MESSAGE

         The Basic Law requires the Government of the Hong Kong Special Administrative Region to provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre. In this Policy Programme, we in Financial Services Bureau, the Monetary Authority, the Securities and Futures Commission, the Office of Commissioner of Insurance and Registrar of Occupational Retirement Schemes, the Official Receiver's Office, the Companies Registry, the Census and Statistics Department and the Mandatory Provident Fund Office set out how we intend to maintain and promote Hong Kong's role as a major centre of financial services, thereby implementing the relevant Articles of the Basic Law. We will do our best to carry out the commitments we have made locally and internationally and meet targets on time.






(Rafael S Y Hui)
Secretary for Financial Services


INTRODUCTION

         The Hong Kong Special Administrative Region (HKSAR) Government is committed to ensuring that it is open and fully accountable to the people of Hong Kong. Policies, aims and programmes must be clear to all so that the Government can be accountable for their delivery. With greater clarity of purpose and accessibility, the public can better assess our performance and help us improve our quality of service.

         The Policy Programmes, which underpin the Policy Address delivered by the Chief Executive in October 1997, explain the objectives and ongoing work of each Policy Bureau and its supporting departments, as well as Department of Justice, Office of the Judiciary Administrator, Independent Comission Against Corruption and the Administration Wing of the Chief Secretary for Administration's Office, and their proposed new commitments for the coming year. They are set out in three sections:



Objectives

         The Bureau's objective is to further the development of the Hong Kong Special Administrative Region as a major international financial centre. We seek to achieve this goal by providing an appropriate legal, regulatory and administrative framework:

         These commitments are part of the Government's wider effort to maintain the long-term prosperity of the Hong Kong Special Administrative Region.


Implementing the Basic Law

         The requirements of the relevant articles of the Basic Law, as listed at Annex, have been reflected in the Bureau's objectives.

         In particular, it is most important to maintain our status and reputation as an international financial centre and the stability of our financial and monetary systems. The Financial Services Bureau will continue to formulate policies to safeguard the free but orderly operation of financial markets, encourage the development of new financial products, and review and update relevant legislation to provide a fair and competitive environment for local and overseas investors.

         We are committed to maintaining the stability of the Hong Kong dollar under the linked exchange rate system, which is a cornerstone of financial stability in Hong Kong.

         In maintaining Hong Kong's status as an international financial centre, the Special Administrative Region Government will participate in relevant international organisations in accordance with the Basic Law, and will conclude and implement agreements in the financial and monetary fields.


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Major Programme Areas

         The Financial Services Bureau is responsible for seven major programme areas:

  1. The Banking Sector;

  2. The Securities, Futures and Debt Markets;

  3. Mandatory Provident Fund Schemes;

  4. Insurance Companies and Occupational Retirement Schemes;

  5. The Business Environment;

  6. Economic Analysis and Statistics; and

  7. Financial Infrastructure.



A. The Banking Sector


Aims

         The aims of the Bureau are:


Overview

         The past twelve months was a fruitful period for the banking and monetary sector of Hong Kong. VIPs from the international financial community, including hundreds of Finance Ministers and central bankers came to Hong Kong to participate in the 1997 World Bank/International Monetary Fund Annual Meetings held in September 1997. The total number of participants reached a record high of 17 000. The tremendous success of the event has boosted international confidence in Hong Kong and underlined our status as an international financial centre.

         The following achievements have enhanced Hong Kong's banking and monetary stability and transparency:


Key Indicators


New Commitments

  1. We will explore means to reduce the massive fund flow related to Initial Public Offer share subscription in 1998.

  2. We will introduce measures to reduce the pressure on credit expansion of the banking system and on the payment system arising from heavily over-subscribed Initial Public Offer of securities on the Stock Exchange of Hong Kong.

  3. We will ensure our banking supervisory framework keeps pace with new international standards by:

    1. complying with the Basle Committee's Core Principles for Effective Banking Supervision; and

    2. implementing the market risk capital charge framework in line with the Basle Committee's recommendation with effect from 31 December 1997.

  4. We will ensure that authorised institutions' computer systems are Year 2000 compliant.

  5. We will study the impact of the development of electronic banking on the banking system and banking supervisory policies in 1998.

  6. We will collaborate with the Hong Kong Interbank Clearing Limited to enhance back-up facilities so as to minimise possible disruption to the payment system in 1998.

  7. We will reduce the settlement risk in foreign exchange transactions by pursuing the establishment of a Payment versus Payment (PvP) link between the local payment system and those in the Mainland, Australia and New Zealand.

  8. We will study the possibility of setting up a facility for joint clearing of Hong Kong dollar cheques between Hong Kong and other financial centres in the Mainland such as Shenzhen.



