.

1. Chapter 1
Financial Regulations
in Hong Kong
The Presentation Slides for Teaching
Financial Regulations and Compliance Practices
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2. Declaration
 Copyright © 2021 CapitaLogic Limited.
 All rights reserved. No part of this presentation file may be
reproduced, in any form or by any means, without written
permission from CapitaLogic Limited.
 Authored by Dr. LAM Yat-fai (林日辉),
Chief Data Scientist, CapitaLogic Limited,
Adjunct Professor of Finance, City University of Hong Kong,
Doctor of Business Administration,
CFA, CAIA, CAMS, CFE, FRM, PRM, MCSE, MCNE.
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3. What is financial regulation?
 The government’s controls on business
activities in the financial market
 Statutory controls
 Set out in the ordinances
 Non-statutory controls
 For the good of general public
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4. Why financial regulations?
 Financial institutions hold
customers’ assets
 To protect the interests of
general public
 To prevent systemic risk
 To prevent financial issues to
evolve into political issues
 To reduce transaction costs
 To promote Hong Kong as an
international financial centre
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5. What is international financial centre?
 International
 Participated by a diversified group from many
countries
 Financial
 Money businesses
 Centre
 Many investors
 Many fund raisers
 Many transactions
 Large dollar amounts
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6. Characteristics of
international financial centre
 Headquarters of major
international FIs
 Trade currency
 Government securities
 Bond market
 Transaction volume
 Stock exchange
 IPO size
 Market cap
 Transaction volume
 Index components
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https://en.wikipedia.org/wiki/List_of_stock_exchanges

7. Is Hong Kong
an international financial centre?
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8. Chicago school of political economics
My money Your money
My
job
Effective and
Efficient
Efficient but
ineffective
Your
job
Effective but
Inefficient
Ineffective and
inefficient
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9. Market failure
 The market is the smartest
 The market will maximize its profit by improving its
effectiveness and efficiency
 A too smart market will maximize its profit by damaging
the interests of general public
 Arrange mortgage to customers without re-payment ability
 Sell to customers investment products not matching investment
objectives
 Market ILAS as a better choice of life insurance
 Market failure
 The market kidnaps the general public
 Government intervention
 Financial regulator must strictly regulate financial institutions
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10. Segregation of financial regulations
Banking Insurance
Securities
and
futures
Mandatory
provident
fund
Primary
ordinance
Banking
Ordinance
Insurance
Ordinance
Securities and
Futures
Ordinance
Mandatory
Provident
Fund Schemes
Ordinance
Regulator
Hong Kong
Monetary
Authority
Insurance
Authority
Securities and
Futures
Commission
Mandatory
Provident
Fund Schemes
Authority
International
organization
BCBS IAIS IOSCO
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11. Financial regulators in Hong Kong
Financial
Secretary
Hong Kong
Monetary
Authority
Insurance
Authority
Securities
and Futures
Commission
Mandatory
Provident Fund
Schemes Authority
Financial Services
and the
Treasury Bureau
Hong Kong
Exchange and
Clearing Limited
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12. A model financial
regulatory framework
Ordinance
Regulator
Licensing Policy Supervision
Advisory
committees
Enforcement
Industry
associations
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13. Licensing
Fit Proper
 Financial conditions
 Mental healthiness
 Criminal records
 Civil litigations
 Social background
 Regulatory knowledge
 Practical knowledge
 Industry experience
 Continuous education
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14. Policy
 Legislation
 Amendments to principal
ordinance
 Subsidiary legislations
 Other related ordinances
 Regulatory documents
 Guidelines
 Guidance notes
 Circulars
 Codes of conduct
 Best practices
 Co-operation
 Domestic
 National
 International
 Professional development
 Public awareness
 Statistics
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15. Supervision
 Supervisory profiling
 Financial return
 Prudential survey
 Offsite review
 Onsite examination
 Annual tripartite meeting
 Control self-assessment
 Mystery shopper
 Questionnaire
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16. Enforcement
 Investigation
 Facts finding
 Judgment
 Violation of relevant ordinance?
 If yes, which section, how severe and why?
 Disciplinary action
 Monetary penalties
 Non-monetary penalties
 Appeal tribunal
 A small and specialist civil litigation court
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17. Regulation vs compliance
Regulator Financial institution
Regulation
Compliance
Ordinances
and
expectations
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18. Reference
 IEC, 2013. A Quick Guide to Financial
System and Services in Hong Kong.
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