joseph yam : competition and cooperation among global and regional financial centres congratulatory remarks by mr joseph yam, chief executive of the hong kong monetary authority, at the aci asia – the financial markets association, hong kong, 11 july 2008. * * * mr wiebogen, mr tan, ladies and gentlemen, it is with great pleasure that i join you this evening to mark the inauguration of aci asia – the financial markets association. on behalf of the hong kong monetary authority and the hong kong special administrative region government, i would like first to offer my congratulations to all those who have worked hard over the last couple of months on the establishment of aci asia. special congratulations are also appropriate to mr wiebogen and mr tan for the foresight and leadership they have demonstrated in this initiative. financial markets in the developed economies have been experiencing considerable stress. at the risk of oversimplifying it, the current financial turmoil can be attributed to financial innovation creating distortions in the financial system, including the compensation schemes for the innovative lot, to such an extent as to lead to a serious erosion of credit standards. it is at a time like this that everybody should be reminded of the importance of professionalism in finance, at all stages of financial intermediation. with its long history and impressive membership, aci has developed very much into an icon of professionalism in finance, contributing to " market development through education, market practices, technical advice and networking events for the financial practitioners of the world ". the association therefore has a very important role to play and faces in the coming years much greater challenge than before in promoting and upholding professional and ethical standards in finance. one interesting, perhaps even perplexing, aspect of the current financial turmoil is that emerging markets, particularly those in asia, have only been lightly affected, so far. one reason is that financial innovation, in the form of credit risk transfer through securitisation by the " originate and distribute " model, has not caught on in asia to the same extent as in the united states. indeed, economies in different stages of financial sector development face different issues, notwithstanding the clear trend of globalisation in finance. correspondingly, in promoting and upholding professionalism in finance, there may be a need for different emphases and approaches, having regard to the different development stages that individual regions and economies are undergoing. but it is also important that these different emphases and approaches should be developed within the framework

narrow a compliance - based approach towards ethics management. it appears from survey responses carried out in some us companies that the most important factor in controlling unethical conduct within companies is how staff perceive the value that senior management attaches to ethical behaviour. what matters in other words is the general culture of the organisation and the example that is set by those at the top. an important way in which behaviour of staff can be influenced is, for example, through remuneration policy, and senior management needs to be careful to ensure that rewards are not given to staff who uses dubious practices to gain business. this brings me round to the role of the board of directors in banks. as you will recall, we commented in our recent policy response to the banking sector consultancy study on the need for high standards of corporate governance within the banking system as the environment becomes more competitive. we had in mind particularly the need to enhance systems of risk management, and we noted that the primary responsibility for ensuring this rested with the board of directors. we could equally make the same point in relation to the promotion of high ethical standards within banks. the board of directors has an important role to play in establishing the overall culture of an organisation. it is also the ultimate body for resolving the type of complex ethical dilemmas i referred to earlier, and ensuring in particular that the reputation risks in new business strategies or products are carefully addressed. i hope that this conference and my speech, have demonstrated that high ethical standards in banks are neither a luxury nor an abstract ideal. rather, they are a vital aspect of protecting and enhancing the bank ’ s brand image, and ensuring its long - term business survival. behaving ethically is not only the right thing for banks to do, it also makes sound business sense.