Speech at Panel on Financial Affairs

Automatic Exchange of Financial Account Information in Tax Matters

Implementation of automatic exchange of financial account information in tax matters

Noting that Hong Kong conducted the first and second rounds of AEOI in 2018 and 2019 respectively, Mr CHAN Chun-ying sought information on the breakdown by types of reporting FIs furnishing Financial Account Information Returns to the Inland Revenue Department (“IRD”), and enquired about the expected increase in the number of jurisdictions conducting AEOI with Hong Kong.

DS(Tsy)2 undertook to provide information as requested by Mr CHAN Chun-ying after the meeting. As regards the number of jurisdictions conducting AEOI with Hong Kong, he pointed out that while the number would increase steadily, it was envisaged that it would take time for Hong Kong to conduct AEOI with all the current 112 jurisdictions which had implemented or had a definite plan for implementing AEOI as exchange of information arrangement between the relevant tax authority and IRD had to be in place before Hong Kong could conduct AEOI with the jurisdiction concerned.

Legislative proposals to implement the recommendations of the Organisation for Economic Co-operation and Development

Mr CHAN Chun-ying was concerned whether the relevant standards currently applicable to reporting FIs for determining the controlling person(s) of an account holder would be raised significantly under the AML/KYC amendment. He also enquired if the Administration would consider implementing the amendment in phases to avoid a drastic surge in FIs’ compliance costs.

DS(Tsy)2 said that it was not envisaged that implementation of the proposed legislative amendments would result in significant increase in reporting FIs’ compliance work. The Administration had consulted relevant stakeholders including the Hong Kong Association of Banks on the amendments in November 2019. Most of the submissions received indicated no objection or no comment towards the proposed legislative amendments. Given that the Administration would propose that the legislative amendments came into force on 1 January 2021, reporting FIs should have sufficient time to make preparations.


Budget of the Securities and Futures Commission for the financial year 2020-2021

Annual licensing fees

On SFC’s licensing fee waiver for one year in 2020-2021, Mr CHAN Chun-ying noted that it was among the various further relief measures announced by the Financial Secretary (“FS”) in December 2019 in order to support enterprises and employment, and questioned why the estimated revenue forgone of about $235 million was not borne by the Government.

C/SFC and Acting Chief Executive Officer, Securities and Futures Commission (“Acting CEO/SFC”) advised that SFC had offered an annual licensing fee waiver in 2009-2010 and from 2012-2013 to end March 2019. SFC had resumed collecting the annual licensing fees from 2019-2020 in a phrased approach by introducing a 50% discount in the fees for 2019-2020 and 2020-2021, and expected to fully reinstate the fees from 2021-2022 onwards. However, after reviewing its fees and charges level and the market conditions, SFC announced in December 2019 to fully waive the annual licensing fees for one year in 2020-2021 as a relief measure for brokerage firms. C/SFC took note of the Chairman’s views and said that SFC would carefully review the market conditions when considering whether and when to reinstate the collection of the annual licensing fees.

Human resources issues

Mr CHAN Chun-ying pointed out that among the 22 positions to be upgraded, only one was in the Information Technology (“IT”) Department. Given the increasing adoption of technology by the financial services industry and SFC’s initiative to use front-end technology to streamline its business process, Mr CHAN enquired about the reasons for upgrading only one position in the IT Department.

Acting CEO/SFC said that in addition to the IT Department, SFC had employed staff with relevant knowledge and expertise in various departments for implementing new technology solutions to streamline SFC’s business process and upgrade market surveillance capabilities. For example, staff with relevant virtual assets and regulatory experience had been employed in the Intermediaries Division to oversee regulatory activities relating to virtual assets trading platforms.

Office premises

Mr CHAN Chun-ying noted that SFC had secured an eight-year lease for the new office premises in Quarry Bay, and that relocating SFC’s office from Central to Quarry Bay could achieve rental savings of about $125 million per year to be added to the $3,000 million of reserves ring-fenced for the potential purchase of office premises in the long run. In view of the possible downturn of the local property market and decline in property prices amidst an economic downturn, Mr CHAN enquired if SFC would consider purchasing its office premises before expiry of the eight-year lease.

C/SFC responded that purchasing its own office premises was all along the long term goal of SFC. However, it would take time for SFC to identify suitable office premises in an appropriate location and of a considerable size for accommodating its some 900 staff. He reiterated that SFC would move its office from Central to Quarry Bay in the second quarter of 2020 and the relocation could achieve savings of about $1,000 million in rentals over the eight-year lease. Together with the $3,000 million which had been ring-fenced for the purchase of its office, SFC would have about $4,000 million at its disposal for the purchase. SFC would keep in view the availability of suitable office premises in the market and development in the property market, and when appropriate, might consider purchasing its office premises before the expiry of eight-year lease.


Budget of the Insurance Authority for the financial year 2020-2021

Recruitment exercise and policy

Mr CHAN Chun-ying said that while he had no objection to the estimated expenditure on staff costs, which was $83.5 million higher than the revised estimate for 2019-2020, he was concerned as to whether the outbreak of COVID-19 would affect IA’s recruitment exercise to reach its full staff establishment of about 330.

C/IA advised that while the estimated expenditure on staff costs for 2020-2021 was projected to be $83.5 million higher than the revised estimate for 2019-2020, $39 million was attributable to new employees hired in 2019-2020. Given that IA would take on additional duties related to group-wide supervision and regulation of intermediaries, it had increased its headcount by 29 in 2020-2021. The Chief Executive Officer of Insurance Authority (“CEO/IA”) added that the projected increase of $83.5 million covered annual salary adjustment, full-year effect for employees who joined in 2019-2020 and the 29 posts to be created in 2020-2021, roughly accounting for $10 million, $39 million and $35 million respectively.

CEO/IA advised that out of the 29 posts to be created in 2020-2021, 19 would be filled by seasoned professionals responsible for group-wide supervision. The pace of recruitment hinged on a number of factors including availability of suitable talents in the market. Citing that the revised operating expenditure for 2019-2020 was 6.9% lower than the approved budget, primarily due to unfilled vacancies, he said that it was still uncertain if all vacancies could be filled in 2020-2021.

Capital injection to the Insurance Authority

Mr CHAN Chun-ying considered that as a regulator, it was undesirable for IA to have an operating deficit of $195.1 million in 2020-2021. He enquired when the $300 million capital injection pledged by the Government would be provided to IA.

C/IA replied that the capital injection of $300 million by the Government was essential for IA to tide over the projected cash shortfall, and he had confidence that the sum would be provided to IA in a timely manner after clearing the necessary procedures. Levy rates on insurance premiums

Mr CHAN Chun-ying asked that with the volume of business generated by Mainland visitors severely affected by social events happening in Hong Kong, whether IA would review the levy rate to ensure a stable source of income.

C/IA replied that as the premium levies were implemented through an incremental approach, they would take up an increasing share of income received by IA and set the scene for a review of the established mechanism.