Hong Kong puts financial professionals to the test
A decade after licensing exams were introduced for the Hong Kong securities industry, even veterans of the sector are going back to class
Turn the clock back a few decades and the criterion for anyone entering the securities industry was to have an uncle or other relative working at a brokerage firm.
But those days are long gone. Today, even holders of doctoral degrees or experienced brokers and senior investment bankers from overseas cannot work in the sector before first passing the Hong Kong Securities and Investment Institute's licensing exam for securities and futures intermediaries.
Since the new licensing regime was introduced in 2003, 400,0000 people have sat the exams in the hope of qualifying to work as securities brokers, futures traders, corporate financial advisers and investment advisers. Hong Kong law requires all applicants to pass two general papers - one on the basic regulatory framework and the other on general product and market knowledge - before they can apply for a licence from the Securities and Futures Commission. Senior executives applying for a responsible officer licence also need to complete a specific regulatory paper.
Attendance for the exams goes up and down in line with the Hang Seng Index. Institute chairman Anthony Muh Yi-tong expected that only about 30,000 people would enrol for the licensing examination this year, on par with the past two years and down from the peak of more than 67,500 in 2008 after the Hang Seng Index hit a record high in late 2007. The institute came into being 15 years ago thanks to some seed funding from the SFC. It started out as the Hong Kong Securities Institute and was rebranded in September.
Muh said the rebranding reflected the broader nature of the institute. "The HKSI has been very successful in providing examinations and training for the financial sector over the past 15 years. By having a name that includes the investment sector, this is very timely and appropriate," he said.
The institute came into being just a few years after the commission. Muh said the stock market crash in 1987 brought in financial market reform and led to the establishment of the SFC in 1989 to ensure proper regulation of the market. The SFC recognised the importance of training for local financial professionals and helped facilitate the setting up of the institute.
"The concept was the HKSI could be a professional body serving the whole financial market, providing quality examinations and different training courses to market practitioners," Muh said.
Hong Kong's licensing exam system is in line with those of Britain, Canada, mainland China, Singapore and Taiwan, but the papers taken are different.
Muh said the exams and training helped improve the industry's professional standards.
"The recent financial crisis has shown that Hong Kong's financial regulations and professionals are of a high standard and could cope with the tough market conditions in 2008," he said.
Christopher Cheung Wah-fung, newly elected legislator for the financial services sector, is among the older generation of brokers that has watched the industry evolve over the years.
"When I joined the industry 41 years ago, I was only 19 and I joined a securities firm owned by my uncle," he said.
"There were no examinations, no training classes."
Cheung said the institute had introduced a more formal trading culture and professional standards for the industry.
Cheung, 60, takes classes run by the institute.
"Going back to the classroom is not easy at my age. But I consider it is very important for all brokers to learn more about the latest management and regulatory issues. The HKSI course is particularly good at updating you on the latest regulatory rules and regulations," he said.
There have been some complaints that the exams are a waste of time for experienced brokers. A Japanese broker, who did not want to be named, said he was a senior trader in Japan but still had to pass the exams before he could get a licence to work in the Hong Kong branch of his firm.
"I am coming here to trade and I have many years of experience. But now I can only sit in the office studying and preparing for the exam. It is a waste of my time," he said.
But Muh said that no matter how experienced overseas traders were, they still had to sit the Hong Kong tests. "This is necessary as local laws and regulations are very different from other markets," he said.
Other brokers said the papers were too tough, with the pass rate as low as 10 per cent in some years. Muh said the low success rate was due to the fact that some papers were set in a way that was too academic. The institute had since improved the exam papers to make them more practical, bringing the passing rate up to 55 per cent to 60 per cent, which Muh described as "in line with international standards".
Besides the exams, the SFC requires brokers to have three to five hours a year of further training per licence held.
Muh said senior financial professionals were keen to enrol in courses on regulations while younger people in the industry preferred practical training in such areas as derivatives and structured products.
"I have been in the financial industry for 25 years and one thing I learnt is that you should never stop learning," Muh said.
"Twenty-five years ago, structured products did not exist and now they are popular. I believe the institute is playing a role in keeping up to date everybody working in the markets about new developments and regulations."
