Julia Leung, deputy CEO of
the Hong Kong Securities and Futures Commission, warned the asset- and
wealth-management industry that it might not be able to succeed in handling
mainland Chinese customers.
The problem won’t be
regulation. It will be lack of tech savviness.
“Cross-border distribution
to GBA residents will pose serious challenges for banks in Hong Kong,” she
said, referring to the Greater Bay Area, meant to integrate Hong Kong and Macau
with nine cities in Guangdong Province.
Leung made her remarks on
June 7 while addressing the annual get-together of the Hong Kong Investment
Funds Association, representing local and global asset managers, as well as
wealth managers and service providers.
“Banks here rely heavily on face-to-face means to solicit sales,” she said, “but under this scheme, the mode would change to execution-only online platform and mobile apps. The mainland’s tech-savvy retail investors are used to a level of service that is very mobile, cost-effective and provides up-to-date fund information, and that would probably need to be matched in order to entice them to invest in authorized funds and products offered in Hong Kong.”
Leading banks in the city like to showcase their latest digital efforts. The fact that the securities regulator felt the need to make her point suggests those efforts need to speed up.
The next Connect
Wealth Management Connect
was announced last year. It follows up the successful linkages of the Hong Kong
and Shanghai stock markets with Stock Connect and Bond Connect, allowing
investors on either side of the border to buy the other’s authorized
securities.
The SFC has worked with
the Hong Kong Monetary Authority and mainland authorities to launch Wealth
Management Connect, or WMC, which aims to expand sales of investment products
to residents of GBA cities.
For Hong Kong’s local
funds industry, this represents a chance to broaden the range of funds
domiciled locally, as only these will be eligible to sell to mainland investors
(as opposed to the thousands of funds sold in Hong Kong but domiciled in
offshore centers like the Cayman Islands or Luxembourg).
Leung said there has been
a pickup in applications to register open-ended fund companies in Hong Kong to
cater to this potential demand.
As the product side gets
fleshed out, Leung urged the industry to be ready to meet the high standards of
mainland investors, at least as far as digital experience goes. She noted that
banks and asset managers sped up their digitization efforts in the wake of the
COVID-19 pandemic – a trend she expects to continue under the pressure of
Wealth Management Connect.
“Go green, go tech, and stay resilient,” she told the audience.
Building resilience in asset management
WMC was only one aspect of
her remarks. She highlighted SFC’s focus on market resilience, noting the
industry successfully managed the volatility and operational challenges of
COVID-19, but warning of dangers beneath the surface. She referenced the
Archegos family office’s highly risky, overleveraged bets in the U.S. which
cost prime brokers over $10 billion in losses.
Leung said the SFC will
enhance its surveillance of prime brokers and look out for overly large positions
in the over-the-counter markets. She also told fund managers that the SFC will
scrutinize their liquidity-management practices.
She also cited increasing
abuses involving newly listed companies, many of which engage in reverse IPOs
or other shell games that rely on pump-and-dump schemes using retail investor
money. Fund managers needed to ensure their sell-side counterparties were
engaging in appropriate behavior around book-building and other IPO-related
activities.
“As buy-side participants,
you have an obvious interest in a clean, transparent, and fair bookbuilding
process,” Leung said.
Lastly she says the SFC is
cooperating with its global counterparts to advance standards for measuring and
categorizing factors in sustainable investing, and to provide clarity about how
fund managers should count and integrate data regarding environment, social,
and governance principles.
