Speech at Panel on Financial Affairs

I Briefing on the work of Hong Kong Monetary Authority

Management of the Exchange Fund and the Co-Investment Fund

Member expressed concern that the rate of fees (i.e. 3.7%) payable by the Exchange Fund (“EF”) on placements by the Fiscal Reserves and placements by government funds and statutory bodies for 2023 (“payout rate”) was lower than the interest rates for Hong Kong dollar and US dollar time deposits. They enquired about the performance of return for EF investment in the past year as compared with other sovereign funds; HKMA’s investment strategies to enhance the rate of return of EF, including whether consideration would be given to increasing the proportion of cash deposits to total assets under EF.

HKMA advised that it had mainly adopted a defensive approach in the investment of EF in recent years (e.g. holding bonds with shorter maturities), and had made diversified investment (e.g. currency diversification and investment in private equity funds, property market, etc.) with a view to providing the Government with a stable medium-to-long-term return amid a generally weak global market environment. With the exception of a small amount of Hong Kong equities acquired and retained for diversification purpose since the stock market operation launched in 1998, the investment of EF primarily targeted the global market. This was to allow monetization of assets as and when necessary so as to enhance liquidity for the purpose of maintaining Hong Kong’s financial stability, while at the same time avoid potential conflicts of roles and interests. HKMA pointed out that the fees payable by EF on placements by government funds and statutory bodies were calculated based on a six-year average rate of return subject to a minimum of 0%. There would be no significant difference in the annual performance of the payment rate. This was designed to provide a more stable medium-to-long-term return for government funds and statutory bodies, etc. As regards a comparison with other sovereign funds, HKMA advised that the asset allocation of sovereign funds varied from country to country, and their performance and rates of return varied from year to year, rendering it difficult to make a direct comparison with EF. HKMA was of the view that unless there was a very serious threat to Hong Kong’s financial security and stability (as in the case of 1998), the Government should refrain from intervening directly in the local securities market, as conducting market operations by the Government was inconsistent with Hong Kong’s market-oriented operation, and would undermine the confidence of international investors in Hong Kong’s investment market.

Performance and development prospects of the banking sector

Referring to a recent new compliance tool aimed at establishing real-time fraud monitoring, which could facilitate proactive detection of money mule accounts and alerts for potential victims of deception to protect against losses, members enquired about the performance of the new tool.

HKMA advised that the number of complaints involving online fraud received in the first seven months of this year had already exceeded the total number received in the previous year, indicating that the prevention of fraud was still facing significant challenges. Regarding the new compliance tool referred to by members, HKMA explained that major banks in Hong Kong had, in line with HKMA’s requirements, implemented real-time fraud monitoring systems by end of September this year to detect suspicious fraudulent accounts and identify possible victims. So far the systems had been operating satisfactorily. Banks had alerted potential victims identified through the systems and had referred suspicious transactions to the Police for follow-up. HKMA hoped that other local banks would roll out similar systems as soon as possible to enhance protection for account holders.

Loan schemes to support the industry

Members pointed out that many small and medium enterprises (“SMEs”) had relayed that given the increase in their borrowing costs as a result of the rising interest rates, they hoped that the Government, regulatory authorities and/or financial institutions would not terminate at this stage the various loan schemes to support the industry.