B. The Securities, Futures and Debt Markets


Aims

         The aims of the Bureau are:


Overview

         Hong Kong has become one of the largest stock markets in the world in terms of market capitalisation. In view of the growth of the securities market, the Stock Exchange has started to upgrade its computer systems by phases to cope with the rapidly increasing turnover volume. It is also studying the feasibility and viability of a "Venture" Board in Hong Kong to help small and medium size enterprises raise capital.

         In order to further enhance the competitiveness of Hong Kong's market, we are discussing with the relevant parties with a view to bringing down further the overall transaction costs for securities trading.

         The Hong Kong Futures Exchange is continuing to equip itself to become a regional derivatives centre. The Hang Seng Index Futures and Options continued their growth trend and each registered their record turnover in 1996. An electronic trading system is up and running which can facilitate further launching of new products. The trading of the Hong Kong Interbank Offer Rate (HIBOR) futures contracts has migrated from the outcry system to the Automatic Trading System in September. The Hong Kong Futures Exchange has also linked up with the Philadelphia Stock Exchange and the New York Mercantile Exchange to enable their currency options and commodities futures contracts to be traded in Hong Kong during Asian business hours.

         Hong Kong continues to be the leading fund management centre in Asia. Business in the unit trust industry remained buoyant, with gross sales amounting to US$4.5 billion in 1996, a 45% increase compared with US$3.1 billion in 1995. It is estimated that a total amount of US$97.5 billion is being managed in Hong Kong.

         The Hong Kong Monetary Authority has established a benchmark yield curve for Hong Kong dollar debt up to the ten-year area, which has greatly facilitated the pricing of private sector debt issues. Measures have been taken to encourage the supply of high quality private sector papers to foster the development of the local debt market.


Key Indicators

         As at July 1997,


New Commitments

         In 1998,

  1. We will support the Securities and Futures Commission and the two Exchanges to establish an Investor Resources Centre to enhance investor education.

  2. We will pursue the concept of "Asia Clear" to facilitate debt settlements across countries in the region by establishing bilateral linkages connecting Hong Kong's Central Moneymarkets Unit with corresponding central securities depositories of a number of central banks in the region.

  3. We will collaborate with the Hong Kong Capital Markets Association to develop a securities lending programme to enhance the settlement efficiency and secondary market liquidity of Hong Kong dollar denominated debt securities.

  4. We will conduct a detailed study on measures to enhance the competitiveness of Hong Kong as a funding centre for mainland enterprises.

  5. We will explore the feasibility of introducing Delivery versus Payment for share transactions.



C. Mandatory Provident Fund Schemes


Aims

         The aims of the Bureau are:

in order to provide the Hong Kong working population with a viable and sustainable retirement benefits system.


Overview

         All key elements of the MPF System have been examined by a Sub-Committee of the Legislative Council in the last legislative session. A comprehensive set of draft legislation will be submitted for formal legislative enactment in the current legislative session. In parallel with the legislative exercise, we are developing guidance notes for service providers and internal operational manuals to facilitate the implementation of the MPF System.


Key Indicators

         In the second quarter of 1997,

         The MPF System is expected:


New Commitments

         As soon as the relevant legislation is enacted,

  1. We will take steps to establish the MPF Authority.

  2. We will promulgate guidance notes for service providers to ensure effective implementation of the MPF System.

  3. We will launch public education and publicity programmes to enhance employers' and employees' awareness of their rights and obligations under the MPF System.



D. Insurance Companies and Occupational Retirement Schemes


Aims

         The aims of the Bureau are:


Overview

         Hong Kong is a leading international insurance centre in this region. Besides local investors, many international insurers and insurance intermediaries have been attracted to the Hong Kong insurance market. During the past decade, insurance business has grown both in size and sophistication. To facilitate further growth and to maintain an adequate level of protection to policy holders, we will continue to review our regulatory regime to ensure that it responds effectively to market developments and measures up to international standards. We are also actively promoting reinsurance and captive insurance business in Hong Kong. In this connection, regulatory incentives for the establishment of captive insurance operations in Hong Kong have been introduced.

         Because of the increasing awareness of the importance of retirement protection in Hong Kong, we will continue to monitor all registered voluntary occupational retirement schemes to ensure that retirement benefits are paid when become due. We are also reviewing constantly the regulatory system to ensure its efficiency and cost-effectiveness. During 1996-97, two new rules have been introduced to strengthen the reporting system. On the other hand, we are working out the arrangements on the interface of voluntary occupational retirement schemes and the mandatory provident fund schemes which are expected to be in place in the next year or so.

