Policy Responsibility of Financial
This paper sets out the policy responsibility of the Financial Services Bureau.
2.The Financial Services Bureau is headed by the Secretary for Financial Services. The main responsibilities of the Bureau are to formulate policies for and oversee the regulation of the financial services sectors, which include securities and futures, banking, monetary matters, insurance, occupational retirement schemes, mandatory provident fund system, companies and accountancy. The Bureau is also responsible for providing economic analysis and statistics.
Banking and monetary matters
3.The Government's policy objective is to protect the interests of depositors, to maintain the stability of the monetary system and to foster the development of new financial products and services. The Hong Kong Monetary Authority is responsible for banking supervision, as well as both monetary management and policy.
4.The banking sector is the linchpin of our economy. To ensure the soundness and stability of the banking sector, the Government reviews closely the regulatory framework, having regard to developments in Hong Kong and overseas. The banking supervisory regime in Hong Kong is compatible with that of other leading international financial centres, with objective and transparent criteria for authorisation. Efforts are also made in combating money laundering insofar as it impacts upon the financial services sector. In addition, we maintain an open banking centre with a level playing field for all players, thus ensuring our competitiveness.
5.The principal objective of Government's monetary policy is to maintain the stability of the Hong Kong dollar, in particular the exchange rate link with US dollar.
6.One of the major achievements we have made in the debt market is the establishment of the Hong Kong Mortgage Corporation Limited in March 1997. The Board of Directors of the Corporation comprises government officials, Provisional Legislative Council members and professionals from the private sector. The Corporation will develop its business in two phases, starting with the purchase of mortgage loans for its portfolio, followed by the issue of mortgage-backed securities. It will come into operation in November 1997. On the banking front, the Banking (Amendment) Ordinance 1997 came into operation in May 1997. It provides a legal framework regulating the issue of 'smart cards'. The Executive Council has also approved the amendment of the Seventh Schedule to the Banking Ordinance to implement the market risk capital charge framework. The amendment aims to require locally incorporated authorised institutions to maintain adequate capital against market risk, in addition to credit risk, to meet the recommendation of the Basle Committee on Banking Supervision. This measure contributes positively to a healthy local banking sector.
Securities and futures
7.Financial Services Bureau is responsible for policies relating to the securities, futures, financial investment and leveraged foreign exchange trading markets. The aim is to provide sufficient protection for investors with the least possible intervention by the regulators.
8.By end July 1997, the Stock Exchange of Hong Kong is the world's sixth largest in terms of market capitalisation, consisting of 622 listed companies of which 34 are China-incorporated companies, worth a total of HK$4,607 billion. The average daily turnover was about HK$13.6 billion from January to July 1997. The securities market trades more than 850 warrants, unit trusts and debt securities whereas the futures market is developing rapidly with a 20% increase in the first seven months of 1997 over the same period last year.
9.The regulatory regime comprises three tiers -
Insurance and retirement scheme business
- The Bureau, being the first tier, deals with policy and legislative matters. The regulation for the securities and futures markets is governed by 11 ordinances which aim to provide a favourable environment in the industry and a level playing field for market participants.
- The second tier is the Securities and Futures Commission which is a statutory body established in May 1989. The Commission exercises prudential supervision over the operation of the stock and futures exchanges, clearing companies and registered market intermediaries, and has regulatory responsibilities for leveraged foreign exchange trading targeted at the retail end of the market.
- The third tier comprises front-line regulators, including the Stock Exchange of Hong Kong Ltd, the Hong Kong Futures Exchange Ltd, the Hong Kong Securities Clearing Company Ltd, the HKFE Clearing Company Ltd and the SEHK Options Clearing House Ltd. The former two fulfil their regulatory functions through promulgation and enforcement of rules whereas the rest perform the clearing and settlement functions for different securities and futures transactions, targeting to reduce risk and cost, and improve efficiency of post-trade processing in the Hong Kong securities market.
10.The main objective of Government's policy regarding the insurance industry is to protect the interests of policy holders through prudential supervision of the activities of insurers to ensure that they remain financially sound. The Insurance Companies Ordinance provides for the authorisation of insurers who carry on insurance business in or from Hong Kong as well as the registration of insurance agents and authorisation of brokers. The Ordinance is continuously reviewed and updated to ensure its effectiveness. For example, we have introduced new provisions recently to give regulatory concessions to captive insurers (i.e. insurance companies which underwrite exclusively the insurance business of its parent or group or associated companies), to preserve the legal position regarding the requirements for an insurable interest in an insurance contract, to recognise parents' or guardians' insurable interest in the life of their children or wards, and to implement a full-fleged Appointed Actuary System.
