Sufficient financial regulations are important to financial hub

Introduction

A sound financial regulatory system is an important basis of stable and reliable financial market. Precise legislations and strict enforcement system
are essential to control the practices of financial institutions. After the Great Depression, several developed countries have developed series of
laws to regulate disclosure of financial data, potential risk and sales practices of financial institutions.

In the past 20 years, a lot of complexed financial products like derivatives flooded the market and most of the investors cannot understand their underlying risks.

However, Hong Kong Monetary Authority was unawared of those risks and this had led to severe losses among
Lehman Brothers minibonds and Morgan Stanley Octave Bonds investors.
In fact, these products are classified as high risk in USA and sales to retail investors are prohibited.

Problems:

Nowadays, two separated entities, including Securities and Futures Commission and Hong Kong Monetary Authority, are responsible to financial regulations in Hong Kong SAR.

As the complexity of modern financial products and diversification of bank operations, the existing structure often cannot monitor the risks of them effectively.

Worst still, some scopes of regulations by the two organizations are duplicated. That will reduce the efficiency of monitoring securities and financial institutions.
Also, that will provide oppotunities to transfer the responsibility to each other.

In some countries like Canada and UK, integrated financial regulatory agencies are responsible to set operation guidelines, observe and investigate the practices of banks.
The regulatory agencies are required to report to the legislature in order to let the public observe their operations. Thus public interest can be protected.

Loose loan regulations are directly linked to HIGH housing prices

In the past 5 years, prevailing mortgage loan rates have dropped more than reduction of prime rate.
As HKD is at pegging rate to USD, the interest rate of both currencies should be similar.
However, the prevailing 30-year mortgage rate is 2.8% p.a., which the rate is fixed for just 3 years but floated afterwards.
Moreover, many banks provide adjustable-rate mortgage at rate as low as 2.1% p.a., which is significantly lower than 30-year fixed mortgage rate in USA at about 4%,
even if the rate is the lowest in the past 50 years.
Meanwhile, 10-year US Treasury bond yield is 2.36% and 30-year T-bond yield is 3.44%.
Therefore, such low mortgage rates are totally predatory and have contributed to steep rise in property prices!
But Hong Kong Monetary Authority allows scenario similar to Irish and USA property bubble occurs now.
In fact, repayment will increase steeply if Hong Kong Inter-bank Offer Rate or prime rate increases, which is likely to occur 2 to 3 years later.
Moreover, banks often impose some terms to allow them to raise lending rates even HIBOR or prime rate remains unchanged.
Such predatory lending can lead to massive loan default and leading to potential financial crisis.

We demand for...

More information about risks of investment products, like stocks or bonds composition, must be disclosed;
Ban advertisements of risky derivatives, like options or warrants;
Set up laws to forbid the sales of complexed derivatives to retail investors;
Raise lower limit of mortgage rate to 3.5%;
All home mortgage must adopt fixed rate until the USA Federal Reserve raise the base borrowing rate increase to 1.5%;
Ban predatory lending practices and disclose all interest rate details of loans

The original text was distributed on 4 April 2012, 4:11pm.