The FSDC: under development
24th January 2013
The Financial Services Development Council is apparently still under
development itself. Confusion reigns over what form it will take, how it will be
funded (if at all), and even the identity of persons appointed to it. We'll try
to add some clarity.
On 27-Jun-2012, four days before he took office, HK Chief Executive C Y Leung
set up the Preparatory Task Force
on the Financial Services Development Council (PTF),
chaired by the multi-purpose Laura Cha
Shih May-lun and with 3 other non-government members, barrister
Laurence Li Lu Jen,
Tse Yung Hoi, Deputy CEO of Bank of
China International, and former Jardine Taipan
Alasdair Morrison (misspelled in the
press release as Alastair, but whose real name is Allister). The task force
consulted widely, including your editor David Webb, and issued a
In his Policy Address on 16-Jan-2013, the CE
announced the immediate establishment of the FSDC. The next day, the
announced the membership, including all 4 members of the PTF and 17 other
non-Government members. On its news portal on 17-Jan-2013, the Government
"The council will be formed as a company limited by guarantee
to project an independent image as well as enhance its operational flexibility,
transparency and governance."
But in a media briefing yesterday, 22-Jan-2013, Mrs Cha was
quoted in The Standard as follows:
"As for whether the council could be set up in the form of a
company limited by guarantee, she said so far this is just a suggestion. "We are
open to opinion on how it should be formed.""
So after 6 months of pondering it remains unclear what form the FSDC will
take, even though its members, or possibly its board of directors, have already
started their 2-year terms on 17-Jan-2013. So far, no company limited by
guarantee has been incorporated with the FSDC's name. You can check the
company registrations in the Webb-site Who's Who database (use the drop-down
boxes to select type). Let us know if you spot it in the wild.
As we said in our meeting with the PTF back on 24-Aug-2012, the main role of
the FSDC should be to act as a consultative and advisory body, tapping the
expertise and experience of its members, providing feedback on government
proposals (and stopping the bad ones from seeing the light of day) and making
suggestions to facilitate industry development, such as removing impediments and
increasing efficiency, while at the same time enhancing free and fair markets
between the consumers and providers of financial services.
If the FSDC had existed 5 years ago, when Financial Secretary
John Tsang Chun Wah and Secretary
for Financial Services Ceajer Chan Ka
banging the drum for the "exponential growth in Islamic finance", then the
collective wisdom would undoubtedly have advised the ministers that this was a
waste of time and effort, or at most a very low priority, given the low demand
in HK for Islamic financial products. There would probably be a lot more demand
in HK for catholic financial products, if such things existed - but wait, they
do - they are called "financial products", and are quite popular with other
religions and with atheists too. It is only Islamic finance that twists itself
in knots to create products which walk and talk like bonds and mortgages but
purport to satisfy sharia law (which in essence requires only profit-sharing
equity, not interest-bearing debt).
Let's face it, we have a Financial Secretary who is a career civil
servant and a Secretary for Financial Services who was an
academic-cum-administrator. Neither of them has private sector experience in
financial services, so if they had good advice from an expert council, and
followed it, then we could get a lot better policy-making.
The same goes for taxation: the Government lacks a committee to advise it on
fiscal policy, and it shows. There has been no meaningful rationalisation or
reform of tax policies since the Handover in 1997. Instead we have a stream of
ad-hoc measures which gradually distort economic incentives further and further.
For example, when property turnover is "too high", they
increase stamp duty to deter
"speculation" - but then the duty adds to the price of homes, so they offer a
tax deduction for mortgage interest - but then that's a deduction that those who
rent their homes cannot get. And if speculation is "bad", then why is there
stamp duty on shares but not on riskier warrants or other derivatives? Indeed,
why do we have stamp duty at all, when a transfer of shares or property does not
in itself generate any GDP? Why tax the transfer of property and shares when we
don't tax other asset transfers, such as antiques, cars or club memberships? Why
do we tax new cars at increasing rates
based on value, but not other luxury goods like diamonds or truffles? Why not
just increase fuel tax and price the busiest roads at the busiest times to
reduce congestion? And why do we tax petrol but not diesel? Why do we
tax employee rental reimbursements as if they
were only 10% of the cash salary, rather than the actual rental value? There is
so much room for improvement and rationalisation in our tax system.
But getting back to the issue of the day, the FSDC, that consultative and
advisory function is about all it needs to do. We don't need it to come up with
training courses for the financial sector. We already have the
HK Securities and Investment Institute
for that, and we don't need it to run financial services road-shows, exhibitions
or conferences - the private sector is perfectly capable of doing that, when the
Trade Development Council doesn't get in the way.
The advisory function should be supported by a secretariat that can do
policy research, produce papers for consideration, and take ideas from council
meetings and turn them into policy proposals for the administration to consider.
It should be a two-way process, not just a sounding board for things the
Government wants to do. It can fulfil this function without being incorporated -
just like all the other hundreds of advisory bodies that the Government has.
