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HONG KONG, July 17 (Xinhua) -- Hong Kong's banking system is robust and no fundamental deficiencies in the regulatory and supervisory framework or processes have been identified, according to a Monetary Authority review report released Thursday.

The report, by independent consultant David Carse, found that the Hong Kong banking sector widely respected the authority for its professionalism and effectiveness and that outside commentators viewed it in the top tier of regulators internationally.

While the global banking system was now facing a new crisis triggered by the problems in the United States sub-prime market, Hong Kong's banking system has so far been relatively unscathed. Nevertheless, the report said the authority must absorb the lessons learned from the experience so as to build on its own strength.

The report also recommended a number of measures to provide an even sounder foundation, with comments and advices on the fundamental issue of managing growing integration with the mainland banking system coming first.

The report suggested the authority ensure that both the banks and itself understand the nature of the risks brought by the integration, and put control measures in place, which it said called for cooperation with the China Banking Regulatory Commission.

While the trend for more mainland banks to enter the Hong Kong market will help boost Hong Kong's position as an international financial center, it also called for careful management and supervision, according to the report.

On the supervisory framework, the report said there is a need to streamline the off-site review process, to rationalize the on-site examination process, and to boost macro-prudential surveillance of the banking system.

The report suggested a key priority, in addition to enhancing the capital adequacy framework, will be to revise the liquidity regime.

It also suggested that the current three-tier structure be replaced by a simpler two-tier system, saying that the former was more complex than what was needed to achieve a balance between entry flexibility and small depositor protection.

Joseph Yam, chief executive of the Hong Kong Monetary Authority, welcomed the findings, saying that the authority will study the findings and recommendations carefully to see how they can be applied to boost banking stability.


Editor: Yan Liang