Development of financial technologies
Benefits brought by Fintech development on Hong Kong
Mr CHAN Chun-ying noted that Hong Kong’s cumulative investment in Fintech companies for the period from 2014 to 2017 exceeded that of Australia and Singapore, and considered that the Administration should provide details on such investments, like the number of Fintech start-ups established in Hong Kong and the businesses they engaged in.
Fintech development in the banking, securities and insurance sectors industry
Mr CHAN Chun-ying sought the progress of HKMA’s initiative in developing a common QR code standard which would facilitate merchants to accept different payment schemes, and whether the standard QR code would be compatible with that used in the Mainland. He also enquired about measures taken by HKMA to enhance security and privacy protection of its proposed Open Application Programming Interface (“API”) framework.
CFO/HKMA advised that HKMA was working with the industry in developing a standard QR code. It was envisaged that the QR code developed would not be an impediment to cross-border usage. He also stressed that HKMA attached importance to the security of the proposed Open API framework and had proposed a number of security-related standards in its consultation paper on the Open API framework.
Mr CHAN Chun-ying asked whether SFC planned to introduce a licensing regime for initial coin offerings (“ICOs”), and enquired whether SFC would pay heed to the market’s views that participation in ICOs should be restricted to certain types of investors (like professional investors) so as to enhance investor protection.
DCEO/SFC advised that if issuers of ICOs applied to SFC for licences in launching ICO exercises, SFC could consider imposing conditions on such licences to ensure proper protection for investors including setting eligibility criteria for investors.
Development of green finance
Development of green finance in Hong Kong
Mr CHAN Chun-ying opined that the proposed GBGS would help promoting the development of Hong Kong’s green bond market. He asked whether the Administration would make reference to major overseas bond markets to establish a new “green bond index” in Hong Kong which would help further enhance Hong Kong’s green bond market.
DS(FS) said that with increasing public awareness over environment protection issues and global warming, investment by institutional investors in the global green financial market had been growing in recent years. Riding on the increasing global demand for green financial products, Hong Kong was well-equipped to develop green finance, in particular serving as a premier financing platform for international and Mainland green enterprises/projects in raising funds through issuing bonds and initial public offerings. The proposed GBGS was to subsidize qualified green bond issuers in obtaining green bond certification under the Green Finance Certification Scheme (“GFCS”) established by the Hong Kong Quality Assurance Agency, and aimed to attract more corporate green bond issuance in Hong Kong. The Government would offset 100% of the cost of obtaining an external review under GFCS for qualifying green bond issuances, with a grant ceiling of HK$800,000 per issuance. The Government considered that the level of grant would be competitive when comparing to similar assistance schemes offered by major bond markets in the region. DS(FS)added that the Government currently had no plan to establish a “green bond index”, or set a target on the development of the local green bond market.
Government Green Bond Programme
Mr CHAN Chun-ying enquired about the actual issuance size of green bonds under GBP. He also suggested including the green bonds to be issued by the Government in the Southbound Trading of the Bond Connect Scheme so as to attract Mainland investors on the bonds and help promoting GBP. To increase the attractiveness of GBP, Mr CHAN Kin-por further suggested that the Government should consider offering a high coupon rate for the green bonds to be issued.
DS(FS) responded that Government green bonds would be issued in tranches. The terms of the inaugural issuance, such as the tenor, size and the coupon rate, would be determined having regard to the financing and re-financing needs of the commitments of green public works projects and the market situation. It was estimated that the inaugural issue size would be around US$0.5 billion to US$1 billion which was expected to be fully subscribed by institutional investors. He added that the Government was currently exploring the feasibility of extending the Bond Connect Scheme to cover Southbound Trading, and would consider including Government green bonds under the Scheme.
Legislative proposals on loss-absorbing capacity requirements under the Financial Institutions (Resolution) Ordinance (Cap. 628)
Discussion
Mr CHAN Chun-ying noted that as explained by the Administration, IRO was amended in 2016 to provide debt-like tax treatment to Additional Tier 1 and Tier 2 capital instruments issued by AIs but other LAC-eligible liabilities were not covered in that amendment exercise as FIRO and FIRO LAC Rules were not then in place. Hence the Government proposed to amend IRO to remove tax uncertainty over other LAC-eligible liabilities to facilitate implementation of the FIRO LAC Rules. Mr CHAN enquired whether there was any other type of debt instruments set by the Basel Committee on Banking Supervision that had not been implemented in Hong Kong and would require further amendments to IRO in the future; and whether the proposed tax treatment would cover LAC debt instruments (i.e. Additional Tier 1 and Tier 2 capital instruments and other LAC-eligible liabilities) issued by global systemically important banks (“G-SIBs”) in Hong Kong.
