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Following is the speech by the Permanent Secretary for Financial Services and the Treasury (Financial Services), Miss Au King-chi, at the ACCA Annual Conference 2014 this morning (May 10):
Mr (Martin) Turner, Mr (Roy) Tsang, distinguished guests, ladies and gentlemen,
Good morning. I'm delighted to join you at this year's ACCA Annual Conference. A warm welcome to Hong Kong to our friends from around the world. This year marks the 110th Anniversary of the founding of the London Association of Accountants, a forerunner of the ACCA. The rest, as they say, is history.
Today, our sights are set firmly on the future of the accounting profession. Based on the topics of the various sessions today and tomorrow, you have rightly acknowledged that the future of the profession is closely entwined with that of the financial services sector. Here in Hong Kong, the financial services industry contributes to about 16 per cent of our GDP. The accounting sector is an indispensable part of this rapidly growing industry. Users of financial statements rely heavily on the work of accountants. From establishing a proper financial reporting system to setting up a sound internal control system in a company, accounting professionals provide a valuable service. We also depend on auditors to promote good corporate governance of companies by providing an independent view on the truthfulness and fairness of financial statements. This is important for shareholders and other stakeholders to get an informed view on the company's operation. In recent years, certified public accountants (CPAs) have also been taking on more versatile roles in the financial and business world. In addition to accounting, auditing and tax issues, CPAs have gone on to succeed in other fields, such as corporate finance, banking and corporate restructuring, just to name a few. The modern accountant, as I understand it, is more than being able to master figures and accounts, and many of you, particularly those who specialise in computer auditing or forensic accounting, are also experts in IT in their own right - which perhaps makes the focus of this year's conference on innovation particularly apt. In your many different capacities, CPAs play an instrumental role in contributing to the vibrant development of the financial services industry in Hong Kong.
Mainland opportunities and offshore Renminbi business in Hong Kong
CPAs are ideally placed to seize the many opportunities offered by the rapid development of the financial services industry. One such opportunity stems from Hong Kong's position as a leading centre for offshore Renminbi (RMB) business, which is explicitly endorsed by the Central Government in the National 12th Five-Year Plan. In support of the development needs of our country, we spare no effort in developing our offshore RMB market. Through trade settlement, capital raising and other investment channels, we have anchored the largest RMB liquidity pool of more than RMB 1 trillion, accounting for 70 per cent of the global offshore pool of RMB liquidity. This in turn supports a wide range of RMB investment and financial activities, and generates new business opportunities for the accounting profession through the many services you provide to corporates and financial institutions.
There is, however, no room for complacency. Going forward, we shall keep upgrading our RMB market infrastructure to meet the evolving need of users, in order to stay ahead of other RMB platforms. We shall continue to develop our RMB business links with overseas financial centres, with a view to strengthening our wholesale platform in the global market. We shall also continue our efforts with the Mainland authorities to promote the two-way flow of capital and investment products between the Mainland and Hong Kong, which will in turn facilitate the internationalisation of RMB and broaden and deepen our market. A major breakthrough in this regard is the Shanghai-Hong Kong Stock Connect initiative announced by Premier Li Keqiang in April. This pilot programme will allow Mainland investors to trade for the first time 266 stocks listed on the Stock Exchange of Hong Kong through the Shanghai Stock Exchange. These stocks represent 82 per cent of our market capitalisation. At the same time, the programme will allow local and overseas investors in Hong Kong to trade 568 stocks listed on the Shanghai Stock Exchange through the Stock Exchange of Hong Kong. These stocks account for 90 per cent of the Shanghai market capitalisation. Not only will it help strengthen the two securities markets, it will also have long-term and strategic significance to RMB as an investment currency, and eventually, a reserve currency, as the Mainland capital account becomes increasingly open and overseas investors enjoy greater access to Mainland investment platforms. We are well placed to facilitate this process and are joining force with the regulators and the exchanges in both places to ensure effective implementation of the Stock Connect initiative. We recognise the need for proper risk management to ensure a fair, orderly and open market.
