Supplements » Global Industry 2020

Hong Kong roundtable: Anticipating the next black swan

Funds Europe – Which of Hong Kong’s regulatory developments in the past year have most affected the funds industry? Are fund governance and liquidity particular issues, as they are in Europe?

Zhong – The major developments to have shaped the market in Hong Kong and mainland China are the channels and Connect schemes. The Stock Connect has become very successful for both northbound and southbound investments, acting as a bridge between the financial markets of Hong Kong and mainland China. Stock Connect has also set a good example for other schemes in the pipeline, including ETF Connect Scheme and the Wealth Management Connect Scheme between the Greater Bay Area (GBA) and Hong Kong. We expect to see more of these schemes announced because of the current success.

In recent years, we have also seen greater determination from the Chinese authorities in further opening up the Chinese capital market and introducing more foreign practices and institutions to the industry. ‘Connect’ is the magic world that is going to change the market, and this could go beyond Hong Kong and mainland China.

Cho – Liquidity risk management continues to be a hot topic high on the agenda of the local regulators in the region. The securities market experienced relatively higher volatility in March and April 2020 due to the outbreak of the pandemic. Regulators have watched closely measures by asset managers and assessed whether the practices were in the interest of investors.

In collaboration with other regulators, the SFC has formulated a series of green finance and ESG initiatives. In addition to ESG, the local regulator is also very keen on rolling out regulations that require asset managers to manage climate-related risk and disclose their respective measures.

On a separate note, while the industry is increasingly deploying cloud computing or offsite data-storage providers to store records, the regulator has concern as to whether it may continue to perform its supervisory function and preserve its power in getting hold of records in a dawn raid situation. There have been numerous discussions between the industry and the regulator as to what regulations would be practical and reasonable to address the said concern from the regulator.

Fu – The regulators in Europe have been doing a very good job, and most of the managers in Hong Kong are global managers, so we are probably all aligned with global standards. It’s being discussed and reviewed, but I don’t think it’s a critical issue.

Having said that, the Greater Bay Area Wealth Connect is driven by regulators in both Hong Kong and China, and how can we do that, how do we do better connect? Not only from providing more products within the region, but even secondary listing in Hong Kong is getting hotter, for example. In the longer term, this kind of opportunity will bring fund managers and global managers to consider putting more resources into the investment side, such as bringing in more people and locating to Hong Kong to serve your clients globally. This is what’s happening right now in my office.

Vengayil – I am particularly impressed with the way the Asian regulators have responded both tactically and strategically to this crisis. To give an example, due to the extreme volatility and uncertainty during the Covid-19 crisis, we have seen both the Luxembourg regulator as well as the Securities & Futures Commission (SFC) take a streamlined approach regarding measures for allowing fund houses to increase the swing factor beyond the disclosed maximum level. It’s a temporary measure, but they have responded quickly to allow us to do that so that fund managers can be sufficiently agile to the extreme market situation and the funds can be managed while maintaining the best interests of the investors.

Chan – The SFC has regularly published more guidance in terms of the enhanced disclosures for green or ESG funds, as well as the list of ESG funds registered in Hong Kong. It’s very helpful for the industry, as we have seen a growing demand in ESG products in the past few years, but at the same time, there is no single definition of ESG uniformly applied across all markets and there are also greenwashing concerns. The guidance is helpful both for product providers as well as investors.