Hong Kong's 'largely ineffective' financial regulatory framework led to blunders that cost investors billions of dollars during the Lehman Brothers fiasco in 2008, a Legislative Council report has found.
The report said the fact that the Hong Kong Monetary Authority and the Securities and Futures Commission were separate entities prevented them from adequately responding to irregularities in Lehman's minibonds and structured financial products.
The report also said former HKMA chief Joseph Yam Chi-kwong should bear 'ultimate responsibility' for investors' losses, as he was chief of the banking watchdog at the time.
The HKMA regulates banks' securities businesses, while the SFC regulates brokers and approves financial products. But in this case, neither body acted to prevent the selling of high-risk products by local banks to ordinary investors.
The SFC should become the single regulator, instead of the current split model, said the report by a subcommittee investigating problems arising from the Lehman debacle.
'The securities business of banks being regulated by both HKMA and SFC [is] largely ineffective. The [city] administration and the regulators should examine the feasibility of placing the securities business conducted by banks under the regulation of SFC,' the report said.