21 Feb 2009
HONG KONG: Financial services chief Chan Ka-keung told the first Legislative Council hearing on the minibonds saga Friday that he was unaware of Lehman Brothers ill-starred minibonds before the collapse of the investment bank in September.
Chan's testimony, offering the first official account of the investment debacle, drew criticism that the government is concerned only with helping financial institutions weather the financial storm, while ignoring the interests of small investors.
The Secretary for Financial Services and the Treasury said he is concerned about the turbulence in the financial market and that he's been concerned about structural investment instruments such as Accumulator, since early 2008.
Legislators at the hearing referred to a speech made by Chan last May in New York. He told his New York listeners that the roots of the sub-prime crisis arose from credit rating agencies and the system of risk control. The Lehman minibonds somehow escaped his radar. Minibonds and other Lehman-related instruments chewed up HK$20 billion involving more than 48,000 accounts.
"The earliest I knew about minibonds was after the collapse of Lehman Brothers," he testified, in response to questions from legislator James To.
Chan did not elaborate.
The regulatory bodies, the Hong Kong Monetary Authority and the Securities and Futures Commission, raised no alarm to government as financial derivatives and structural investment instruments entered a period of severe turbulence in early 2008, he said.
Chan paused before responding to a question from wholesale and retail sector legislator Vincent Fang. Chan was asked the reasons for his lack of awareness of minibonds before Lehman Brothers collapsed.
"It is impossible to have a regulatory system that ensures no single incident of irregularity can happen," he said. "The close of Lehman Brothers was all of a sudden. It was a major incident. We are determined to improve our system."
Chan, admitting that some investors were misled, said the government has "no role" in deciding whether investment products should be banned from the market.
Regulatory bodies are responsible for determining whether financial institutions have made accurate disclosures concerning financial instruments. Agents for these products have responsibility to assure the products are suitable for the market, especially for investors in positions of vulnerability.
"The role of the government is to give statutory power and resources to regulatory bodies to perform their jobs," he said.
The government is not involved in day-to-day operations of the regulatory bodies, he added.
Labour sector legislator Ip Wai-ming criticized the government for not even being aware of the minibonds until they surfaced as a huge problem.
Legislator Regina Ip said the government should ban the sale of high risk products to individuals. She pointed out banks were still selling the disaster-bound instruments as late as August.
Real estate and construction sector legislator Abraham Shek criticized Chan for giving unsatisfactory answers before the hearing.
Hearing chairman Ho Chung-tai said he is satisfied with progress of the enquiry, though he noted that Chan "was not used to giving evidence under oath".
Chan will return to give further testimony before the hearing on Tuesday.
Same here, MAS is only interest in the affairs of the FIs and NOT the consumers or investors.
ReplyDeleteIn HK, the law makers may not know but here the law makers sit in this body and they are aware unless they were kept in the dark by to civil servant.
From the reply in parlaiment the chief was very well aware. Thsi shows MAS is fully supportive of what the FIs and their salespeople were doing and closed 2 eyes to those unethical activities.
Let us watch what MAS will do for the insurance industry.If they claim they didn't know what the industry has been doing NOW we tell the industry is FULL of malpractices, rotten products and the the agents suffer from conflict of interest and malpractices, incompetent ,breach section 27 blatantly and dishonest.
Let us see on whose side is MAS.
Whether this industry is created to fill up the pockets of the FIs and the agents or to help the consumers meet their financial life goals and on the win-win basis or the win-lose basis that has been going on.
Actually it is difficult to control and prevent bad products, even if you want to, when you want to promote financial dynamism and growth.
ReplyDeleteWhen you open the window to let in fresh air, you might also get flies and other unwanted creatures coming in. Of course you can have netting at the window to prevent this but in finance and banking this is not so straightforward or easy. Not even if the ministers and regulators are paid sky high for them to do their job as has been proven.
I agree and have no trust in MAS anymore
ReplyDeleteIf the products are good for the consumers , the man in the street they must be good too for the sellers and the CEOs of the FIs.
ReplyDeleteTo prove , get them to buy and a lot more than the average consumers. If the products are safe let them hug the products .
Once we determine a problem is too difficult to handle or solve, then the mind is closed to any other possible solution.
ReplyDeleteIf the window is opened, flies come in is ok. If there is potential of bunch of hornets coming in, then window cannot be opened.
Anyway, there are many possible solution to this. E.g. Checking size of sales/investment amount. If bigger, extra warning and checks could be done.
Everybody doesn't know , so only investors know. When they want to sell they crowd around the investors and things go wrong they scram.
ReplyDeletethere were multiple problems in this fiasco
ReplyDelete1) Products were risky and vague, MAS did not warn and monitor
2) Products were sold to the wrong group
3) RMs were not trained on product or were misinformed
4) FIs' employee were under pressure to sell the products to boost bottom line
When the regulator fails to do their job properly, they should have the honour to resign gracefully or be booted out.
ReplyDelete