Norman T L Chan: How can Hong Kong consolidate its position as Asia's
premier wealth and asset management hub
Welcoming remarks and keynote speech by Mr Norman T L Chan, Chief Executive of the
Hong Kong Monetary Authority, at the Treasury Markets Summit 2013, Hong Kong,
6 September 2013.
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Good morning, Ladies and Gentlemen,
1. It is very nice of the Treasury Markets Association (TMA) to invite me to speak at
this year's Summit. It should not come as a surprise to you if I choose to talk about the "soft
powers of Hong Kong" again today. I have no doubt that financial centres aspiring to win the
privileged position of IFC (international financial centre) all have very good hard
infrastructure, such as airport, roads, telecommunications, IT etc. But what really
differentiates a winner from the rest is its clear edge in the "financial market infrastructure" or
the "soft powers". Today I would like to talk about two key building blocks in the arena of "soft
powers" competition: "platform building" and "reaching out".
Tribute to TMA
2. The aim of "platform building" is quite simple. An IFC must ensure that it has the
appropriate legal, regulatory, tax and policy framework for the financial services to develop
and prosper. Competition is not just about how good you are or have been, but more about
whether you are better than your competitors or not. So it is no good for Hong Kong to sit on
its laurels and just hope or pray that other financial centres do not or cannot catch up.
3. The main reason why I decided to set up the TMA back in 2005 was precisely the
desire to enhance the "soft powers" of Hong Kong's financial services industry. As many
founding members of the TMA who are here today may recall, the predecessor of the TMA
was the ACIHK, the Hong Kong branch of the international ACI headquartered in Paris. The
ACIHK played a useful role in supporting the treasury markets in Hong Kong, but there were
limitations on its remit and resources. I can still remember vividly how I worked with the
founding members (some of them are here today), such as Horace Fan, Andrew Fung,
Benny Luk and Peter Pao to transform the ACIHK into the TMA as we now know. I would like
to take this opportunity to thank all the founding members for their efforts and contributions to
help bring this important piece of soft infrastructure into fruition.
4. The TMA's work through the years is commendable. In the past year alone, the TMA
has, in collaboration with the HKMA and other stakeholders, made many contributions to
enhance Hong Kong's soft powers. I would like to highlight today three important pieces of
work of the TMA:
(a) the TMA has conducted a thorough review of the Hong Kong Interbank Offered Rate
(HIBOR) fixing mechanism and presented to the Hong Kong Association of Banks (HKAB)
recommendations to enhance the transparency, robustness and governance of the HIBOR
fixing mechanism. These recommendations were subsequently accepted by the HKAB and
endorsed by the HKMA in February 2013 for implementation. Under the new regime, the
TMA has taken over from HKAB as the administrator of the HIBOR fixing mechanism with
Hong Kong Interbank Clearing Limited serving as the calculating agent.
(b) Another landmark achievement was the launch of CNH HIBOR. Having undertaken
more than one year of pilot trials, the TMA officially launched in June 2013 the CNH HIBOR
fixing, which is the first offshore RMB interest rate benchmark in the world. This is a very
important piece of market infrastructure which will facilitate the development of a whole array
of offshore RMB credit and interest rates contracts and products; and
(c) The TMA is also an important player in professional training. In close collaboration
with the HKMA, the Hong Kong Institute of Bankers and the Hong Kong Securities and
Investment Institute, the TMA has participated and contributed to the design of a new
professional competency framework for practitioners in the private wealth management
industry. Good progress has been made and we expect the new competency framework can
be rolled out within the next few months.
5. I would like to thank the TMA and its committees for their tireless efforts in joining
hands with the HKMA and others in the "platform building" work.
Measures that make Hong Kong more competitive as a wealth and asset management
centre
6. It is not easy to come up with an exhaustive list of factors that affect Hong Kong's
competitiveness as a wealth and asset management centre in Asia. There are some factors
such as air quality, law and order, cost of doing business, international school places, etc
that have a major effect on individual firms' decision to locate or expand operations in Hong
Kong and not elsewhere, but these factors apply across the board and are not confined to
the financial services sector. What I propose to do now is to highlight a couple of key "soft"
infrastructure that is uniquely important to Hong Kong's future development as the wealth
and asset management hub in Asia:
(a) as we all know, the existence of an inheritance tax or estate duty, even at low rates,
is a material impediment to the development of wealth and asset management businesses.
Back in 1998, the HKMA started to lobby the HKSAR Government to abolish the estate duty
in Hong Kong in order to foster Hong Kong's development as a wealth management centre.
The lobbying efforts met with considerable resistance initially but we did not give up and
continued with such efforts under the terms of three successive Financial Secretaries. In
2005, after seven years of relentless appeals, we finally convinced the Financial Secretary to
include the abolition of estate duty proposal in his Budget Speech. This was followed by the
Legislative Council's passage of the bill implementing the abolition from February 2006;
(b) Modernisation of the trust laws: the amendment bill seeking to modernise Hong
Kong's trust laws was passed by the Legislative Council on 17 July 2013. This was an
important milestone to revamp Hong Kong's antiquated trust regime which had not been
substantially reviewed and modified for decades. This is again something that the HKMA had
advocated and pushed strongly within the Government in the past few years so that our trust
law regime can catch up with the other financial centres;
(c) Promotion of Islamic Finance: the legislative amendments to provide a comparable
taxation framework for common types of sukuk vis-à-vis conventional bonds were passed by
the Legislative Council on 10 July 2013. It was a key policy proposal made in the study jointly
led by the HKMA and the TMA in late 2007, following the announcement in the 2007 Policy
Address of the initiative to develop an Islamic financial platform in Hong Kong. Last week,
HKMA also announced jointly with Bank Negara Malaysia (BNM) the establishment of a
private-sector led joint forum for advancing the development of Islamic finance in Hong Kong,
and we are glad to have Assistant Governor Bakarudin Ishak of the BNM attending the panel
discussion of the Summit this afternoon;
(d) open-ended investment company (OEIC): the HKMA has intensively lobbied for a
legislative framework and regulatory regime for OEIC in Hong Kong. We were very
encouraged that this initiative was announced by the Financial Secretary in the 2013-14
Budget to provide more choices to market participants in terms of the legal form of funds.