Deputy Secretary for Financial Services and the Treasury (Financial Services)1 said that the Government would keep in view the development of relevant international regulatory standards and amend IRO for effective implementation of new international standards and requirements where necessary. As regards the tax treatment of LAC debt instruments, Deputy Commissioner (Technical), Inland Revenue Department said that the amendment in 2016 covered both Hong Kong incorporated AIs and overseas AIs with branches in Hong Kong, i.e. regulatory capital securities issued by overseas AIs and Hong Kong incorporated AIs would receive the same tax treatment. In this amendment exercise, the proposed tax treatment would also cover Hong Kong incorporated clean holding companies of AIs which are subject to LAC requirement.
In response to Mr CHAN Chun-ying’s enquiry, SM(RO)/HKMA advised that 10 responses were received during the two-month public consultation on the legislative proposals on LAC, including a number of responses from the banking industry. SM(RO)/HKMA said that respondents from the banking industry had stressed that FIRO LAC Rules should be consistent with the relevant international standards previously issued by the Financial Stability Board, and that HKMA should closely liaise with overseas resolution authorities when implementing LAC requirements for cross-border AIs. SM(RO)/HKMA explained that some respondents had also sought clarification on the types of FIs to be covered under FIRO LAC Rules. He said that further guidance on the implementation of LAC requirements for AIs would be set out in a code of practice HKMA intended to issue for consultation in the summer.
Consultation of the Stock Exchange of Hong Kong Limited on the proposed new listing regime for emerging and innovative companies
Arrangements for the listing of biotech companies
Mr CHAN Chun-ying declared that he was a shareholder of HKEX and expressed support for SEHK’s proposals. Noting that biotech companies which could not meet the continuing obligation under the Listing Rules to maintain sufficient operations or assets would be given a period of 12 months to re-comply with this requirement, failing which SEHK would cancel their listing, he enquired whether investors would be given any warning about the non-compliance of the biotech companies concerned.
Chief Regulatory Officer and Head of Listing, Hong Kong Exchanges and Clearing Limited (“CRO/HKEX”) replied that if a listed company (including biotech companies under the proposed new listing regime) failed to meet the continuing obligation under the Listing Rules, trading in its stock would be suspended and market participants would be informed of the suspension.
Safeguards for investors of companies with weighted voting right structures
Mr CHAN Chun-ying noted that SEHK’s consultation had proposed requiring WVR beneficiaries of WVR issuers to demonstrate that they had been materially responsible for the growth of the business, by way of their skills, knowledge and/or strategic direction when they applied for listing. He enquired if WVR beneficiaries would be subject to assessments (say, every five years) on whether they continued to possess the skills, knowledge and/or strategic direction concerned. Mr Holden CHOW remarked that some WVR companies might lose their competitive edges a few years after listing. He asked if HKEX and SFC would examine whether the WVR beneficiaries should still be permitted to hold WVRs then.
Chief Executive Officer, Securities and Futures Commission (“CEO/SFC”) advised that SEHK and the Listing Committee would carefully assess founders of WVR issuers in determining their eligibility to be the WVR beneficiaries. The WVR beneficiaries would also be required to be closely involved in the business of the WVR companies concerned on an on-going basis. The initial vetting on the WVR beneficiaries would be important but it would be impractical to conduct continuous assessments on WVR beneficiaries.
Mr CHAN Chun-ying enquired whether HKEX and SFC would provide training for the independent non-executive directors (“INEDs”) of WVR companies enabling them to enhance their roles in corporate governance. The Chairman asked if HKEX would consider increasing the number and power of INEDs in WVR companies.
CRO/HKEX advised that there were enhanced corporate governance requirements in relation to INEDs. There would be mandatory requirement for the establishment of a Corporate Governance Committee to help ensure that the WVR company was operated and managed for the benefit of all shareholders and complied with the Listing Rules. Important corporate matters including the appointment of INEDs would be voted on a “one-share, one-vote” basis. There were currently no specific training requirements set out in the Listing Rules for INEDs (that would possibly end up as a tick box exercise), but INEDs were required, when they took up their role, to be appropriate for the job they were asked to do. SEHK did not envisage that it would set out specific training courses for INEDs, but would endeavor to ensure that only qualified persons who were fully aware of their obligations could take up the position of INEDs. On the number and power of INEDs, CRO/HKEX advised that HKEX had no immediate plan to increase the number of INEDs in WVR companies. It would also be difficult for HKEX to change the legal responsibilities of INEDs through the Listing Rules, but the proposed regime had enhanced the responsibilities of INEDs through the establishment of the Corporate Governance Committee.