Norman T L Chan: The importance of soft power in international financial
centre
Opening keynote speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary
Authority, at the Hong Kong Institute of Bankers (HKIB) Annual Banking Conference 2016,
Hong Kong, 20 September 2016.
* * *
Dr Patrick Fung, Ms Carrie Leung, distinguished guests, ladies and gentlemen, good morning
to all of you!
1. Each year, the Annual Conference of the Hong Kong Institute of Bankers (HKIB)
focuses on the topics most relevant to the banking industry and its practitioners, and invites
prominent speakers and experts in the relevant field to share with the audience their insights.
I am very pleased that I am being given the opportunity to speak today at the Conference.
Previously at the HKIB and many other banking conferences, I had talked about the importance
of "soft power", which in my view is the most crucial attribute that differentiates an international
financial centre (IFC) from the rest of the crowd. If you feel bored with the theme of "soft power"
and think that I should talk about a different or more exciting subject today such as those
suggested by the MC, then I am afraid you will be disappointed. I can well understand the
frustrations that some of you may have, but I, after very careful consideration, feel duty bound
to embark on the same subject again. Please allow me to explain.
2. It is my strong belief that what differentiates an international financial centre (IFC)
from the rest of the aspiring financial centres is its superior "soft power". An IFC is not about
how big your airport is, how tall your buildings are or how fast your internet is. The hard
infrastructure is important but most financial centres have equally good hardware. An IFC, just
like a world class brand in merchandise goods, is all about good quality and high reliability. An
IFC must be able to provide high quality and trustworthy financial services to customers in the
neighbourhood and beyond. I should say that Hong Kong has already developed into a world
class brand for financial services. No matter which narratives you choose to subscribe on how
Hong Kong has come this far in the past three decades to where we are now, it is far too easy
for us to feel complacent and lose sight of what has made Hong Kong an enviable success
story in the past. Other than a nice harbour, Hong Kong is not endowed with any natural
resources. Apart from people, and that's you, we have virtually nothing. But "people" is exactly
what it takes to build a brand for financial services. It is also "people" that can bring Hong Kong
to the forefront in the new era in the next 10, 20 and 30 years.
3. Banking has always been evolving over time, but I have not seen such drastic
changes in the banking scene across the board since the Global Financial Crisis in 2008. I just
came back from Basel last week to attend a meeting of Heads of Central Bank Governors and
Supervisors. Many highly technical but important reform measures concerning the international
standards on capital and leverage were discussed. This is part of the long process for the
governments and regulatory authorities to try to rein in the banking sector, having learnt from
the very bitter lessons during the Global Financial Crisis. I am not trying to debate today
whether these new international standards are justifiable or needed. The point I wish to make
here is that all these new standards are highly complicated and require special training and
expertise to come to grips with them. So banks have to hire, train and retrain people in order
to fully understand and implement the rapidly changing regulatory standards and requirements.
4. Apart from the badly needed capability amongst banks in capital, liquidity and credit
risk management, the demand for enhancement and upgrading in banking conduct has also
increased phenomenally in the last few years. Banking conduct covers a wide spectrum of
banking businesses and I would like to focus on just three areas today:
(a) wealth management;
(b) anti-money laundering and counter-terrorist financing (AML/CFT) controls; and
(c) Fintech.
5. I believe there is very little disagreement amongst the audience today that Hong Kong
has a huge potential in capturing the wealth and asset management business in Asia. The
demand for top quality private wealth management services arising from the rapid and
sustainable growth of affluence on the Mainland is particularly promising. However, private
wealth management requires special skill-set, not only in product development but also in
customers interfacing. Of course product issuers need to possess the technical know-how on
how best to design products that can effectively meet the changing needs of the customers. It
is equally important that the relationship managers have the necessary technical competence
to fully understand the products and be able to explain the key features and risks to their
customers. However, technical competence in understanding the latest ranges of financial
products is simply not good enough nowadays. This is because the society today demands a
high standard from financial intermediaries: i.e. fair treatment of customers. This means that
financial firms must not put their own interests above those of the customers. Financial firms
are expected to take care of the interests of their customers, including but not limited to those
related to product suitability and concentration. This is a simple principle but very hard to
achieve. If the treat customers fairly requirement is not demanding enough, there is the
additional challenge brought about by the recent trend to raise the global standards in
combating money laundering and terrorist financing. As it is well known to all, there can be
quite serious consequences for AML/CFT breaches and failures.
6. It is therefore not surprising to see that many international banks have now been
engaging in the so-called "de-risking" exercises. While there might be legitimate reasons for
doing this, we have seen some side effects detrimental to financial inclusion from this
derisking process. In a nut-shell, to seek to de-risk using a "one size fits all" approach across all
jurisdictions for an international bank may be easier or tidier from the compliance angle, it does
not take into account the very diverse risk profiles of customers in different countries and in
different business segments. The HKMA's regulatory approach for banks in Hong Kong is one
that is "risk based", which means the banks should differentiate the likely riskiness of the
customers and apply proportionate measures for the Know-Your-Customer (KYC) and due
diligence process in account opening for new customers and in information gathering for
existing customers. As you may be aware, I issued a circular earlier this month to all banks in
Hong Kong providing an elucidation on the HKMA's supervisory stance and requiring banks to
review their existing practices with a view to changing them if there are inconsistencies with
our risk-based approach. What I hope to achieve in Hong Kong is a robust AML/CFT regime
in which we comply with all the relevant international standards and yet provide a sufficiently
customer-friendly environment so that bona fide businesses and ordinary citizens can have full
access to basic banking services. This is a tall order because it requires the senior
management of banks to pay much closer attention to how their compliance and control
systems should be structured so as to strike the right balance between de-risking and financial
inclusion. Even if there is an appropriate control system in place, it still requires adequate
training for the branch managers and frontline staff to fully understand the requirements of the
HKMA and of the bank, and be able to exercise the necessary judgement so that customers
can be treated fairly, thereby avoiding undue bad customer experience.
