LCQ12: Combating malpractices of financial intermediaries and regulating the trade
Question by the Hon Chan Chun-ying :
To combat the malpractices of financial intermediaries (intermediaries), the Government implemented in 2016 measures in four major areas, namely enhancement of law enforcement, enhancement of public education and publicity, enhancement of advisory services to the public, and the imposition of more stringent licensing conditions on money lender licences. On the other hand, some intermediaries’ persons-in-charge have relayed to me that the varying quality of the practitioners in the trade has cast a negative image of the trade among members of the public and resulted in an ever-shrinking room for survival for the trade. They therefore hope that the Government will introduce a licensing system for intermediaries to separate the wheat from the chaff, with a view to regaining public confidence in intermediaries. In this connection, will the Government inform this Council:
(1) (i) of the number of complaints involving unscrupulous intermediaries received by the Government since the implementation of the aforesaid measures and, among them, the number and details of those with contraventions substantiated and the penalties imposed on the offenders;
(ii) whether the Licensing Office of the Hong Kong Police Force has, since the implementation of the aforesaid measures, initiated investigations into cases of money lenders suspected of having breached the licensing conditions; if so, of the number of such cases and, among them, the number and details of those found substantiated as well as the penalties imposed on the persons concerned; and
(iii) whether the Police and the Companies Registry have held exchange meetings with the Hong Kong Monetary Authority and other financial regulators in respect of the business operations of money lenders and intermediaries; if so, whether such meetings are held regularly; if not, of the reasons for that;
(2) as the Government indicated earlier on that it would conduct a review on the aforesaid measures in the third quarter of last year, whether the review has been completed; if so, of the outcome; if not, the expected completion date; and
(3) whether the Government will consider enacting legislation to introduce a licensing system for intermediaries; if so, of the details and the implementation timetable; if not, the reasons for that?
Reply by the Secretary for Financial Services and the Treasury, Mr James Lau :
To address public concerns that some fraudsters claiming themselves to be financial intermediaries use deceptive tactics to induce borrowers to engage them for arranging loans from money lenders and charge the borrowers high fees under different pretexts, the Government implemented in 2016 a four-pronged approach to tackle these malpractices, viz. imposition of more stringent licensing conditions on money lender licences, enhanced enforcement, enhanced public education and publicity, and enhanced advisory services to the public. In particular, the more stringent licensing conditions which took effect on December 1, 2016 require all money lenders to undertake due diligence checks before entering into a loan agreement with a borrower to ensure that, where a third party is involved in the process, that third party is an appointed intermediary of the money lender and does not charge the borrower any fees; ensure better protection of privacy; enhance transparency and disclosure; and remind the public of prudent borrowing.
Our consolidated reply to the question raised by Hon Chan Chun-ying is set out below:
According to the Security Bureau, the Police has all along been concerned about crimes arising from money lending activities, especially those involving malpractices of financial intermediaries. Since the implementation of the above-mentioned measures, the number of reports relating to financial intermediaries received by the Police significantly dropped from 597 in 2016 to 144 in 2017. Among the reports received in 2017, 82 involved criminal elements. The Police also took enforcement action and arrested a total of 196 persons in 2017 for the offences of “conspiracy to defraud”, etc. Most of these cases are under investigation.
In November 2017, the District Court delivered its judgment on a fraud case involving financial intermediaries which took place in 2016. The nine defendants of the case lured victims into applying for loans and charged exorbitant consultant fees. The persons involved were subsequently arrested by the Police, and sentenced to four to six years’ imprisonment for the offences of “conspiracy to defraud” and “conspiracy to money laundering”. The District Court will also hear three other cases involving financial intermediaries in March 2018.
The Police will launch investigation upon receipt of reports or complaints involving money-lending companies, and will, in light of the circumstances of individual cases, institute prosecution or serve summons or warning letters based on the evidence and pursuant to the law. The Police will also consider applying to the licensing court for revocation or suspension of the money lender’s licence concerned, or consider raising objection to the licensing court when examining the licence renewal application of the money lender concerned.
At the same time, since the imposition of the more stringent licensing conditions, the Companies Registry (CR) has been conducting site inspections on money lenders and monitoring advertisements by money lenders to ensure their compliance with the new requirements. For cases where non-compliance was identified, the CR has taken prompt follow-up actions which included issuing advisory letters and warning letters as well as arranging follow-up site inspections, etc. Depending on the severity of the non-compliance, the CR will also consider making an objection to the Licensing Court upon application for licence renewal by the money lender concerned.
The Police and the CR hold regular liaison meetings to exchange information on enforcement efforts against money lenders and unscrupulous intermediaries and communicate on the malpractices by money lenders and intermediaries.
We have completed a review of the effectiveness of the four-pronged approach, and will report to the Legislative Council Panel on Financial Affairs on the outcome of the review on February 5. Details of the review outcome are set out in the discussion paper CB(1)530/17-18(05).
The more stringent licensing conditions mentioned above require money lenders to report their appointment of intermediaries to the CR for inclusion in the Register of Money Lenders for public inspection. In fact, as at December 31, 2017, the list of appointed intermediaries on CR’s website has already been downloaded for almost 140,000 times. Considering that members of the public can now check the list of appointed intermediaries to verify the identity of an intermediary and, if a loan application involves intermediary that is not on the list the money lender is not allowed to grant a loan, coupled with the other measures, we are of the view that there is currently no need to introduce a licensing regime for intermediaries.