No ordinary company
If the FSDC is to enter into contracts and have its own legal existence (and
we say it should not), then it should be established by ordinance passed through
the Legislative Council, not as a fast-track company limited by guarantee. The
latter structure is more suitable for private members clubs, trade associations
with members, and political parties with members. For one thing, such companies
admit members upon payment of subscription fees. They hold AGMs, and the members
elect directors - but the Government has just appointed all the councillors, so
we don't see how a company would be consistent with that. Who can apply for
membership of the company? When will elections be held for its board? The sector
doesn't need the Government to form a trade association - there are dozens of
So who are these people?
As the announcement didn't include full names,
let alone the identity numbers, it was
rather hard for us to identify who some of these 21 members of the FSDC are.
There must be hundreds of "Fred Lam" in HK, and more than a few of "Joe Ngai".
But we've made some intelligent guesses - they probably mean
Frederick Lam Tin Fuk, Executive
Director of the Trade Development Council, and
Joseph Ngai Luc, a partner of
McKinsey & Co. Click here to see
the entire list, and click on the names to see their other positions in
Webb-site Who's Who.
We can tell you about some connections in the membership:
Qin Xiao is former President
(1995-2000) of China International Trust and Investment Corporation (CITIC)
and former Chairman of China Merchants Group (2000-2010). Since 2009 Mr Qin has
been an INED of HKR International Ltd
(HKR, 0480), developer of the massive Discovery Bay on Lantau,
which project has since 1994 been a 50:50 joint venture with CITIC Pacific. Mrs
Cha's husband Victor Cha Mou Zing is
the Deputy Chairman and Managing Director of HKR, which his late father
Cha Chi Ming founded. Both Mr Qin and
Mrs Cha are INEDs of China Telecom Corp
Levin Zhu Yunlai is son of former
Premier Zhu Rongji and CEO since 2002 of China International Capital Corporation
(CICC), which he joined in 1998. CICC started out in 1995 as
China's first joint venture investment bank. It was a joint venture between
People's Construction Bank of China (as it was then) with 42.5%,
China National Investment and Guaranty
Co Ltd (7.5%), Morgan Stanley International Inc (35%),
Government of Singapore Investment Corp
(7.5%) and Mingly Corporation
(7.5%). That last one is the odd one out, not being a government or bank. Mingly
is controlled by the Cha family, and was delisted by privatisation on
22-Mar-2001. In its 31-Mar-1995 annual report, Mingly said that it "was
instrumental in brokering the deal and putting together the consortium". Morgan
Stanley exited the venture in 2010, but Mingly is
Eugene Michael Fung Yue Ming
is head of Private Banking in Asia for JPMorgan.
William Harold Strong moved to HK
in 2011 as Co-CEO for Asia-Pacific for Morgan Stanley. The aforementioned
Alasdair Morrison was Asia Chairman of Morgan Stanley from 2001-2007.
Benjamin Hung Pi Cheng is CEO of
Standard Chartered Bank (HK) Ltd.
Douglas Wayne Arner is a
professor of law at the University of Hong Kong.
Mark Graham Shipman is a partner of
Clifford Chance, a law firm. Florence
Yip Chiu Kwai Fong is a tax partner at PricewaterhouseCoopers.
Mark Seumas McCombe is Asia-Pacific
Chairman of the world's largest asset manager
BlackRock Inc and until
2011 he was CEO (Hong Kong) of Hongkong
and Shanghai Banking Corp Ltd (HSBCHK), the local arm of
UK-based HSBC Holdings plc (0005). Mrs Cha has been on the board of HSBCHK since
2004 and Deputy Chairman since 2007.
Edward Kwan Pak Chung is a former CEO of HSBC Broking Services (Asia) Ltd, a
subsidiary of HSBCHK.
Frank Wong Kwong Shing is
a career banker and last served as Chairman of DBS Bank in HK until 2008.
Chen Shuang is CEO of China
Everbright Ltd (0165) and a director of China Everbright Securities Co Ltd, the
mainland broker. Anton Liu Ting An
is Deputy Chairman and President of China Life Insurance (Overseas) Co Ltd, the
On the small broker front (you know, the few hundred stock brokerage firms
that have only 11%
combined market share but elect 18 members of the 1200-strong Chief
Executive Election Committee and one legislator), there are two members,
Jeanne Lee Sai Yin, who works at
Sino Grade Securities Ltd and Vincent
Marshall Lee Kwan Ho, of the Tung Tai Group founded by his father. Both of
them are Election Committee members.
So there you have it - an interesting and well-connected bunch, but somewhat
overweight on bankers and brokers, a token academic, accountant and lawyer, and
rather light on investors - the man from BlackRock is the only one who could
arguably be said to be on the buy-side, but with other people's money, so his
firm is a product issuer of mutual funds and ETFs too. There was no
representative from the Consumer Council, no membership from the four regulators
(SFC, HKMA, MPFA and Office of the Commissioner of Insurance), and it seems
unlikely that investor and consumer issues will get much of an airing. There is
nobody from the hedge fund, private equity or venture capital space either, all
of which are important consumers of financial services. So if this is where the
Government is going to get advice on financial services, it is probably going to
get a rather unbalanced view.
© Webb-site.com, 2013