and controls to combat money laundering, covering essential areas such as procedures for account opening, customer identification and record keeping as well as proper systems for reporting suspicious transactions and training of staff. please be in no doubt as to how seriously we regard adherence to these guidelines. the reason for this is simple. to paraphrase the health warning on a packet of cigarettes, “ money laundering can seriously damage your health ”. being associated with money laundering can seriously undermine confidence in an individual financial institution and potentially in a financial system as a whole. we are presently seeing this demonstrated in the case of the mexican banking system, which is embroiled in a money - laundering scandal. so what steps can a banking supervisor take to ensure that institutions are doing everything they can to protect themselves from being used for money laundering? the first thing is to make sure that the guidelines issued to institutions are kept up - to - date as techniques and patterns of money laundering evolve, and to ensure that institutions revise their own internal guidelines accordingly. we have recently revised our guidelines and issued them as a convenient booklet. i am pleased to say that demand for this has been high and we have issued over 5000 copies of the booklet. however, guidelines need to be put into practice. to ensure that senior management are focused on the need for this, money - laundering controls are a regular agenda item for our prudential meetings with management. they are also a regular topic for our on - site examinations. during these examinations we review an institution ’ s policies and procedures, look at their records of suspicious transactions, and interview staff at random to check that they have been trained to identify suspicious transactions and to follow the appropriate procedures for account opening and customer identification. we may also commission external auditors ’ reports if we think it necessary. so how do institutions in hong kong rate on combating money laundering? perhaps the best indicator of their vigilance against money laundering is the number of reports of suspicious transactions made to the joint financial intelligence unit ( jfiu ). these numbers suggest that institutions are certainly improving, as both the number of reports, and the number of institutions making reports, has been increasing over time. the number of reports made to the jfiu rose from only 264 in 1992 to 4210 in 1997. our own on - site examinations also suggest that the level of awareness, and the training of staff, is improving. so, overall, institutions are doing well. however, there is always room for improvement, and i

steep learning curve in familiarising themselves with the basic concepts and techniques on which the irb approach relies, and need to become more conversant with these types of risk management technique. a particularly important issue to consider that is highly relevant to today ’ s event is the standards that bank supervisors will apply in deciding whether or not to approve a bank to use the irb approach. to ensure that the capital charges computed by the irb systems are sufficient for banks to withstand the credit risks they have incurred and to absorb the potential losses resulting from borrower defaults, the estimates of the risk components must be accurate in capturing the relevant aspects of risk. as a consequence, validation of banks ’ estimates of the risk components, and the underlying internal rating systems, is crucial to the implementation of the irb approach. this is one of the greatest implementation challenges confronting bank supervisors in asia, where the development and understanding of the irb approach by banks is generally still at an early stage. no matter what supervisory approach you take in respect of irb validation, it is only one of the major questions to which we need to find an answer. banks and their supervisors in asia are going to face a variety of challenges ahead in the implementation of the basel ii irb framework. through today ’ s outreach event, i hope that there will be stimulating discussions on these issues and that participants will be able to take away ideas that can help them make the implementation of the irb framework in their jurisdictions a success. i also hope that the aigv, the aig and the basel committee can take account of the views of the asian region, and of the particular issues we face. thank you.