Referring to slide 25 of the powerpoint, Mr CHAN Kin-por observed that there was a drop in investment income from bonds on a quarter-to-quarter basis in 2012 (i.e. -$2.9 billion in the first quarter of 2012, $22.7 billion in the second quarter, $10.8 billion in the third quarter and $2.5 billion in the fourth quarter). He expressed concern about the adverse impact on the bond investment if the current trend of low interest rate reversed. CE/HKMA said that the low interest rate environment had made it difficult to yield a high investment return from bonds, and the return of the Backing Portfolio in 2012 was some 0.4%. A rise in the interest rate would lead to a drop in the mark-to-market prices of the bonds. Taking the risk of an interest rate rise into consideration, HKMA had been prudent and careful in making investment with a view to securing a reasonable return for EF.
Mr CHAN Kin-por agreed to the need to set up FSDC for studying measures for the development of the local financial services industry. He pointed out that, after the Lehman Brothers incident, the regulators had tightened the regulatory regime, which had made it difficult for the industry to sustain their business. While FSDC was established as an advisory body, he believed that the role and work plan of FSDC could be reviewed and fine-tuned when appropriate and necessary.
Referring to the experience of Singapore, Mr CHAN Kin-por pointed out the importance to develop headquarters economy in enhancing the competitiveness of Hong Kong. He considered that attracting multinational companies to set up their regional headquarters in Hong Kong would give impetus to the economy by creating new business opportunities and supporting employment. The job training and career development made available by multinational companies would be valuable to the local workforce, in particular the younger generation, by enhancing their global or regional exposure. Mr CHAN considered that, to promote headquarters economy, tax concessions and other incentives to attract establishment of businesses should be introduced. In view of the long-term economic benefits, he considered it worthwhile to exercise some flexibility in the tax policy by granting short-term tax concessions to multinational companies intending to establish their regional headquarters in Hong Kong if their investment and job creations reached a certain threshold. Mr CHAN urged FSDC to study the matter and work out options for further discussion by the business sector. C/FSDC observed that the regional counterparts of Hong Kong were developing their financial services industry at a fast pace. In order not to lose out to the competitors, Hong Kong must continue to ride on its edges to enhance the scope and standard of its financial services. She assured members that FSDC members would be keen to explore the strategies for developing headquarters economy and come up with constructive recommendations.
Mr CHAN Kin-por noted that SFC requested a total of nine additional headcount for its Policy, China & Investment Product Division to meet regulatory challenges and increase in workload, including the increasing volume of Investment-Linked Assurance Schemes (“ILAS”) applications. Mr CHAN relayed the concerns from the insurance industry that the time taken by SFC in vetting ILAS applications was unduly long, i.e. about nine months to one year. He urged SFC to streamline and standardize the procedures where appropriate and strengthen the training of new staff to enhance their capability in processing the applications. He also suggested SFC to organize talks/seminars for the insurance industry on the approval requirements. CEO/SFC said that SFC had been exchanging views with HKIFA recently on these areas to enhance the efficiency of processing ILAS applications. The processing time should take into account the complexity of the product in question, withdrawal/re-submission of applications on the applicant’s own accord in some cases, and affording due consideration to ensure sufficient investor protection.
Mr CHAN Kin-por considered that SFC should continuously review its financial position and re-consider the plan to acquire permanent office premises of its own so as to reduce the pressure of rental increase and avoid incurring renovation cost for rented office premises. The Chairman said that she did not object to the suggestion for SFC to purchase office property in future as long as it was for SFC’s own use and not for making investment. C/SFC responded that SFC would review its financial situation and reserves annually, and re-visit the issue of acquiring its own office property before expiry of the five-year lease of the CKC office. He assured members that SFC did not intend to acquire office property for investment purpose.