actions as are necessary in the circumstances to protect the interests of its depositors.

6. Notification requirements

6.1 General

6.1.1 AIs’ obligations to notify to notify the MA ofof the appointment of managersthe and subsequent changes associated with such appointments appointment of managers and subsequent changes associated with such appointments are set out in §72B of the Banking Ordinance.

6.1.2 AIs should review their existing management structure and identify all managerialrelevant positionindividuals whicho are occupied by individuals falling within the definition of manager under §2. They are expected to agree with the MA a list of such positions before §72B takes effect.existing managers

and to ensure that these managers are fully aware of their legal obligations in respect of being a manager before §72B takes effect.

6.1.3 Based on the list agreed under para. 6.1.2 above, AIs should submit to the MA within 14 days after §72B comes into effect a list of those individuals who fall within the definition of manager on the effective date.After the commencementcoming into effect of §72B, AIs should also notify the MA of any subsequent changes to the list within 14 days of the change (see subsection 6.2 below for the treatment of temporary appointments). Such changes will include new appointments, terminations of existing appointments and changes in the responsibilities of existing managers (e.g. due to internal transfers, promotion or restructuring).

AIs should notify the MA of any changes to the list of existing managers within 14 days of the change (see subsection 6.2 below for the treatment of temporary appointments). Such changes will include new appointments, terminations of existing appointments or and changes in the responsibilities of existing managers (e.g. due to internal transfers, promotion or restructuring).

6.1.4 AIs should submit to the MA a letter signed by the chief executive containing the following information in respect of the new appointments of managers:

• the name of the manager;

• the identity card or passport number of the manager;

• the current position or title of the manager (together with a job description);; and

• the date of new appointment, cessation of existing appointment or change in existing responsibility.

6.1.5 AIs should inform the MA, as soon as practicable, of cases in whichwhere managers are removed from their positions because of fraud, dishonesty or malpractice.

6.1.6 Where necessary, the MA may require further information from the AI in respect of particular appointments. This may include the personal details of a manager (e.g. experience and qualifications) and the evidence of checks conducted on the manager for the purposes of verifying that the systems for appointing managers are working effectively.

6.1.7 §72B further requires AIs to give a written notice to the person who became or ceased to be a manager or whose responsibility as a manager was changed (e.g. due to internal transfers, promotion or restructuring). The notice should generally contain the following information:

• the name of the manager;

• the current position or title of the manager; and

• the date of new appointment, cessation of existing appointment or change in existing responsibility.

6.1.8 In the case of new appointments, AIs should also ensure that the appointees are fully aware of their legal obligations of being a manager under the Banking Ordinance.

6.2 Temporary appointments

6.2.1 §72B of the Banking Ordinance does not apply to any the appointment of an individual bona fide on a temporary basis to perform the functions of a manager.

6.2.2 This exemption is intended to be applicable only to (i):

• temporary acting appointments of no more than a few months (e.g. to provide cover for managers who are precluded by illness or absence from carrying out their functions, or to fill a position temporarily pending a permanent appointee); and

• (ii) appointments of independent third parties of a short-term nature.

6.2.3 The exemption is applicable only if the AI has no intention of allowing the individual concerned to perform the functions of a manager on a permanent or continuing basis when the appointment is made.

6.2.4 If a temporary appointment becomes a permanent appointment due to a change in circumstances, the AI should notify the MA of the change within 14 days.

6.2.5 AIs should maintain sufficient records of temporary appointments for review by the HKMA upon request.

6.2.6 The HKMA will monitor AIs’ compliance with §72B to ensure that they have not abused the exemption for temporary appointments (e.g. by extending a series of temporary appointments to an individual in order to evade the notification requirement).

—————————

|Contents |Glossary |Home |Introduction |

---

[1] The term “manager” or “managers” referred toused in this module is as defined in §2 of the Banking Ordinance.

[2] As defined in §2 of the Banking Ordinance, the term “chief executive” includes an alternate chief executive.

[3] The term “banking or other financial services” includes the taking of deposits, the provision of payment and remittance services, the issuance of credit, debit or multi-purpose cards, facilities for the purchase or sale of foreign currencies, securities or other financial instruments, the provision of financial advice and the incurring of financial exposure mentioned in §81(2) of the Banking Ordinance (see subsection 2.3 of CR-G-8 “Large Exposures and Risk Concentrations” for details).

