Capturing New Opportunities with Well-established Rules and Regulations

In the past few weeks, in our contacts with the banking industry and other institutions in the wider financial sector, we have received feedback on the newly enacted National Security Law (NSL), which we have reflected to the Government. In response, the Financial Secretary wrote to the Hong Kong Monetary Authority (HKMA) and other financial regulators last week, reaffirming the Government’s commitment to upholding the integrity of the financial system and emphasising that the implementation of the NSL would not have any impact on the normal functioning of the financial markets. We have shared that letter with local and overseas financial institutions, and understand that the financial community generally welcomes the Financial Secretary setting out the Government’s position and views clearly, which helps ease some of their doubts.

The HKMA, as a financial regulator, supervises and regulates banks, stored value facility (commonly known as “e-wallet”) operators and designated retail payment systems (including major credit card and ATM networks) in Hong Kong according to the requirements stipulated in and powers conferred by the relevant laws. I have written to these institutions today, making it clear, from a regulator’s perspective, that the NSL will not affect our long-established supervisory policies and regulatory guidance, which are aligned with international standards, or our existing supervisory approach. The same rules and regulations administered by the HKMA before the introduction of the NSL will continue to apply in the same way. To put it simply, it should be business as usual for the ongoing operations of our city’s financial institutions. The HKMA does not see that the NSL would affect their normal conduct of business, provided it is permissible under the existing regulatory framework. For example,

It is natural for financial institutions to assess operational risks. In recent years, assessing whether businesses are being conducted in ways that are compliant with applicable laws and regulations has become a key area of focus in view of the increasingly complex global political and social landscape. Such assessments inevitably have to take into consideration the most extreme scenarios and focus on whether there are issues that require clarification. Whenever an important piece of legislation is introduced, the financial industry will need some time to conduct a comprehensive and in-depth assessment of the new law’s implications for daily operations, and may have more queries and concerns at the initial stage. The NSL is no exception. We totally understand this process and will maintain close communication with the industry and do our best to address any concerns they may have.

Apart from risk management, a key success factor for financial institutions is the ability to identify and capture business opportunities against a complex backdrop. The financial institutions we are in contact with, whether in banking, asset management or wealth management, have a firm grasp of where the opportunities lie, which is premised on their confidence in Hong Kong’s financial system and optimistic outlook for our city’s financial markets.

Our regulatory framework that aims to strike a reasonable balance between risk management and developmental needs, coupled with the innovative spirit of the financial industry, has always been a key driver of Hong Kong’s success as an international financial centre. Over the past year or so, Hong Kong has been hit by heavy blows from US-China tensions, social unrest and the Covid-19 outbreak. But these challenges have not undermined the stability of our financial system, and our markets have continued to operate smoothly, which is a testament to both the robustness of our system and the markets’ confidence in us. The Hong Kong dollar has remained strong despite some worries that we might see significant capital outflows. On the contrary, net inflows of close to US$14 billion since April have repeatedly triggered the strong-side Convertibility Undertaking. We have also continued to thrive as the dominant gateway to the Mainland, as seen in the ever more vibrant financial activity in recent months. Today, nearly 70% of A-shares held by international investors are purchased via Stock Connect, and northbound fund flows reached as high as US$24 billion a day in July. More than half of onshore Chinese bond transactions by international investors are via Bond Connect, and transactions rose 190% in the first half of the year compared with the same period last year. Obviously these Connect schemes are growing in popularity among international investors.

Recently, our financial industry contacts have shared some encouraging turnover figures for the local stock market. In the week of 6 July alone, average daily turnover reached some HK$220 billion, surpassing Japan by 40% and amounting to 5.5 times that of Australia and 2.7 times that of South Korea. Of course, market turnovers are influenced by various factors and we should not read too much into one week’s data. But the figures do give a glimpse of the attractions of Hong Kong’s financial markets. With the wave of overseas-listed Mainland companies coming to Hong Kong for listing and the progressive launch of new initiatives like Wealth Management Connect, we can foresee even more business opportunities and greater growth headroom for Hong Kong’s financial industry. As we all know, a safe and stable social environment is what every investor looks for and finds comfort in.

Eddie Yue
Chief Executive
Hong Kong Monetary Authority

23 July 2020