The Motion today is on safeguarding and improving the role of Hong Kong as an international financial centre. Whilst looking forward to insights from learned colleagues, I shall focus on regulation.
Five years ago, failure of Lehman Brothers in America triggered off a global financial tsunami. In Hong Kong, Lehman’s “minibond” incident brought about complaints against deceptive selling by financial institutions. This Council then resolved to establish a Select Committee entrusted with statutory powers and privileges to investigate and I joined. The investigation lasted for four years and the Select Committee met on almost all Tuesdays and Fridays in the morning. At public hearings, government officials, HKMA officers, SFC officers and senior management of financial institutions were called to testify, including then Chief Executives of HKMA (Yam) and SFC (Wheatley). The Committee released its report last year with many recommendations for improvement.
Actually, both HKMA and SFC were shaken by the incident, and their principal officers were criticized and shocked. Both Yam and Wheatley left before the investigation was completed. HKMA and SFC introduced tens of remedies while our investigation was in progress, including 19 measures of HKMA on better supervision and investor protection and codes of SFC on non-list structural investment, etc. Besides, the Government and other supervisory authorities also introduced similar measures, including Guidelines on Conduct Requirements for Registered Intermediaries of MPFA and Disclosure of Commissions of Intermediaries of OCI. As regulatory requirements increase and intensify, sale at financial institutions or by intermediaries is also becoming overly complex.
A financial centre must be innovative and responsive to market demand. It is a prerequisite. However, supervisory authorities in Hong Kong are getting tougher on selling, and approval process is getting longer. They are obstructing the pace of financial market development. To my understanding, certain quasi-financial products only took less than two months to approve in Singapore but the same has remained outstanding after nine months in Hong Kong. Worst still, these are not isolated cases but indicative of trend. Moreover, a foreign financial institution has been applying for licence for years. It is inconceivable, isn’t it? I am told by certain institutions that they are turning their back against Hong Kong because it is too tedious to obtain licence here. Financial institutions are not alone. Consumers are equally frustrated. One of the regulators once made a proposal under which more than 10 signatures on the application form would be required from an insurer. Such measures are nuisance to consumers but unhelpful to regulation.
Frankly, timing matters in any product launch. It is known as “time to market”. Such conservative attitude of supervisory authorities is anti-market and destructive to Hong Kong as a financial centre. Singaporean authorities are equally strict as Hong Kong in supervisory standards. Why could they make swift approvals but we could not? Apparently, it is a matter of people and mindset. I am convinced that the financial market in Hong Kong is over-regulated to protect not only consumers but also seniors of the regulators themselves.
As I said earlier, supervisory authorities were shaken by the Lehman minbond incident. It is fully appreciated that practical measures are imminent to address public aspirations. Unfortunately, our authorities have overdone, failing to strike the right balance between regulation and development. No wonder the public is skeptical that these authorities are trying to relegate all responsibilities to financial institutions, salesmen and consumers. If anything goes astray, well-paid senior bureaucrats would stay away from the storm. They would avoid criticism and stay in power. It is a safe formula, isn’t it? However, Hong Kong is paying the price of competitiveness of the financial market.
Such psychology is unsustainable and Hong Kong financial market would lose business to rivals. I ask the Government to critically review its mindset and find the right balance between regulation and development for our financial market. Moreover, regulators should realize that they are the locomotive of the “train” known as market. They have to step on the brake to decelerate or pedal to accelerate as circumstances demand. If not, we might simply standstill and would be taken over by rivals.
Finally, I would like to add that the Financial Development Council is the right step ahead. May it turn a deaf ear to noises and set new directions in financial services for Hong Kong not before too long, particularly removal of undue constraints in entry to the Mainland market. The financial industry has high expectations on the FDC to lead us on to a new path.