Following is a question by the Hon Yim Kong and a written reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (October 30):
 
Question:
 
     It is learnt that the continuous deepening of economic and trade co-operation between Hong Kong and the Mainland has led to a significant increase in the demand for cross-boundary financial services. Recently, the Mainland has introduced a series of new policies aimed at further supporting cross-boundary financial services between Hong Kong and the Mainland, such as various specific proposals including the National Financial Regulatory Administration's initiatives to support China-capital banks and insurers to establish regional headquarters in Hong Kong, and to support Hong Kong and Macau banks to further expand the business scope of their branches in the Mainland. In this connection, will the Government inform this Council:
 
(1) whether the Government has recently conducted surveys on the development of cross-boundary financial services between Hong Kong and the Mainland, and assessed the problems and challenges involved; if so, of the details and main conclusions;
 
(2) whether consideration will be given to setting up a dedicated working group to efficiently dovetail with the relevant regulatory authorities in the Mainland and jointly promote the implementation of Mainland policies on supporting cross-boundary financial services; if so, of the expected work objectives and timetable;
 
(3) as it is learnt that the People's Bank of China (PBoC) is striving to formulate the institutional arrangements for cross-boundary flow of financial data which is a crucial component to promoting cross-boundary financial services involving complicated issues of data security and legal compliance, whether the Government will proactively initiate discussions with PBoC to establish a co-ordination mechanism for the safety and regulation of cross-boundary flow of financial data between Hong Kong and the Mainland; and
 
(4) in order to attract more China-capital banks and insurers to establish presence and set up regional headquarters in Hong Kong, whether the Government will consider studying and introducing a series of facilitation policies to provide clear guidelines and support to China-capital banks and insurers interested in further developing their business in Hong Kong?
 
Reply:
 
President,
 
     Hong Kong possesses the unique advantages of enjoying strong support of the Motherland and being closely connected to the world, linking to the vast capital markets of the Mainland and overseas. The National 14th Five-Year Plan supports Hong Kong in enhancing its status as an international financial centre. With the staunch support from the Central Government on the collaborative development of the financial markets between the Mainland and Hong Kong, there are broad development opportunities for Hong Kong's financial sector to integrate into the overall development of the country.
 
     Regarding the Hon Yim Kong's question, upon consultation with the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission and the Insurance Authority (IA), my reply is as follows:
 
(1) and (2) The economic, trade, and financial co-operation between the Mainland and Hong Kong has continuously deepened, with cross-boundary financial services developing steadily and making good progress.
 
     This year marks the 10th anniversary of mutual access between the Mainland and Hong Kong capital markets. Various programmes, including the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Bond Connect, Cross-boundary Wealth Management Connect (WMC) in the Guangdong-Hong Kong-Macao Greater Bay Area and Swap Connect, have been introduced one after another with thriving development over the past few years. Notably, the average daily trade value of Northbound Stock Connect soared from around RMB6 billion when it was launched in 2014 to over RMB108 billion last year. The average daily trade value of Southbound Stock Connect surged from around HKD0.9 billion in 2014 to HKD31.1 billion last year.
 
     The Government in collaboration with the regulators and the Hong Kong Exchanges and Clearing Limited will continue to work closely with the Mainland authorities to actively explore further enhancement measures. These include discussions on expanding the Southbound trading of Bond Connect as appropriate, expanding the scope of eligible Mainland investors to non-bank financial institutions such as securities firms and insurance companies; continuing to explore enhancements to the WMC, etc.
 
     In respect of offshore Renminbi (RMB) business, we will upgrade the Central Moneymarkets Unit to facilitate the settlement of various assets in different currencies by international investors. The fixed income market infrastructure will also be enhanced by, for example, exploring the set-up of a central clearing system for RMB-denominated bond repurchase (repo) transactions, making RMB sovereign bonds issued in Hong Kong a more popular choice of collateral in offshore markets. Furthermore, the Ministry of Finance has issued RMB sovereign bonds in Hong Kong for 16 consecutive years. This year, the Shenzhen Municipal People's Government, the People's Government of Hainan Province and the People's Government of Guangdong Province issued offshore RMB local government bonds respectively through Hong Kong's financing platform, demonstrating Hong Kong's function as a bridge to connect international funds and the financing need of Mainland projects. We will expand the issuance of RMB bonds and support the issuance of more green and sustainable offshore RMB bonds in Hong Kong by Mainland and international issuers. Meanwhile, we are also committed to increasing the liquidity of offshore RMB. We will make good use of the currency swap agreement between the HKSAR and our country, and explore the provision of more diversified channels for obtaining offshore RMB financing.
 