This would be a major step to attract more funds to domicile in Hong Kong; and
(e) last but not least, the HKMA, in close collaboration with the Securities and Futures
Commission (SFC) and the private banking industry, has undertaken a series of measures to
promote the development of Hong Kong as the premier private wealth management hub in
the region. The HKMA issued guidance to private banks in June 2012 to facilitate the
adoption of a portfolio based approach in assessing the suitability of investment
recommendations so that private banks can be more flexible in serving customer needs
without compromising investor protection.
7. In addition to lobbying and advising the HKSAR Government on the
abovementioned measures that are crucial to Hong Kong's development as a wealth and
asset management centre, the HKMA has seconded staff to provide technical support to the
Financial Services Branch during the policy formulation as well as the legislative process.
8. Ladies and gentlemen, while we have done a lot in the past few years to build and
reinforce Hong Kong's platform as the wealth and asset management hub, we fully
appreciate that such work is a never ending task as most financial centres in the region,
including those in Mainland China, all harbour the understandable aspirations to become an
international financial centre.
Outreaching to supplement platform building
9. Now let me turn to the second "building block" of soft powers, which is "reaching
out". I am sure most of you would agree with me that the platform building work must be
supplemented by appropriate "outreaching" efforts. This is similar to the situation in which a
company, having created a very superior and competitive product, needs to do a lot of
marketing and advertising in order to increase customer awareness and market share. For
this reason, the HKMA has over the past few years undertaken a series of outreaching and
marketing programmes with special emphasis on Hong Kong as the Asian hub for wealth
and asset management businesses.
10. Hong Kong is already a hub for private wealth and asset management. Nearly 80 of
the top 100 global money managers are in Hong Kong. Fifteen private banks have opened
for business since 2009, bringing the total to 45 banks offering private banking services to
their clients today. For the asset management business as a whole, the combined fund
management assets hit a record high of US$1.6 trillion in 2012, with 65% of the funds
sourced from non-Hong Kong investors, according to a recent SFC survey. It is, however,
worth noting that the survey also showed that 74% of the practitioners in the asset
management field were engaged in the sales and marketing functions. While the figure has
already trended downward from 81% in 2008, it does reflect the fact that Hong Kong needs
to further expand the other segments of the asset management "value added" chain, e.g. in
structuring, research, investment and trading. To achieve this objective, the HKMA's
outreach work in the last two to three years has taken a new focus on asset owners, such as
pension funds and sovereign wealth funds.
11. Since 2010, the Market Development Team of the HKMA attended hundreds of
meetings with overseas asset managers and owners. I am pleased to report that these
outreaching campaigns are generating positive results, with about one-third of the institutions
that we have approached indicating a commitment to devote resources to Hong Kong.
Specifically, 67 institutions have expressed interest in pursuing a Hong Kong presence and
48 institutions are planning to expand their existing operations in Hong Kong.
12. There are several reasons why the HKMA is uniquely well placed to undertake
effective outreach programmes. First, the HKMA is a banking supervisor and banks are the
key players in the financial markets in Hong Kong. Second, the HKMA is also itself a major
asset owner and manager, with over US$370 billion of Exchange Fund assets under
management. This makes it easier for the HKMA to make the right connections and speak
the same language of the asset owners or managers overseas. Thirdly, the HKMA senior
management is fortunate to have the support from a small but dedicated team of highly
professional staff in the outreaching programmes. Finally, the HKMA is part of the
Government and it is easier for us to refer issues or problems to the relevant government
bureaux or departments for consideration or actions. In this context, I would like to thank in
particular the SFC and InvestHK, which have been working very closely with us to provide
the much needed advice or help when overseas financial institutions are thinking of locating
or relocating their operations to Hong Kong.
Concluding remarks
13. Ladies and gentlemen, I would like to end my comments by saying this: competition
amongst financial centres has always been fierce and will be even more so in the future.
Competition is quite like rowing a boat up a river, in which case there is a Chinese saying: "
逆水行舟,不進則退"or in English: "excel and advance" or "stay put and be left behind"!
14. Hong Kong has already built a world class platform for the private wealth and asset
management industry. However, there is no room for complacency. We will need to do more
to further enhance the platform and to reach out to the overseas asset managers and owners
to market Hong Kong's platform. We will continue to look to the TMA and all the stakeholders
in the financial services industry for support and collaboration to build "Hong Kong" as the
brand name that represents quality, trust and confidence to asset owners and managers.
This is an ongoing task and I have no doubt that Hong Kong, in line of our "can do" spirit, can
live up to the challenges ahead of us. Thank you very much.