Changes urged to bank disclosure tack on deposit protection cover

PUBLISHED : Wednesday, 19 August, 2009, 12:00am
UPDATED : Wednesday, 19 August, 2009, 12:00am

Banks must tell customers whether their accounts or the transactions they conduct are covered by the deposit protection scheme to strengthen disclosure, the Hong Kong Deposit Protection Board suggested yesterday.

The government-appointed board also recommended simplifying the process of calculating accrued interest on deposits and liabilities in the event of a bank collapse to speed up payouts.

The proposals are included in the second stage of a consultation launched yesterday.

The board decided to proceed with its first-stage recommendations, including raising the deposit protection limit to HK$500,000 from HK$100,000 and widening the scope to cover secured deposits.

The exact premium rate to be paid by banks still has to be discussed with the industry.

Under the current scheme, banks need only disclose to customers once if a deposit is not protected by the scheme, but this is not mandatory. But the board suggested banks should remind customers in every transaction, except for automatic rollovers.

'The outbreak of the global financial crisis has brought about a clear public demand for strengthening the representation arrangements,' the board said.

The board also wants the power to determine the way to calculate the accrued interest on a deposit or customer liability in the event of a bank failure. It would do so if there is uncertainty about the amount of interest or if the time required to ascertain the amount would unduly delay the compensation.

'The recommendation is expected to add significantly to payout efficiency,' said Raymond Li Ling-cheung, the board chief executive. He said banks had different ways of calculating interest that could take more time for the board to determine the payout to depositors.

The second phase of the consultation will end on October 17. The final proposal from the first and second consultation is expected to be presented to the Legislative Council early next year and implemented before the end of next year.

After reviewing the first consultation, the board ruled out the banking industry's suggestion to cap the scheme's fund size at HK$2.8 billion.

It also ruled out extending coverage of the scheme to restricted licence banks and deposit-taking companies as only 40 per cent of depositors at these deposit-taking companies had deposit balances of less than HK$500,000.