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FSDC Promotes Reforms For Hong Kong's Global Financial Role

by Mary Swire, Lowtax.net, Hong Kong
20 November, 2013

The Financial Services Development Council (FSDC), which was established by the Government in January 2013, has issued its first reports setting out recommendations for developing Hong Kong as an international financial center and fostering new business.

Its first report, entitled "Strengthening Hong Kong as a Leading Global International Financial Center," elaborates on the contribution of the finance industry to Hong Kong's economy as well as the industry's competitive edges and factors for sustainable development.

"Going forward," the report confirms, "Hong Kong faces new challenges. … Externally, the liberalization of the Mainland economy brings opportunities as well as competition, whereas rising Asian financial centers are catching up and may even overtake Hong Kong if we remain complacent."

It notes, therefore, that, "while Hong Kong's current position and strengths are widely recognized, its position as a leading first-tier international financial center in the future is not entirely secured. Many of the key financial centers of the world, including London, New York, Singapore, and Shanghai, have conducted strategic reviews to come up with initiatives aimed at remaining competitive and ahead of the game."

The FSDC believes that the overall strategy for Hong Kong's financial services should aim at Hong Kong becoming the preeminent international financial center based in Asia, and continuing to capture and dominate a larger share of Mainland-related trade, investment and financing.

Hong Kong should also strengthen its current position in the asset management and private banking sectors by developing more depth in areas other than equities, such as fixed income, foreign exchange (FX), commodities, corporate treasury, real estate investment trusts and risk management; and expand its reach beyond the Mainland and attract companies from different jurisdictions to list on Hong Kong's stock exchange (HKEx) and/or set up regional head offices in Hong Kong.

The FSDC's recommendations to advance the development of Hong Kong as an offshore RMB center are that its financial institutions should develop more RMB financial products to meet diversified market demand, and establish more effective benchmarks for pricing such products.

In this connection, it proposes that an RMB repo market should be developed in Hong Kong; HKEx should introduce RMB FX futures products for other major currencies, including EUR, JPY and AUD; and HKEx should launch futures contracts for precious metals (e.g. gold and silver), which are denominated and settled in RMB through the London Metal Exchange (LME) platform. Should conditions allow, these futures contracts should be extended to other industrial metals and energy items, while the LME should also establish a commodity futures clearing centre in Hong Kong.

The FSDC's chairman Laura Cha said that its recommendations spring from the Council members' and committees' months of deliberation, and draw extensively on industry experience and expertise. In fact, during the consultation last year on the proposal to set up the FSDC, financial services industry players offered concrete and specific views and suggestions on the future directions of its work.

The FSDC has also exchanged ideas with the Government and regulators when conducting research for the reports, laying the groundwork for future implementation.

Hong Kong's Chief Executive CY Leung welcomed the FSDC's reports by the Financial Services Development Council, and promised that the Government and the relevant regulators will carefully study the reports and follow up proactively.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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