Development of financial technologies
Regulation of Fintech in Hong Kong
While noting the good progress in Fintech development during the past year, Mr CHAN Chun-ying referred to the results of the 2nd Global FinTech Survey recently conducted by PricewaterhouseCoopers which had reflected concerns about regulatory uncertainty by Fintech industry, information security and privacy threats posed by Fintech, and low investment on Fintech infrastructure in Hong Kong. Mr CHAN enquired how the Administration would address these concerns, and whether it would review the “technology neutral” approach in regulating Fintech development.
Referring to the Administration’s past remarks that many services provided by Fintech companies could operate under the existing legal framework, Mr CHAN Kin-por pointed out that the financial services sector had expressed concern that the present regulatory regimes could not cope with the rapid development in Fintech. He enquired whether the Administration and financial regulators would review the regulatory regimes to promote Fintech development.
Financial Institutions (Resolution) Ordinance — Commencement Notice and Protected Arrangements Regulation
The Protected Arrangements Regulation
Mr CHAN Chun-ying noted that the proposed approach to PAR was largely modeled on that adopted by the United Kingdom (“UK”) and that required by the European Union’s Bank Recovery and Resolution Directive (“BRRD”). He enquired about resolution actions taken by RAs in the UK and member states of the European Union (“EU”) so far and the impact of such actions on the relevant stakeholders.
HRO/HKMA advised that so far there had been limited number of bank failure cases in the EU countries which required the use of resolution tools after the passage of BRRD. He said that partial property transfer, subject to the protected arrangements provisions as set out in BRRD, had been effected by the RA in Portugal in resolving a failing bank. A bridge bank was then established to which certain “good” assets and liabilities of the failing bank had been transferred with the remainder left in a residual “bad” bank.
The resolution regime and cross-border resolution actions
Mr CHAN Chun-ying noted that when initiating resolution of a within scope FI in Hong Kong, its business transactions with overseas counterparts might also be affected, particularly when the FI was within a cross-border group. He asked if overseas jurisdictions would also be required to have a resolution regime in place to ensure smooth implementation of cross-border resolution – 15 – Action actions, and whether the orderly resolution of the FI in Hong Kong would be impeded if the relevant overseas jurisdiction had not developed a resolution regime.
HRO/HKMA responded that FIRO empowered RAs in Hong Kong to undertake resolution planning for within scope FIs, which could include, amongst other things, the development of cross-border resolution strategies and plans together with foreign RAs to ensure cross-border resolution actions could be carried out in an coordinated and orderly manner, and thereby seeking to protect local financial stability. He added that HKMA was a member of the Crisis Management Groups (“CMGs”) of a number of global systemically important banks (“G-SIBs”) designated by the Financial Stability Board and had been working in these CMGs to develop effective cross-border resolution plans for those G-SIBs with the greatest systemic presence in Hong Kong with a view to improving their resolvability.
Progress report on joint consultation on the proposed enhancements to The Stock Exchange of Hong Kong Limited’s decision-making and governance structure for listing regulation
Way forward
Noting that the submissions were under analysis by SFC and SEHK in preparing the Consultation conclusions, Mr CHAN Chun-ying asked whether the two parties had any plans to implement improvement measures on listing regulation regime in the interim before working out the way forward.
ED/SFC said that SFC and SEHK had respectively taken measures to address problems associated with the quality and governance of listed companies. These included issuance of joint statements by SFC and SEHK in December 2016 on rights issues and open offers, which noted that SEHK released two listing decisions where it published the rationale for its refusal to grant approval in two recent cases involving proposed rights issue and share subdivision respectively; and the joint statement in January 2017 regarding price volatility of stocks listed on the Growth Enterprise Market (“GEM”) to address concerns about GEM IPO placing.