Minimizing Risks For Investors
With Our Constantly Evolving Banking Regulatory System

In line with the international trend, the regulatory system of banking industry in Hong Kong has evolved and developed over the years. With the Hong Kong Monetary Authority (HKMA) being one of the principal regulators, they are responsible for regulation of the operation, practice and information disclosure of banks. As a matter of fact, the regulatory system of banks in Hong Kong has gone through three stages, namely compliance oriented, capital oriented and risk oriented.

In the late 1990’s, when Hong Kong’s role as an international financial centre was further established, the risk oriented regulatory structure was released in 1999 and put into effect by HKMA in 2001, to cope with the more complex operation and diversified products of banks. Comparing with the preceding structures that were geared towards compliance and capital considerations, the new structure was launched with an emphasis on risk identifying and management, with a special focus on banks operations and information transparency.

Financial centre status confirmed with better regulatory systems

The comprehensive and continually evolving regulatory system is apparently a major factor contributing to the success of Hong Kong in building ourselves up as an Asian financial centre. Professionals in the finance sector will certainly be inspired by learning about the development of the local banking regulatory system. A professional seminar “Banking Regulatory Development in Hong Kong” was therefore organised by HKU SPACE, inviting Mr Daniel Au, Vice President at Wells Fargo Bank N.A. to share his experience and insights.

Before joining Wells Fargo Bank N.A., Mr Daniel Au was the Country Anti-Money Laundering Compliance Officer at Deutsche Bank before. After graduating from Cambridge University, he qualified as a Chartered Accountant with Ernst &Young in London. His strong interest and specialization investment banking clients launched him into his next position in Credit Suisse, London, and subsequently the Global Risk Management Solutions Department of Pricewaterhouse Coopers Hong Kong, providing risk management advisory services to investment banks and financial institutions. He also worked as regional Vice President in JP Morgan Chase Bank and BNP Paribas Bank.

Mr Au said, “Let me give you a real-life example: after the bankruptcy of Lehman Brothers, everyone witnessed changes in the retail banking sales process, from a new set of legal compliance procedures to work-zones restructure in branch offices. This is a good example showing that banking regulatory policies are constantly being reformed to meet market needs.”

Protection Enhanced By Information Transparency

Mr Au also pointed out that the regulatory policies of HKMA maintained a high level of transparency at all times. For instance, we can easily find various circulars and guidelines on the website of HKMA. Mr Au then briefly described each of the new guidelines and their implications, in which finance professionals learned a lot about the philosophy behind those regulations and got a deeper understanding of their work ethics. It is quite a relief for investors and common users of banking services, to know more about the efforts made in up-keeping our safe and sound banking system.

 “To further protect investors, banks are required to offer clients with Pre-Investment Cooling-Off Period (PICOP) in retail products sales process. The practice, however, will be implemented with discretion according to the age group and trading experience of clients.” Mr Au explained. He also mentioned the Mystery Shopping Programme (MSP) will be carried out regularly, to monitor the everyday operation of retail selling of banks more closely.

Concluding the speech of Mr Au, the banking regulatory system is constantly under reform to ensure information transparency and thus more protection for investors. One important point is that these regulations and guidelines are only the minimum standard. Banks are encouraged to take a pro-active stand in information disclosure, so as to help build an even more open and fair environment in the 21st Century business world.