If you want to do fi­nan­cial busi­ness in Hong Kong, you will cross paths with these men and their agen­cies. How they work to­gether may de­ter­mine your fu­ture.


If you want to do fi­nan­cial busi­ness in Hong Kong, you will cross paths with these men and their agen­cies. How they work to­gether may de­ter­mine your fu­ture

These are im­por­tant days for Hong Kong’s fi­nan­cial and in­surance com­mu­nity. There are far-reach­ing de­bates within our city and ma­jor global trends un­der way that will de­ter­mine the fi­nan­cial fu­ture of Hong Kong. It’s been 20 years since Bri­tain’s lease on Hong Kong ended, and the city’s gov­er­nance was re­turned to main­land China, and this has prompted plenty of com­par­isons be­tween the world of 1997 and the world of 2017.

Our cover story in this is­sue of The Peak fea­tures the four fi­nan­cial gate­keep­ers of Hong Kong. Over the past 20 years, our cover per­son­al­i­ties have all wit­nessed enor­mous changes in their re­spec­tive ar­eas of in­ter­est. In­surance sales are up al­most eight­fold, prompt­ing the creation of a reg­u­la­tory agency to deal with it. Stock mar­ket cap­i­tal­i­sa­tion is up eight­fold as well, while bank­ing as­sets have dou­bled and Hong Kong has be­come a world leader in off­shore yuan trans­ac­tions and the IPO busi­ness of rais­ing cap­i­tal. The driv­ing force be­hind all of this has been the eco­nomic growth and de­vel­op­ment of main­land China. At the time of the han­dover, Hong Kong's econ­omy made up nearly 20 per cent of the GDP of China. Now, that fig­ure is just un­der three per cent.

Set against this 20-year up­ward tra­jec­tory has been some stark fi­nan­cial chal­lenges. Just af­ter the han­dover it­self, there was the Asian Fi­nan­cial Cri­sis of 1997-1998, and in 2008, the Global Fi­nan­cial Cri­sis. Hong Kong has not been alone in tap­ping into the China story; other fi­nan­cial cen­tres have been com­pet­ing for the same busi­ness. Rel­a­tively few tech­nol­ogy firms have de­cided to call Hong Kong home, pre­fer­ring list­ings in more for­giv­ing US eq­uity mar­kets. There is also the con­tin­ued re­quire­ment of deal­ing with mar­ket mal­prac­tice and up­grad­ing mar­ket qual­ity.

Against this back­drop, Hong Kong’s fi­nan­cial gate­keep­ers have never been sub­ject to any sort of qual­i­fi­ca­tions check or test for their jobs, nor is there such a qual­i­fi­ca­tion for any of the jobs at these reg­u­la­tory agen­cies. Our four gate­keep­ers come from dif­fer­ent back­grounds – Chief Ex­ec­u­tive of the Hong Kong Mon­e­tary Au­thor­ity Nor­man Chan is a ca­reer civil ser­vant; Chair­man of the Se­cu­ri­ties and Fu­tures Com­mis­sion Carl­son Tong is a re­tired ac­coun­tant; Chair­man of the In­surance Au­thor­ity Moses Cheng is a for­mer lawyer; and Hong Kong Ex­changes and Clear­ing (HKEX) Chair­man Chow Chung Kong a for­mer busi­ness ex­ec­u­tive.

Their di­ver­sity means they bring dif­fer­ent types of knowl­edge and ex­pe­ri­ence to the game. The rel­a­tively small fi­nan­cial com­mu­nity in Hong Kong means that the gate­keep­ers can get by with bi­lat­eral meet­ings and communications.

This kind of chumminess may have sufficed for the pre­vi­ous 20 years, but will it do for the next 20 years? Hong Kong fi­nan­cial firms and mar­kets are tightly linked to the main­land, and the four will need to work more closely with their main­land coun­ter­parts on cross bor­der reg­u­la­tion. Nearly 40 per cent of in­surance poli­cies are pur­chased by main­land Chi­nese, over 60 per cent of our mar­ket cap are Chi­nese com­pa­nies, and main­land Chi­nese are now trad­ing 10 per cent of turnover via the two stock con­nects.

