TNAG-2125-FCO40-3032-Banking-situation-in-Hong-Kong-1990 — Page 8

Foreign and Commonwealth Office

CONFIDENTIAL

London SW1A 2AH

24 May 1990

Ry24/5

Misa Marasón

Deear Charles,

Mr Henry Keswick: Hong Kong

Mc Stuga 2415 Mi Hath Rich/ 24/5

Thank you for your letter of 2 May enclosing a letter the Prime Minister has received from Mr Henry Keswick about the difficulty being experienced by Jardine Fleming in obtaining a full banking licence in Hong Kong. I enclose a draft reply from the Prime Minister which has, as you asked, been prepared in consultation with the Treasury and the Bank of England as wexell as the Governor of Hong Kong.

Banking licences in Hong Kong are granted at the discretion of the Governor-in-Council (ie the Governor acting in consultation with the Executive Council), in accordance with the provisions of the Banking Ordinance. No statutory licensing criteria are laid down in the Banking Ordinance. But for many years the detailed criteria have been publicly a available.

Two

Entry into the Hong Kong banking sector is open to both coverseas banks and local deposit taking institutions. different sets of criteria apply to each category. Banks incorporated outside Hong Kong are required to demonstrate that they are above a certain size (this means that they they must rank in the world's 300 largest banks), and that they are properly supervised. For locally incorporated applicants,

uch lower size criteria apply. In addition to meeting these, the local applicant must have been a deposit taker for at least ten years and be of good standing. Also, crucially in the case of Jardine Fleming, to be treated as a local company, the applicant has to be "predominantly beneficially owned by Hong Kong interests".

The origin of this provision was principally to prevent coverseas banks incorporating local subsidiaries in order to circumvent the size criterion, while leaving open the realistic possibility that locally owned deposit taking companies could aspire to become full banks.

Jardine Fleming would not satisfy the criteria for a non-Hong Kong institution since it ranks well below the world's 300 largest banks in terms of size. Nor does it satisfy the criterion that a local applicant should be predominantly beneficially owned by Hong Kong interests since neither of its ultimate parent companies is incoporated in Herong Kong. Jardine Fleming and Co was incorporated in Hong Kaong in 1970 as a joint merchant banking venture between

CONFIDENTIAL