LEGCO WORK

Motion on “Reform Regulators of Financial Industries and Products”(2008.11.26)

In this once-in-a-century financial tsunami, a lot of people have suffered enormous losses because they have bought Lehman and other related products. But I believe Honourable colleagues should have noticed that this crisis is actually imported and there are basically impacts from the United States, for there are a large number of derivatives produced in the United States and there is an enormous loophole in the United States mortgage system. Some of my friends who have returned from the United States have told me that, a few years ago, there were signboards outside many houses with the expression “no job, no credit, no problem” written on them, and they have ultimately created a very serious problem.

Moreover, the high-leverage operation of investment banks in the United States calls for a substantial reform. As we have observed, in various parts of the world such as Europe, the United States and Britain, the banks need capital injection by the local governments, and there is an astonishing black hole. The banks in Hong Kong certainly have significant problems in terms of the sale of Lehman products and the complaints made by those affected have revealed lots of problems; there is a need for urgent improvement.

But in contrast, the problems found in the banks in Hong Kong under our financial system are far fewer than those found in foreign countries, and the work of the HKMA in regulating banks is not easy at all. Similarly, the Office of the Commissioner of Insurance has made great efforts in supervising the insurance companies in Hong Kong. Nowadays, the stock and foreign exchange markets are very volatile, and the values of many shares have shrunk to only 10% of the original, but the insurance companies in Hong Kong have maintained normal operation, which is no easy feat at all. We all know that the AIG group ran into difficulties because its United States head office had problems, but it has absolutely nothing to do with the relevant company in Hong Kong. The assets of that company in Hong Kong far exceed its liabilities, and there is absolutely no problem with its financial strength.

Nevertheless, I still support the motion today and the various amendments mainly because this incident has huge impacts, which precisely demonstrated the problems of our financial system under pressure and the many areas where improvement is necessary. Thus, we really need to examine and improve the roles of various regulators.

The Lehman Brothers incident has brought losses to many people, and many of them have lost their lifelong savings. So, we must establish an effective mechanism for handling complaints and protecting depositors and the insured. This is extremely important because only a sound system can restore people’s confidence in the financial sector.

Yet, I wish to make a very important point. When we conduct a review, we should not think that the more layers of regulation the better because the more complicated the regulation, the higher the compliance cost, and this cost will eventually be shifted to consumers. Hence, when we carry out a reform, the focus is to consider how to achieve the most effective regulation under
globalization of the world economy, the globalized sale of financial products, aswell as the interconnection among the sale of products by banks and the securities and insurance sectors to best protect consumer interests. But it must be noted that we should not deprive consumers of their right to choose investment products on their own in the light of the risks they can bear because these are their basic rights.

Regulation may not necessarily be the best option. We must recognize that regulation must be efficient, and we must preserve the rights of consumers when we protect consumers. I think these directions are important.

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