Crisis management: Chief Executive Donald Tsang says the Government will ensure Hong Kong's financial system stability.

Chief Executive Donald Tsang will chair a task force to monitor and assess the impact of the financial tsunami on local and global markets and major industries.

The group will propose options for the Government and business community to address the challenges.

Mr Tsang said in his Policy Address today the task force's establishment will help Hong Kong overcome the crisis, turn it into new business opportunities and enhance our competitiveness.

Members of the task force will include top government officials, finance experts, economists and representatives of major industries.

On the financial system's supervision, Mr Tsang said the Monetary Authority will strengthen the supervisory framework for liquidity risk management for authorised institutions, and revise the methodology for calculating capital adequacy ratios in accordance with the latest guidelines and recommendations of the Basel Committee on Banking Supervision.

It will also strengthen stress tests, capital planning and management of off-balance sheet exposures, and encourage a more complete disclosure of risk information.

The Deposit Protection Board is also reviewing the coverage and compensation limit of the Deposit Protection Scheme. Yesterday, Financial Secretary John Tsang announced the Exchange Fund will be used to guarantee the repayment of customer deposits held with all authorised institutions in Hong Kong. (See full story here.)

Fund managers regulation

The Code on Unit Trusts & Mutual Funds will be reviewed to tighten regulation of fund managers and better protect investors. The Securities & Futures Commission will enhance the disclosure of information to investors, taking into account best international practices and Hong Kong's situation.

To improve the insurance supervisory framework, there is a need to establish an independent Insurance Authority, Mr Tsang said. A consultancy is expected to be completed this year and the Government will assess the consultant's recommendations and prepare proposals for consultation.

Meanwhile, the Office of the Commission of Insurance is exploring with the Federation of Insurers feasible options for establishing Policyholders' Protection Funds to protect policyholders in the event of insurer insolvency.

MPF changes suggested

To promote market competition and encourage employees to take a more active interest in their mandatory provident fund investments, the Government will propose changes to the operational arrangements of the MPF system.

These changes will allow employees to transfer their contributions from an MPF scheme selected by their employers to a scheme of their own choice. The Government is drafting legislation which will be introduced into the Legislative Council as early as possible.

On the high-level Central Co-ordinating Committee on Anti-Money Laundering & Counter Financing of Terrorism, Mr Tsang said the initial stage of work is to scrutinise the supervisory regimes adopted by individual financial sectors to combat money laundering and terrorist financing, with a view to drawing up legislative proposals. Departments and organisations concerned will consult the industry on their recommendations.