[4] If an individual is principally responsible for the conduct of a particular business or activity of an AI but is also its director, chief executive or alternate chief executive, that individual does not fall within the definition of a manager. Whether any other individual within the AI should be regarded as a manager for the business or activity in question will depend on the facts of the case, i.e. whether such an individual is also principally responsible for the business or activity in question.

[5] Where, however, the credit card operation is part of retail banking and the head of the credit card operation reports to the head of retail banking, it would not be necessary for the head of credit card operation to be appointed as a manager.

[6] Assuming that such individuals are not already a directors or the chief executive (including alternate chief executive) of the AI.

[7] The MA’s power to revoke the authorization of the an AI is exercisable when if it fails to comply with any authorization criterion under the Seventh Schedule. Whether this power should be exercised will depend on the circumstances of each case.

---

Annex 2

---

[pic]

---

Annex 3

Banking (Amendment) Ordinance 2001

Miscellaneous Amendments

Establishment of a Local Representative Office

1. The definition of “bank” under section 46(9)(b), which relates to the control of the establishment of local representative offices (“LRO”) in Hong Kong, is expanded to include an institution which is authorized or recognised as a bank in the place where it is incorporated notwithstanding that it does not take deposits from the general public. The amendment will enable the MA to approve certain foreign banks (e.g. a foreign policy bank which does not take deposits from the general public) to establish an LRO in Hong Kong.

Divestment of Shares

2. At present, section 70B(10) of the BO provides that where a Court order has been made under subsection (7), the Court may, on the application of the MA, make such further order relating to the sale or transfer of the shares as it thinks fit. For the avoidance of doubt, section 70B(10) is amended to make clear that the Court may, on the application of the MA, require a controller of an AI to transfer specified shares of the controller to a nominee of the MA. In addition, minor technical amendments are also made to clarify the operation of section 70D.

Enhancement of Section 71

3. Section 71 of the BO provides that no person may become the chief executive or a director (for locally incorporated AIs only) of an AI without the MA’s prior approval. This section is redrafted to clarify that the MA shall refuse to give consent under the section unless he is satisfied that the individual seeking to become the chief executive or a director of the AI concerned is a fit and proper person. The revised section 71 also makes clear that the MA should specify his reasons when refusing to give consent under section 71.

Restriction on Use of the Name “Bank”

4. A new section 97(1AA) is added to provide explicitly that the MA must notify the person which seeks to use the name “bank” in writing of the approval or refusal of its application, and in the latter case the reasons for the refusal. Any person who feels aggrieved by the MA’s decision is given the right to appeal to the Chief Executive in Council under the new section 132A(fb).

Offences and General Defence Provision under Section 126

5. A new section 2(17) is added to clarify that any reference in the BO to the commission of an offence by every director, every chief executive and every manager of an AI or other company means that one or more than one of any such director, chief executive and manager may be prosecuted for the offence.

6. Section 126(1) is amended by deleting the word “all” from the current wording where it applies in relation to “reasonable precautions” and “due diligence” taken by the defendant. This will render the current defence under section 126 more effective.

7. Section 126(2) is replaced by a new section 126(2) to ensure that there is a consistent rationale supporting the basis on which the offence provisions mentioned in the new section are excluded from the benefit of the defence provision in section 126(1).

Hong Kong Monetary Authority
January 2002

---

Managerial positions captured under the revised definition of “manager” Annex 4

Name of AI:

			Affairs or business specified in Fourteenth
			Schedule[2] for which the manager is
	Title/description of managerial		principally responsible	Location[3]	Employee of AI?[4]
	position	Name of manager[1]		(Country)	Y/N
1.
2.
3.
4.
5.
6.

Note: Please use a new sheet(s) if there are more than six managers.

---

[1] As shown in the accompanying organisation chart for reference purpose.
[2] Please provide details of the nature of business grouped under paragraph 2(g) of the Fourteenth Schedule, if applicable. [3] Please specify the name of country where the manager is physically located. [4] If no, please state the name of employer and relationship of employer to the AI.