Hong Kong needs financial reform to weather future financial crises and regain its lost lustre
Legislators' marginal tinkering has led to steady deterioration of city's status in world banking
Changes like the adoption of so-called “Twin Peaks” regulators, making the Financial Services Development Council a statutory body and integration with the Asean Capital Markets Forum could help Hong Kong weather future financial crises.
Since 2008, Hong Kong has remained one of the few jurisdictions to avoid large-scale changes in its financial regulation. In the US, UK, Australia and across the EU, governments have radically changed the way their financial regulators work. Judging by International Monetary Fund (IMF) and Financial Stability Board (FSB) studies, to these changes, their financial overhauls have made these countries more resilient and attractive places to park money.
As the Monetary Authority of Singapore engages in similar self-reflection, the time has come to think about an overhaul which is far more dramatic than the tinkering that Hong Kong legislators have done in recent years.
Hong Kong regulators have helped to guide minor amendments to the Banking Ordinance and the Securities and Futures Ordinance, and will overhaul the insurance regulator.
Yet, these reforms have only tinkered at the margins. Such marginal tinkering has resulted in Hong Kong’s steady deterioration as a financial centre. First, even by the Hong Kong the Hong Kong Institute for Monetary Research’s International Mining Association’s own admission, the city probably ranks closer to sixth place among financial centres – rather than third, as widely believed.
Second, Hong Kong’s real estate and securities markets look far more likely to lose a significant part of their value if local debt on the mainland blows up. Third, Hong Kong continues to slip vis-a-vis London and Singapore as a renminbi centre. London and New York (the largest financial centres) have not just refurbished shop; they’ve been rebuilding it from the ground up.
We know that a financial crisis will eventually happen on the mainland. Is Hong Kong ready to weather a mainland-origin storm?