norman chan : sound banking closing remarks by mr norman t l chan, chief executive of the hong kong monetary authority, at the hkma conference for independent non - executive directors ( ineds ), hong kong, 16 march 2017. * * * what is sound banking? sound banking is not ( a ) excessive risk taking ; ( b ) irresponsible or unfair treatment of customers and counter - parties ; and ( c ) maximisation of short term profits. sound banking is : ( a ) prudent and profitable ; ( b ) responsible and fair to customers ; and ( c ) sustainable. trilogy of sound banking ( i ) robust regulation and supervision – it will provide an externally imposed set of rules and codes that define what is acceptable and what is not. however, no matter how well designed and robust the regulatory regime is, it normally works better in setting minimum standards for compliance and is not so effective in promoting good or best practices. ( ii ) good corporate culture – culture consists of a set of formal and informal values that guide the mindsets and behaviours of management and staff. unlike externally imposed rules and regulations, which normally entail sanctions if breaches are detected, good corporate culture and values reflect the attitude that “ we do things the right way not because we are afraid of being caught but because this is the way it ought to be done ”. a simple illustration of the importance of culture and values is the example of combatting littering on the streets. it is a lot easier to ensure that our streets are clean when people don ’ t think it is morally right to litter rather than having thousands of street cleaners sweeping the streets day and night, or having thousands of health inspectors giving out penalty tickets to those who litter. ( iii ) appropriate incentives system – it refers mostly to financial incentives but there could be non - financial incentives, that accrue to the staff members at different levels within a bank. it is crucial that the incentive system aligns with the letter and spirit of the rules, codes and culture statement of the bank in order to induce the appropriate staff behaviour to produce the desired outcomes consistently over time. it is not possible to achieve sound banking without all the three components, as they tend to support and reinforce each other. quoting the famous words of mencius, supplemented by a modern economics overlay, i would like to conclude today ’ s conference with the following phrases : [UNK] [UNK] 不 [UNK] [UNK] [UNK] 政 [UNK] 法 不 [UNK] [UNK] [UNK] 行 1

but not least, the “ profile ”. even with good people and product, it is important to promote the profile of our financial markets to the mainland and overseas markets. as the mainland gradually liberalises its markets, the demand for treasury market products and services from the mainland customers is likely to grow. hong kong has a clear niche in tapping this huge potential with our unique advantages in geographical proximity, culture and language, as well as a talented pool of professionals and a highly efficient marketplace. with this in mind, the tmf has started reaching out to the mainland. for example, tmf organised a seminar for the mainland regulators last october to deepen their understanding of financial markets in hong kong. hkcma representatives, including the chairman, brian, also participated as a speaker in the seminar. as the seminar was very well received, plans are underway to organise similar seminars this year to promote the exchange with mainland officials and major financial institutions. in the past year, the tmf also called on the financial regulatory bodies and financial institutions in beijing and participated in a financial services expo in shanghai to promote the treasury markets in hong kong. in addition to the mainland, the tmf maintains close contact with our overseas counterparts in the major financial centres, such as the foreign exchange committees in london and new york. the tmf will continue to arrange regular meetings and visits with our overseas counterparts to keep abreast of global developments and to exchange views on matters of mutual interest. ladies and gentlemen, in less than a year since its establishment, the tmf, with the support from the industry and market practitioners, has made very impressive progress in its work. looking ahead, with the numerous and valuable opportunities offered by the gradual opening up of the mainland markets, it is up to all of us to try our best to seize such opportunities to ensure that hong kong will remain the hub for financial services and intermediation for mainland china and the rest of the region. thank you.