MR CHAN CHUN-YING (in Cantonese):
Deputy President, I must first make a declaration concerning this proposed resolution. I am working in a commercial bank which is one of the many categories of intermediaries. Stock brokers, investment banks, fund managers, investment consultants and so on are also intermediaries. That means financial institutions are not the only intermediaries.
In the Subcommittee―you know, I am one of its members―many members are very concerned about one question, the question of whether the Financial Services and the Treasury Bureau and also the Securities and Futures Commission (“SFC”) will still review the existing definition of liquid assets applicable to individual and corporate professional investors, and consider raising the defined level after the passage of this proposed resolution. As pointed out earlier by Mr Holden CHOW, Chairman of the Subcommittee, the Administration has undertaken to conduct a review in 2019. In fact, at one Subcommittee meeting, I also pointed out this issue. You see, due to soaring property prices, a property owner may easily own over HK$8 million in liquid assets if he has sold an un-mortgaged small apartment on Hong Kong Island but is yet to buy a new one. Moreover, the inflation over the years also calls for timely actions to review the existing definition of “professional investor”. At the Subcommittee meetings, some members mentioned various problems that may possibly arise from the existing definition. For example, an investor possessing properties worth tens of millions of dollars cannot possibly be treated as a “professional investor” if he holds less than HK$8 million worth of liquid assets. Another case we can imagine is that even a person having over 50 years of investment experience cannot possibly be treated as a “professional investor” if he holds only $7 million in liquid assets. So, we must carefully study all these problems, so as to ascertain whether the existing definition needs any further fine-tuning.
That said, should we say that before the completion of such a review, the Legislative Council should reject these legislative amendments? To answer this question, we need to look at what these amendments are about. As Subcommittee Chairman Mr Holden CHOW stated earlier, SFC has approved a number of modifications based on the requests of various intermediaries over the years. The amendments now under discussion are simply meant to codify and standardize these modifications. In other words, certain intermediaries have long since been using the definition set out in the proposed legislative amendments to determine whether a client is to be classified as a professional investor. The voting down of the present amendment proposals will mean the persistence of inconsistent definitions adopted by different intermediaries in the market. Is this what we want to see? Please judge for yourselves.
In the course of scrutiny, some members referred to the fact that the holding company of a corporation is to be automatically qualified as a professional investor. According to them, certain risks will result if the status of the subsidiary as a professional investor will make the holding company automatically so qualified. They thus think that the Government should put in place a confirmation arrangement. The Administration is willing to heed good advice and has hastened to incorporate an appropriate arrangement. I therefore wish to take this opportunity to commend those officials of the Financial Services and the Treasury Bureau and SFC who are responsible for the legislative amendments. Actually, the amendments are not complicated, but they still consulted the market players, spending long hours on briefing Members and answering all their questions well beforehand. They also responded promptly to all sensible proposals raised by members at the meetings. The amendments contained in this proposed resolution are meant only to resolve the absence of any consensus on the review of the asset threshold for professional investors. I therefore do not support any changes to the proposed amendments, nor do I agree to deferring the commencement date of the amendment rules.
Also, I wish to make it very clear that I do not buy the points raised by certain members at the meetings. They believe that if the threshold remains unchanged, intermediaries will use it as a convenient tool to sell products to investors indiscriminately. In fact, I immediately pointed out back then that the asset threshold for professional investors should only be taken as an indication of their greater ability to bear potential losses, and that qualifying as a professional investor will only give an investor greater freedom in choosing investment products
Since the Lehman Brothers incident, the regulatory authorities and intermediaries have jointly introduced many measures to protect investor interests. These measures include the requirements for intermediaries to understand investors’ risk appetites, to rate all products meticulously, and to assess the suitability of the products for the clients. Since June last year, the requirement of suitability assessment has become―I am speaking on behalf of the banking sector―a clause in the account opening document between a bank and its client, carrying legal effect. Banks are also required to record in detail the transactions conducted, for example, by making audio recording, and to disclose the commission for the intermediary. As for sales staff appraisal, compliance is also included. The investor protection measures are now very different from those in the past.
Our discussion focuses on the definition of a professional investor. It is only about adopting a benchmark to determine whether certain people may qualify as professional investors. Therefore, it is not necessary for us to assume that an investor will definitely be misled if such qualification is granted to him. Some Members fear that something similar to the Lehman Brothers incident may happen to professional investors, or that some people may be misled to become professional investors. I dare not say that these situations will not happen in the future, and in order to avoid these risks, the authorities must make effective publicity and education efforts, just as I repeatedly emphasized to the Administration at the Subcommittee meetings. This is to help the public know and understand that they have to be aware of various risks which they may need to bear when they enjoy the right to a wider choice of products upon reaching the assets threshold for professional investors, and that they themselves must make correct choices. This is the view I expressed in the Subcommittee and I wish to reiterate this point today so that the Members present in this Chamber will know about it.
Deputy President, I so submit