Speech at Panel on Financial Affairs

Briefing on the work of the Hong Kong Monetary Authority

Macroeconomic environment and the impacts of interest rate normalization

Mr CHAN Chun-ying declared that he was a consultant of the Bank of China (Hong Kong) Limited. He pointed out that the continuous drop in Hong Kong’s aggregate balance had not resulted in a significant reduction in the Hong Kong dollar (“HKD”)-US dollar (“USD”) interest rate spreads. He sought HKMA’s assessment if there was continuous capital outflow from Hong Kong, and whether this could lead to further weakening of HKD.

CE/HKMA remarked that under the Linked Exchange Rate System, if HKD-USD interest rate spreads widened, investors would be induced to conduct carry trade activities to sell HKD for USD. Hong Kong’s aggregate balance would decline, resulting in a rise in HKD interest rates and hence narrowing of HKD-USD interest rate spreads. This would in turn support HKD exchange rate. He pointed out that Hong Kong’s existing large Monetary Base provided an ample buffer against any capital outflow, and therefore the pace of HKD interest rate increases should not be too rapid.

Development of financial technologies

With the continuous issuance of virtual banking licences by HKMA, Mr CHAN Chun-ying expressed concern about the competition for financial technologies (“Fintech”) talents in the banking industry. He enquired whether HKMA had assessed the impact on the manpower situation of the banking industry, and what measures it would take to enhance manpower training in the industry. Mr CHAN Kin-por raised similar enquiries and asked how the introduction of virtual banking could enhance development of the banking industry and experience of customers.

CE/HKMA and DCE(B)/HKMA said that HKMA had announced the granting of four virtual banking licences and was making good progress in processing the remaining four applications which had been shortlisted for detailed due diligence. Even if all of them were taken into account, the total manpower requirement of virtual banks in the coming three years would only account for around 1.7% of the existing manpower of the banking industry. Besides, HKMA had introduced measures including the Enhanced Competency Framework to improve capacity building in the banking industry. CE/HKMA added that the launch of virtual banks in Hong Kong would facilitate financial innovation and enhance customer experience, which would be conducive to the overall development of the banking industry

Mr CHAN Chun-ying enquired about the progress of remedial and enhancement measures taken in response to the incident concerning online security of consumer credit data maintained by TransUnion Limited (“TransUnion”) happened in early 2019, and how HKMA would enhance the relevant regulatory regime of consumer credit reference service providers and whether it would consider introducing competition in the services.

DCE(B)/HKMA responded that TransUnion had engaged an independent third party to conduct a review of its security and application architecture and implementation. It was anticipated that the independent review would be completed soon. HKMA would continue to work with the Hong Kong Association of Banks in following up with TransUnion on the remedial actions and enhanced controls. DCE(B)/HKMA added that as he understood, the compliance investigation conducted by the Office of the Privacy Commissioner for Personal Data (“PCPD”) against TransUnion was still underway. HKMA would consider the need of enhancement measures having regard to the reports of TransUnion’s independent review and PCPD’s compliance investigation. In parallel, HKMA had been in discussion with the banking industry on the feasibility of introducing more credit reference service providers in Hong Kong.

Progress Report on the work of the Financial Reporting Council

Investigations conducted by the Financial Reporting Council and collaboration with other financial regulators

Mr CHAN Chun-ying remarked that among the complaints received by FRC in 2016, 19% and 50% involved small and medium -sized accounting firms respectively while 31% involved the “Big Four” accounting firms. He enquired about the trend of proportion of complaints against the sizes of accounting firms received in 2017 and 2018.

ACEO/FRC replied that as set out in FRC’s Annual Report 2018, the trend of proportion of pursuable complaints against accounting firms of various sizes between 2014 and 2018 remained steady, with complaints against small and medium-sized accounting firms making up more than half of the total number of pursuable complaints received.

Review of financial statements of listed companies

Mr CHAN Chun-ying noted that in 2018, FRC in collaboration with HKEX and HKICPA, had reviewed 27 financial statements of listed companies which had adopted the Chinese Accounting Standards for Business Enterprises (“CASBE”), among which 11 financial statements were reviewed solely by FRC. Mr CHAN asked whether FRC had plans to conduct the review of CASBE financial statements in-house in the long run.

ACEO/FRC advised that under the Financial Statements Review Programme (“FSRP”), FRC had been collaborating with HKEX and HKICPA in selecting the financial statements of various types of listed companies for review including companies adopting CASBE. The review on CASBE financial statements was one of the items of the FSRP.

Funding for the Financial Reporting Council

Mr CHAN Chun-ying noted that the Administration had increased the seed capital for FRC to $400 million after the enactment of the Amendment Ordinance, and enquired if the seed capital had been provided to FRC.

Deputy Secretary for Financial Services and the Treasury (Financial Services)3 (“DS(FS)3”) advised that the seed capital would be provided to FRC after the passage of the Appropriation Bill. Meanwhile, the Administration had been discussing with FRC the usage of the seed capital. The $400 million seed capital would help FRC migrate to the new regulatory regime, and the levies for the first two years upon the implementation of the new regime would be exempted.


Update on measures to tackle money lending-related malpractices

Regulation of money lenders and debt collectors

Mr CHAN Chun-ying asked whether the Administration would study the feasibility of requiring money lenders to record the details of the loan negotiation process through audio recording. In view of the prevalence of deceptive tactics of some money lenders and intermediaries using person-to-person telemarketing calls (“P2P calls”) and disguising as bank staff to induce people to make loans, Mr CHAN suggested that the Administration should consider developing a mobile application to assist the public to ward off bogus phone calls.

Registrar of Money Lenders replied that the additional licensing conditions imposed on money lenders since 2016 required money lenders to explain to their prospective borrowers the terms of repayment in a loan agreement (including interest rate, amounts of repayment, and possible consequences for any default in repayment, etc.), and to keep written, video or audio records showing their compliance with the requirement. As there were concerns from some money lenders about operational difficulties in making video or audio recording of the loan negotiation process, and about borrowers’ refusal to the arrangement; the Administration therefore considered it necessary to provide the alternative of recording the loan process in written form. As regards P2P calls, DS(FS)3 said that the regulation of P2P calls was under the purview of the Commerce and Economic Development Bureau (“CEDB”), and it was noted that CEDB had been working on the regulation of P2P calls and would put in place an “opt-out” arrangement for phone users on such calls. She undertook to convey Mr CHAN’s suggestion to CEDB.

Advisory services to the public

Referring to the three-year pilot programme launched by the Administration in 2016 to provide assistance/counseling service to people in financial distress through dedicated telephone hotlines set up by two non-governmental organizations (“NGOs”), Mr CHAN Chun-ying enquired if the Administration would consider further enhancing the advisory services.

DS(FS)3 responded that the Administration had reviewed the advisory services provided by the two NGOs upon completion of the pilot programme in March 2019 which had effectively provided timely and independent advice in a convenient manner for people in financial distress in handling their financial problems, thereby making them less vulnerable to unscrupulous intermediaries. Having considered the benefits of the programme, the Administration would continue to provide resources for such advisory services by the two NGOs for another three years.