Financial reforms should proceed with caution

Updated: 2015-01-30 06:08

By Fung Keung(HK Edition)

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The Hong Kong government should proceed with caution in its future plans to reform and control the city's major financial institutions and stock exchange.

A new law now in the planning stage will give the government the power to take over the Hong Kong Stock Exchange and close down the local stock market. This is of considerable concern to both institutional and small investors.

So far, the government has been taciturn about the proposed reforms - which will culminate in a new law by the end of 2015. But these reforms will affect everybody. Therefore, wider consultation and discussion - along with the participation of senior bankers and ordinary citizens - are needed.

No one is accusing the Hong Kong government of being conspiratorial. Indeed, government officials should be praised for taking the initiative. However, these officials also need to be more transparent about what they are planning. They must always consider the interests of small investors. If the government obtains the right to halt trading on the local stock market, such powers may have serious consequences; panic in the market might ensue.

Today, no government in the industrial world would dare interfere in their stock markets. They would always tread very carefully in this regard. Our government perhaps should not be too aggressive either. Proceeding slowly in this area would be highly advisable.

The Hong Kong government is consulting major players in the city on new legislation. This will give it wider powers to take over troubled financial institutions such as banks, insurers and stockbrokers, as well as the Hong Kong Stock Exchange. The new law is expected to become effective by the end of the year.

The background for these proposed reforms is the Swiss-based Financial Stability Board, which was formed after 2008's global financial meltdown.

The board, which includes most major industrial countries, has asked its members since 2013 to tighten up supervision of their financial institutions. The board counts Chinese mainland, the United States, United Kingdom and the European Union, as well as Hong Kong and Singapore, as its members.

One of the consultants involved in Hong Kong's proposed financial reforms was quoted by a local newspaper on Jan 22 as saying, "Hong Kong is ahead of the game and I expect the rest of the region is watching developments here closely."

Financial reforms are a serious matter affecting the livelihoods of all citizens. What worries local and foreign investors is that they are, to some extent, being kept in the dark. The SAR does not need to be No 1 in the region or the world to go ahead with these proposed reforms. Hong Kong should learn from some Western countries before making changes to its financial system that it might regret later. Again, the best advice is, "More haste, less speed!"

The new law, if passed, will give the Hong Kong Monetary Authority, the Securities and Futures Commission and the Office of the Commissioner of Insurance the power to take control of rescue plans for big financial firms and the stock exchange during emergencies.

Any rescue plan stems from the "too-big-to-fail" concept. A troubled company must be so important that its collapse will have a ripple effect on other firms and threaten the overall financial health of Hong Kong. Clear guidelines must be laid down and adhered to; otherwise there is the potential for institutions being taken over to sue the Hong Kong government. If the government loses such a legal case, the taxpayers would have to pay.

As the new proposals affect major financial firms as well as small investors in Hong Kong, a wider and more open consultation period is needed.

Financial reforms should proceed with caution

(HK Edition 01/30/2015 page7)