Why Alexa Lam is the perfect choice for job of chief at SFC

PUBLISHED : Saturday, 11 December, 2010, 12:00am
UPDATED : Saturday, 11 December, 2010, 12:00am

'I will be surprised if Alexa Lam gets the job ... I am not sure that she has the necessary expertise across a broad range of financial services. There are probably better candidates outside the SFC ...'

Commentator David Webb, Cable TV

Irespect Webb's nose for crooks and fishy deals. However, I cannot agree with his prediction on the next Securities and Futures Commission chief executive.

At the risk of seeming cynical, I believe the factors that lead Webb to believe that Lam is not the best person for the role of CEO are the very factors that will count in her favour.

The incumbent, Martin Wheatley, may have impressed small investors, not to mention the media, who called him a 'tiger-fighting hero', but he certainly didn't impress those in power.

Government officials are tired of a 'disobedient' regulator who won't settle for a quick fix for Lehman Brothers, to stop the administration's popularity slumping and fend off Beijing's nagging.

Local brokers are tired of an aggressive regulator who won't turn a blind eye to the way they get business from mainland investors.

Mainland players are tired of a regulator who doesn't 'understand the Chinese way of doing things'. The chorus out there is loud and clear - We want a Chinese official who can talk to Beijing, doesn't ask 'awkward' questions, who 'has the interests of Hong Kong at heart and who is business-friendly'.

Lam, the commission's deputy chief executive officer, fits well. She is a local-born Chinese with more than a decade's regulatory experience. Her credentials are many.

First, she has been in charge of the commission's mainland relationship since 2008.

Sure, senior mainland regulators have been complaining about 'questions left unanswered for months by the commission', but the commission is busy. Besides, Lam's support for national policies is beyond question.

A good example is Beijing's push for Hong Kong to allow mainland firms to audit mainland companies listing in Hong Kong.

It is a key move by the Ministry of Finance to internationalise its accountancy firms.

Everybody is behind that - the Hong Kong government, local accountancy groups, the stock exchange and a market consultation. The SFC has voiced no opposition.

The reform was about to happen last January. Yet at the very last minute, another SFC executive, director Mark Steward, hit the brakes. 'How can we leave investors' protection to mainland auditors, over whom we have no jurisdiction?' he asked.

It took an additional year and the efforts of other regulators to secure new safeguards from Beijing and solve the deadlock. A new deal was announced yesterday.

Some of you may ask why Lam did not ensure thorough discussion on such an important matter.

The problem lies with Steward, who has a propensity to ask the 'awkward' questions that others would prefer remained unasked.

I am sure Lam wouldn't allow anything like that if she was CEO.

Second, Lam has full confidence in her professional knowledge. That was fully displayed on September 16, 2008, the first trading day after the collapse of Lehman Brothers. Wheatley was out of town and Lam was acting chief executive. That morning, the SFC issued a restriction notice on Lehman Brother Securities Asia (LBSA) which barred it from settling its outstanding positions.

That made LBSA a defaulter and all of its open positions had to be promptly closed out through the clearing house of the Hong Kong Stock Exchange.

The exchange has handled similar crises in the past - the Barings collapse in 1995 springs to mind - but their approach has been very different.

They normally allowed the company in trouble a day or two to settle its positions, or an advance meeting was called with key players to square out the positions before the market opened.

Exchange officials said the SFC's move increased systemic risk in the market. They said no regulator had ever done anything like that.

They said LBSA's open position totalled billions of dollars and a prompt close-out risked market chaos, significant financial loss to the central clearing house and to the investor compensation fund. The then HKEX chief, Paul Chow, called Lam. She stood by her decision. Phones were slammed down.

As the commission later explained, the market was in chaos and it would take no chances. That's right. The exchange ended up with a 'bearable' impairment loss of $155 million.

Third, Lam has displayed masterly political skills. Former SFC chairman Andrew Sheng hired Lam, a university law lecturer, as his special adviser in 1998.

Sheng left in 2005 after a series of controversies, including an internal investigation that found no case to answer over complaints of him hiring unqualified friends. Lam was unaffected.

Her knowledge of the commission has won her various friends. Among them are SFC chairman Fong Ching and Permanent Secretary for Financial Services and the Treasury Au King-chi. She became the number two in 2008.

Her second challenge came later that year when Lehman Brothers went bust, turning billions of dollars worth of its minibonds into trash.

Lam, who oversaw the investment product division that approved those minibonds, might have been expected to draw criticism for that reason. She did not. She managed to stay above the fray and avoid most of the hearings in the Legislative Council, while Wheatley, in contrast, had his effigy burned by angry investors.

In March last year, she was even awarded a 22 per cent pay rise, while senior managers got 4.2 per cent.

Lam refuses to be drawn on whether she will take the throne at the SFC.

'The government has said it will conduct an open recruitment globally for a successor. I believe an announcement will be made in due course when that process is completed,' she said in a statement issued through the SFC media section.

Anyway, let's not be misled by non-Chinese like Webb. We know what's best for Hong Kong, right?