11.The Office of the Commissioner of Insurance is responsible for administering the provisions of the Ordinance. The Commissioner is appointed by the Chief Executive as the Insurance Authority. The main tasks of the Authority are to authorise and regulate insurers, to monitor the financial condition of insurers through examining their annual financial returns, and to take action against insurers who give cause for concern.
12.Where retirement scheme is concerned, our policy objective is to ensure that private occupational retirement schemes are properly run and funded so as to provide greater certainty that retirement benefits will be paid to scheme members when they fall due. The Occupational Retirement Schemes Ordinance brings all private voluntarily established occupational retirement schemes under regulatory control through a registration system.
13.The Office of the Registrar of Occupational Retirement Schemes (ORORS) is responsible for implementing the provisions of the Occupational Retirement Schemes Ordinance. The Commissioner of Insurance has also been appointed the Registrar of Occupational Retirement Schemes. The most important tasks for the Registrar are to process applications for registration or exemption of occupational retirement schemes and monitor the registered schemes. As at 31 July 1997, there were 15,679 registered schemes covering over 850,000 employees or about one-third of the workforce.
14.At the moment, staff of the ORORS are liaising with colleagues of the Mandatory Provident Fund Office to facilitate a smooth interface between occupational retirement schemes and the mandatory provident fund system.
Mandatory Provident Fund
15.In August 1995, Hong Kong took a major step in enacting the Mandatory Provident Fund Schemes Ordinance to provide a framework for the establishment of privately managed mandatory provident fund (MPF) system to provide retirement protection for the workforce. The Ordinance will be supplemented by subsidiary legislation setting out detailed regulations and rules for the implementation of the MPF System. In February 1996, the MPF Office was established to be responsible for preparing the draft subsidiary legislation. The development of the MPF System has been completed after wide consultation with the industry, professional and other interested bodies, and drafts of the required MPF legislation will be submitted for the formal legislative enactment process shortly. After the enactment of the required MPF legislation, a Mandatory Provident Fund Schemes Authority will be established for the implementation of the MPF System.
16.There are three sections in the MPF Office, two of which responsible for the development of the MPF System. The main duties are :
Companies and accountancy
- Scheme Operations Section - all matters relating to the making of contributions; the transfer and withdrawal of accrued benefits; the registration, administration, management and maintenance of MPF schemes; the Residual Provident Fund Scheme; and the Compensation Fund.
- Regulatory Standards Section - regulatory standards relating to the approval and monitoring of MPF trustees; investment standards and guidelines; and arrangements for the interface of existing voluntary schemes with the new system.
- Administration and Planning Section - provides administrative general support, and develops preliminary ideas on the institutional arrangement for the implementation of the MPF System.
17.Financial Services Bureau is responsible for ensuring the company law will meet the needs of the business community and the public. The Bureau is underpinned by two departments, namely, the Companies Registry and the Official Receiver's Office, which aim at providing for the orderly and efficient incorporation and registration of companies, and providing an effective insolvency service. The Bureau also maintains close liaison with the Hong Kong Society of Accountants with a view to encouraging a high standard of self-regulation by the accountancy profession.
18.The Companies Ordinance lays down the legal framework for companies in Hong Kong and provides for all matters relating to companies from incorporation to investigations and winding-up. Over the years, many piecemeal amendments have been introduced in response to developments in the commercial world. The Bureau has decided that a comprehensive review of the Ordinance is necessary to ensure the Ordinance's relevance and effectiveness and a consultancy was appointed in November 1994. The Consultants completed the review in March 1997. The Final Report of the review was released for public consultation on 1 May and the consultation period will last until the end of the year.
19.Insolvency legislation includes the winding-up provisions of the Companies Ordinance and the Bankruptcy Ordinance, both of which are based on pre-war adaptation of the relevant United Kingdom legislation. The Insolvency Sub-committee of the Law Reform Commission was tasked to review these provisions with a view to modernising them. The Commission has issued two reports, the first one entitled "Report on Bankruptcy" and the second one entitled "Corporate Rescue and Insolvent Trading". The Third and Final Report is expected to be completed by the end of this year. The Bureau will examine the report and implement the proposals where appropriate.
20.The framework for the registration of trust companies is contained in the Trustee Ordinance. The Bureau is now reviewing the overall regulatory framework for trust companies.
21.The Registrar of Companies, together with the Official Receiver, administer the Companies Ordinance. The Companies Registry is responsible for the incorporation and registration of companies. It also keeps records and annual returns filed by companies and the registration of charges in accordance with the Companies Ordinance, and provides the public with facilities for searching information relating to these companies. Other than companies incorporation, the Registrar of Companies is also the Registrar of Money Lenders under the Money Lenders Ordinance. The Companies Registry also keeps the register of registered trust companies under Part VIII of the Trustee Ordinance and of trustee incorporations under the Registered Trustees Incorporation Ordinance. As at 31 July 1997, there are 483,891 local companies (including 478,081 private companies and 5,810 public companies) and 4,838 overseas companies on the Company register, 1,082 licensed money lenders and 51 registered trust companies.
