Views of the Governance of the Hong Kong Monetary Authority Stephen Y. L. Cheung Professor (Chair) of Finance Department of Economics and Finance City University of Hong Kong 2 June 2003

Stephen Cheung Governance of HKMA 2 Content Central Bank Independence HKMA’s Governance Structure Alternative Governance Structure Future Development

Stephen Cheung Governance of HKMA 3 Central Bank Independence Definition and Rationale Central Bank and the Markets Central Bank Independence and Creditability Central Bank Independence and Accountability

Stephen Cheung Governance of HKMA 4 HKMA Monetary Stability Banking Stability Financial Infrastructure

Stephen Cheung Governance of HKMA 5 HKMA – Advisory Committees EF Advisory Committee  Subcommittee on Currency Board Banking Advisory Committee DTC Advisory Committee

Stephen Cheung Governance of HKMA 6 Alternative Governance Structure EF Advisory Committee de facto management board Replace by the Board of Director

Stephen Cheung Governance of HKMA 7 Alternative Governance Structure Board of Directors  CE and Deputy CE of the HKMA  FS as ex-official  Independent members

Stephen Cheung Governance of HKMA 8 Alternative Governance Structure Board of Directors  Functions 1. Review HKMA’s performance in relation to its objectives and strategies 2. Monitor the extent to which the objectives set in relation to HKMA’s financial management have been met 3. Review the internal financial control of HKMA 4. Determine the remuneration package of senior executives of HKMA

Stephen Cheung Governance of HKMA 9 Alternative Governance Structure Board of Directors  Two Sub-committees should be formed only by independent members on sensitive matters Board of Directors Other Existing Sub- committees Remuneration Sub-committee Audit Sub- committee

Stephen Cheung Governance of HKMA 10 Alternative Governance Structure Audit Subcommittee  Internal financial controls  Financial management  Risk management Remuneration Subcommittee  Review HKMA’s performance  Determine remuneration and pension of senior management

Stephen Cheung Governance of HKMA 11 Alternative Governance Structure Cautions  Independent members should be ‘real’ independent – creditability of the Board  Independent members should be nominated by the Board and appointed by the CE  Fixed term  Transparent

Stephen Cheung Governance of HKMA 12 Future Development ‘Empire’ building? Super-regulator?  Similar to the UK Future monetary policy?

The End Thank You!