     In respect of facilitating cross-boundary financial arrangements for citizens, a number of financial initiatives supporting the real economy and facilitating personnel exchanges, thereby bringing convenience for businesses and the public, have made good progress in recent years. For example, the HKMA and the People's Bank of China (PBoC) are taking forward the linkage of fast payment systems in the two places (i.e. the Faster Payment System (FPS) in Hong Kong and the Internet Banking Payment System (IBPS) in the Mainland) to facilitate residents of the two places to make real-time, cross-boundary small-value payments. As of September this year, the FPS recorded over 15.31 million registrations, and was handling an average volume of transactions of HK$12.7 billion on a daily basis. The linkage of the fast payment systems in the two places will facilitate members of the public in making cross-boundary transactions and payments. Moreover, to enable the Mainland branches of Hong Kong-incorporated banks to provide better services for their customers, the HKMA and the relevant Mainland authorities will foster the early implementation of issuance of bank cards by the Mainland branches of Hong Kong-incorporated banks in the Mainland.
 
     The Government and financial regulators will continue to maintain close communication with the relevant Mainland authorities and the industry on proposals for expanding the scope and capacity of measures concerned, to implement various cross-boundary financial service policies in concerted efforts and explore further enhancement and facilitation measures.
 
(3) The Government and financial regulators have been working closely with the Mainland authorities in facilitating the development of fintech innovation and cross-boundary data flow in Guangdong and Hong Kong, so as to support fintech adoption by financial institutions to promote cross-boundary data usage in an orderly and secured manner and in compliance with relevant regulatory requirements.
 
     In May this year, the Shenzhen and Hong Kong authorities announced the pilot launch of the Shenzhen-Hong Kong cross-boundary data validation platform. The platform utilises blockchain technology and data coding (i.e. hash values) for document verification without involving any cross-boundary transfer or storage of the original documents, providing a credible means for validating the authenticity of the documents presented by the data owners. During the first phase of implementation of the platform, pilot trials were conducted with cross-boundary use cases in the financial sector, covering validation of credit referencing reports as well as account opening documents for corporate customers. The second batch of pilot trials in the financial sector will commence in the fourth quarter of this year.
 
     In respect of Cross-boundary Credit Referencing (CBCR), which involves cross-boundary transmission of credit reference information to facilitate banks' cross-boundary credit assessment of borrowers (such as small and medium-sized enterprises), the PBoC and the HKMA announced earlier this year policy measures to promote CBCR co-operation with a view to facilitating the cross-boundary financing of enterprises, and signed the Memorandum of Understanding on Cross-boundary Credit Referencing Pilots, establishing the co-operation arrangements in relation to the conduct of pilots. The HKMA and the relevant Mainland authorities have agreed, on a pilot basis, to conduct two-way cross-boundary transfers of credit reference information, with a start in the Greater Bay Area and firstly between Shenzhen and Hong Kong. Currently for the southbound transmission of credit reference information to Hong Kong, there have been successful pilot cases carried out by various banks and Credit Reference Agencies under the guidance and review of the HKMA and the PBoC. These pilot cases help gather experience and provide the basis for promoting comprehensive CBCR connectivity between the Mainland and Hong Kong.
 
(4) The Government is committed to establishing Hong Kong as an ideal platform to support the country's strategy for enterprises and capital to attract investment and go global, and attract enterprises from the Mainland and around the world to set up headquarters or corporate divisions in Hong Kong. For the financial services sector, the Government and the IA are continuously reviewing and enhancing the regulatory framework with a view to reinforcing and strengthening Hong Kong's status as an international risk management centre and promoting the sustainable development of the insurance industry. With the commencement of the insurance group-wide supervision framework in Hong Kong in 2021 and the implementation of the Risk-based Capital Regime for the insurance industry on July 1 this year, Hong Kong's insurance regulatory regime aligns with international standards. As an international risk management centre, Hong Kong is the location of choice for Mainland insurance companies to set up regional headquarters. The Second Agreement Concerning Amendment to the Mainland and Hong Kong Closer Economic Partnership Arrangement Agreement on Trade in Services signed on October 9 this year also encourages eligible Mainland insurance companies to set up regional headquarters in Hong Kong. The Financial Services and the Treasury Bureau and the IA have also been actively liaising with Mainland insurance companies interested in developing in Hong Kong and providing them with relevant guidance.

Ends/Wednesday, October 30, 2024
Issued at HKT 15:00

NNNN