cep industry research group 2 hong kong financial regulation and supervision
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Introduction
Hong Kong financial regulations divided into two parts:
1. Banking (Hong Kong Monetary Authority) 2. Security (Security and Futures
Commission)
Focused on their functions, objectives and policies
Hong Kong Monetary Authority (HKMA)
Was established on 1st April 1993 Merged the Office of the Exchange Fund
and the Office of the Commissioner of Banking
Main responsibility: maintain the monetary and banking stability
Governed by the Exchange Fund Ordinance and the Banking Ordinance
HKMA’s Function
Keeping Hong Kong dollar stable Enable money to flow smoothly, freely and
without obstruction Promoting safety of Hong Kong’s banking
system Managing the Exchange Fund
HKMA – Related organizations
1. Exchange Fund Investment Limited (EFIL) Established in October 1998 A privated limited company Manage the Hang Seng Index stocks
acquired for the account of the Exchange Fund in August 1998
Manages the portfolio of Hong Kong equities
2. Hong Kong Institute for Monetary Research (HKIMR)
Formed in August 1999 Conduct the research of the monetary
policy, banking and finance On the issue about the monetary and
financial developments in Hong Kong and the region
3. Hong Kong Mortgage Corporation Limited (HKMC)
A public limited company Develop the secondary mortgage market Purchase of the mortgage loans for its
own portfolio Securitises mortgage into the Mortgage
Backed Securities
4. Hong Kong Note Printing Limited (HKNPL)
Prints all the banknotes of the Hong Kong’s currency for the three note-issuing banks
HKSAR mainly owns the company Prints about 320 million banknotes every
year
HKMA banking policy and supervision
1. Supervision Approach Promote the safety and stability Follows international practices
recommended by Basle Committee Based on a policy of continuous
supervision
2. Authorization of Authorized Institutions Ensure only fit and proper institutions are
entrusted with public deposits HKMA – authorization, suspension and
revocation of three types of authorized institutions
Overseas – a restricted license bank or deposit-taking company
3. Banking Ordinance Legal framework for banking supervision
in Hong Kong Maintain adequate liquidity and capital
adequacy ratios Submit periodic returns to HKMA
4. Three-tier Banking System Licensed banks, restricted licensed banks
and deposit-taking companies Highest concentrations of banking
institutions 75 of the largest banks in the world April 2002, 141 licensed banks, 48
restricted licensed banks and 48 deposit-taking companies
Securities and Future Commission (SFC)
Established 1989 An independent statutory body Consists of five executive directors and five non-
executive directors appointed by government Responsible for setting up the laws facilitate and encourage the markets development
Historical Background
After stock market crashed down between 1973 and 1974
HK government intervened and set up core legislation
Two Commissions administrated the legislationSecurities & commodities trading
Historical Background
The stock crisis in 1987 revealed the deficiencies of the regulatory structure.
Securities Review Committee was formed
A single statutory body must be formed Have powers to govern the markets
Regulatory Objectives
To maintain and promote the fairness, efficiency and transparency of the markets
To promote understanding by the public about the operation and functioning
To provide protection for members of the public investing in or holding financial products;
Regulatory Objectives
To minimize crime and misconduct To reduce systemic risks To assist the Financial Secretary in
maintaining the financial stability of Hong Kong.
Regulatory Structure
S e c u r i t i e s a n d F u t u r e s C o m m i s s i o n
S t o c kE x c h a n g e
o f H o n gK o n g
H o n gK o n g
F u t u r e sE x c h a n g e
• E x c h a n g em e m b e r s
• l i s t i n gm a t t e r s
E x c h a n g em e m b e r s
• f i n a n c i a li n t e r m e d i a r i e s
e x c e p t E x c h a n g em e m b e r s
• r e g u l a t i o n o fi n v e s t m e n t
p r o d u c t s o f f e r s
• t a k e o v e r s a n dm e r g e r s a c t i v i t y
• m a r k e tm a l p r a c t i c e
S E H KO p t i o n s
C l e a r i n gH o u s e
H KS e c u r i t i e s
C l e a r i n gC o m p a n y
H K F EC l e a r i n g
C o r p o r a t i o n
c l e a r i n gp a r t i c i p a n t s
c l e a r i n gp a r t i c i p a n t s
c l e a r i n gp a r t i c i p a n t s
Corporate Governance of SFC
regulatory reports to the Financial Secretary and Legislative Council Panel
Submits its annual estimates of income and expenditure to the Chief Executive
Monitored by the Process Review Panel (PRP)
PRP determines if the Commission is fair in handling investigations and making decisions
Responsibilities of SFC
Set up licensing requirements and approve licenses
Supervise licensed persons Issues codes and guidelines Handle complaints of misconduct of
registered person Investigate and take action against the
misconduct
Responsibilities of SFC
Regulates the performance of HKEx Approve the new market creation,
changes of its rules and regulations Monitor
HKEx’s compliance with the Listing rules trading of shares and options futures on the
markets Ensure functioning and developing of
trading, settlement and operational systems.
Responsibilities of SFCSFC regulates the listed companies in HK
Approve the changes of Listing rules Monitor share dealings Inspecting listed companies Supervise listing-related activities of
Stock Exchange of Hong Kong All the participants need to be regulated
--> prevent unusual market movements~END~
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