Financial Regulatory Structure in Hong Kong: Looking Forward

Abstract

In 2008 the global financial system suffered the deepest financial crisis since the Great Depression. The global financial crisis (GFC) not only highlighted gaps in financial regulation but also a failure of financial regulatory structures to maintain financial stability. In the aftermath the Group of Twenty (G20) delegated a complete review of financial sector regulation to the Financial Stability Board (FSB). At the top of the FSB’s agenda is overseeing the implementation of regulatory reforms that more effectively maintain financial stability. Although Hong Kong emerged from the GFC relatively unscathed it was nonetheless affected by several high profile incidents of financial regulatory failure. In response Hong Kong has adopted financial regulatory reforms in accordance with the FSB’s agenda. However, these failures were not merely attributable to financial regulatory gaps, but more broadly to financial regulatory structural flaws. Despite these flaws being exposed well before the GFC, redesigning Hong Kong’s financial regulatory structure has not been forthcoming. Looking forward, Hong Kong’s history of regulatory failures serves as a forewarning that its financial regulatory structure needs to be redesigned before a failure occurs that fatally undermines financial stability. In this chapter Hong Kong’s financial regulatory structure will be examined and analysed. Our aim is to identify Hong Kong’s financial regulatory structural flaws in support of structural change. The first section of this chapter will take a brief journey through Hong Kong’s historical financial development culminating with a summation of the financial regulatory themes. This will be followed by an overview of Hong Kong’s existing financial regulatory structure with an analysis of the prevailing themes and structural issues, including coordination and cooperation arrangements. Once this groundwork has been laid, there will be an examination of

Hong Kong’s high profile GFC incidents, which will be analysed and compared from a structural perspective with findings from the 2003 IMF Report. In this context, Hong Kong’s implementation of the G20/FSB reform agenda and the capacity of the financial regulatory structure to facilitate these reforms will be evaluated. Rounding off this examination and analysis will be a discussion of the financial regulatory structural options. This chapter will then conclude with an appraisal of Hong Kong’s financial regulatory structure.