Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the "Asia's Financial Centre - Challenges and Opportunities" Conference organised by the Canadian Certified General Accountants Association of Hong Kong today (November 20) (English only):
Dr Kwok, Distinguished Guests, Ladies and Gentlemen,
I am most honoured to be invited by the Canadian Certified General Accountants Association of Hong Kong to address today's conference.
Investors and other financial market participants have clearly and overwhelmingly given Hong Kong their vote of confidence, as evidenced by the substantial progress made in Hong Kong's development as an international financial centre in recent years.
On the securities side, Hong Kong is among the world's most liquid markets. As at the end of September 2004, it was the 2nd largest market in Asia, after Japan, and the 8th largest in the world. Over 1 000 companies were listed in Hong Kong, with a total market capitalization of some $6,300 billion, a surge of about 50% over the end of June 1997. Since the listing of the first H-share 11 years ago, Hong Kong has also raised more than $860 billion for Mainland enterprises.
Good progress has also been made in the area of fund management. The Fund Management Activities Survey conducted by the Securities and Futures Commission (SFC) showed that as at the end of 2003, the total assets in the fund management business in Hong Kong amounted to $2,947 billion.
On the banking side, we have one of the highest concentrations of banking institutions in the world. As at the end of September 2004, we had 211 authorized institutions and 85 local representative offices. Over 70 of the world's top 100 banks had operation in Hong Kong.
Insurance sector is another fast growing area. As at the end of September 2004, there were 180 authorized insurers in Hong Kong. The insurance industry in Hong Kong has on average achieved an impressive annual double-digit growth for the past 10 years, with gross premium income in 2003 surging over the $100 billion mark. In 2000, the corresponding figure was just $64 billion.
Debt securities are rapidly catching up with the development of other sectors. Following the issue of a $6 billion bond programme that securitised the revenues of Government-owned toll tunnels and bridges in May this year, we successfully completed the first global bond offering of $20 billion in July. These transactions have been received enthusiastically by both international and local institutional and retail investors. Various investors have demonstrated their confidence in the future of Hong Kong by placing large subscriptions, as high as over US$300 million per order.
I strongly believe that this vote of confidence is well-cast and well-placed, prompted by Hong Kong's well-known strengths: a free and open market; free flow of capital and information; a level-playing field for all businesses; a simple and low tax regime; and world-class infrastructure. Added to these, an independent judiciary based on the rule of law; a clean and efficient government; and Hong Kong's comparative advantage as the most sophisticated and efficient platform for the world to do business with Mainland China, and vice versa.
Above all, this vote of confidence will not be secured without the concerted efforts made by us and all other relevant stakeholders on four key fronts -
(a) Upgrading corporate governance;
(b) Enhancing regulatory framework;
(c) Facilitating market development; and
(d) Modernizing financial infrastructure.
Upgrading Corporate Governance
Good corporate governance is of great importance in making Hong Kong a favourable choice for issuers to raise capital and for local and international investors to invest. In 2003, we, together with the SFC and Hong Kong Exchanges and Clearing Limited, reviewed the measures taken by various parties on the corporate governance front and drew up an Action Plan to identify priority areas, assign ownership and devise a timeframe for implementation. As a result of the concerted efforts made by relevant parties, substantial progress has been made on these measures.
For example, our Securities and Futures Ordinance was rolled out in April 2003 to move us firmly into a disclosure-based regime. In particular, the new Ordinance renders the filing and disclosure of false or misleading listing documents and materials a criminal offence. With enhanced powers under the Ordinance, SFC is now able to investigate corporate misconduct more effectively. We will introduce legislative amendments to give statutory backing to important listing requirements such as financial reporting and other periodic corporate disclosure, disclosure of price-sensitive information as well as shareholders' approval for certain notifiable transactions with a view to further enhancing the listing regime.
Empowerment of shareholders is indispensable in enhancing corporate governance. To strengthen our well-established common law system, underpinned by an independent Judiciary, against corporate misconduct, legislative amendments have been enacted to provide for statutory derivative action which can be taken on behalf of a company by a member of the company. Besides, the court would be empowered to award damages to shareholders of a company whose interests have been unfairly prejudiced.
Above all, corporate governance is very much a culture and we cannot legislate ethics. It hinges on the concerned efforts of all stakeholders, including the accounting profession, to foster a good corporate governance culture so as to promote the standard of corporate governance.
Enhancing Regulatory Regime
We are determined to maintain an effective regulatory regime, while at the same time, allows sufficient flexibility for the market to develop. Other than the implementation of the Securities and Futures Ordinance as I have mentioned earlier, another key initiative is the introduction of the new capital adequacy standards for banks issued by the Basel Committee on Banking Supervision. Indeed, Hong Kong is a forerunner in the introduction of the Basel Standards. On the insurance side, the Insurance Authority is conducting a consultancy study on the supervision of the assets held by long term insurers. Financial stability is another key element of a robust regulatory framework. To this end, our financial regulators such as the SFC and the Hong Kong Monetary Authority have been adopting a risk-based approach to strengthen supervision and enforcement. Furthermore, the planned introduction of the Deposit Protection Scheme in 2006 will contribute to the stability of our banking sector.
