SFC proposals worry banks

Banks yesterday questioned proposals unveiled by the Securities and Futures Commission (SFC) to review and possibly scrap their exempt dealer status, warning that it would create an unnecessarily cumbersome regulatory regime. Chiefs of Hongkong Bank and its offshoot Hang Seng Bank doubted whether the SFC's inclusion in its draft Securities and Futures Bill of a provision narrowing the scope of the exemption on banks was appropriate. In its consultation paper on the bill issued on Tuesday, the commission suggested that 'mainstream securities dealing activities of exempt persons, particularly banks, should no longer continue to enjoy exemption from regulation by the SFC'. Hongkong Bank general manager Chris Langley said: 'My question is: Is it appropriate [to scrap banks' exempt dealer status] and what effect will it have on banks' business?' Although SFC chairman Anthony Neoh stressed that the Hong Kong Association of Banks, an influential industry body, had agreed to the review after consultations in 1990, Mr Langley disputed that the banking industry supported the move. 'It is not a foregone conclusion,' he said. 'The issue is whether we should report to different regulators on the different types of businesses we do.' He said regulators should have more dialogue among themselves to sort out supervision of banks that offer varieties of financial services. He said the crux of the debate was the role of banks in the securities industry compared to stock brokers. 'A bank is a bank and a broker is a broker,' he said. 'I am saying they don't play the same role.' Hang Seng Bank chief executive Alexander Au agreed. 'There is already a good regulatory system under the Hong Kong Monetary Authority,' he said. 'Why add one more layer of supervision?' Sharp differences emerged yesterday over the treatment of the stock exchange monopoly in the proposed bill, which aims to consolidate eight existing securities and futures ordinances into one regulatory regime. Brokers said it went too far while one senior corporate financier expressed disappointment that it fell short. Brokers, lawyers and fund managers are all to be briefed by the SFC as part of the consultation process. Despite six arguments against and only three in favour, the bill proposes to maintain the stock exchange's monopoly. Hong Kong Stock Brokers' Association chairman Cheung Tin-san said he was concerned that the draft bill would hurt the monopoly. The bill also proposes empowering the SFC to regulate screen-based trading systems. 'This will reduce the monopoly status of the exchange,' Mr Cheung said. He suggested that to better monitor offshore trading activities both the SFC and the exchange should liaise with the Hong Kong Securities Clearing Company, which would have the key information of the trading activities. 'I don't see how the SFC on its own can do much about off-shore trading.' Stephen Clarke, director of Anglo-Chinese Corporate Finance and a former member of the Takeovers and Mergers Panel, disagreed. 'They are retaining the monopoly and there is absolutely no justification for that,' he said. 'Why should Hongkong Telecommunications be inconvenienced with monopolies legislation when it provides a good service and not the stock exchange, which in some areas does not?' Mr Clarke said an element of competition was badly needed in order to make the exchange serve its customers. 'It is to do with attitude of mind,' he said. 'For instance, the exchange never would have introduced the profit record requirements if it were not a monopoly.' Mr Clarke suggested that the threat of removing the monopoly should be held over the exchange to encourage it to find more customers. A member of the Law Society committee said: 'As far as legal changes go, this is not the biggest deal in the world. 'It is eliminating a few known flaws in legislation but really it is just a rationalisation and consolidation.' He predicted there would be an awkward jump to the new Securities and Futures Bill. 'Initially it will be painful while people are getting familiarised with it,' he said. 'In the long run, it is a good idea.' The proposed changes would put investors at the heart of the SFC's role for the first time. 'We see safeguarding investors' interest as being very much our remit but existing legislation does not explicitly state this,' Mr Neoh said. 'So the opportunity is taken to state the point.' The inclusion of a clause stating the SFC's purpose was to ensure 'fair, efficient, competitive and informed' markets meant the SFC would be able to pressure listed companies on disclosure. 'The need for informed markets is self-evident and I do not need to expand on this save to say that as financial markets are, in the final analysis, markets of information, there cannot be fairness and efficiency without transparency,' Mr Neoh said.