Citic Pacific

Regulators to face scrutiny

PUBLISHED : Thursday, 27 November, 2008, 12:00am
UPDATED : Thursday, 27 November, 2008, 12:00am

Lawmakers passed a motion yesterday to review the city's four major financial regulators to decide whether the government should improve them.

The move comes amid a chorus of complaints about regulatory oversight and overlapping in scandals related to sales of Lehman Brothers minibonds and Citic Pacific's foreign currency losses.

Civic Party councillor Ronny Tong Ka-wah, who tabled the motion, said the regulatory regime has not protected retail investors from complex financial products. 'The financial regulators have overlapping areas of responsibility between themselves. In the past 20 years, globally, regulators have tried to reform their regulatory frameworks', and Hong Kong should too, he said.

Mr Tong's motion passed by a show of hands. It calls for the government to consider improvements to the Monetary Authority, the Securities and Futures Commission, the Office of the Commissioner of Insurance and the Mandatory Provident Fund Schemes Authority.

Amendments added calls for the government to consider setting up a one-stop conflict resolution service for the financial sector, and to review whether Hong Kong should have four regulators with overlapping responsibilities and rely only on financial institutions to disclose the risks of complex financial products.

The amendments also frame the reforms as the result of complaints related to Lehman Brothers minibonds and Citic Pacific.

Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives, marketed as a proxy investment in well-known companies.

Citic Pacific, a Beijing-backed conglomerate, lost billions of dollars on soured foreign currency bets.

Financial sector legislator David Li Kwok-po opposed the motion. He said: 'It is far more important for the government to concern itself with the global regulatory environment.'

Rather than blaming the government, he said, 'the main culprit in this is the credit default swap market. Even today, there is no central clearing house'.

Julia Leung Fung-yee, undersecretary for financial services and the treasury, agreed the government should constantly review how best to operate. The regulators, she said, stressed communication, co-ordination and collaboration. 'However, the Lehman minibonds incident shows that we need to review how better to reach the goal of protecting investors.'