The Hong Kong Monetary Authority yesterday sent a circular to banks outlining the main points of tough new regulations governing their securities businesses. The circular will be followed by a series of guidelines to be issued in the next few months. The regulations are contained in the soon-to-be implemented Banking (Amendment) Ordinance 2002 and the Securities and Futures Ordinance. Legislators passed both laws in March but they will be implemented later this year after the issue of all subsidiary legislation, outlining detailed requirements. At present, banks are exempt dealers in that their securities departments are not regulated by the Securities and Futures Commission. To create fair competition, the laws bring in a range of regulations on banks' securities business. Among the regulations, banks and any staff involved in securities business will need to register with the HKMA, while staff must meet the SFC's fit and proper person requirement. Banks, like brokers, will need to appoint two senior executives to directly supervise the conduct of the securities business. Banks will have a two-year grace period to apply for their securities business to be registered with the HKMA. Under the new regime, the HKMA will be in charge of the day-to-day regulation of banks' securities business and will conduct on-site examinations. But if the HKMA investigation finds suspected malpractice, it will pass the case on to the SFC to conduct further investigation. 'This is in line with the concept that the SFC retains the ultimate authority to regulate the securities and futures industry,' HKMA deputy chief executive David Carse said in the circular. 'The SFC shall nevertheless consult the HKMA before investigating whether a registered individual or relevant individual is guilty of misconduct, or is not fit and proper to engage in regulated activities,' he said. Should banks be found guilty of malpractice, the SFC could impose a range of sanctions, including suspending the registration of a bank or staff to carry out securities business. The SFC could also publicly or privately reprimand the bank or its staff, and order payment of a penalty.