         We have started to liaise with other government departments, relevant industry members and tertiary education institutions for the purposes of launching publicity campaigns to promote reinsurance and captive insurance business and upgrading the quality of insurance education in Hong Kong.


Key Indicators


New Commitments

  1. We will regulate Mandatory Provident Fund Scheme businesses operated by authorised insurers so as to protect the interests of employees covered by such schemes.

  2. In 1998, we will encourage the insurance industry to strengthen the self-regulatory measures such as the development of an illustration standard for non-investment-linked life insurance policies to enhance the level of information provided in the proposal documents so as to enable policy holders to make better informed choices.

  3. In 1998, we will review and update the forms for application for authorisation to carry on insurance business in Hong Kong with a view to enhancing the level of information for the proper assessment of the application.

  4. We will ensure that the computer systems of all insurers and insurance brokers are Year 2000 compliant by the year 1998.



  5. E. The Business Environment


    Aims

             The aims of the Bureau are:


    Overview

             The Companies Registry provides the public with efficient, cost-effective and quality services to incorporate companies and to register and examine company documents. We have introduced 13 bilingual forms and documents can now be submitted to the Companies Registry in Chinese or English, or both. Other new services included the electronic signing of certificates of incorporation, the downloading of the computerised company names and document indices to a CD-ROM product, and a fax ordering service for company records. Our work to review and streamline the practices and procedures in conjunction with proposed legislative changes will continue. In addition, we have completed a comprehensive review of the Companies Ordinance. The Consultancy Report was released on 1 May 1997 for public consultation and the consultation period will last until the end of 1997.

             Despite the increase in workload of new court insolvencies by 10.4%, the Official Receiver's Office maintained its main targets set out in its performance pledges of adjudicating proofs of debts by creditors, paying dividends in appropriate cases, prosecuting insolvency offences and applying for disqualification of company directors. We are implementing a pilot scheme to further contract out summary liquidation cases which will enable more professional firms to accumulate practical experience in administering insolvencies. The final insolvency report of the Law Reform Commission is expected to be issued in late 1997. We will examine the proposals carefully with a view to updating the insolvency legislation where appropriate.

             We maintain close liaison with the Hong Kong Society of Accountants and other business associations to maximise co-operation between the business sector and the Government. We aim to encourage high standards of self-regulation in the business sector and to promote improved standards of corporate governance.


    Key Indicators

             In 1996-97,


    New Commitments

    1. We aim to introduce remote, on-line access to key information on companies, thereby obviating the need for users to visit the Companies Registry in 1998.

    2. We will implement new procedures for individual voluntary arrangements by debtors and automatic discharge of bankruptcy when the Bankruptcy (Amendment) Ordinance 1996 and the subsidiary legislation are brought into operation.

    3. We will commence a feasibility study to enhance and modify the management information system in the Official Receiver's Office to meet increasing operational needs and to introduce a bilingual public search facility in 1998.



    F. Economic Analysis and Statistics


    Aims

             The Bureau aims:


    Overview

             The Census and Statistics Department conducts statistical surveys and operates statistical systems for the production of population, social and economic statistics. They help guide planning, research, policy making and business decisions within the government and in the community. Emphasis is given to the application of technically sound methods and the adoption of international standards and practices. In so doing, the Department ensures that the public has confidence in the quality and reliability of government statistics.

             The Economic Analysis Division continuously monitors the performance of the economy, produces regular economic reports, provides forecasts, and carries out analysis on a wide range of policies and issues with implications for the economy.

             Various means are used to aid public access to government statistics. For statistics of common interest, press releases are issued to the mass media. Integrity of Government's statistics is enhanced through releasing statistics to the public on pre-scheduled dates. Detailed data are available in publications, and through electronic media such as microfiches, computer diskettes and the Internet. The Census and Statistics Department stands ready to answer public enquiries and offer assistance in accessing and interpreting government statistics.


    Key Indicators

             In 1996-97,


    New Commitments

    1. Hong Kong is committed to complying with the Special Data Dissemination Standards (SDDS) recently established by the International Monetary Fund (IMF), which is a guide to economies around the world in the provision of economic and financial data to the local and the international community. It is essential for Hong Kong to comply with the SDDS so as to uphold its image as a major international financial centre. Only those economies that comply with the standard can be listed on IMF's electronic Dissemination Standard Bulletin Board.

      Hong Kong's official statistics already meet the requirements of the SDDS in respect of access by the public, integrity of the disseminated data and quality of the data. In respect of coverage, periodicity and timeliness, there are a number of areas in which the statistics fall short. We therefore plan to establish a new statistical system to compile a complete Balance of Payments account and to enhance certain existing statistical systems to improve the timeliness of various economic indicators, in order to fully comply with the SDDS by the end of 1998.

