Sit­ting tight in the fin­tech age, ward­ing off threats

China Daily (Hong Kong) - - BUSINESS HK - By LIN WENJIE in Hong Kong cher­rylin@chi­nadai­lyhk.com

With fi­nan­cial and in­for­ma­tion tech­nol­ogy per­cep­ti­bly and in­ces­santly creep­ing into our ev­ery­day lives, gov­ern­ments and en­ter­prises world­wide are at the cross­roads in look­ing for ways both to bet­ter pro­tect in­vestors and ward off risks, no­tably un­wanted threats from ran­som-happy cy­ber in­vaders.

How safe is Hong Kong in this re­spect — in giv­ing in­vestors and fi­nan­cial in­sti­tu­tions some peace of mind in a city that had been caught up in two global fi­nan­cial crises in the past 20 years?

Af­ter two decades of re­lent­less ef­forts by the au­thor­i­ties, the SAR now boasts high stan­dards in fi­nan­cial safety to help the city live up to its rep­u­ta­tion as a global fi­nan­cial cen­ter. The new HKSAR Govern­ment has also vowed to build up an im­proved and re­silient risk-cop­ing mech­a­nism, while pledg­ing to leave am­ple room for fi­nan­cial tech­nol­ogy (fin- tech) to grow.

Chief Ex­ec­u­tive Car­rie Lam Cheng Yuet-ngor said in her elec­tion man­i­festo the govern­ment will play a more ac­tive role in strength­en­ing fi­nan­cial se­cu­rity to re­in­force Hong Kong’s po­si­tion as an in­ter­na­tional fi­nan­cial hub by en­hanc­ing “day-to-day com­mu­ni­ca­tion among reg­u­la­tory de­part­ments” so that they can up­date their emer­gency plans to han­dle se­ri­ous fi­nan­cial in­ci­dents, and share analy­ses and risk mi­gra­tion mea­sures on how to keep the fi­nan­cial sys­tems safe.

Hong Kong’s fi­nan­cial su­per­vi­sion sys­tem is prin­ci­pally in the hands of four gate­keep­ers — the Hong Kong Mon­e­tary Author­ity (HKMA), the Se­cu­ri­ties and Fu­tures Com­mis­sion (SFC), the In­sur­ance Author­ity which of­fi­cially be­gan op­er­at­ing in June this year, tak­ing over the du­ties of the Of­fice of the Com­mis­sioner of In­sur­ance (OCI), and the Manda­tory Prov­i­dent Fund Schemes Author­ity (MPFA). They op­er­ate in­de­pen­dently of the govern­ment, over- see­ing the bank­ing, se­cu­ri­ties and fu­tures in­dus­tries, in­sur­ance, and the Manda­tory Prov­i­dent Fund (MPF), re­spec­tively.

Ter­ence Chong Tai-le­ung, ex­ec­u­tive di­rec­tor at the In­sti­tute of Global Eco­nomics and Fi­nance of the Chi­nese Uni­ver­sity of Hong Kong, com­mends Hong Kong’s fi­nan­cial safety stan­dards, but stresses there have been side ef­fects aris­ing from strin­gent su­per­vi­sion.

“Ho n g Ko n g h a s g o n e through two fi­nan­cial crises, so our reg­u­la­tors have a high level of risk aware­ness. I don’t see big risks cur­rently for Hong Kong’s fi­nan­cial sys­tem. Car­rie Lam’s talk is a mes­sage to the cen­tral govern­ment that no one with bad in­ten­tions could un­der­mine na­tional fi­nan­cial se­cu­rity through Hong Kong, as our fi­nan­cial mar­kets are tightly linked to those of the main­land,” he said.

Any po­ten­tial risks he could think of at the mo­ment could come from prop­erty de­vel­op­ers’ en­tic­ing mort­gage loans with high loan-to-value ra­tios, as well as the in­creased main­land ex­po­sure of Hong Kong banks. “But, they’re all man­age­able.”

Nor­man Chan Tak-lam, chief ex­ec­u­tive of the HKMA — the city’s de facto cen­tral bank — has said he’s con­stantly keep­ing an eye on po­ten­tial risks, point­ing to the city’s over­heated hous­ing mar­ket. The HKMA, he noted, had in­tro­duced coun­ter­cycli­cal mea­sures to re­duce the risks facing banks, and is closely watch­ing the lo­cal bank­ing sec­tor’s main­land-re­lated loans, which have grown rap- idly in re­cent years.