22.The Companies Registry was previously part of the Registrar General's Department but became a separate department in 1993. It is funded through a "trading fund" arrangement under which it is required to pay for its own expenditure directly out of the income that it receives. This ability to use its income to fund its own services allows the Registry to be more responsive to the needs of its customers as it no longer needs to compete for funding annually with other departments.
23.The Official Receiver's Office, also formerly part of the Registrar General's Department, became a separate department in June 1992. Its work is to ensure the orderly administration of compulsory winding-up of companies and bankruptcies by acting as a trustee in bankruptcy or as a liquidator of compulsory windings-up as appointed by the Court and the creditors, and by acting as the trustee or liquidator of last resort in the many cases where the assets do not cover the costs of liquidation. In 1996/97, there are 1,119 bankruptcies and compulsory winding-up cases.
24.The accountancy profession is largely self-regulatory, operating under the legislative framework of the Professional Accountants Ordinance. The Bureau works closely with the Hong Kong Society of Accountants on matters affecting the interests and development of the accountancy profession.
Economic analysis and statistics
25.The responsibility of the Economic Analysis Division (EAD) in the Financial Services Bureau is to monitor developments in the Hong Kong economy and provide economic analysis, advice and input on all aspects of the Government's policies and programmes where they may have an effect on the economy. The work of the Division is collaborated by the Census and Statistics Department.
26.Organisationally, EAD comprises four sections, namely, Macro-Analysis Section, Micro-Analysis Section, East Asia Section and Structural Analysis Section. Broadly speaking, the Macro-Analysis Section is responsible for monitoring developments in the Hong Kong economy and the major overseas markets, preparation of regular economic reports and forecasts, providing economic input to the Budget, and exercising policy oversight of the Census and Statistics Department. The Micro-Analysis Section is responsible for analysing the economic implications of specific policies and measures, such as territorial and regional development strategy, land and property, transport and industrial development. The East Asia Section is responsible for analysing developments in China and other East Asian economies along with their implications for Hong Kong. It also provides input and analysis pertaining to Hong Kong's participation in regional economic fora and on major issues relating to international trade and economic relations. The Structural Analysis Section is responsible for analysing in greater detail the structural and sectoral aspects of the Hong Kong economy. Currently, its main areas include monitoring developments and providing policy analysis in the labour field, and servicing the Economic Advisory Committee.
27.The Census and Statistics Department (C&SD) produces, analyses and disseminates social and economic statistics of Hong Kong. In performing such work, contact is maintained with overseas statistical authorities and international statistical organizations for the purpose of keeping up with international statistical standards. It also assists other government departments in establishing and developing their statistical systems.
28.Commissioner for Census and Statistics is also the Government's advisor on all statistical matters. On this basis, the department provides statistical consultancy services to other departments on request and often participates in interdepartmental working groups and committees.
Hong Kong Monetary Authority
29.The Hong Kong Monetary Authority (HKMA) was established on 1 April 1993 through the merger of the Office of the Exchange Fund and the Office of the Commissioner of Banking of the former Monetary Affairs Branch. It is an integral part of the Government under the direct control of the Financial Secretary, who is advised by the Exchange Fund Advisory Committee (EFAC). The Financial Secretary is the ex-officio chairman of the EFAC.
30.After the establishment of the HKSAR, the HKMA continues to carry out its monetary management and banking supervision functions. While maintaining close relationship with its counterpart in the Mainland - the People's Bank of China (PBoC), HKMA and PBoC remain two independent monetary authorities. This is in fact guaranteed by the Basic Law that HKSAR has full autonomy in formulating its monetary policy. We will continue to maintain the Dollar link. The Land Fund is now part of the reserves, managed by the HKMA as a separate portfolio. The combined assets of the Exchange Fund and the Land Fund was US$81 billion at the end of July 1997.
Involvement in international organisations
31.It is important that Hong Kong's presence be felt and her voice be heard in the international financial arena. It is also important we constantly update our knowledge of trends and developments overseas. Towards these ends, the Bureau actively participates in a number of international fora relating to the financial services sectors, including talks on trade in financial services in the World Trade Organisation, the activities of the Asia-Pacific Economic Co-operation and the Pacific Economic Co-operation Council relating to financial development in the region and the Financial Action Task Force (on money laundering).
Financial Services Bureau