SUPERVISION of foreign bank derivative trading is to be tightened to cut the risk of a Barings meltdown in Hong Kong.
Barings' huge losses occurred in Singapore, raising the key question of the role of the 233-year-old bank's primary supervisor, the Bank of England.
In a letter to all authorised institutions, the Hong Kong Monetary Authority (HKMA) has requested an immediate review of all bank internal control systems irrespective of their places of incorporation.
The territory's de facto central bank then wants a report within four weeks, stating the nature of derivatives trading outside hedging purposes, internal controls and an evaluation of the strengths and weaknesses of those controls.
More importantly, institutions which fund subsidiaries or sister companies which trade in derivatives are required to review their funding policy, limits and monitoring systems for such exposures.
Bankers say that as local bank exposure to derivatives is minimal, the institutions likely be affected are foreign banks.
Liu Chong Hing Bank executive director Nam Lee Yick said the bank's exposure was almost non-existent.