THE ECONOMY
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arrangement in respect of property other than securities (the latter being controlled by the Securities Ordinance). It regulates the issue of publications related to such investments by prohibiting any advertisement inviting investors to invest without the advertisement first being submitted to the Commissioner for authorisation.
The Commodities Trading Ordinance provides a regulatory framework within which the Futures Exchange operates and dealers, commodity trading advisers and representatives conduct their business. It includes provisions for the maintenance of a Compensation Fund to compensate clients of defaulting commodity dealers.
Companies transacting insurance business in Hong Kong are subject to the Insurance Companies Ordinance. The ordinance brings all classes of insurance business under a comprehensive system of regulation and control by the Registrar General (Insurance Authority). The carrying on of insurance business in or from Hong Kong is restricted to authorised companies, to Lloyd's, and to certain underwriters approved by the Governor in Council. All new applications for authorisation are subject to careful scrutiny by the Insurance Authority to ensure that only insurers of good repute who meet all the criteria of the Ordinance are admitted. The ordinance stipulates minimum share capital and solvency requirements for all authorised insurers and requires them to submit financial statements and other relevant information to the authority on an annual basis. It provides that any person who is not considered by the authority to be a fit and proper person to be associated with an authorised insurance company cannot acquire a position of influence in relation to such company. It also empowers the authority to intervene in the conduct of business of insurance companies in certain circumstances. Where the authority has a cause of concern it may take remedial or precautionary measures to safeguard the interests of policy holders and claimants, including the limitation of premium income, the restriction of new business, the placing of assets in custody, and petitioning for the winding-up of the company involved.
The Securities Review Committee
Following the stock market crash in October 1987, the Governor appointed a Securities Review Committee (SRC) to review the operation and management of the Stock and Futures Exchanges and of the various regulatory bodies in Hong Kong. The report of the committee was published in June 1988. The committee recommended, inter alia, the establishment of a new regulatory authority outside the Civil Service to replace the existing regulatory structure. It also recommended a fundamental revision of the constitution and management of the two exchanges. On the settlement system for stock transactions, the committee recommended that the old arrangements, which were unable to cope with sudden increases in trading volume, should be replaced by a central clearing system under the management of a new statutory clearing house. It also recommended an extension of the settlement period.
The government announced its acceptance of the general thrust of the committee's recommendations following the publication of its report. A special unit in the Monetary Affairs Branch was set up to facilitate the early implementation of these recommendations. It was decided that a new regulatory body, to be called the Securities and Futures Commission, should be established as soon as practicable. A bill establishing the com- mission and empowering it to function effectively during its initial stage of operation will be introduced into the Legislative Council on January 18, 1989. The new commission is expected to begin operation within the first half of 1989. It will take over the functions and responsibilities of the former Securities Commission, Commodities Trading Commission