It does not itself have the force of law, but failure to adhere to the standards may call into question whether the bank continues to satisfy the criteria for authorization laid down in the Banking Ordinance. The draft guideline describes the general responsibilities of the board, the legal obligations of directors and the use of auditors. It then goes on to specify detailed guidelines to which locally incorporated authorized institutions are expected to adhere. Let me summarise these for you. While I will refer to  BIS Review 24/2000  2  the guidelines in relation to banks, most of them are also applicable to restricted licence banks and deposit taking companies. •  First, the board should ensure that the bank establishes policies, procedures and controls to manage the various types of risk with which it is faced. Altogether the HKMA has identified eight types of risk for the purposes of its supervision. These are credit, interest rate, market, liquidity, operational, reputation, legal and strategic risk. The board should approve the relevant policies while management should put them into effect. It is important that the policies should not exist merely for form’s sake - in other words, just to keep the HKMA happy - but should dictate how the institution is actually run in practice. •  Second, the board should ensure that the bank fully understands the provisions of section 83 of the Banking Ordinance on connected lending and establishes a policy on such lending.
We will be aiming to ensure that the final version of our guideline embodies this approach. BIS Review 24/2000  4