That is something that we may review next year in line with the process of deregulation already referred to. In the meantime, this need not be a barrier to setting up virtual banks, either by converting existing local franchises or, in the case of an overseas bank, by setting up a branch in Hong Kong. As proof of this, we are currently considering two applications to set up virtual banks, and assuming that they can meet our authorisation requirements, I hope that these can be in operation quite soon. One of the main tests that these applicants will have to satisfy is that they have adequate security to prevent unauthorised access to their systems and to protect customer information. Weak internet security puts the financial position and the reputation of the bank at risk, and concerns about security are the major barrier to more widespread customer acceptance of e-banking. It is essential therefore that the banks get this right. We have tried to help by issuing guidelines to the banks on various aspects of security, including the need for senior management to commission periodic independent assessments of the security aspects of their e-banking services. We have recently provided further guidance on how such assessments should be conducted and the areas they should cover. However, we also need to be in a position to conduct meaningful on-site examinations of our own.
As prime examples of Old Economy dinosaurs, they would inevitably succumb to the onslaught from new competitors like virtual banks, technology firms, monoline service providers, portals and the like. The position of the banks is certainly not secure, but it is looking a bit better than it did only a short time ago. The decline of the New Economy has seen the Old Economy strike back, with even bricks and mortar coming back into fashion. The brand names of banks and the credibility which their branch networks provide are not to be underestimated as marketing tools. The ability to marry the branch network to an internet delivery channel is a powerful competitive advantage. But it is also one that could easily be thrown away unless the banks are truly sensitive to the needs of their customers. BIS Review 93/2000  4