Initiatives to Enhance Hong Kong's Competitiveness

The Government is determined to strengthen Hong Kong's status as an international financial centre and the premier capital formation centre for the Mainland. To this end, a Financial Market Development Task Force was set up in December 2001 to provide a high-level forum to coordinate new initiatives in promoting the development of Hong Kong's financial markets. The Task Force brings in expertise and professional input from the regulators and market participants.

The individual regulators will continue to further enhance Hong Kong's regulatory framework in the light of international experience and standards. The objective is to have an effective regulatory framework that will ensure sound business standards and confidence of the market but without unnecessary impediments.

Major initiatives to enhance Hong Kong's competitiveness as an international financial centre are outlined in the following paragraphs.

Implementation of the Securities and Futures Ordinance

The SFO, which consolidates and modernises 10 ordinances governing the securities and futures markets into a composite piece of legislation, strengthens the quality of the regulatory framework and keeps the regulatory regime on par with international standards and practices. It seeks to: facilitate development of a fair, orderly and transparent market to promote investors' confidence; secure appropriate investor protection; reduce market malpractice and financial crime; and facilitate market innovation and competition. The commencement of the SFO, on April 1, 2003, enhances Hong Kong's position as an international financial centre and the premier capital formation centre for the Mainland.

Main features of improvement under the new regulatory regime include: —

Implementation of the SFO has been smooth since April 1, 2003. The SFC has endeavoured to provide continuous guidance to the market to assist practitioners in their understanding of the new law. Apart from posting relevant materials in connection with the SFO on its website to facilitate easy access by market participants and providing dedicated hotlines and e-mail boxes to answer questions from the industry, the SFC also organised or participated in more than 67 seminars to introduce the new law to the industry.

Migration of financial intermediaries to the new single licensing regime gathered pace. Around 7 420 intermediaries, representing 42 of all those who would migrate, had either migrated or lodged their migration applications as at year-end. More than 4 400 have already received their new licences.

Company Law and Corporate Governance Reform

The Standing Committee on Company Law Reform (SCCLR), established in 1984, meets regularly to consider amendments to the Companies Ordinance to ensure that it meets the changing needs of the business community. The Companies Registry provides secretariat support for the SCCLR.

The Overall Review of the Companies Ordinance by the SCCLR has resulted in 62 recommendations for reform, including a mix of amendments to specific sections of the Companies Ordinance, topics which require further research and study, and major structural proposals such as rewriting and restructuring the Companies Ordinance. Virtually all the proposals regarding amendments to specific sections of the Companies Ordinance have been included in the Companies (Amendment) Ordinance 2003 which was enacted in July 2003. Work on topics requiring further research and study has been undertaken in the context of either the SCCLR Corporate Governance Review or independently by the SCCLR. The results of some of this work are contained in the Companies (Amendment) Bill 2003. This bill, which was introduced into the Legislative Council in June 2003, is being scrutinised by a Bills Committee. Consideration is now being given as to how the recommendation to rewrite and restructure the Companies Ordinance can best be taken forward.

The Corporate Governance Review by the SCCLR, which aims to identify and bridge any gaps in Hong Kong's corporate governance regime, making it a benchmark in the region, has continued to make good progress. A consultation document on the Phase II of the review setting out a large number of proposals on directors' duties and responsibilities, shareholders' rights and the disclosure of corporate information was published for public consultation on June 11, 2003. Depending on the outcome of the review, appropriate amendments will be made to the Companies Ordinance, the Listing Rules and the Code of Best Practice.

The Government published in January 2003 a Corporate Governance Action Plan. The roll-out of the SFO is one of the major initiatives under the Action Plan.

In May 2003, the SFC and the HKEx jointly consulted the market on strengthening the regulation of sponsors and independent financial advisers. Responses to the consultation were being considered to develop measures to strengthen the present regulatory regime.

The HKEx issued the consultation conclusions on Proposed Amendments to the Listing Rules relating to Corporate Governance Issues in January 2003. Taking into account the responses to the consultation, the HKEx is in the process of amending its Listing Rules. It is also working on a Code on Corporate Governance Practices which will be released for public consultation in early 2004.

The Government published a Consultation Paper on Proposals to Enhance the Regulation of Listing in October 2003, following the issuance of a report by the Expert Group to Review the Operation of the Securities and Futures Market Regulatory Structure in March. Public views were sought on proposals to give statutory backing to certain fundamental listing requirements and on ways to improve the regulatory structure governing the performance of listing functions. The Government will consider carefully the public views received and work closely with the SFC and the HKEx to draw up appropriate measures to improve the regulatory regime for listing.

Enhancement of the Financial Infrastructure

As part of the three-pronged strategy announced in the Budget Speech in March 1999 for reforming the securities and futures markets in Hong Kong, the Financial Secretary appointed a Steering Committee on the Enhancement of the Financial Infrastructure in Hong Kong (SCEFI) to study and recommend the necessary improvements to the financial infrastructure in Hong Kong. The objective is to enhance the competitiveness of Hong Kong as an international financial centre in terms of risk mitigation, efficiency enhancement and cost reduction. The SCEFI recommended the development of a single clearing arrangement for securities, stock options, futures and other exchange-traded transactions; straight-through processing and a scripless securities market. The Government, together with the SFC, the HKMA and the HKEx, is pressing ahead with the implementation of various SCEFI recommendations.

In 2002, the SFC consulted the public on the proposed scripless securities market. The consultation conclusions were published in September 2003. The scripless initiative was broadly accepted by the industry. Following this, the HKEx published in October 2003 a separate consultation paper on proposed operational details of the scripless model. Comments received from the securities and futures industry are being analysed by the HKEx and conclusions will be published in 2004.

Human Resources Development

A robust physical infrastructure cannot function effectively without the input of trained persons of the right calibre. Hong Kong needs to have a workforce that is adaptable and well-equipped to meet future challenges and to reap the benefits offered by new opportunities. The Advisory Committee on Human Resources Development in the Financial Services Sector was established in June 2000, tasked with the mission to develop a vision on human resources development in the financial services sector. Activities organised or coordinated by the committee include opinion surveys, seminars and an internship programme. The committee has also sought the assistance of the Vocational Training Council in compiling more statistics on the manpower situation in the banking and finance industry.