Hong Kong Monetary Authority's lack of independence queried in IMF study

The IMF has called into question the independence of the Hong Kong Monetary Authority (HKMA) from the chief executive at a time of growing concern over the city's exposure to mainland borrowers.

In a financial sector assessment aimed at gauging the Hong Kong banking system's compliance with Basel III rules, the International Monetary Fund said late on Wednesday that Section 10 of the Banking Ordinance grants the chief executive the power to direct Hong Kong's de facto central bank or overrule its decisions without specifying the conditions in which such action may be taken.

"The independence of the HKMA is not as fully protected by law as it could be and it is recommended that further steps are taken to ensure this," the 359-page IMF assessment said.

While it noted that the rule had never been used, the IMF recommended removing the clause or clarifying it.

In a comment included in the report, the HKMA said the power reflected the chief executive's responsibility to formulate monetary and financial policy in Hong Kong.

"The power … would only be used as a tool of last resort to implement specific remedial measures in the most critical and extreme circumstances," the monetary authority said in the IMF report.

In a separate IMF report issued late on Wednesday, the multilateral agency disclosed the results of a solvency and liquidity stress test which, among other factors, pointed to a high level of risk stemming from exposure to mainland borrowers.