Briefing on the work of Hong Kong Monetary Authority
Development of financial technologies and cross-border payment
Mr CHAN Chun-ying referred to the e-wallet top-up incident happened in October 2018 which might have involved the theft of personal information for setting up e-wallet accounts and making direct debit authorization for account top-up. He enquired about HKMA’s follow-up measures in enhancing banks’ electronic direct debit authorization (“eDDA”) procedure, and if HKMA would consider imposing requirements on: (a) the collection and use of personal data; and (b) authentication of eDDA for both physical banks and virtual banks.
CE/HKMA said that there was a need to strike a reasonable balance between convenience and security. HKMA welcomed Members’ views and suggestions. Regarding the e-wallet top-up incident, CE/HKMA and DCE(D)/HKMA pointed out that it was not related to the security of the Faster Payment System itself, but had arisen from a novel practice of fraudsters. HKMA had conducted a thorough review of the incident and strengthened the procedures for setting up eDDA. It was believed that the enhanced security measures could prevent similar incidents in the future. DCE(D)/HKMA added that as banks had to rely on third parties to conduct authentication, particular attention had to be paid to this area going forward. CE/HKMA added that banks (including virtual banks) needed to comply with know-your-customer requirements (which involved ascertaining the authenticity of individual customers, and understanding the background of the customers), and HKMA adopted a risk-based approach in supervising regulatees’ compliance with such requirements. On the implementation of eKYC, DCE(B)/HKMA remarked that HKMA was liaising with the industry on the matter, and the Hong Kong Association of Banks was taking a lead in its implementation.
Investment strategy of the Exchange Fund
Mr CHAN Chun-ying noted that while infrastructure investment could generate relatively stable cash flow with low loss ratios, it only accounted for a small proportion of EF’s LTGP. He enquired whether HKMA would consider expanding EF’s allocation to infrastructure, and specifying a ratio of such investment in various regions/countries.
CE/HKMA advised that it would not be appropriate to specify ratios for EF’s infrastructure investment in various regions/countries, as whether an investment would be made would depend on the commercial and financial viability of individual projects. Both developed and emerging markets would be considered as appropriate
Schemes administered by the Hong Kong Mortgage Corporation
Mr CHAN Chun-ying noted that the deadline for the SME Financing Guarantee Scheme had been extended to 30 June 2019. He asked whether HKMA would consider extending the deadline further if the number of applications was on the rise.
CE/HKMA advised that HKMC was only responsible for the administration of the Scheme. Extension of the Scheme was to be decided by the Administration.
Proposed profits tax exemption for funds
Discussion
Mr CHAN Chun-ying welcomed the proposal and supported imposing anti-tax avoidance measures. He suggested that the Administration should consider conducting a comprehensive review on the existing tax regimes with a view to identifying new tax concession arrangements with proper anti-avoidance measures, so as to increase Hong Kong’s attractiveness as a place for establishment of funds and further promote the development of the professional services sector. DS(FS)1 took note of Mr CHAN’s views.
DS(FS)1 said that the Administration had been keeping in view of the implementation of the tax regimes for funds and adopted a progressive approach in introducing tax concession arrangements for offshore and onshore funds. In order to address EU’s concern and to avoid being listed by EU as a non-cooperative jurisdiction for tax purposes, the Administration considered it necessary to remove ring-fencing tax features for offshore funds by providing onshore funds with the same tax incentive as offshore funds. The Administration was also mindful of the need to address tax evasion in providing profits tax exemption to onshore funds. To reduce the potential risk of tax evasion by funds through their investments in private companies, it was proposed that if a fund invested in a private company that held, whether directly or indirectly, more than 10% of its assets in immovable property in Hong Kong, the fund would be taxed on the profits arising from such an investment in the private company concerned. DC(T) supplemented that a fund’s direct investment in real estate properties would be subject to tax. Meanwhile, a private company which held properties and received investment from a fund would still be required to pay profits tax generated from profits deriving from the sales or letting of the properties held. As for revenue forgone, DS(FS)1 explained that the proposal should not give rise to significant revenue loss as compared to the current regimes. This was because the majority of funds operating in Hong Kong were offshore ones and were already enjoying tax exemption under the current tax regimes.