Hong Kong's development as capital formation market
Besides being the premier offshore RMB business centre, Hong Kong is also a world leader in equity funding. For the last decade, Hong Kong has been among the top five global IPO listing markets. This has not only brought good business, and many sleepless nights, for those of you who are responsible for preparing reporting documents for IPOs, but has also generates good business for accounting professionals who provide a wide range of services for these newly-listed companies. In addition to IPOs, we have been capturing wealth management opportunities by attracting more funds of various types to base in Hong Kong to broaden the variety and scope of our fund business, and to facilitate portfolio allocation to the Asian markets. We are tasked to provide a facilitating environment for the industry to thrive and develop. To this end, we have recently concluded a number of major legislative reform initiatives to bring our financial services regimes in tune with latest international developments.
(a) New Companies Ordinance and trust law reform
For those of you who are CFOs or company secretaries, a major reform concluded, which I am sure all of you are aware of, is the commencement of the new Companies Ordinance in March 2014. Under the new Ordinance, incorporation of a company will be more convenient than ever with lower compliance costs, thereby facilitating business operation in Hong Kong. We have also reformed our trust law regime which bolsters the competitiveness of Hong Kong's trust services industry vis-ˆj-vis comparable jurisdictions and attract settlors to set up trusts in Hong Kong. In particular, the reformed regime enables settlors to establish perpetual trusts in Hong Kong, a measure not presently available in most major common law jurisdictions.
(b) A scripless stock market
In respect of the securities sector, we plan to introduce a bill into the Legislative Council by mid this year to provide investors with the option to hold and transfer legal ownership in securities without paper documents. This will help enhance the overall efficiency of our securities market, improve investor protection and maintain our market competitiveness.
(c) Open-ended fund companies
To further promote Hong Kong's development in the fund and asset management industry, we are consulting the public on the introduction of an open-ended fund company (OFC) structure to complement the existing unit trust structure. OFC creates a more flexible business environment for fund managers to meet market demand, which in turn could attract more mutual funds and private funds choosing to domicile in Hong Kong. For those of you who are tax professionals, this may sound appealing to your clients as under our proposal, the existing profits tax exemption to public funds will equally be applicable to publicly offered OFCs.
Improvement of regulatory framework
A robust financial regulatory framework which ensures market stability and investor protection is important in promoting healthy market development. Since the 2008 financial crisis, international regulatory organisations and other major economies have initiated various financial reforms, and it is necessary for Hong Kong to consider how best to refine our regulatory regimes in the light of these international developments as well as the specific circumstances of the local market. To be competent as an accountant or in your other capacities in the business and financial world, it is necessary to keep abreast of the latest regulatory requirements such that timely response can be made when they are put in place. Here I would highlight a few reform initiatives in the pipeline.
(a) Requirements of the Basel Committee on Banking Supervision
To strengthen the resilience of our banking system, we have implemented the first phase of the Basel III capital requirements and its relevant disclosure requirements last year. We aim at introducing the relevant legislation for implementing the liquidity and capital buffer requirements within this year. These measures aim at improving the banking sector's ability to absorb shocks arising from financial and economic stress, thus reducing the risk of spillover from the financial sector to the real economy.
(b) Independent Insurance Authority
Last month we introduced the Insurance Companies (Amendment) Bill into the Legislative Council. The bill provides a legal framework for establishing an independent Insurance Authority and a statutory licensing regime for insurance intermediaries. It is the most important regulatory reform for our insurance sector in the past 30 years, with the objectives to modernise the regulatory infrastructure of the insurance industry, better protection for policyholders and facilitate the sustainable development of the industry.
(c) Improvement of Corporate Insolvency Law
For those of you who specialise in insolvency practice, you may be aware that we have rolled out an exercise to improve the corporate insolvency laws to facilitate more efficient administration of the winding-up process and enhance creditor protection. We aim at introducing the proposed legislation into the Legislative Council next year.
