FINANCIAL AND MONETARY AFFAIRS
The Securities and Futures Commission, which was established in May 1989 in res- ponse to the difficulties encountered in Hong Kong's financial markets at the time of the October 1987 world stock market crash, exercises prudential supervision of the securities, financial investment and commodities futures industry in Hong Kong. It administers the Securities and Futures Commission Ordinance, the Securities Ordinance, the Protection of Investors Ordinance, the Commodities Trading Ordinance and the Securities (Disclosure of Interests) Ordinance.
The Securities Ordinance and the Stock Exchanges (Unification) Ordinance, together with the Securities and Futures Commission Ordinance, provide a framework within which dealings in securities are conducted and the Stock Exchange operates, enabling trading in securities to be regulated. They require the registration of dealers, dealing partnerships, investment advisers and other intermediaries and provide for the investigation of suspected malpractice and the maintenance of a compensation fund to compensate clients of de- faulting stockbrokers.
The Protection of Investors Ordinance prohibits the use of fraudulent or reckless means to induce investors to buy or sell securities, or to induce them to take part in any investment 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 commission for authorisation. The ordinance was amended in July 1989 and the procedures for authorising advertisements in respect of commercial paper and certificate of deposits issues were streamlined.
The Commodities Trading Ordinance, together with the Securities and Futures Commis- sion 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 registration of dealers and their representatives and 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). Conducting insurance business in or from Hong Kong is restricted to author- ised 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 the business of insurance companies in certain circumstances. Where the authority has cause for 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 winding-up the company involved.
Proposals for introducing self-regulatory measures to strengthen discipline in the insurance market have been formulated by the insurance industry, in consultation with the
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