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FINANCIAL AND MONETARY AFFAIRS
The Leveraged Foreign Exchange Trading Ordinance provides for the regulation, by the Securities and Futures Commission, of the retail end of leveraged foreign exchange trading where an investor buys or sells foreign currencies by putting up a small percentage of the full value of the contract, settlement being made with reference to differences in exchange rates rather than actual delivery. Regulation of the market is effected through the licensing, by the Securities and Futures Commission, of leveraged foreign exchange traders and their representatives, who are required to fulfil 'fit and proper persons' criteria. The ordinance also provides for the investigation of suspected trading malpractices, supplemented by rules governing arbitration, conduct of business, maintenance of financial resources, accounts and audit, contract notes and appeal procedures. By the end of 1995, the SFC had issued 36 forex trader licences as well as 1 450 licences for representatives working for the traders.
The Office of the Commissioner of Insurance exercises prudential supervision over the insurance industry in Hong Kong. It administers the Insurance Companies Ordinance, which brings all classes of insurance business under a comprehensive system of regulation and control by the Commissioner of Insurance (Insurance Authority).
To protect the interests of Hong Kong policy holders, the ordinance stipulates minimum share capital and solvency requirements for all authorised insurers and requires them to submit periodic financial statements and other relevant information to the authority. It provides that any person who is not considered by the authority fit and proper to be associated with an authorised insurance company cannot acquire a position of influence in relation to such a company. It also empowers the authority to intervene in the conduct of the business of insurance companies in circumstances where the authority has cause for concern. The authority may take remedial or precautionary measures to safeguard the interests of policy holders and claimants, including limitation of premium income, restriction of new business, placing of assets in custody and petitioning for the winding-up of the company concerned.
During the year, legislative amendments and subsidiary legislation were brought into effect to improve insurance regulation for the better protection of policy holders. Since May 1995, a general business insurer must maintain assets in Hong Kong sufficient to meet the legitimate claims of Hong Kong policy holders in the event of the insurer's insolvency, particularly when it is involved in cross-border insolvency proceedings.
Since October 1995, life insurers have to maintain a solvency margin which relates to the risk base of the business instead of a fixed solvency margin. Other legislative amendments were made in July to simplify procedures for the transfer of business from one insurer to another and to allow the Insurance Authority to exchange information with other financial services regulators.
Self-regulatory measures to strengthen professional discipline in the insurance market have been formulated by the insurance industry, after consultation with the government. The measures involve the adoption by the industry of two Statements of Insurance Practice governing the writing of insurance contracts of long-term and general insurance business, and the establishment of an Insurance Claims Complaints Bureau, which provides an independent avenue for resolving claims disputes arising from personal insurance policies.