The Financial Secretary has approved an additional policy relating to the continuing authorisation of note-issuing banks, to guard against the close association of Hong Kong's note-issuers with any foreign sovereign entity.

The policy requires that a note-issuing bank shall have no close association with any foreign government or foreign government-controlled entity which is entitled to exercise 20% or more of the voting power at any general meeting or its holding company or influences any aspect of the bank's management or business. Pursuant to section 3(5) of the Legal Tender Notes Issue Ordinance, conditions have been attached to the authorisation of the note-issuing banks to effect this policy.

In considering the issue of shareholding control by a foreign sovereign controller, the Monetary Authority will take into account all factors, including the identity and influence on the note-issuing bank's business of other major shareholders and the size of their shareholding.

Public interest

Given that a note-issuing bank has a systemically significant status in Hong Kong and fulfils the important public function of note issuance, it would not be in the public interest for a note-issuer to be closely associated with a foreign sovereign entity.

The policy will not impact the financial soundness of the three note-issuing banks or their note-issuing status. Neither will the policy affect the current system and arrangements for issuing notes through the three note-issuing banks, which are functioning effectively.

Apart from these new conditions arising from the policy, a note-issuing bank will need to continue to observe all existing requirements, including the provision of full US dollar backing for the note issued, provision of adequate and secure storage and transportation facilities, maintenance of efficient distribution arrangements for notes and continue to co-operate with the Government to maintain monetary stability.