will feel more comfortable with a name that they know and trust, and perhaps one whose name they see everyday in the street on signs above physical bricks and mortar. so banks with an existing brand name still have some advantage, but it is not something that can be wholly taken for granted. the banks will have to work hard to maintain and build their brand image, and to offer products which differentiate themselves from their competitors. this is a tough challenge, but it is one which the boards and senior management of banks in hong kong will have to confront. operational risk operational risk, including security risk, is of course one of the more frequently mentioned risks in connection with electronic banking. security is not a new risk. we are all familiar with the various security issues that banks are facing on a day - to - day basis, e. g. robberies, thefts of atm machines, frauds. however, banking transactions over the internet do pose new issues. a major concern about the internet is its open nature. in relation to banking on the internet, this translates into increased risk of unauthorised access to, and alteration of, information. accordingly, the fundamental objectives that internet security arrangements should try to achieve are to : • restrict access to the system to those users who are authorised ; • authenticate the identity and authority of the parties concerned to ensure the enforceability of transactions conducted through the internet ; • maintain the secrecy of information while it is in passage over the communications network ; • ensure that the data has not been modified either accidentally or fraudulently while in passage over the network ; and • prevent unauthorised access to the bank ’ s central computer system and database. the security of transactions over the internet was one of the issues that was considered by a study group on electronic banking formed by the hkma in july 1997. the results of this exercise were published as an article in our quarterly bulletin in november of the same year. based on the work of the study group, the hkma takes the view that developments in internet security technology have generally reached a point where adequate security for banking transactions is obtainable in a commercially viable manner. the use of sophisticated cryptographic techniques, firewalls and other security tools can provide security that is comparable to that offered in physical transactions. however, as with a physical transaction, the effectiveness of such measures is largely dependent on their proper implementation and the establishment of a set of comprehensive policies and procedures that are rigorously enforced. however, it should be

mr. yam looks at the future of hong kong as a financial services centre for china and the asian region speech by the chief executive of the hong kong monetary authority, mr. joseph yam, jp, to coopers and lybrand financial services conference in hong kong on 28 / 10 / 97. i have been asked to speak on hong kong ’ s role as a financial services centre for china and the asian region. as you know, many of the economies of the asian region, including of course the mainland of china, have been undergoing a rapid process of financial liberalization. this has brought tremendous benefits to the region, through providing the mechanisms for channelling savings into investments, domestically and internationally, thus promoting growth and development of the region. the process has brought substantial risks to the region as well, as clearly you have witnessed in the past few months when financial turmoil spread in the region. 2. notwithstanding the financial problems now being faced by the region, the balance of opinion is still firmly that financial liberalization is of long - term benefit. the correct response to such problems is clearly, at least for the immediate future, to take the right medicine and implement the necessary economic adjustment programmes, prescribed if necessary by the international monetary fund. indeed, this has very much been the focus of recent attention when one looks at individual economies in this region that have been subject to financial turmoil. but prevention is always better than cure. much attention will also be required, in the fullness of time, to make sure that the financial systems through which financial intermediation takes place are robust so that the benefits of financial liberalization could be maximized and the associated risks could be minimized and prudently managed. 3. as a financial services centre which operates with a highly liberal regime, hong kong has important roles to play in all this. there is not enough time to go into details here on this occasion, so i shall just identify three general areas for your consideration. 4. the first area concerns financial intermediation within individual economies, in other words, the channelling of domestic savings into domestic investments. here hong kong, at this stage at least, largely only plays an advisory role. the less liberalized financial systems in this region are very much dominated by domestic financial institutions, particularly in the banking market. further, domestic politics and a desire to protect domestic financial institutions from undue competition are such that liberalization to admit foreign financial institutions to take part in domestic financial intermediation