On 15 November 2000, the Director of Audit tabled his Report No. 35 in the Legislative Council. The Report No. 35 contains 12 chapters. The Committee, after holding three days of public hearings to receive evidence from the Controlling Officers, are now meeting in closed door to deliberate on our own independent conclusions. I intend to present the PAC Report to LegCo on 7 February 2001.

The Panel held 4 meetings to date and the relevant agenda are attached as Appendix I.

On 10 November 2000, the Panel received a briefing from the Financial Services Bureau on the Securities and Futures Bill, Banking (Amendment) Bill as well as Process Review Panel the Chairman of the Securities and Futures Commission (SFC). The Administration began the bill's drafting process eight years ago. The amendments include shifting the burden of proof from the defendants to the SFC and reducing maximum penalties for 10 criminal offences.

The Financial Secretary (FS) also briefed the Panel on Hong Kong's latest economic situation on 4 December 2000. He claimed that the deficit for the current financial year is likely to reach $11 billion while the jobless rate will take two years to fall to a "normal" level.

A proposed list of future agenda items is attached as Appendix II for reference.

The Panel held 5 meetings to date. The Panel focused on the progress update on Hong Kong Disneyland, retail prices of major fuels and competition in the markets, Hong Kong Electric Co. Ltd's proposed tariff revision, Hong Kong Tourist Association (Amendment) Bill and the Report on the work of the Competition Policy Advisory Group.

There were two special meeting, one was a closed session to discuss the retail prices of major fuels and competition in the markets, the other was to receive a briefing by the experts from the United Kingdom Civil Aviation Authority who are currently engaging in a review of the air traffic control system in Hong Kong from 4 December to 8 December 2000.

The Panel held 4 meetings to date. The Panel discussed the licensing of third generation mobile services, the Cyberport, digital broadcasting, the administration of Internet domain names in Hong Kong as well as Public Opinion Survey on Film Classification 2000.

Two special meetings were held to study the Draft Generic Codes of Practice for Television and Draft Radio Codes of Practice, the Draft Competition Investigation Procedures and Draft Guidelines to the Application of the Competition Provisions of the Broadcasting Ordinance. It also studied the implementation of carrier licence under Telecommunication (Amendment) Ordinance 2000, licence fees for TV programme service licensees, Entertainment Special Effect Regulation (draft) and code of practice and block vote funding for computerisation for 2001-02.

These discussions reflect that the Administration is liberating the information technology market in full speed.

The Panel held 4 meetings to date. The Panel mainly focused on the reform proposals for the education system in Hong Kong, the Education (Amendment) Bill, Composite Furniture and Equipment Grant, the modification to Direct Subsidy Scheme, and one-off matching grant of $50 million to the Open University of Hong Kong for the Information Technology Development Plan.

There was a special meeting to listen to the views of school sponsoring bodies and parent-teacher associations on school-based management.

There were 7 meetings of Environmental Affairs Panel (including 3 special meetings to examine the Administration's proposal to increase the approved project estimate of 320DS "Strategic Sewage Disposal Scheme State I: completion of sewer tunnel system from Kwai Chung to Stonecutters Island and to receive a briefing from the International Review Panel (IRP) on its report of the Strategic Sewage Disposal Scheme as well as a Joint meeting with Panel on Transport to discuss the control of vehicle emissions)

It also studied the management of construction and demolition materials and water quality at Shing Mun River, the protection of wetlands in Hong Kong, the proposed amendment to Waste Disposal (Refuse Transfer Station) Regulation and vapour recovery of dry cleaning machines.

There were 3 meetings of Finance Committee and 10 meetings of House Committee.

TD of HKSA were kept informed of progress on all Bills on a weekly basis. The introduction of Government Bills in the current legislative session dated 27 October 2000 is attached as Appendix III. I held two separate stocktaking meetings with the Secretariat on 17 October 2000 and 13 November to closely monitor progress of all HKSA submissions. I plan to hold such meetings regularly in future.

