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Speech by PSFS at Spring Dinner of Hong Kong Confederation of Insurance Brokers (English only) (with photo)

     Following is the speech by the Permanent Secretary for Financial Services and the Treasury (Financial Services), Miss Au King-chi, at the Spring Dinner of the Hong Kong Confederation of Insurance Brokers today (February 11):

Patrick (Chairman of the Hong Kong Confederation of Insurance Brokers, Mr Patrick Chan), Kin-po (Legislative Council Member, Mr Chan Kin-po), ladies and gentlemen,

     Kung hei fat choy!

     It is my great pleasure to celebrate the Chinese New Year with you this evening. Horse is not only a symbol of speed and movement, but is also a sign of energy and leadership. According to experts in feng shui and Chinese astrology, the Year of the Horse is predicted to be a promising year.

     I don't have a crystal ball. Neither do I have any feng shui skills. But 2014 would likely be a year of happenings. And allow me to share with you some observations on the general economic trends.

     On the economic front, the US Fed has a new Governor and tapering has begun already, triggering global capital flows which have created shocks to emerging markets and fluctuations in currency exchange rates, especially where there are imbalances. We expect more volatility to come as the market speculates on the pace of tapering and movements in interest rates and asset prices. The Eurozone is generally expected to return to positive zone despite pockets of disinflation. This may expedite capital flows from emerging markets to developed markets. Mainland economy is maturing to a more balanced growth model with a predicted growth rate of at least 7 per cent in 2014. But this is tainted with concerns like local government debts, tightened liquidity and default risks of investment products. All these uncertainties should not affect the speed of Renminbi internationalisation. By and large, the market believes that the internationalisation process would gallop like a horse. As the Mainland financial sector is opening up to foreign investors in tandem with Renminbi internationalisation, we have to step up our efforts in sharpening our competitive edge in order to best leverage these opportunities to further deepen and broaden our financial markets.

     On the political front, there will be presidential election in Brazil and general election in India this year. Brazil and India are respectively the seventh and 11th largest economies in the world. The US Senate and House mid-term elections will be held in November together with the elections of governors in 36 states. The outcome of these mid-term elections could reshape the US political landscape and impact on its economic policies.

     Being an open economy and closely connected to the economic well-being of the Mainland, Hong Kong will be subject to any external shocks arising from the developments I have just mentioned. We have to stay vigilant to the stability of the financial sector in particular, and the economy in general. But, pardon me, I have to refrain myself from making any economic forecast as the Financial Secretary will deliver his Budget Speech on February 26. What I would like to highlight is that in September this year, the APEC Finance Ministers' Meeting will be held in Hong Kong. This event will again put Hong Kong under spotlight in the international financial arena, and provide a high-level platform for us to strengthen our bonds with other APEC economies.

     Back to the insurance sector, I note that there is an interesting industry survey called "Insurance Banana Skins". The survey received 662 responses from senior insurance practitioners and insurance companies of 54 countries. According to the survey in 2013, the insurance industry named "regulatory burden" as the top risk. The primary concern was the regulatory costs brought by the eventual implementation of the EU's Solvency II regime. As a word of comfort to insurance company executives here, although we are planning to adopt a Risk-based Capital Framework in Hong Kong, we are mindful of the need to minimise regulatory burden arising from any new requirements. The Government will continue to engage the insurance industry, and endeavour to strike a reasonable balance between facilitating market innovation on one hand and maintaining market stability and protecting our policyholders on the other. The Commissioner of Insurance plans to consult the industry on a preliminary framework later this year.

     Apart from regulatory burden, what is more striking about the survey result is that "business practices" was ranked the fourth top risk, right above "natural catastrophes". By "business practices", the industry was referring to slippage in business standards under pressure to achieve sales in sluggish market conditions despite closer regulatory scrutiny. It is indeed reassuring to learn that the insurance industry attaches importance to good business practices. On this note, I hope the establishment of an independent Insurance Authority will help focus the industry, policyholders, the Government and the community at large on what business standards we should expect from the insurance industry. For one thing, fairness has to be seen, credibility has to be earned, trust has to be cherished, transparency of business and regulatory practices has to be promoted. And after all, meeting customers' needs and serving their best interest are principles already endorsed internationally as a requirement in providing financial services. I am glad to note that there is increasing acceptance amongst leaders in the insurance industry for the inclusion of good business practices as a regulatory requirement under the new regime. Albeit that there are gaps to be bridged, I am sure through continued dialogue with the industry, we shall be able to find common grounds for the better protection of policyholders and industry reputation.

     Last but not least, as Patrick has reminded us in his speech, the Confederation was founded on this auspicious day 21 years ago. On this very special occasion, may I congratulate the Confederation on its 21st anniversary. As Patrick has reminded us, co-operation and support from the industry is instrumental in promoting good business practices among insurance brokers in Hong Kong.

     Ladies and gentlemen, the journey from a self-regulatory system to a statutory licensing regime for insurance intermediaries is long and demanding. We look forward to your continuous guidance and support in completing this journey for a more robust and prosperous insurance industry ready to reap the opportunities ahead. We will keep up our momentum and introduce the enabling legislation for establishing the independent Insurance Authority into the Legislative Council in the second quarter of this year.

     Once again, I wish you all a fabulous Year of the Horse, blessed with good health and lots of fortune.

     And happy birthday to the Confederation!

     Thank you.

Ends/Tuesday, February 11, 2014
Issued at HKT 21:22


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