On the regulatory regime of accounting profession, which is of particular interest to you, our policy is to ensure that the regime is effective, transparent, in line with international developments and meets the needs of Hong Kong. In January, 2003, in response to my request, the then Hong Kong Society of Accountants, now named as the Hong Kong Institute of Certified Public Accountants (HKICPA), put forward proposals to reform the regulatory regime with the opening up of its Council and the Investigation and Disciplinary Panels. These proposals have been effected by the Professional Accountants (Amendment) Ordinance 2004. Among other things, more lay members are being appointed to these bodies to enhance their independence and transparency. Moreover, we are working together with relevant parties on two further proposals, one to establish an Independent Investigation Board to enhance the oversight of the public interest activities of auditors; and the other to set up a Financial Reporting Review Panel to enquire into the compliance of listed companies' financial statements with the relevant accounting standards and requirements.
Facilitating Market Development
On market development, in response to market demands, the Companies (Amendment) Ordinance 2004 was enacted in July this year to, among other things, simplify the prospectus regime. Furthermore, the SFC is now undertaking a review of the existing laws and procedures relating to public offers of securities with a view to putting in place a framework that provides the most efficient, competitive and fair environment for issuers and investors alike.
The Government and the concerned bodies would continue to actively promote Hong Kong as an international hub for financial services, encourage good quality enterprises, in particular those from the Mainland China, to list in Hong Kong and attract foreign investments to foster the growth of our financial market. Next week, I will lead a one hundred - strong delegation to attend a forum on management of insurance funds organized by my bureau in Beijing. The Forum aims to share our experience with the Mainland insurance industry on the management of insurance funds and to promote Hong Kong's strengths in serving as their platform for global investments. On the other hand, we are also working on legislative amendments to provide exemption for offshore funds from profits tax. These are just some of the examples of our market development efforts.
Upgrading the Financial Infrastructure
In parallel, a series of initiatives have been or are being undertaken to upgrade our market infrastructure. For example, the Clearing and Settlement Systems Ordinance was enacted earlier this year to provide statutory backing for the HKMA to oversee important clearing and settlement systems, as well as for protecting settlement finality of transactions effected through such systems. The new legislation also paves the way for the admission of the Hong Kong dollar into the Continuous Linked Settlement System, a global clearing and settlement system for cross-border foreign exchange transactions. We also aim to introduce legislative amendments in 2005 to enable the implementation of a scripless securities market.
Accountants and other stakeholders
No matter how sophisticated and comprehensive our financial system is, we have to recognize that an international financial centre like Hong Kong can only be built up through the collective and concerted efforts of relevant stakeholders running the system.
Accountants, in particular, play a crucial role in securing the vote of confidence for Hong Kong from investors all over the world. Investors depend on the integrity of the auditing profession. You are the guardians of the quality of financial data. Investors, creditors, regulators, all rely on the work of accountants in telling them whether the financial accounts give a "true and fair" view of a company and to sound the alarm bell if any irregularities are detected. An international financial centre like Hong Kong will continue to fare well only with the solid support of the provision of accurate, comprehensive, reliable and timely financial data. It would not go too far to regard accountants as one of the most important, if not the most important, professions in supporting Hong Kong's status as an international financial centre.
In upholding the professional standards of accountants, the relevant professional bodies play a very important role. I am pleased to note the concerted efforts made by the CGA Hong Kong in this regard, such as keeping its members abreast of the latest developments in the accountancy field, through means like the organization of seminars and publication of newsletters.
Apart from accountants, other stakeholders have their own part to play in securing the vote of confidence for Hong Kong. For example, financial intermediaries such as IPO sponsors and independent financial advisers play a quality controller (QC) role, who help ensure that only quality companies are allowed to enter into our stock exchange. The media is important in maintaining the confidence of investors in our market by ensuring a free-flow of information as well as market transparency.
To sum up, Hong Kong's strengths and, more importantly, the collective and concerted efforts made by our people, have reinforced our position as a major international financial centre, and the premier capital formation centre for the Mainland over the past few years. In the years ahead, while we envisage new challenges to come, I have full confidence in Hong Kong's strengths and our people.
Since its incorporation in 1999, CGA Hong Kong and its over 1 000 registered students and members show a strong commitment to enhancing the standards of the accounting profession, thereby contributing to the success of our financial market. We hope to continue to join hands with CGA Hong Kong together with other key market participants to build on Hong Kong's strengths, to adapt to changes and explore new opportunities amid all the challenges. Thank you.
Ends/Saturday, November 20, 2004