s own code of banking practice, the basic question of what to do with complaints that are not resolved by individual banks remains unanswered. other than the courts, there is no external dispute resolution mechanism for bank customers in hong kong. • secondly, the number of complaints against banks received by the hkma has increased almost twofold in the first five months of this year compared with the same period last year. there has been an enormous surge in complaints since the last quarter of last year. this rapid growth in the number of complaints could indicate that the quality of customer service is deteriorating. whatever the reason, it is posing an additional burden on all concerned. • and thirdly, the hkma is finding it difficult to cope with this situation. we are having to divert staff resources from other important tasks at a time of retrenchment. worse still, the fact that the hkma has no explicit statutory responsibility to resolve consumer complaints has caused disappointment to some complainants. i am pleased to see that debate on this issue has revived recently, with the further discussion of consumer protection in the banking sector by the legislative council financial affairs panel earlier this month. i should like this evening to contribute to that debate in two ways : • first, by setting out what i understand the powers of the hkma to be - and not to be - under the banking ordinance in relation to dealing with consumer complaints against banks ; and • secondly, by summarising, in the light of the recent debate, what i believe should be the next steps in improving the handling of complaints. the banking ordinance is a complex statute of some 200 pages and it has been much amended since its original enactment in the 1960s. the mandate of the hkma is, however, set out very plainly in section 7 ( 1 ) of the ordinance, which states that : " the principal function of the monetary authority under this ordinance shall be to promote the general stability and effective working of the banking system. " we pursue this mandate through licensing criteria and ongoing supervision of banks. we complement this supervisory work with a variety of initiatives under the banking reform and other programmes, the ultimate intention of which is to promote general stability and effective working of the system. for example : • first, the deposit insurance scheme, now at the detailed planning stage, will promote the general stability of the system by protecting individual depositors up to a certain limit. • secondly, the commercial credit reference agency, which is expected to be launched as a voluntary, market

margins shrink. it means, among other things, trying to reduce reliance on high cost deposits, trying to persuade depositors to consolidate deposits with your bank and looking for alternative funding sources, including long - term debt. another objective is to reduce the basis risk that arises from having liabilities in the form of time deposits that are linked with hibor and loans that are linked to prime. the deregulated environment that banks now face will add new complications to the process of managing interest rate and liquidity risks. i shall return to the subject of deregulation in a moment. a second prerequisite for success is the need for banks to develop new sources of income. it looks as if the days of easy profits from mortgage lending have gone, and the banks now need to work harder to generate income growth. the introduction of new fees and charges on deposit accounts is one manifestation of this process. another is the increasing shift of some banks into higher margin, but also higher risk, products such as credit cards and other types of personal finance. banks are also trying to become financial service providers rather than just banks. the aim is not just to broaden income sources, but also to reduce the volatility of income through more reliance on recurring fees and commissions. one way of achieving this is to move into the realm of wealth management, by which i mean securities, unit trusts, insurance, pensions and private banking. the interim results of some of the local banks showed a growing contribution from this area, including particularly sales of guaranteed funds. as a result, i understand that may of this year was one of the best ever months for fund sales in hong kong. the impact of interest rate deregulation i have tried to show so far how interest rate deregulation fits into the broader industry trends. i will now say a bit more about what the impact of the latest, and final, round of deregulation has been. this involved removing the interest rate cap on hong kong dollar savings accounts and allowing interest to be paid on current accounts. it was the end of a process that began in 1994 when we began to deregulate time deposits. some would say that the process has been unduly protracted. but i think that it was reasonable to be cautious, since experience elsewhere shows that liberalisation is all too often accompanied by instability. as it has turned out, the final stage of deregulation probably could not have happened at a better time – at least from the point of