Speech at Panel on Financial Affairs

Budget of the Mandatory Provident Fund Schemes Authority for the financial year 2021-2022

Manpower plan

Mr CHAN Chun-ying noted that MPFA would maintain the total number of budgeted headcounts at the 2020-2021 level (i.e. 610), and had created 22 project posts for project implementation. He asked whether the 22 project posts were created for taking forward the eMPF Platform project and included under the 49 temporary positions that had been created to counter the impact of the COVID-19 pandemic. Noting that the estimated capital expenditure for 2021-2022 had been increased by 60.4% owing to the higher spending on some system application development projects, particularly system applications to support remote access and video conferencing, Mr CHAN enquired if the total headcount of 610 could be reduced in the long run after completion of those projects.

Mr Christopher CHEUNG enquired if the 610 budgeted headcounts had included the manpower resources required for the development of the eMPF Platform and whether the headcounts could be reduced after the implementation of the eMPF Platform.

Budget of the Insurance Authority for the financial year 2021-2022

Manpower plans

Mr CHAN Chun-ying welcomed IA’s proposed freeze on headcount and staff salary in 2021-2022. Noting that the increase of $38 million in staff costs in the 2021-2022 budget was mainly attributed to the full-year effect of those who had recently joined or would be recruited by IA, Mr CHAN enquired about IA’s manpower position in 2021-2022.

C/IA advised that due to keen competition by other employers, IA had not yet been able to fill all available vacancies, aggravating the workload borne by existing staff. To tackle this problem, IA had conducted recruitment drives at tertiary institutions and encouraged them to design insurance courses targeted at nurturing young talents.

Expenditure

Given the evolving situation of COVID-19, Mr CHAN Chun-ying asked why IA had proposed to increase the other operating expenses by nearly 120% in 2021-2022 to cover items such as duty travel. He also enquired if there were any plans to engage an investment manager to deploy the reserves of IA beyond fixed deposits at a later stage.

As regards duty travel, C/IA said that as IA had to fulfill a representative role in different regional and global fora, official trips were inevitable when the COVID-19 pandemic showed signs of abatement. The Chief Executive Officer of Insurance Authority (“CEO/IA”) echoed that the same applied for relevant authorities in the Mainland.

Budget of the Financial Reporting Council for the financial year 2021-2022

Budget of the Financial Reporting Council

Noting that one of the assumptions adopted by FRC in projecting its estimated levies income for 2021-2022 was that the average securities market turnover would be $123 billion per day, Mr CHAN Chun-ying considered that this assumption too conservative given the buoyant stock market activities in recent months. He also enquired whether FRC had budgeted any possible income from the item “recovery of costs of investigation”, and about the reasons for a reduction in the amount of non-executive directors’ fees in the proposed budget for 2021-2022.

C/FRC responded that in working out its proposed budget for 2021-2022, FRC had reviewed the historical trading performance of the Hong Kong stock market relevant to the levies calculation. The assumption for the projected levies income had duly reflected the then market situation. While the performance of the local stock market had become bullish after completion of the review concerned, FRC, as a statutory body, had to adopt a conservative stance in handling its budget. As for the income item “recovery of costs of investigation”, C/FRC pointed out that FRC referred auditing irregularities in relation to public interest entity (“PIE”) engagements which were completed before 1 October 2019 (i.e. the commencement date of the new regulatory regime for PIE auditors) to the Hong Kong Institute of Certified Public Accountants (“HKICPA”) for necessary disciplinary actions. Any costs and expenses awarded to FRC by the HKICPA Disciplinary Committee were uncertain and recognized only when awarded. After 1 October 2019, FRC took up the investigation and disciplinary functions in respect of PIE auditors. FRC had no power to order PIE auditors to pay costs and expenses to FRC in its own disciplinary decisions and the proceeds of any pecuniary sanctions would be transferred to the Government’s general revenue. As regards non-executive directors’ fees, C/FRC explained that FRC’s proposed budget for 2021-2022 and approved budget for 2019-2021 had adopted different reporting periods (i.e. April 2021 to March 2022 and October 2019 to March 2021 respectively). The amounts of annual non-executive directors’ fees were the same in both budgets.

Rules on contractual stays on termination rights in financial contracts for banks under the Financial Institutions (Resolution) Ordinance (Cap. 628)

Noting that HKMA had conducted consultation on the proposed Rules, Mr CHAN Chun-ying asked if views from respondents had been taken into account in finalizing the legislative proposals, and whether there were technical comments which the Administration had not taken on board. He also sought information on the percentage of covered contracts among the total number of financial contracts entered into by AIs in Hong Kong.

DS(FS)1 said that HKMA conducted a public consultation from January to March 2020 on the policy proposals for the Rules and received 14 submissions which gave comments or sought clarifications on some technical aspects of the proposals. Moreover, HKMA conducted an industry consultation on the draft text of the Rules from December 2020 to January 2021. Respondents provided technical comments on the draft text of the Rules and indicated areas where further guidance was required from MA. Having considered views received, MA had made appropriate refinements to the legislative proposals. For example, the minimum duration of the initial period for compliance with the Rules had been lengthened from 18 months to 24 months, “other foreign banks” had been removed from the types of counterparties covered by the 24-month initial period, and the definition of “excluded counterparties” had been extended to cover central banks and governments. Moreover, the Administration was in the process of refining the draft Rules to incorporate the suggestion from respondents that short-term inter-bank borrowing should be excluded from the definition of “financial contracts” in the Rules. As regards certain comments such as those seeking clarifications (e.g. the meaning of “material amendments”), HKMA considered it more appropriate to provide further implementation details in a Code of Practice chapter to be issued in the future. Senior Manager (Resolution Office) (Policy)1, Hong Kong Monetary Authority (“SM/HKMA”) added that the responses received during industry engagement indicated that the majority of the financial contracts entered into by AIs in Hong Kong were governed by non-Hong Kong law.