7. Now a word on "Fintech". I think there is general consensus amongst all of us here
that technology has advanced so much in the past decade or two that it has drastically
transformed the way in which banking and financial businesses can and should be conducted.
It is hard for bank customers to contemplate how they would manage if the internet or digital
interface becomes dysfunctional for a couple of days. It is even harder for bankers to
contemplate how they can survive for a day or just several hours if their systems are down due
to DDoS or whatever reasons. No doubt the cyber world offers the kind of convenience and
speed in transactions that are simply unthinkable just ten years ago. Clearly all of us must try
our best to make full use of technology in the provision of solutions for financial services. I am
pleased to note that Fintech is making important headways in recent years. The bad news is,
however, the digital world is equally, if not more, risky as the physical world. So on the one
hand bankers need to embrace new technology but on the other they must upgrade their
capability in safeguarding cybersecurity.
8. This brings me back to the main theme of my talk: "soft power". How do we develop
and maintain superior "soft power"? It is very simple: "people", '"people" and "people". Without
"people", Hong Kong has nothing. However, as competition from our neighbouring centres
intensifies over the years, it is not only just "people' that we need. It's about how to turn "people"
into "good people" and from "good people" to "great people". In this regard, there is an ancient
Chinese idiom that says: "it takes 10 years to grow trees but 100 years to develop people"
"十
When it comes to people, there are no shortcuts and there are no quick
年樹木,百年樹人".
fixes. We fully understand this point and that is why the HKMA, in collaboration with HKIB, has
been working very hard in the past few years to develop new competency enhancing training
programmes for the banking practitioners. In June 2014, we rolled out the Enhanced
Competence Framework (ECF) for private wealth management. I am glad to report that the
programme has made very good progress with more than 1,600 private banking practitioners
having achieved the relevant ECF benchmark so far. Today I am very pleased to announce
that the HKMA will launch another ECF programme, which is designed for AML/CFT functions.
The programme will be rolled out in three months' time in December. This is a Core Level
module for new entrants in the field of AML/CFT. A more advanced level for practitioners with
at least 3 years of relevant experience will be launched in June 2017. This new ECF should
go a long way in helping enlarge the pool of qualified AML/CFT professionals, who are in short
supply at the moment.
9. On Fintech, I announced in May this year that the HKMA would launch a
"Cybersecurity Fortification Initiative". A core part of this Initiative is the rolling out of an ECF
on cybersecurity so as to enlarge the pool of talents in this increasingly important field of
banking. We are making good progress and I am pleased to announce that the Cybersecurity
ECF will also be launched in December this year.
10. On a related note, I am pleased to know that HKIB is going to launch a new
professional qualification, The Certified Banker (CB). Ms Carrie Leung, CEO of HKIB, will
announce more details on CB in a moment. The curriculum of CB encompasses programmes
under HKMA's ECF and combines the up-to-date industry knowledge, practical learning and
professional competencies that are relevant to the banking environment.
11. Ladies and gentlemen, I make no apologies if you consider my talk on "people"
development boring. As a result of the rising complexity of the financial industry, advance in
technology and rapid change in the regulatory landscape, it is not possible for a banker to claim
"I know it all"! It is only through continuous training and updating that a practitioner would be
able to keep abreast of the latest developments in terms of technical knowledge and
understanding of conduct and ethics requirements. While the HKMA will do whatever it can in
promoting soft power upgrading, we can't do it alone. We must work together with the industry
bodies, such as the Hong Kong Association of Banks, HKIB, the Treasury Markets Association,
and the Private Wealth Management Association so that we can have common ownership of
mission. It is also with the support and facilitation by the financial firms, as employers, that we
can have full and active participation by banking practitioners in these training and talent
development programmes. While there are costs and efforts in the short run, I am sure that
over time they will bear handsome and profitable returns for the industry and practitioners
alike.
12. In closing, I would say that the upgrading of our people from "good" to "great" is an
uphill and ongoing campaign. We are still at the stage of promoting awareness and joint
ownership of the mission amongst the industry and practitioners. We have also made good
progress in developing the relevant training programmes for this purpose. Our supervisory
requirement at this stage is to encourage banks and practitioners to enrol into the relevant
membership and take part in the training programmes. At the next stage when the
infrastructure is more mature, the HKMA expects that banking businesses should normally be
conducted by practitioners who possess the necessary technical competence and relevant
qualifications in the areas concerned. Having said that, let me clarify one point. I am not
presently envisaging a need for a mandatory qualification or licensing regime for banking
practitioners, as such regime may not be flexible enough to cater for a fast expanding and
changing banking business environment. All we need is for the official and private sectors to
collaborate diligently in the joint mission of talent building. If we can get it right, which I am
confident that we would, there is no doubt that Hong Kong will be able to succeed in
maintaining Hong Kong's competitive edge as a world class brand for financial services. Thank
you very much.