LCQ3: Outflow of financial institutions and talents
It has been reported that the Hong Kong Investment Funds Association's survey has shown that over 30 per cent of its member companies have already started to transfer some or all of their businesses in Hong Kong to their offices in other regions, and one of the reasons for this is that anti-epidemic restrictions have not yet been removed in Hong Kong. Moreover, it is learnt that in September this year, the Securities and Futures Commission (SFC) requested financial institutions to recall their licensed representatives stationed overseas to Hong Kong, because prolonged absence of licensed individuals of investment companies and securities brokers from Hong Kong may pose risks to the daily operation of these institutions. In this connection, will the Government inform this Council:
(1) given that SFC has, in the light of the epidemic, allowed licensed corporations (LCs) to adopt temporary contingency measures to deploy licensed individuals to work in overseas offices for providing trading services to clients, but following the relaxation of the arrival quarantine arrangements, whether it knows if the temporary measures concerned have changed; if they remain unchanged for the time being, of the circumstances or factors on which SFC will depend to make an adjustment;
(2) whether it knows if SFC has, during the epidemic, grasped the numbers of LCs' licensed representatives and responsible officers stationed overseas; if it has, of the respective relevant numbers, and whether there is an obvious increasing trend in such numbers; and
(3) as it is learnt that some international asset management companies have already moved their company or regional headquarters to Singapore, of the progressive measures put in place by the Government to attract them to base in Hong Kong afresh?
In consultation with the Securities and Futures Commission (SFC), my response to the three parts of the question from the Hon Rock Chen is as follows.
(1) and (2) The Securities and Futures Ordinance (SFO) requires that there must be at least two responsible officers (ROs), one of whom must be available at all times to supervise a licensed corporation's business of carrying on a regulated activity. In view of the business nature, SFC generally expects that an exchange participant of the Stock Exchange of Hong Kong Limited or Hong Kong Futures Exchange Limited to have at least two ROs locally available at all times to directly supervise the brokerage business.
ROs are licensed individuals who are also approved as an RO under the SFO to supervise the regulated activity of the licensed corporation to which they are accredited. SFC will only grant licences to individuals if they carry on or will carry on regulated activities in Hong Kong on behalf of the licensed corporations to which they are accredited.
If all ROs are out of Hong Kong on a business trip or on leave, so long as the ROs can be contacted whenever necessary and proper internal controls are in place, the licensed corporation concerned is considered to be compliant with SFC's requirements. Nevertheless, this should only be regarded as an interim measure and the out-of-town period of the ROs should be reasonable for the proper discharge of their duties.
In view of the COVID-19 pandemic, SFC issued a set of Frequently Asked Questions in March 2020, which makes it clear that SFC allows intermediaries to adopt temporary contingency measures to deploy a licenced individual to work in an office outside Hong Kong to provide transaction services for clients. Licensed corporations are required to notify SFC of such arrangements.
According to SFC's statistics, the number of licensed individuals temporarily relocated outside Hong Kong has remained at less than 50, accounting for around 0.1 per cent of the total number of licensed individuals. Licensed corporations concerned have reported to SFC that the majority of these temporarily relocated ROs have returned to Hong Kong within three to six months.
Licensed corporations and individuals as well as market participants should make all reasonable efforts to maintain "business as usual" in respect of their regulatory obligations, regulatory filing, reporting and observing other deadlines. SFC will consider the specific circumstances of each case and continue to maintain communication with the industry in flexibly handling regulatory matters while upholding market integrity and protecting investors.
(3) The asset and wealth management business of Hong Kong amounted to $35.5 trillion as at end-2021, with 65 per cent of the funding sourced from non-Hong Kong investors. Hong Kong has the strengths as Asia's premier asset and wealth management hub.
The Government has made various efforts to enhance Hong Kong's competitiveness as a premier international asset and wealth management centre, including diversifying fund structures, providing a more facilitating tax environment, expanding the fund distribution network, promoting the real estate investment trust (REIT) market, and fostering the development of Hong Kong's family office business. These measures also help attract multinational corporations to set up corporate treasury centres in Hong Kong.
Since the introduction of the limited partnership fund (LPF) regime in August 2020, over 560 LPFs have been registered in Hong Kong. Foreign funds can also readily re-domicile to Hong Kong with the passage of the legislation concerned in September 2021. To further enhance the attractiveness of open-ended fund companies (OFCs) and REITs, subsidy is provided for OFCs set up or re-domiciled to Hong Kong and REITs authorised by SFC and listed in Hong Kong in the three years from May 2021. The subsidy covers 70 per cent of the expenses charged by local professional service providers. The maximum subsidy amount for each OFC is $1 million, and that for each REIT is $8 million.
To attract more family offices to set up and operate in Hong Kong, the Government will offer tax concessions for family-owned investment holding vehicles managed by single family offices in Hong Kong. The relevant amendment bill will be introduced into the Legislative Council for First Reading today (December 14).
Under "one country, two systems", Hong Kong has the distinctive advantages of enjoying strong support from the Motherland and being closely connected to the world. Hong Kong has direct access to the huge Mainland market as well as international connectivity. The development of Hong Kong's financial services industry has staunch support from the Central People's Government. The National 14th Five-Year Plan backs Hong Kong to enhance its status as an international financial centre; strengthen its status as a global offshore RMB business hub, an international asset management centre and a risk management centre; and deepen and widen mutual access between the financial markets of the Mainland and Hong Kong.
To achieve the objectives of the National 14th Five-Year Plan, the Government has implemented a series of measures to enhance Hong Kong's competitiveness in financial services and strengthen mutual capital market access between the Mainland and Hong Kong. The Government will continue to strengthen and leverage on Hong Kong's advantages to promote the development of the financial services sector of our Country and Hong Kong. Thank you President.
Ends/Wednesday, December 14, 2022
Issued at HKT 15:15
Issued at HKT 15:15