norman t l chan : hong kong as a risk 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 2019, hong kong, 16 september 2019. * * * ladies and gentlemen, 1. about 15 years ago, a senior banker suggested to me that, in order to further promote hong kong ’ s position as an international financial centre ( ifc ), we should turn hong kong into a “ risk management hub ” in asia. however, he did not elaborate further at the time on exactly what he meant and how this could be achieved. to be honest, it was not clear to me then what this risk management hub idea was all about. 2. now looking back, i realise that, even without us consciously pursuing the idea as a policy objective, hong kong has already made major accomplishment as the “ risk management hub ” in asia. let me explain. prerequisites for a risk management hub 3. clearly an important pre - condition for a risk management hub is to have money or capital flowing through hong kong. in this context, it is important to distinguish genuine financial flows from those that are not. many of you may recall that, in the 1990s and prior to the asian financial crisis, many japanese ( regional ) banks used hong kong to conduct the socalled euro yen businesses, through which the banks would book in hong kong their yen loans to borrowers in japan, presumably to benefit from more favorable tax treatment. while this kind of booking businesses may inflate the size of hong kong ’ s banking system in terms of total assets, it does not, as we have learnt from the experience of the euro yen booking in the 1990s, bring about much real benefits to hong kong in terms of job creation or enhancement of the credit underwriting skills of the bank practitioners. the lending institutions did not perform any meaningful risk management functions in booking these euro yen businesses. as we all know, the euro yen business in hong kong, driven by tax reasons, faded away right after the asian financial crisis. 4. that is why the hkma has made it clear in the past 10 years that we do not welcome banks moving “ pure ” booking business to hong kong. our position is that, in booking any loans or other assets in hong kong, the banks must demonstrate that they have the necessary capability and control process to prudently manage the risks of these assets, both at origination and on

environment for the pe and vc industry. hong kong now offers diversified fund structures through the introduction of the open - ended fund company ( ofc ) regime and a modernised limited partnership fund ( lpf ) regime, both providing also a redomiciliation mechanism. these two regimes have gained traction since their introduction. so far, more than 1000 ofcs and lpfs have been established in hong kong. on the taxation front, hong kong has an extensive network of comprehensive avoidance of double taxation agreements, or dtas, that cover major economies in asia including mainland china, japan, india, indonesia, as well as many major markets in europe, north america and the middle east. our dtas offer very favourable terms, in that they offer lower dividend and interest withholding rates. we are working hard to further expand the dta network. locally, we are exploring the scope for further enhancements to the carried interest tax concessions arrangement, based on the implementation experience so far. we are also reviewing the tax exemption regime for funds to identify possible areas of enhancement to better support the development of the fund industry. meanwhile, the hkma's exchange fund investment office is rendering tangible support for managers based in hong kong. it has already established alternative asset portfolios with dedicated allocation to smaller local hedge fund managers. the next step 3 / 5 bis - central bankers'speeches is to set up a dedicated allocation to smaller pe funds managed by local managers and those seeking to expand their hong kong operations. another exciting development is the establishment of the hong kong investment corporation ( hkic ). hkic consolidates the various public investment pockets introduced by the government in recent years, including investments in the greater bay area, strategic technology, portfolios with hong kong nexus, as well as the newly established co - investment fund. hkic has commenced operation recently and is identifying quality partners to make strategic investments. the hong kong government is also taking a proactive approach to provide further impetus to the long - term, balanced growth of the local economy and to make the city more liveable and sustainable. top priority is talent. hong kong currently hosts five of the global top hundred universities. but we want to attract more talent to deepen the bench. in less than a year, the various talent entry schemes have already granted permission to over 110, 000 talents from all around the world, and we continue to see a strong pipeline. looking for new growth areas is also important. in the years ahead, hong kong will leverage