Opinion | Proposed law to avoid bailout of financial firms hard to put into practice

A government-proposed change in the law to empower regulators to compel troubled financial firms to transfer their shares to another company would be hard to apply in practice.

The controversial proposal, unveiled in a consultation paper last week, comes as the government joins an international trend of reforms aimed at finding a better way to deal with giant financial firms at risk of failure.

In the aftermath of the 2008 financial crisis, many Western countries, such as the United States and Britain, used taxpayers’ money to rescue banks or financial firms.

The new proposal intends to avoid the need for the Hong Kong government to bail out troubled firms, giving financial regulators instead more power to solve the problem at an earlier stage.

Many Hong Kong legislators have shown their support for the proposed change. This is not a surprise, as many of their constituents are taxpayers.

But the big question is how the new law would work.

If lawmakers pass the bill next year, it would allow the Hong Kong Monetary Authority, the Securities and Futures Commission and the Insurance Authority to compulsorily transfer ownership of a failing financial institution to another financial firm so as to allow the bank, insurance company, broker or fund management company to continue operating.