    2. Concurrently, in support of the Government's initiative to promote the services sector, statistical systems related to this area are being enhanced.



    G. Financial Infrastructure


    Aims

             The aims of the Bureau are:


    Overview

             In the past few decades, Hong Kong has made considerable advances in the financial services sector, but we cannot be complacent. To cope with keen competition from other East Asian economies, to maintain our status as an international financial centre and to keep our position as the principal centre for fund-raising and investments for mainland enterprises, we need to further improve our competitiveness.


    New Commitments

    1. In the last quarter of 1997, we will engage consultants to examine ways to enhance the financial infrastructure by integrating and upgrading the systems of various exchanges and clearing systems to improve system security and efficiency. They will be tasked to ensure that, at a later stage, this system could link up the banking, securities and futures trading systems to facilitate straight through processing of transactions.

    2. In the last quarter of 1997, we will commence a study on the necessity and feasibility of establishing a Financial Services Institute to provide personnel of the right calibre, equipped with appropriate training to meet the needs of Hong Kong and enhance the standard of quality and professionalism in financial services. The relevant bodies in the financial services sector will be consulted on the most appropriate way forward.

    3. We are planning to house all major financial institutions under one roof in the future Hong Kong International Financial Centre, which will be strategically located at the Central Waterfront. Needs of the major financial institutions will be examined in detail and a project plan will be prepared.


    Back to INTRODUCTION


    Into the 21st Century

             Hong Kong will continue to be an international financial centre in the world and a gateway to the Mainland. As an international and cosmopolitan city, Hong Kong will continue to play a pivotal role in the Asia-Pacific region.

             To secure this, we have to continue our efforts to enhance our competitive edge and maximise our special relationship with the Mainland. To this end, we will further strengthen our links with the Mainland's securities and futures markets and step up the development of new products in these two markets. We will also provide a suitable environment for fund-raising and financing activities for enterprises in the Mainland and Asia-Pacific countries.

             On top of its primary role of providing a fair and equitable retirement protection to our workforce, the development of the mandatory provident fund market will stimulate the banking, fund management and insurance sectors.

             We will continue to take an active role in promoting access for Hong Kong companies to the international market, particularly through such bodies as the World Trade Organisation and the Asia-Pacific Economic Co-operation. We will continue to attract providers of financial services and investors to Hong Kong through maintaining a level playing field.

             Last but not least, we will adhere to and uphold international standards in financial services and statistics to maintain our world-class reputation built up in the past.


    Back to INTRODUCTION


    Annex : Relevant Articles of the Basic Law


    Chapter V: Economy

    Section 1: Public Finance, Monetary Affairs, Trade, Industry and Commerce

    Article 109

             The Government of the Hong Kong Special Administrative Region shall provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre.

    Article 110

             The monetary and financial systems of the Hong Kong Special Administrative Region shall be prescribed by law.

             The Government of the Hong Kong Special Administrative Region shall, on its own, formulate monetary and financial policies, safeguard the free operation of financial business and financial markets, and regulate and supervise them in accordance with law.

    Article 111

             The Hong Kong dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate.

             The authority to issue Hong Kong currency shall be vested in the Government of the Hong Kong Special Administrative Region. The issue of Hong Kong currency must be backed by a 100 percent reserve fund. The system regarding the issue of Hong Kong currency and the reserve fund system shall be prescribed by law.

             The Government of the Hong Kong Special Administrative Region may authorize designated banks to issue or continue to issue Hong Kong currency under statutory authority, after satisfying itself that any issue of currency will be soundly based and that the arrangements for such issue are consistent with the object of maintaining the stability of the currency.

    Article 112

             No foreign exchange control policies shall be applied in the Hong Kong Special Administrative Region. The Hong Kong dollar shall be freely convertible. Markets for foreign exchange, gold, securities, futures and the like shall continue.

             The Government of the Hong Kong Special Administrative Region shall safeguard the free flow of capital within, into and out of the Region.

    Article 113

             The Exchange Fund of the Hong Kong Special Administrative Region shall be managed and controlled by the government of the Region, primarily for regulating the exchange value of the Hong Kong dollar.


    Note

             In addition, all Bureaux/Departments, as well as Department of Justice, Office of the Judiciary Administrator, Independent Commission Against Corruption and the Administration Wing of the Chief Secretary for Administrations's Office, have joint responsibility for the implementation of the following articles:

    Articles 11 (first paragraph), 16, 56 (second paragraph), 62(1) and (2), 64, 142, 148, 149, 150, 151, 152 and 153.


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    Policy Programme