I was elected Chairman of this Bills Committee. There were 3 meetings held since the last report. The Bill seeks to amend the Inland Revenue Ordinance (Cap. 112) ("the Ordinance") to:

Considering the proposed new Section 15(1)(ba) (certain amounts deemed trading receipts), HKSA suggests that it seems to be inconsistent with the fundamental principle of "source" in the Hong Kong tax regime since it may make the recipient of royalty taxable in situations in which that person is charging the royalty for activities conducted exclusively outside of Hong Kong.

With regard to the proposed Clause 6 (ascertainment of chargeable profits) Section 16, HKSA considers that Section 16(2)(f)(iii)(A) will be beyond an issuer's control to prevent an associate acquiring debentures. Besides, such amendment seems unfair and against the spirit of s16(2)(f) to deny a deduction for any interest paid to unrelated parties simply because some portion of the debentures are held by associates.

Under the proposed s16(2)(d)(ii), the Bill seeks to extend the conditions that attach to borrowings secured or guaranteed by deposits to arrangements involving loans. It is not apparent, however, in what sense the money borrowed in the situations described above could be said to be secured by a loan.

HKSA also considers s16(2)(e). HKSA would like to obtain clarification as to the justification for expanding the section in a way which has seemingly not been deemed to be necessary for the previous 16 years of its existence.

Under Clause 14 (Hearing and disposal of appeals to the Board of Review) Section 68(9), HKSA would like to make the point that the potential costs should not be set at such a level as to discourage good faith applications to the Board.

The Bill has received numerous other submissions along the same line and I have temporarily suspended further meetings of this Bills Committee until the Administration has an opportunity to rethink and to consult relevant bodies on their proposals.

The Committee met twice since the last report. The objective of the Bill is to provide for the appointment of rehabilitation centres for the detention and rehabilitation of offenders of or over 14 and under 21 years of age and for related matters.

The Bill does signify a new step in tackling juvenile delinquency.

There was only 1 meeting held since the last report. The main objects of the Bill are to:

First of all, altering the standard of proof required for a conviction under sections 25 and 25A will mean that the subjective mental state of the accused will play little part in establishing that person's guilt. This could mean that persons who would not have committed any offence under the law as it now stands because they harbour no suspicious about a certain set of circumstances, may well be liable to be convicted in future. This is especially the case in relation to section 25A which currently relies exclusively on a subjective test.

Besides, because of the very broad scope of the Organised and Serious Crimes Ordinance and the failure of the Bill to distinguish the more serious from the less serious offences, unlike e.g. the equivalent legislation in England, the amended Ordinance is likely to become a trap for the innocent and unwary. The implications for accountants and other professionals are likely to be even greater because the courts may have a lower threshold of tolerance for any ignorance on their part.

We are awaiting the Government's Committee Stage Amendments very shortly.

The Administration wish to resume second reading of the Bill on 20 December 2000, and introduce a Committee Stage Amendment to specify 1 February 2001 as the commencement date of the Bill.

The objectives of the Banking Ordinance (Cap. 155) ("BO") are to: (a) to add to the function of the Monetary Authority ("MA") the regulation of business conducted by authorized institutions ("AI") which is not banking business or the business of taking of deposits; (b) to impose a duty on MA to keep a register of persons employed by and acting for exempt AI in their regulated activities; (c) empower the MA to publicly or privately reprimand exempt AI; (d) to enable MA to regulate the financial year end of AI; (e) to require an auditor to report to MA any matter that adversely affects to a material extent the financial position of an AI; (f) to provide for matters relating to the approval by MA, and the appointment by AI, of executive officers; and (g) to empower MA to disclose information relating to exempt AI and their regulated activities.

A submission from HKSA is still awaited. I have urged the HKSA to suggest a policy wide procedure to deal with access to working papers and records from third parties like accountant to provide consistency and fair dealing of all the regulators and departments concerned. Otherwise, our legislation may be littered with many different versions of similar legislation which will cause problem in future.