In a speech delivered yesterday and published today, Chan said after working closely with other regulators and the Hong Kong Association of Banks, he believes in order to become the “premier private banking hub in Asia”, and thereby attract more business from mainland Chain, the private banking industry needs a more “user friendly” regulatory environment.
“While Hong Kong is fortunate enough to be endowed with many underlying competitive advantages, these advantages are not enough, in my view, to sustain the healthy development of our private banking industry in the long run,” said Chan.
“Hong Kong also needs a regulatory framework that is user friendly to private banking clients and yet sufficiently robust to provide appropriate investor protection.”
Chan went on to describe the regulatory framework as being a disclosure-based regime, supported by intermediaries at the point of sale and said “in a nutshell”, product issuers have to make adequate disclosure in product documents about the features and risks of investment products. He added, in turn, intermediaries must assess the product suitability for individual clients and clearly explain to clients the products.
This regime will remain, however Chan said there will be a reduction in the number of times intermediaries will be required to assess their clients both the suitability assessment, which will no longer be required for each investment, and the risk profile assessment, which is normally required every two years but will now only be required if there has been a “material difference” to the client’s circumstances.
There was a note of caution from Chan though who warned the regulatory focus of the HKMA had not changed.
“While I believe these measures would be welcomed by the private banks and their clients as they offer greater convenience and flexibility, I must remind everybody that the core objective of our regulatory framework continues to be investor protection,” he said.
“So private banks must ensure that they have in place the necessary systems and internal controls to implement the portfolio based approach and other related measures to facilitate the investment process.”
In addition to making the regulatory system more accommodating, Chan said there is also a need to continue to raise the standards within the industry, with more professional qualifications and a focus on ethics.
Furthermore, Chan said, given the desire to increase trade from China, private bankers must ensure they address the language barrier, providing bilingual documentation and increasing the number of Chinese languages spoken at firms.
To read a transcript of the speech, click here