CEP Industry Research Group 2 Hong Kong Financial Regulation and Supervision.
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CEP Industry Research Group 2 Hong Kong Financial Regulation and Supervision
Introduction Hong Kong financial regulations divided into two parts: 1. Banking (Hong Kong Monetary Authority) 2. Security (Security and Futures Commission) Focused on their functions, objectives and policies
Hong Kong Monetary Authority (HKMA) Was established on 1 st April 1993 Merged the Office of the Exchange Fund and the Office of the Commissioner of Banking Main responsibility: maintain the monetary and banking stability Governed by the Exchange Fund Ordinance and the Banking Ordinance
HKMA’s Function Keeping Hong Kong dollar stable Enable money to flow smoothly, freely and without obstruction Promoting safety of Hong Kong’s banking system Managing the Exchange Fund
HKMA – Related organizations 1. Exchange Fund Investment Limited (EFIL) Established in October 1998 A privated limited company Manage the Hang Seng Index stocks acquired for the account of the Exchange Fund in August 1998 Manages the portfolio of Hong Kong equities
2. Hong Kong Institute for Monetary Research (HKIMR) Formed in August 1999 Conduct the research of the monetary policy, banking and finance On the issue about the monetary and financial developments in Hong Kong and the region
3. Hong Kong Mortgage Corporation Limited (HKMC) A public limited company Develop the secondary mortgage market Purchase of the mortgage loans for its own portfolio Securitises mortgage into the Mortgage Backed Securities
4. Hong Kong Note Printing Limited (HKNPL) Prints all the banknotes of the Hong Kong’s currency for the three note-issuing banks HKSAR mainly owns the company Prints about 320 million banknotes every year
HKMA banking policy and supervision 1. Supervision Approach Promote the safety and stability Follows international practices recommended by Basle Committee Based on a policy of continuous supervision
2. Authorization of Authorized Institutions Ensure only fit and proper institutions are entrusted with public deposits HKMA – authorization, suspension and revocation of three types of authorized institutions Overseas – a restricted license bank or deposit-taking company
3. Banking Ordinance Legal framework for banking supervision in Hong Kong Maintain adequate liquidity and capital adequacy ratios Submit periodic returns to HKMA
4. Three-tier Banking System Licensed banks, restricted licensed banks and deposit-taking companies Highest concentrations of banking institutions 75 of the largest banks in the world April 2002, 141 licensed banks, 48 restricted licensed banks and 48 deposit- taking companies
Securities and Future Commission (SFC) Established 1989 An independent statutory body Consists of five executive directors and five non- executive directors appointed by government Responsible for setting up the laws facilitate and encourage the markets development
Historical Background After stock market crashed down between 1973 and 1974 HK government intervened and set up core legislation Two Commissions administrated the legislation Securities & commodities trading
Historical Background The stock crisis in 1987 revealed the deficiencies of the regulatory structure. Securities Review Committee was formed A single statutory body must be formed Have powers to govern the markets
Regulatory Objectives To maintain and promote the fairness, efficiency and transparency of the markets To promote understanding by the public about the operation and functioning To provide protection for members of the public investing in or holding financial products;
Regulatory Objectives To minimize crime and misconduct To reduce systemic risks To assist the Financial Secretary in maintaining the financial stability of Hong Kong.
Corporate Governance of SFC regulatory reports to the Financial Secretary and Legislative Council Panel Submits its annual estimates of income and expenditure to the Chief Executive Monitored by the Process Review Panel (PRP) PRP determines if the Commission is fair in handling investigations and making decisions
Responsibilities of SFC Set up licensing requirements and approve licenses Supervise licensed persons Issues codes and guidelines Handle complaints of misconduct of registered person Investigate and take action against the misconduct
Responsibilities of SFC Regulates the performance of HKEx Approve the new market creation, changes of its rules and regulations Monitor HKEx ’ s compliance with the Listing rules trading of shares and options futures on the markets Ensure functioning and developing of trading, settlement and operational systems.
Responsibilities of SFC SFC regulates the listed companies in HK Approve the changes of Listing rules Monitor share dealings Inspecting listed companies Supervise listing-related activities of Stock Exchange of Hong Kong All the participants need to be regulated --> prevent unusual market movements ~END~