Ronny Tong, a former barrister and member of the Legislative Council of Hong Kong (LegCo), believes Hong Kong should replace its various financial regulators with a unified regulatory body. But he told a Hong Kong Investment Funds Association luncheon on August 24 this could be a long time coming.
"If it happened in the next 10 years I would be very happy," said Tong, adding that a unified regulator would improve the information flow between the different bodies, reduce confusion, improving the service to the public and the industry, as well as cutting costs.
Tong has presented a motion to LegCo calling for review of Hong Kong's regulatory framework, but he is sceptical that anything will come from the effort. "There are so many vested interest groups. I can't see the government moving forward dramatically," he said, without providing any concrete details. Tong then went on to call on the assembled investment fund managers to use their influence to bring about change. "As a legislator I have few political powers," he said. "The government will pay more heed to voices from the commercial sector."
Debate about appropriate regulatory structures has intensified following former Federal Reserve chairman Alan Greenspan's admission it had been a mistake to think banks could entirely self-regulate. In Hong Kong the issue has been aggravated by the minibonds saga - where retail investors have lost money on credit-linked structures. The minibond debacle highlighted the grey areas between the responsibility of the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) to protect investors, said Tong, adding that Hong Kong is lagging behind its peers around the world that have already moved towards regulatory consolidation.
According to Tong, the SFC has pointed the finger of blame at the HKMA as the regulator responsible for mis-selling, while in turn the HKMA has pointed to the SFC's responsibility for approving documents, including product brochures. "The losses occurred without warning and left investors without remedy," said Tong. Hong Kong also has an insurance industry regulator, the Office of the Commissioner of Insurance (OCI), and a pensions regulator, the Mandatory Provident Fund Schemes Authority (MPFA). "We're in danger of falling between two stools - or in our case, four stools," said Tong.
Tong questioned whether the OCI and the MPFA were able to keep pace with market developments so as to protect investor interests in an effective manner.
Tong said an obvious problem with having multiple regulators is that the boundaries between institutions are becoming blurred, with banks offering services such as finance management, while insurance companies are starting to sell and manage financial products, making the environment more challenging for the regulators. "With a market-specific machine you cannot manage cross-market activity," he said.
Moreover, customers buying the same financial products from differently regulated institutions do not always get the same information provided about the product. "You can have different customers, in different markets, getting entirely different treatment, but the risks they have is the same," Tong said. He added that different regulators have different chains of reporting, with the HKMA reporting to the financial secretary and the OCI on matters of complaints to the Insurance Claims Complaints Bureau, while the SFC is independent. This means that, when complaining, consumers also face a spread in the type of treatment and response they will get.
Tong believes a central bank monitoring banks alongside a consolidated regulator to watch over the promotion and sales of financial products would be the right structure for Hong Kong, adding that Singapore has already achieved this and China is moving in that direction.
"You have to ask, is it really such a drastic change. [If regulators are kept as they are] you need a reliable communication network, so the regulators constantly talk to and agree with each other," said Tong. "Now, is that more difficult? To my mind, yes, given the tendency of [individual regulators] to see their own things as their own kingdom."
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