Hong Kong's International Financial Centre: Retrospect and Prospect

Police Force and the Hong Kong Customs & Excise Department. 60
This basic structure was not
dissimilar to analogous structures across the British Commonwealth or the United States.
As the boundaries around different financial market segments were permitted to erode in
Hong Kong as well as elsewhere, the need for better coordination among these agencies became
apparent. In the face of exogenous shocks, it is no coincidence that the past decade featured one
policy experiment after another in establishing and adjusting various official ovrsight and
compensatory mechanisms. A Cross-Market Surveillance Committee, comprised of the FSTB,
HKMA, SFC, OCI, HKEx, and MPFA, was replaced in 2003 by two committees. The Council
of Financial Regulators (CFR), chaired by the Financial Secretary, was charged with
responsibility for overseeing ‘efficient’ markets in Hong Kong and promoting their development.
Although the CFR was also to be mindful of the need to maintain market stability, a separate
Financial Stability Committee (FSC) led by the Secretary of the FSTB was assigned primary
responsibility for the stable functioning of the system overall and of coordinating responses to
systemic risks. In practice, this subsumed but did not replace the post-1993 assignment of the
key banking-market stability mandate to the HKMA. Now anchoring these regulatory and
supervisory missions in the private sector are an array of Memoranda of Understanding between
the relevant official agencies and the various industry SROs. For the biggest market segments,
the functional constituency system of the Legislative Council also aims to connect public and
private sector interests. Whether it succeeds or not, the complexity of the current system of
financial regulation and supervision at the executive level cannot be fully appreciated without
considering the evolving role of the legislature.
During every crisis since 1973, in Hong Kong and elsewhere among the world’s more
advanced and open jurisdictions, systems of financial regulation and supervision attracted
controversy and heightened scrutiny. Again, most governments, including the government of
Hong Kong, responded by acquiescing in the consolidation of local intermediaries and then by
subjecting those intermediaries to more extensive official oversight. Soon thereafter, they found
themselves facing increasing demands from those same intermediaries for ‘level’ playing fields
with their foreign and domestic competitors. Simultaneously, following crises that invariably
hurt some consumers of financial services, they could rarely ignore demands for protection from
the possibility that those same intermediaries would forget traditional fiduciary obligations.
With reference to the challenge of securing Hong Kong’s future as an IFC, let us deal with each
of these issues in turn.
Financial stability
Before the global crisis of 2008, external reviews of Hong Kong’s financial regulatory and
supervisory system underlined its adequacy but also its notable complexity. In its regular
surveillance reports, for example, the International Monetary Fund emphasized the need for an
improved division of responsibilities between the SFC and the HKEx (including perhaps taking
60 Arner, Hsu, and Da Roza, p. 2.
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