Mean­while, HKEX is look­ing for big com­pa­nies to raise funds through ini­tial pub­lic of­fer­ings, in­clud­ing the pro­posed list­ing by Saudi Aramco, which if it hap­pens, is ex­pected to raise about US$100 bil­lion (HK$780 bil­lion), the big­gest ever sum for an IPO. That es­ti­mate is based on the ex­pected five per cent eq­uity of­fer­ing, valu­ing the com­pany at US$2 tril­lion.

An­other great de­bate opened by the HKEX con­cerns a new board that would al­low weighted vot­ing rights. It was over this is­sue that Alibaba listed in New York, which has led to angst ever since about HKEX’S list­ing rules. Diehards pre­fer one share, one vote. Sev­eral big tech­nol­ogy firms have stated their wish for pre­ferred vot­ing rights, to in­su­late the own­ers from quar­terly mar­ket pres­sures. The sack­ing of Uber Chief Ex­ec­u­tive Travis Kalan­ick and the glar­ing un­der­per­for­mance of Snap Inc. (where share­hold­ers re­ceive no vot­ing rights at all) have added some fuel to the fire in this de­bate (see: A Dual Dis­cus­sion, p. 36).

Added to these tur­bu­lent events are the grow­ing chal­lenge of fin­techs and new tech­nol­ogy in gen­eral. The HKMA in par­tic­u­lar has tried to har­ness this with the in­tro­duc­tion of test­ing zones for fi­nan­cial tech­nol­ogy (the so-called Sand­box) though of­ten Hong Kong’s ef­forts have lagged be­hind those of Sin­ga­pore, which has been push­ing ahead more ag­gres­sively. Sin­ga­pore’s “sand­box” scheme al­lows banks and small fin­tech start-ups to test their tech, while in Hong Kong, the HKMA al­lows only banks to do so.

Deal­ing with the mul­ti­tude of these chal­lenges is our fi­nan­cial reg­u­la­tory en­vi­ron­ment. There are, roughly, four mod­els of fi­nan­cial reg­u­la­tion: In­sti­tu­tional (where a bank­ing reg­u­la­tor looks af­ter banks, in­surance reg­u­la­tor looks af­ter in­surance, etc); Func­tional (where a bank­ing reg­u­la­tor looks af­ter bank­ing­type busi­nesses); Twin Peaks (where one reg­u­la­tor looks af­ter safety and sound­ness, while an­other po­lices con­duct); and the In­te­grated Ap­proach (where one agency looks af­ter ev­ery­thing).

Sin­ga­pore has adopted the In­te­grated Ap­proach, while Hong Kong con­tin­ues to use the In­sti­tu­tional Ap­proach, di­vid­ing re­spon­si­bil­ity be­tween the four men we in­ter­view here. Each of our fi­nan­cial gate­keep­ers be­lieves that our cur­rent ap­proach works well, but it re­quires that ev­ery­one re­main friends and talk­ing to each other at all times. If there is one thing they agree on, it is this.

That of course raises the ques­tion: what hap­pens when the friend­ships break down? Friend­ships don’t last through every phase of life, and as many of Hong Kong’s wealth­i­est fam­i­lies can at­test, smooth suc­ces­sions are not al­ways easy. All four reg­u­la­tors are now in their 60s. Given their em­pha­sis on the im­por­tance of main­tain­ing friend­ships and com­mu­ni­ca­tion, it’s worth ask­ing about suc­ces­sion plans for each of these agen­cies.

We can look ahead to ever more chal­lenges in the fi­nan­cial ser­vices in­dus­tries. One very big ques­tion is how we will face the reg­u­la­tory as­pect of those chal­lenges, and who will be the gate­keep­ers of the next 30 years?


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