Chan stressed that Hong Kong’s bank­ing sys­tem re­mains ro­bust and has re­bounded well from the crises. “Our banks have a ro­bust cap­i­tal ad­e­quacy ra­tio and great liq­uid­ity, so we have a higher anti-risk ca­pac­ity than be­fore.”

The SFC, on its part, has been work­ing with the Hong Kong Stock Ex­change on list­ing re­forms, hav­ing raised the thresh­olds for flota­tions, while the OCI has hard­ened re­quire­ments for in­sur­ance com­pa­nies, such as in­creas­ing the min­i­mum num­ber of in­de­pen­dent non-ex­ec­u­tive di­rec­tors and rais­ing re­mu­ner­a­tion re­quire­ments for com­pa­nies wish­ing to go pub­lic. All these mea­sures are aimed at en­sur­ing the sta­bil­ity of the in­sur- ance busi­ness and pro­tect­ing pol­i­cy­hold­ers.

Chong said tighter rules can shield the mar­ket from risks, but warned that black swans, or un­ex­pected con­se­quences, could crop up, say­ing that strict man­age­ment of fi­nan­cial mar­kets may in­hibit growth of the fin­tech in­dus­try. “So, we’ve seen Hong Kong’s adop­tion of mo­bile-pay­ment ser­vices lag­ging be­hind that of other mar­kets in Asia, es­pe­cially the Chi­nese main­land.”

For­tu­nately, the govern­ment un­der­stands that ad­e­quate space needs to be given to the fin­tech sec­tor to de­velop, with the goal of catch­ing up with the rest of the world and con­sol­i­dat­ing Hong Kong’s sta­tus as an in­ter­na­tional fi­nan­cial pivot.

Car­rie Lam has also prom- ised that the govern­ment will en­cour­age fi­nan­cial en­ter­prises to keep abreast of the times and par­tic­i­pate in fi­nan­cial in­no­va­tion by adopt­ing a “launch-andtry-first” reg­u­la­tory ap­proach. In­no­va­tive means will also be used to guard against fi­nan­cial risks so as to pro­vide safe and qual­ity ser­vices to users of fi­nan­cial ser­vices.

Ac­cord­ing to a joint sur­vey by ac­count­ing firm KPMG and the Hong Kong In­sti­tute of Char­tered Sec­re­taries, cy­ber­se­cu­rity is among the top five risks con­fronting Hong Konglisted com­pa­nies this year.

The fin­tech in­dus­try has to be on con­stant alert in the wake of the re­cent “Wan­naCry” as­sault on com­puter net­works, wreak­ing havoc on a global scale, with the com­puter sys­tems of orga- niza­tions in at least 150 coun­tries com­ing un­der at­tack.

The HKMA, SFC and OCI re­cently put no­tice on in­sti­tu­tions and mar­ket par­tic­i­pants to iden­tify cy­ber­se­cu­rity threats from net­works, emails and rel­e­vant de­vices, say­ing they should have mit­i­ga­tion mea­sures in place to pre­pare for pos­si­ble cy­ber­se­cu­rity threats.

Al­though some peo­ple are wor­ried that Hong Kong is los­ing its com­pet­i­tive edge to Sin­ga­pore as a world fi­nan­cial hub, Nor­man Chan is con­fi­dent that the SAR’s sta­tus is undi­min­ished for its unique ge­o­graph­i­cal ad­van­tages, such as cash­ing in on the Chi­nese main­land’s ex­pe­di­tious eco­nomic growth, no­tably the op­por­tu­ni­ties de­riv­ing from the yuan’s in­ter­na­tion­al­iza­tion and the China-led Belt and Road Ini­tia­tive.

“Hong Kong has been part of the global fi­nan­cial mar­kets for so many years,” he said. “With such an ad­van­tage, as long as we aren’t com­pla­cent and keep work­ing on our soft skills, there’s still a bright fu­ture ahead of us.”

Our banks have a ro­bust cap­i­tal ad­e­quacy ra­tio and great liq­uid­ity, so we have a higher anti-risk ca­pac­ity than be­fore.”

EDMOND TANG / CHINA DAILY

With two decades of ex­pe­ri­ence in cop­ing with press­ing fi­nan­cial crises, ex­perts say Hong Kong’s risk aware­ness is high, with tough mea­sures in place, in­clud­ing hard­ened re­quire­ments for en­ter­prises seek­ing to go pub­lic in the SAR.

EDMOND TANG / CHINA DAILY

The Hong Kong Mon­e­tary Author­ity re­cently put no­tice on in­sti­tu­tions and mar­ket par­tic­i­pants to iden­tify cy­ber­se­cu­rity threats from net­works and pre­pare counter steps.

Nor­man Chan Tak-lam,

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