Legislative Control of Hong Kong Financial Markets: Some Aspects of Banking and Securities Regulations

Article excerpt

I. Introduction

This paper addresses the regulatory framework of banking and

finance on the eve of the resumption of exercise of sovereignty over

Hong Kong by the People's Republic of China. A discussion of

historical, economic, and sociological perspectives will provide the

foundation for a subsequent legal analysis.

Part II provides a brief account of the historical development of

Hong Kong, then examines the constitutional and administrative

framework relating to banking and finance in Hong Kong. The future of the

banking and finance systems in Hong Kong is provided for by the Basic

Law of Hong Kong,(1) a mini-constitutional document enacted by the

National People's Congress of China in 1990. Part III deals with the

regulatory framework of banking. A discussion of the evolution of

regulation and control mechanisms precedes an analysis of the

adequacy of the present banking legislation in Hong Kong. Part IV

discusses the financial markets of Hong Kong with special emphasis on

the securities markets. The development of the regulatory framework

of financial markets is considered first. The greater proportion of Part

IV considers different aspects of the need for regulatory control in light

of the recently proposed Securities and Futures Bill (Bill).(2) The Bill,

which consolidates most of the legislation relating to financial markets,

is expected to be enacted into law in the next few months. This paper is

written with the expectation that the Bill will be passed into law with

few, if any, substantive amendments.(3)

II. Historical Development of Hong Kong

A. Transformation from Colony to International Finance Center

The British colonization of Hong Kong marked the beginning of a

fundamental transformation in the structure of the indigenous

Chinese society. In 1841, Hong Kong had a population of approximately

90,000.(4) Today, Hong Kong has a population of more than six million.

More than ninety-eight percent of Hong Kong's population is of

Chinese descent. However, before the signing of the Sino-British Joint

Declaration on the Future of Hong Kong, the Chinese population

accepted British rule without demanding much in the way of rights.(5)

Various factors contributed to the de facto legitimacy of British

authorities, including economic factors, such as rapid economic growth,

improved social services and labor protection; political factors, such as

political stability, the rule of law, a law-abiding civil service, judicial

independence, and freedom from political oppression; and cultural

factors, such as traditional Chinese apathy toward government and

public affairs.(6)

Introduction of the common law to Hong Kong provided the

population with the stability necessary for an economic and social revolution

that directed Hong Kong on a course to become a leading

international center of finance and banking. Hong Kong has transformed

itself from a small fishing town to the world's fifth largest international

banking center in terms of the volume of external transactions, with

more than 170 licensed banks and over 60 restricted license banks,

including representatives from some 85 of the largest international

banks, ranked by total assets.(7) Understanding how the laws relating to

the constitutional framework of banking and finance operate in Hong

Kong, I begin by discussing the sources of law in Hong Kong.

B. The Competency of the Hong Kong Legislative Council(8)

In 1839, Imperial Commissioner Lin Tse-Hsu confiscated opium

smuggled to Canton, relying on a 1731 law that prohibited the

importation of opium. …