(d) Resolution Regime for Financial Institutions
As a member of the global community, Hong Kong has attached great importance to refining our regulatory regimes in line with the G20 agenda. Jurisdictions worldwide are developing an effective resolution regime for financial institutions, with Hong Kong being no exception. An effective resolution regime will provide the authorities with powers to resolve non-viable financial institutions without severe systemic disruption whilst protecting taxpayers. We have just completed the first stage of public consultation on establishing an effective resolution regime for financial institutions in Hong Kong. In drawing up the details for the second stage of public consultation, we will continue to actively engage the accounting sector and welcome your further inputs.
(e) Reform of Regulatory Regime for Listed Entity Auditors
My presentation would not be complete without mentioning the reform initiative which is most relevant to the accounting profession - the reform of the regulatory regime for listed entity auditors. The international landscape has evolved since we last reformed the auditor regulatory regime. In 2004, we injected additional elements of independence into the governance structure of the Hong Kong Institute of Certified Public Accountants (HKICPA). In 2006, we introduced the Financial Reporting Council (FRC) with powers to initiate independent investigation of auditing irregularities. It has become the international standard for the oversight of the regulation of listed entity auditors to be independent of the profession itself.
Hong Kong must keep pace with the rest of the world. The question is how to strike a reasonable balance in the division of labour between HKICPA and FRC to bring our regime in line with international standards and minimise regulatory burden. To this end, we have been engaging the profession and other relevant stakeholders in developing proposals to enhance the independence of our auditor regulatory regime and make it more effective. We plan to launch a public consultation on the reform proposals soon. We will continue our close liaison with stakeholders in the process, and will listen carefully to their views on how to improve the regulatory regime. We look forward to your support to embrace changes, and strengthen Hong Kong's reputation as a world-class platform for international business and finances.
(f) Minimising the Burden for Compliance with Overseas Tax Law Requirements
This is not a reform measure as such. As an international financial centre, we must have regard to the global efforts in combating tax evasion. The most topical one is the US initiative of Foreign Account Tax Compliance Act (FATCA). Our financial services industry is very concerned with the effect of FATCA on their operations and cost. To address these concerns, we have just reached a Model 2 Intergovernmental Agreement in substance with the US yesterday. It would help minimise the reporting and withholding obligations by Hong Kong financial institutions through reporting exemption and simplified due diligence procedures. No doubt the accounting profession should stand ready to advise your clients how best to meet these FATCA requirements under the intergovernmental agreement. In light of overseas tax requirements, we will continue to work closely with the industry to protect the interest of our depositors, insurance policy holders, members of retirement schemes and other investors.
Concluding remarks
Ladies and gentlemen, I would commend our accountants on a job well done in upholding Hong Kong's status as a global financial hub in Asia. There is a high level of confidence and trust in local market participants. But we must not, and we will not, become complacent.
Innovation will be a focus of this conference. On this count, the financial services sector has been nothing short of innovative, for better or worse, in terms of the various financial products which it has come up with in recent years. As our financial markets grows in size and sophistication, we need to ensure that our regulatory framework will remain appropriate for the purpose of facilitating market development and ensuring sufficient protection for investors. We have no illusions about the challenges ahead, and you all have an important role to play in this regard. As "guardians" of good financial reporting, I would call upon you, elites of the accounting profession, to make use of your accounting and financial expertise to help maintain good corporate governance, which is the cornerstone of the development of our financial sector. With continued hard work, commitment and co-operation between the accounting profession and the Government, I have every confidence that we will be able to overcome the challenges ahead and maintain a remarkable set of financial statements for this great city we call home.
I wish the ACCA Annual Conference 2014 another great success, and our visitors a memorable stay in Hong Kong.
Thank you.
Ends/Saturday, May 10, 2014
Issued at HKT 11:07
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