norman t l chan : bond connect – enhancing hong kong as an international financial centre remarks by mr norman t l chan, chief executive of the hong kong monetary authority, at the bond connect launch ceremony, hong kong, 3 july 2017. * * * the honourable carrie lam cheng yuet - ngor, deputy director huang liuquan, deputy director qiu hong, financial secretary paul chan, deputy governor pan gongsheng, mr ck chow, distinguished guests, ladies and gentlemen, 1. good morning. 2. i am very pleased to join you today for the launch of bond connect. bond connect marks another milestone of mutual access of capital markets between the mainland and hong kong, following the shanghai - hong kong stock connect and the shenzhen - hong kong stock connect. it is also another important measure of the central government to support hong kong ’ s development as an international financial centre. 3. a key function of hong kong as an international financial centre is financial intermediation, providing efficient and safe conduits for fund flows. the establishment and smooth operation of these conduits shall be underpinned by suitable and sound financial infrastructures. over the years, the hong kong monetary authority ( hkma ) has endeavoured to build our financial infrastructures, from the real time gross settlement system to the central moneymarkets unit ( cmu ) for debt securities settlement, which have laid a solid foundation for hong kong ’ s development as an international financial centre. 4. bond connect is a new financial infrastructure established through the connection between hkma ’ s cmu and the relevant central securities depositories ( csds ) on the mainland. under bond connect, eligible overseas investors can settle and hold their mainland bonds through cmu using nominee holding arrangement. nominee holding arrangement is widely used by investors in international capital markets as it provides greater convenience and flexibility to investors and market participants. cmu also adopts nominee holding arrangement and provides nominee holding services for more than 200 local and international banks, trust companies and custodians through its linkages with euroclear, clearstream and other regional csds. the continued liberalisation of the mainland ’ s capital account and rmb internationalisation will progressively raise demand from overseas investors for rmb asset allocation, while the mainland has been proactively rolling out measures to facilitate overseas investors ’ access to its bond market. we believe that bond connect would enhance overseas investors ’ participation in the mainland bond market. 5. i wish bond connect a great success.

risk assessment ; control activities ; information and communication ; and monitoring activities. the basle committee on banking supervision has recently put all this together into a set of fourteen principles for regulators to use in evaluating institution ’ s internal control systems. i do not propose to run through these one by one, but i would like to pick out one or two points so as to give you an idea of what i, as a regulator, see as the key ideas. first, on management oversight and the control culture, the starting point is that the board of directors need to understand the risks run by the institution, to set the acceptable limits on these risks, and to ensure that senior management takes the steps necessary to identify, monitor and control these risks. senior management must then take the responsibility to implement the strategies approved by the board, to set appropriate internal control procedures, and to monitor the effectiveness of these procedures. this makes it quite clear where the main responsibility for controls rests - and that is fairly and squarely on the shoulders of the institution ’ s board of directors and its senior management, not just on its compliance and audit departments. however, having said that, everyone in an institution shares the responsibility to some extent. a key task for the board and senior management is to establish the right culture within the institution, a culture in which the importance of internal controls is stressed, and high ethical and integrity standards are promoted. this culture will be determined not simply by what the top levels of management say but what they do. for example, do the institution ’ s remuneration policies reward risk - taking at the expense of prudence? does senior management display a casual attitude towards breaches of limits? do they encourage the right attitude towards regulatory compliance? is there backing and respect at senior levels for the internal audit and compliance functions? the response of the senior levels of the organisation to these kind of issues will determine how personnel lower down actually behave in practice, including their attitude to control issues. moving on to risk assessment, the important thing is to identify and evaluate every factor that could adversely affect the achievement of the institution ’ s objectives. this means not just the familiar risks of credit risk and liquidity risk, but also risks such as operational risk, interest rate risk, market risk, country and transfer risk, legal risk and reputational risk. and this needs to be an ongoing process, continually re - evaluating the risks and reviewing the control systems to address these risks. regarding control activities, the point i would