SFC Press release - Speech at Hedge Funds World 2006

The following is the text of a press release following on from Ms Alexa Lam's speech to Hedge Funds World in Hong Kong in September 2006:

Keynote Speech by Mrs Alexa Lam at the 9th Annual Hedge Funds World Asia

SFC’s Executive Director of Intermediaries and Investment Products, Mrs Alexa Lam, today gave the keynote speech at the 9th Annual Hedge Funds World Asia.

For those hedge fund managers looking to set up a base in Asia, Mrs Lam said: “Talented, creative, innovative and flexible fund managers need not look further, as Hong Kong is the market with liquidity, openness, depth and access to the exciting Mainland market. We are poised to benefit from receiving and managing the best opportunities the market has to offer.”

Mrs Lam said Hong Kong is one of the few jurisdictions where hedge funds are available to the retail market. She further said hedge funds should not be barred to retail investors, as long as the regulatory requirements were satisfied. She added that the SFC had set out a set of guidelines for hedge funds to be authorised by it for them to be offered to the public.

Mrs Lam said whilst private hedge funds were not required to be authorised by the SFC, if the funds committed fraud, insider dealing, or other market misconduct, they were still subject to the sanctions under applicable rules and regulations.

She said fund managers in Hong Kong were required to be licensed, regardless of whether the funds they managed were offered to the public or private investors. In this regard, the fund managers must satisfy the SFC that they had proper internal controls, expertise, financial resources and proper risk management systems in relation to their investment strategies and that they were fit and proper in general to be licensed.

Mrs Lam said licensed fund managers must continue to comply with the relevant rules and regulations including the Code of Conduct. The SFC conducted a round of theme inspections last year and had detected some weaknesses, which were by no means unique to Hong Kong.

Mrs Lam pointed out that the regulator’s job was not to ensure zero failure, but to remain vigilant of possible impact of the failure of a large hedge fund or a group of hedge funds on financial institutions with significant hedge fund exposures that might undermine financial stability.

She explained that systemic risk might arise from of a combination of factors, including (a) multiple layers of leverage; (b) multiple sources of exposure of credit providers; (c) market dynamics amplifying price movements; (d) use of complex derivatives and model-dependent valuation; and (e) interaction between credit, market and liquidity risks.

Channel News Asia Interview

Alex Duperouzel from ComplianceAsia was interviewed on Channel News Asia this morning about regional anti corruption efforts.

Q&A as follows:

Q: What are the new challenges in the fight against corruption in Asia and the Pacific?

A: Essentially the challenges are the same as they have been for the last 20 years. Firstly governments need to ensure that they have a clean and efficient system domestically. They then need to ensure that their own citizens are not corrupting other institutions and thirdly they need to ensure that they have a banking system that is not hiding ill gotten wealth while protecting the privacy rights of the individual.

Q: World Bank President Paul Wolfowitz's fight against corruption in poor contries has drawn criticism for its agressive approach. What's your view on this?

A: Paul Wolfowitz is doing a great job. He is continuing the good work of his predecessor, James Wolfenson who instituted a number of anti corruption reforms during his tenure. You need to remember that there are still a large number of people within the World Bank and UN infrastructure that think that corruption is a good thing, that development will not proceed without it. Mr Wolfowitz has a signficant challenge in front of him and that challenge requires leadership. He is showing that leadership as well as courage and I think he will do a good job for the World Bank.

Q: Can you walk us through the role of international organisations and donors in the region's fight against corruption?

A: The Asian Development Bank and the OECD have been very active in this field for many years. They have a mentoring program to help countries develop their own anti corruption agencies and systems. PBEC, the Pacific Basin Economic Council, has also been very active in this field. Of course Transparency International is also very active around the region. The answer in relation to individual donor countries is more complex and tied up in high politics and the great game. Donor countries need to support the World Bank's current anti corruption efforts.

Q: Can the business sector help or contribute in fighting corruption?

A: The business sector still has a very important role to play. Business leaders need to reaffirm their committment to a level playing field but they in turn need to be supported by shareholders. It is no good for business to take a stand against a corrupt system and find that they are then criticised for performance at the AGM.

Q: Do surveys play a role in anti corruption reform?

A: Surveys are important but like all surveys they have their limitations. Take for example the most well known survey, the Transparency International Perceptions Index. The key word here is perceptions. The index shows how a country is perceived from a corruption standpoint. Perception does not always match reality. If you take Pakistan for example. Pakistan typically has a low perception index rating. The on ground reality is quite different. President Musharraf has made great strides in cleaning up and reforming the systems of government in that country. He inherited quite a legacy in that regard. When you go on ground in Pakistan you find that the real situation is not the same as the perception.

Q: What is the state of international legal assistance in the prosecution of corruption?

A: Well corruption is more of a local issue so there really is not a lot of scope for international assistance other than in the area of freezing bank accounts and tracing funds. There has recently been a number of changes in Singapore and elsewhere in Financial Action Task Force member states to introduce provisions relating PEP's, politically exposed personalities. These provisions will make it harder for officials to hide corrupt wealth.

Terrapinn Hedge Fund World Conference in HK

The Terrapinn Hedge Fund World conference in Hong Kong began this morning and featured a presentation from Alexa Lam of the Hong Kong SFC. Ms Lam had some interesting and, we would respectfully suggest, controversial views on how hedge funds should and can be regulated. We will be publishing an opinion piece on the wider issue of Hong Kong hedge fund and hedge fund advisor regulation soon.

Suffice to say that there are several points raised by Ms Lam that we don't believe are in the interests of the development of a dynamic asset management industry in Hong Kong.

Channel News Asia Interview

Alex Duperouzel from ComplianceAsia will be speaking live on Channel News Asia on Tuesday September 19 at 7:20am HK/Singapore time. He will be discussing regional anti corruption efforts in the light of the IMF / World Bank plenary session on the same topic.

Australian Attorney General's AML Links

Here is the link to the Australian AG's site that shows the major changes proposed to the anti money laundering and countering terrorist financing regime in Australia.

July newsletter

The July newsletter is has been sent to our subscribers. This month's editorial:

Please look out for a regulatory roundtable that we are jointly sponsoring with the Caymans law firm, Ogier, along with Fortis and Ernst & Young in Hong Kong. The roundtable will feature two senior representatives from the Cayman Islands Monetary Authority. The roundtable will be held on the afternoon of Monday September 11P^thP and you can obtain a reservation by emailing Ualex.duperouzel@complianceasia.comU

July has been a relatively quiet month for regulatory events with a majority of regulators and large institutions working on half yearly accounts as well as taking some time for the summer break in the northern hemisphere countries.

Press reports are saying that a number of hedge funds in Hong Kong are relocating to Singapore. We know this is the case in some instances in addition to those reported, but we also note that a number of new funds are still arriving in Hong Kong. See our Singapore section for further details.

Our August newsletter will be commenting on the new anti money laundering guidance in Singapore that is an extension of the draft guidance note from January 2005. The changes are long overdue and most large players will find they have already incorporated the proposals. Smaller operations will find the new provisions, once they are formalised, an additional burden.

Australia’s new anti money laundering provisions are also a step closer to becoming law. It will be important to understand these provisions for anybody with Australian financial industry responsibility.

Finally, Singapore is preparing to hold the next meeting of the IMF and World Bank in September, so we anticipate that there will be significant news items from these meetings. For those of us in Singapore we should expect significant traffic disruption.