Glossary

Hong Kong Monetary Authority (HKMA)

The Hong Kong Monetary Authority (HKMA) serves as the territory’s central bank and de facto monetary authority. It maintains the stability of the Hong Kong dollar and oversees the region’s banking system. The HKMA also serves as a clearing house for Hong Kong’s interbank transactions. In addition, the HKMA is responsible for maintaining monetary and financial stability.

History of the Hong Kong Monetary Authority

In 1993, the government established the HKMA. This followed the merging of the Office of the Commissioner of Banking and the Office of the Exchange Fund. Created in 1935, the Exchange Fund initially managed the colony’s currency reserves and pegged the currency to the US dollar.

The financial crisis in the summer of 1983 contributed heavily to the eventual decision to create the HKMA. It shook the stability of the Hong Kong markets and compelled economists to reconsider its linked exchange rate system. Since then, the HKMA has focused on maintaining the strength of the Hong Kong dollar.

The authority also helped with the launch of an electronic interbank clearing and settlement system. Called the Clearing House Automated Transfer System, it promotes banking efficiency and competitiveness. This real-time gross settlement system processes payments in Hong Kong dollars and other currencies.

Main Objectives of the Hong Kong Monetary Authority

The best way to understand the main objectives of the HKMA is to pay attention to how it allocates its resources. For example, it has separate departments for banking policy, exchange fund investment, and financial infrastructure. With that in mind, consider the following main focus areas.

Creating Banking Policies

The banking policy department of the HKMA creates policies that promote a sound and efficient banking system in Hong Kong. These policies aim to protect depositors, prevent money laundering, and maintain market confidence.

Supervising Banking Conduct

The authority also regulates banks and deposit-taking companies in Hong Kong. It examines their compliance with statutory requirements and prudential guidelines. The HKMA also monitors the broader financial markets and manages the licensing process for banks.

Enforcement and Anti-Money Laundering

The HKMA also has the power to take disciplinary action against errant institutions. For example, it can impose financial penalties and revoke licenses. The authority cooperates with local and international law enforcement agencies to combat money laundering.

Reserves Management

The Exchange Fund is Hong Kong’s sovereign wealth fund. A subsidiary of the HKMA manages these reserves. Its main objective is to maintain the stability of the Hong Kong dollar. The fund invests in a diversified portfolio of assets, including stocks, bonds, foreign exchange, and gold.

Risk and Compliance

The HKMA has a separate department for managing risks faced by the exchange fund. It also assesses the compliance of the investment decisions made to protect the funds. These are some of the many different types of risks it monitors:

  • Credit Risk: The risk of loss arising from a borrower’s failure to make payments on their debt obligations.
  • Market Risk: The potential for investment losses due to market price changes.
  • Operational Risk: The risk of loss resulting from errors or omissions when executing transactions.
  • Liquidity Risk: The potential for losses arising from an asset’s lack of market liquidity.
  • Currency Risk: The risk of losses arising from changes in exchange rates.

International Affairs

The external department of the HKMA represents the authority in various international forums. It also promotes Hong Kong as a preferred destination for foreign investments. To achieve these objectives, the department liaises with other government agencies, such as the Hong Kong Trade Development Council. The resolution department contributes to policies regarding cross-border disputes and other issues that arise.

Financial Infrastructure

The financial infrastructure department of the HKMA is responsible for developing and maintaining efficient payment, clearing, and settlement systems. These systems are critical for the smooth functioning of the financial markets. The department also manages the development of new products and services that will help improve the efficiency of the banking system.

Monetary Management

The monetary management department of the HKMA focuses on the currency’s stability through surveillance at the macro level. It oversees retail payment systems, market operations, and stored value facilities.

Innovation

The research department of the HKMA is responsible for researching various topics, such as banking, finance, and economic developments. The department also develops new products and services that the banking industry can use.

How Message Capturing and Archiving Assists With HKMA Compliance for Companies

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