Briefing on the work of Hong Kong Monetary Authority
Measures to help the public and local enterprises combat the coronavirus disease 2019
Mr CHAN Chun-ying noted that HKMA might consider extending the Pre-approved Principal Payment Holiday Scheme (“PPPHS”) and the principal moratorium arrangement for the 80% and 90% Guarantee Products under the Enhanced SME Financing Guarantee Scheme (“Enhanced SFGS”), and enquired about the progress of discussions with the banking sector on the matter.
CE/HKMA noted the expectation for HKMA to support the economy (particularly SMEs) during this difficult period amid the COVID-19 pandemic. DCE(M)/HKMA said that the existing support measures under the Enhanced SFGS continued to be reviewed to meet SMEs’ needs. DCE(B)/HKMA added that HKMA would liaise with the banking industry on the way forward of PPPHS, but noted that it would also be important to strike an appropriate balance between supporting the economy and upholding banks’ sound risk management. He further clarified that although PPPHS was due to expire in April 2021, the principal payment of PPPHS applicants would not necessarily fall due at that time, as the payment would be due six months after their application for extension.
Mr CHAN Chun-ying commended HKMA for maintaining stable performance of EF and enquired whether some of EF’s investment or accumulated surplus could be distributed to the Government’s fiscal reserves and/or support additional relief measures.
CE/HKMA advised that under the established arrangement, the return on the fiscal reserves placed with EF was calculated based on the average annual investment return of EF’s Investment Portfolio over the past six years or the average annual yield of three-year Government Bond for the previous year subject to a minimum of zero percent, whichever was the higher. This arrangement was designed to enhance the stability of the fiscal reserves’ income. On the suggestion to draw from EF’s accumulated surplus, CE/HKMA noted that the Financial Secretary (“FS”) had to consider this in the context of EF’s key objective, which was to maintain Hong Kong’s financial stability. Furthermore, given “fiscal discipline” was an essential element to upholding confidence in LERS, one had to consider the potential signal one would send to the market if funds were to be drawn from EF’s accumulated surplus.
The Linked Exchange Rate System and the Exchange Fund
Pointing out that EF’s investment in alternative assets held under the Long-Term Growth Portfolio (“LTGP”) had been gaining relatively high annualized internal rate of return in recent years, Mr CHAN Chun-ying enquired whether HKMA would consider increasing the size of LTGP in EF’s Investment Portfolio, with a view to raising EF’s investment income and fee payment to the Government’s fiscal reserves so as to roll out more relief measures for businesses and individuals in Hong Kong.
CE/HKMA explained that the size of LTGP in EF’s Investment Portfolio had been capped at the aggregate of one-third of EF’s accumulated surplus and the portion of Future Fund and placements by EF’s subsidiaries linked to LTGP to ensure EF had sufficient liquidity. That said, there was still room to raise LTGP’s size in EF’s Investment Portfolio.
Budget of the Securities and Futures Commission for the financial year 2021-2022
Estimated expenditure on staff cost and external activities
Mr CHAN Chun-ying welcomed SFC’s proposal to freeze headcount and staff salaries in 2021-2022. He noted that there would be 32 position upgrades and enquired about the details and whether the upgrades could lead to unnecessary expansion of certain ranks. Given that the development of COVID-19 pandemic remained uncertain in the near future, Mr CHAN asked why SFC had budgeted an increased expenditure of $10.35 million in 2021-2022 for overseas travelling of officers for engaging in regulatory and external activities.
C/SFC advised that the 32 position upgrades would spread across various departments of SFC. The proposed upgrades had undergone stringent examination by SFC, and principally reflected the increasing complexity and scope of the respective roles of the positions, as well as to provide career progression for high performing staff. As regards increase in expenses on regulatory and external activities, C/SFC said that SFC’s expenses in overseas activities in 2020-2021 were lower than in previous years due to the suspension of overseas travelling and the deferral or cancellation of seminars throughout the COVID-19 pandemic. The expenses in 2021-2022 would be comparable to the normal levels of previous years. While the budget reflected an assumption that overseas travelling would resume in 2021-2022, there were still uncertainties and therefore the actual expenses under this item would depend on how the COVID-19 pandemic would evolve.
Mr CHAN Chun-ying enquired about the reasons for SFC projecting an income of $2,035.6 million for 2021-2022, which was 13.8% lower than the forecast income for 2020-2021, and whether it had taken into account all relevant factors in making the projection, especially the surge in the turnover in the securities market in recent months and the impact of a possible increase in the rate of stamp duty on stock transactions on market turnover.
C/SFC advised that the estimated income of $2,035.6 million for 2021-2022 was $325.14 million below the forecast income for 2020-2021. The assumptions adopted for the estimated income for 2021-2022 included the securities market turnover, income forgone of $237 million due to the annual licensing wavier, and SFC’s investment income of $122.18 million which was lower than the level in the 2020-2021 budget. In respect of the securities market turnover, the estimate was an average of $123 billion per day (as compared to the average of $126 billion per day for 2020-2021) and an average of 457 000 futures/options contracts per day (the same level as that for 2020-2021). The estimated income for 2021-2022 had taken into account the latest securities market turnover (i.e. around $133 billion per day in the first seven months of 2020-2021).
Re-domiciliation mechanism for foreign funds
Mr CHAN Chun-ying considered that any adjustment on the rate of stamp duty and main board profit requirement would have impact on the competitiveness and attractiveness of Hong Kong’s financial markets. He noted that with the establishment of the OFC and LPF regimes in July 2018 and August 2020 respectively, eight OFCs and 81 LPFs had set up in Hong Kong, and enquired about the direct and indirect benefits of the proposed re-domiciliation mechanisms to Hong Kong, including the expected number of OFCs and LPFs that would be re-domiciled to Hong Kong. He also enquired about the assessment criteria SFC would adopt in considering a re-domiciliation application from a non-Hong Kong corporate fund.
SFST advised that the industry had been calling for an early introduction of re-domiciliation mechanisms for OFCs and LPFs and some industry players were actively considering the relocation of their funds to Hong Kong. Although that was primarily a commercial decision on which the Government was not in a position to provide an estimation, it was projected by some industry estimates that around 2 500 new jobs could be created each year in the local private equity fund and professional services industries with the provision of a facilitative environment for the private equity sector. He added that the Administration would continue to step up efforts in encouraging fund formation and operation in Hong Kong, including organizing activities such as the webinars conducted by the Financial Services Development Council, with a view to promoting Hong Kong as a premier asset and wealth management centre in the Region. Regarding re-domiciliation application for OFC, Director (Investment Products Division), Securities and Futures Commission said that the applicant should provide the relevant re-domiciliation application information/documents to SFC, including a copy of the certificate of incorporation or registration issued with respect to the fund under the law of the place of incorporation or registration, the constitutive document of the fund, a certificate issued by the fund’s directors, etc. Moreover, the applicant needed to satisfy the existing requirements applicable to setting up a new OFC as stipulated in SFO, the Securities and Futures (Open-ended Fund Companies) Rules (Cap. 571AQ) and the Code on OFCs, including the eligibility requirements relating to the directors, investment manager and custodian of an OFC.