Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at the 3rd Pan-Asian Regulatory Summit this afternoon (November 27):
Mark (Schlageter), distinguished guests, ladies and gentlemen,
Good afternoon. I am delighted to join you all today. I wish to congratulate Thompson Reuters on hosting this Summit, and thank you for inviting me to say a few words.
Now in its third year, this Pan-Asian Regulatory Summit has already become established as a leading platform for discussion on key topics of financial regulation.
The presence here of so many luminaries in the field underscores the importance of this Summit.
Among the lessons to be learned from the global financial crisis is that there is no quick fix for the problems that have come to weigh so heavily on the global economy.
Two years ago, at the time of the first Pan-Asian Regulatory Summit, the economic outlook was a bit rosier than it is today.
In 2010, we were looking ahead to better prospects in advanced economies, while emerging markets provided a strong impetus for global growth. This positivity was relatively short-lived.
Earlier this month, the European Commission (EC) predicted that GDP growth in the 17-member Eurozone would contract by 0.4 per cent this year. The EC expects growth to return gradually next year.
Over in the US, economic indicators have been improving in recent months, but the worlds largest economy remains sluggish.
All this is taking a toll on growth here in Asia. Hong Kongs economy expanded by just 1.3 per cent in the third quarter of this year compared to the same period last year. This is low compared to our trend growth rate of about 4.5 per cent, and that has a lot to do with weak external demand in our traditional markets.
Governments, including here in Hong Kong, have responded to the global financial crisis with a macro-prudential approach to policymaking. At the same time, we have heard louder calls, particularly among the public, for more robust financial regulation to avoid a repeat of the recent crisis.
In Hong Kong, we have closely followed, and contributed to, the international discussion on financial regulation. This is part of our responsibility as a global financial centre in the Asian time zone.
We shall continue to build a robust financial system that is in line with international best practice. We shall also enhance investor protection and facilitate market development, while maintaining a level playing field for all market participants.
Hong Kongs financial system has proven to be resilient in the face of market turbulence during the past few years.
Importantly, in weathering the crisis our banks remain well capitalised. The capital adequacy ratio for all locally incorporated authorised institutions is about 16 per cent. The tier-one capital ratio is 13 per cent. This is well above the 8 per cent requirement under Basel III, to be implemented next year.
Hong Kong is well prepared to implement Basel III from January.
Firstly, we have taken the important step of amending our Banking Ordinance to pave the way for implementing the Accord in phases. Secondly, we recently tabled in our Legislative Council the relevant amendments to our Banking (Capital) Rules.
We expect to implement the new capital standards from January 1 next year. Other requirements will be introduced in accordance with the six-year phase-in timetable set by the Basel Committee.
Implementing Basel III will contribute to the robustness and resilience of our financial markets and keep Hong Kong up to speed as an international financial hub.
Another key international reform is the regulation of over-the-counter (OTC) derivatives. Here, Hong Kong is committed to implementing the G20 commitments. The Government, the Securities and Futures Commission and the Hong Kong Monetary Authority are working together towards a regulatory regime for OTC transactions. This would require certain classes of OTC transactions to be reported to the trade repository operated by the Hong Kong Monetary Authority. It would also mandate certain classes of OTC transactions to be cleared with central counterparties. These would be designated by our Securities and Futures Commission. The regulators have conducted a joint public consultation on this subject. We are now working on the proposed primary legislation for introduction into the Legislative Council.
Given the global nature of the OTC derivatives market, the international community must work together to build a co-operative framework with co-ordinated solutions for regulating the market.
I would like to take this opportunity to emphasise the need for comparable rules, based on guidance and standards set by international bodies. This would avoid raising compliance costs and potential market fragmentation. We have been collaborating closely with our Asian and overseas counterparts to communicate our concerns about certain regulatory proposals. We want to avoid possible overlapping and conflicting efforts which may arise from mutual recognition arrangements among different jurisdictions.
Turning to the insurance sector, to further align our insurance sector with international standards of best practice, we aim to establish an independent Insurance Authority. We recently launched a consultation on the required legislation.
The independent Insurance Authority would replace the existing Office of the Commissioner of Insurance. We also propose introducing a statutory licensing regime for insurance intermediaries to enhance policyholder protection. We aim to introduce the proposed legislation into our legislature next year with a view to setting up the independent Insurance Authority in 2015.
Also last month, we commissioned a consultancy study to advise on an appropriate risk-based capital adequacy framework for insurance business. We plan to consult the industry on the draft framework next year.
I think we have made good progress on achieving the right regulatory environment for Hong Kong - one that makes our city more competitive and robust, and that caters for the needs of small and medium sized enterprises.
In July our Legislative Council passed the new Companies Ordinance. This legislation had been six years in the making. It is a modern legal framework for the operation of around 1 million companies in Hong Kong, thereby strengthening our position as a world-class city for doing business.
We are finalising a bill to modernise our trust law. This will provide a more accessible and comprehensive regulatory framework for trusts governed by Hong Kong law. It will boost the competitiveness of our trust services industry and enhance our status as an international asset management centre.
Another work area relates to Islamic finance. We are in the process of amending our Inland Revenue Ordinance and the Stamp Duty Ordinance to provide a taxation framework for Islamic bonds, or sukuk, on par with that for conventional bonds.
We see important opportunities for Hong Kong as a platform for Islamic finance. Hong Kong is a stable and trusted global financial centre with transparent regulation and the rule of law. We have strong financial links to markets around Asia and in the Middle East that can effectively connect Shariah-compliant financial products with a strong customer base in Asia.
Relevant amendments to our tax laws will enable us to better tap into the Islamic finance market, which was worth an estimated US$1.3 trillion at the end of 2011.
Regarding the securities market, a statutory regime for disclosure of price sensitive information will come into operation next year. This newly amended legislation will help foster a disclosure culture among listed corporations, enhance market transparency and quality, and reinforce Hong Kongs position as an international financial centre.
My final topic today is offshore business using the Mainland currency, the Renminbi.
In just the past few months, we have made a great deal of progress as an offshore centre for Renminbi business.
Since July, four physical A-share exchange-traded funds, ETFs, have been launched and listed on our stock market, tracking different A-share indices. The launch of these ETFs followed a move by the China Securities Regulatory Commission, the CSRC, to increase the quota under the Renminbi Qualified Foreign Institutional Investors scheme, the so-called RQFII scheme, by RMB50 billion.
In September, the Hong Kong Exchanges and Clearing Limited launched the first deliverable Renminbi currency futures. This futures contract provides a way for investors to hedge Renminbi exposure and manage exchange rate risk.
And, last month, the first Dual Tranche, Dual Counter shares started trading on the stock exchange. All this is helping to foster development of Renminbi-denominated products and promote the Renminbi as a viable international currency.
Ladies and gentlemen, the disruptive force of the global financial crisis has left plenty of room for the refinement of our regulatory environment. Upgrading our regulatory regime not only firms up our financial platform, it also opens up new opportunities for the industry.
Through collaboration between the Government and our regulators, and in consultation with the industry, we aim to become a more resilient and dynamic international financial hub.
We welcome the views of all you experts at this Summit and look forward to our citys further development as a global financial centre in the Asian time zone.
May I wish you all a successful Pan-Asian Regulatory Summit, and our visitors an enjoyable stay in Hong Kong.
Thank you very much.