Speech at Panel on Financial Affairs

Briefing by the Secretary for Financial Services and the Treasury on the Chief Executive’s 2021 Policy Address

Strengthening offshore Renminbi business

Noting that the Administration was examining the feasibility of allowing securities eligible for southbound trading under the Stock Connect to be denominated in RMB, Mr CHAN Chun-ying enquired about the implementation details and timetable. Mr CHAN also sought information on the Administration’s plan to further strengthen Hong Kong’s status as a global offshore RMB business hub, including allowing securities listed in Hong Kong to trade and settle in RMB.

SFST responded that in view of the internationalization of RMB, the Administration was looking into specific measures to enhance demand for the issuance and trading of RMB securities, as well as exploring the feasibility of allowing stocks traded via the southbound trading under Stock Connect to be denominated in RMB. Notably, allowing trading of RMB-denominated securities via the southbound trading under Stock Connect could mitigate the foreign exchange rate risk borne by Mainland investors, and providing greater certainty for the trading price. He stressed that the Administration would continue to liaise with the industry and the Mainland authorities to promote two-way flow of cross-boundary RMB funds and development of offshore RMB products and tools.

Promoting development of the bond market and green and sustainable finance in Hong Kong

In response to Mr CHAN Chun-ying’s enquiry about the Administration’s measures to facilitate the issuance of offshore RMB bonds in Hong Kong by Mainland cities particularly those in the Greater Bay Area, SFST said that the Administration would continue to promote the advantages of Hong Kong’s bond market to Mainland cities and maintain close liaison with relevant Mainland authorities with a view to facilitating the issuance of offshore RMB bonds and deepening Hong Kong’s bond market development.

Measures to sustain economic recovery and promote economic development

Mr CHAN Chun-ying referred to the “Commercial Data Interchange” to be established by HKMA, and enquired if the Administration would consider establishing a personal information database, by making reference to the Know-your-customer Utility developed by the Singaporean Government, with a view to facilitating financial institutions to collect credit information of individual customers through a centralized government platform.

SFST said that HKMA was establishing the “Commercial Data Interchange” with the objective of facilitating SMEs in obtaining trade finance, and the system was expected to commence operation next year. The Administration would keep in view the development and implementation of the “Commercial Data Interchange” in considering the way forward.

Briefing on the work of Hong Kong Monetary Authority

Macroeconomic conditions, measures to help the public and local enterprises combat the coronavirus disease 2019, the monetary stability of Hong Kong

Mr CHAN Chun-ying welcomed HKMA’s decision to further extend the Pre-approved Principal Payment Holiday Scheme (“PPPHS”) and the Enhanced SME Financing Guarantee Scheme, which could help many SMEs to tide over the difficult operating environment.

CE/HKMA explained that if the US were to commence tapering and start raising interest rates gradually next year, the interest rate differential between the United States Dollar (“USD”) and Hong Kong Dollar (“HKD”) would widen slowly. At some point, this could potentially lead to outflow of funds to USD. Under the Linked Exchange Rate System (“LERS”), should monetary tightening in the US lead to a weakening of the HKD exchange rate to the weak-side Convertibility Undertaking, HKMA would buy HKD upon request by banks at HK$7.85 per USD. The Aggregate Balance would then contract and drive HKD interest rates up, pushing HKD away from the weak-side limit to stay within the Convertibility Zone. This automatic adjustment mechanism would help Hong Kong adjust to the developments in the US. That said, as a result of the loose monetary conditions globally in recent years, valuations of various asset markets were very high. HKMA, together with SFC, would closely monitor developments including the potential impact of a possible global monetary tightening on asset markets, with a view to maintaining Hong Kong’s financial stability. He also said that members of the public should prudently manage risk in making investment decisions as market volatility could potentially be high.

Development of financial services

Mr CHAN Chun-ying enquired about the implementation timetable of the Cross-boundary WMC, and whether HKMA would explore measures to assist Hong Kong people who did not have investment accounts in the Mainland in purchasing investment products under the Northbound Trading.

CE/HKMA responded that HKMA was currently processing WMC applications submitted by local banks. It was envisaged that the applications would be approved very shortly. HKMA was also liaising with the PBoC on measures to facilitate Hong Kong people’s purchase of investment products under the Northbound Trading, including the provision of attestation service for account opening and the feasibility of using the Mainland’s Category 1 and Category 2 bank accounts opened by Hong Kong residents as WMC accounts for Northbound Trading.

In response to Mr CHAN Chun-ying’s enquiry about the progress of HKMA’s consultation for introducing a fintech module unit in the Enhanced Competency Framework, DCE(B)/HKMA said that HKMA was consolidating the feedback received during industry consultation and aimed to finalise the module soon. HKMA hoped that the initiative could both attract external talents and existing practitioners in the banking industry.

Review of the Deposit Protection Scheme

Noting that the Administration had plans to review the Deposit Protection Scheme (“DPS”), Mr CHAN Chun-ying enquired whether consideration would be given to increasing the existing compensation limit of the Scheme (i.e. HK$500,000 per depositor per licensed bank) having regard to relevant practices of the United Kingdom and the European Union.

DCE(B)/HKMA responded that the current coverage rate of Hong Kong’s DPS was in line with the prevailing international standards. That said, the next review of DPS would also cover the compensation limit.