A leading government figure has warned banks that increased charges may result in greater regulation of the industry. Simon Topping, executive director of the Hong Kong Monetary Authority (HKMA), confirmed that the prospect of new legislation was one that could not be ruled out. 'We are not going to be afraid to legislate or use whatever powers we have, and if it means giving the HKMA greater powers then I think that is something the Government is willing to consider,' said Mr Topping. 'The whole point, though, is to let the market sort that out.' Mr Topping also expressed the view that banks would have to work out how to deal with costly small balance customers. 'One thing to bear in mind is the banks have forecast that deregulation will cost them money,' he said. Mr Topping confessed he was 'surprised' by Standard Chartered's recent decision to increase bank charges but believed the HKMA had foreseen this consequence of interest rate deregulation all along. He also expressed hope that banks would ensure, of their own accord, that customers were not priced out of the banking market. 'Our hope and expectation is that banks are voluntarily going to do that sort of thing, and act in a socially responsible way,' said Mr Topping, of exemptions from higher charges for elderly and disadvantaged consumers. He noted that if such exemptions were not forthcoming, the HKMA would be willing to take a more pro-active role in regulating banks. 'We are 100 per cent committed to making sure that those disadvantaged people have access to banking services,' he said. 'We will take whatever action is necessary. Everyone should be able to have access to an account to deposit their salary, if any, and write cheques - everyone should have a right to that,' said Mr Topping. A leading banker in the SAR said such regulations went against the grain of a laissez-faire doctrine. 'It is ridiculous. It is a free economy. In the past, we have warned the community that liberalising cartels would not benefit anybody, because it was the high end subsidising the low end,' said Bernard Charnwut Chan, deputy managing director of Asia Financial Group, which owns the Asia Commercial Bank. He said in a competitive economy such as Hong Kong's, it was natural that banks would try hard to maintain a healthy bottom line. 'Of course, banks would have to look for cost efficiency and that is what the consumer wants. But then they [the HKMA] want to protect and curb. That is not fair,' Mr Chan said. A spokesman at HSBC said he agreed with the HKMA that the interest rate deregulation meant an end to free banking. But he refused to comment on how HSBC intended to safeguard the interests of small depositors. Mr Chan, who is also chairman of the 10-member Bank Consortium Trust, an alliance of mainly smaller banks in Hong Kong, said not a single bank, including Standard Chartered Bank, had said it would not protect the interests of smaller depositors. 'Not all banks will take the same stance as Standard Chartered, but banks are free to choose the segment of customers they want. Every player will have their own market - some would only deal with the high end. But smaller banks like us will be more than happy to take the small depositors. No banks would want to neglect any segment of the market,' Mr Chan said. Mr Topping said minimum standards for bank balances were being given particular consideration, to enhance the specific powers of HKMA. 'Where we are considering having powers is in some sort of minimum standards, like a minimum bank account,' he said. 'We are now issuing formal guidelines but I suppose, if you are talking about consumer protection and bank charges, that is an area that Financial Services have said the Government will look into.' But Mr Topping also made it clear that he expected banks to act in a 'responsible' way. 'The banks are quite responsible - they realise they have a nice franchise here and it relies on politicians' and people's goodwill,' he said. On the issue of deposit insurance, Mr Topping believed the large banks were posturing by saying that banking would become more expensive as a result of a coverage system being adopted. He claimed banks knew full well that the costs of deposit insurance would not be passed on to consumers. 'Most of the banks, when they are honestly speaking to us, they know full well they were not going to pass it on. There is not going to be any discernible effect on the returns available to consumers,' he said. 'The large banks will always be opposed.' Mr Topping expected banks to encourage customers on to the Internet, and agreed that differential pricing could act to 'push' customers online. 'I am sure banks would love to migrate their customers on to the Internet,' he said. 'Most people still prefer to go in to a counter.' Reform of Hong Kong's banking system has been under way for some months. Besides interest-rate deregulation and deposit insurance, the two major issues are the establishment of a commercial credit reference agency and the ongoing review of the Code of Banking Practice. One of the main areas in which the code is being revised is in relation to fees and charges. Mr Topping believed banks' transparency with regard to these could be improved. 'Banks have to give plenty of advance notice,' he said. These changes, however, are unlikely to be given statutory effect, in common with the world's other major banking centres. Mr Topping acknowledged a need to step up compliance monitoring.