Call for HK to ensure autonomy

HONGKONG should develop its own financial regulatory system and regulators to allow it to better ensure its financial autonomy after 1997, says Hongkong Bank executive director Paul Selway-Swift.

Delivering a speech on Hongkong's regulatory framework after 1997, Mr Selway-Swift said that to realise the territory's financial autonomy, as outlined in the Joint Declaration, Hongkong needed to develop a responsive regulatory system.

''If we continue to develop our own responsive system in Hongkong, those regulating it are likely to be left alone to get their job done,''he said.

He doubted that China would meddle in Hongkong's financial regulatory system ''both for practical and for the policy reasons agreed within the Joint Declaration''.

The regulatory framework to be developed should be reliable and unique to Hongkong.

''It is time to say goodbye to London. For years what was good for London, and what worked in London, was considered equally good for Hongkong,'' he said.

Hongkong should devise its own rules according to its circumstances, taking into account its trade and financial links with China.

He praised the new law giving small depositors preferential status in recovering deposits in times of bank failures as a good example of flexible ''made in Hongkong'' policy.

The new law is a response to the collapse of the Bank of Credit and Commerce (BCC) two years ago. After the BCC debacle, the Government started a consultation process on how best to protect depositors when banks fail.

Mr Selway-Swift said the way regulators handled overseas companies seeking to list in Hongkong by buying small locally listed companies - so-called back-door listings - was another manifestation of creative thinking to suit the changing environment.

The approach so developed should be based on free-market roots and attuned to international standards.

''We need to retain a regulatory approach that is clearly pro-market,'' he said.

Hongkong also should train its own regulators, he said.

''We cannot rely forever on imported administrators from elsewhere to oversee it, no matter how good-willed they are,'' he said.

He said the Monetary Authority had taken steps in this direction.

Among the regulatory issues that needed to be handled, he said, was insider trading - ''still regarded as a problem in Hongkong, as are the standards for financial reporting''.

In the banking sector there remained the problem of ''the failure by many banks to disclose inner reserves''.

But he said that sooner or later banks would move to follow the trend to disclose inner reserves.

Disclosure of off-balance-sheet activities also needed to be tackled, as did the proposed international rules on capital reserves for derivative products released by the Bank of International Settlement.

''There is a proposal that all banks dealing in certain market instruments should have special reserves to back up these instruments,'' he said.

However, the territory should not be dragged along by other central bankers, he said.

''Hongkong should be able to stand up on its own and be prepared to speak for itself. Of course, we can't go opposite to international trends, but we should see what suits us under our special situation.''