Hong Kong is working towards financial stability in view of the importance of tackling counterparty risks across global financial markets, according to Financial Secretary John Tsang.
Mr Tsang, in his message at the Asia-Pacific Economic Co-operation Finance Ministers’ Meeting in Honolulu, said
that apart from preparing for the implementation of the Basel III framework in 2013 and a new short-selling reporting regime next year, Hong Kong is also following up in earnest the commitments made by the G20 Leaders regarding the operation of the over-the-counter derivatives market.
In the course of developing such reform measures, the importance of a global scheme for uniquely identifying participants in the financial market has been highlighted. Under a global legal entity identifier, or LEI, an entity entering into a transaction in different financial products and in different locations can be uniquely identified.
He pointed out the international regulatory community generally recognises the importance of the global LEI in meeting the G20 objectives of improving transparency, mitigating risk and protecting against market abuse.
The Committee on Payment & Settlement System and the International Organisation of Securities Commissions consider the development of an LEI a valuable tool in supporting data aggregation in trade repositories. The G20 Leaders supported the global LEI initiative at their Cannes Summit last week, and called on the Financial Stability Board to take the lead in helping co-ordinate work among members of the regulatory community.
“Hong Kong fully recognises the merits of adopting a global approach to identify participants in the financial market. We have been paying close attention to international developments on the introduction of this scheme. In particular, the financial regulators in Hong Kong have been actively participating in the work of international standard setting bodies to help shape the relevant standards,” he said.
Mr Tsang told the meeting Hong Kong is in the process of developing a regulatory framework for the over-the-counter derivatives market and establishing a trade repository system.
Apart from the LEI scheme, he also saw the need for greater international co-ordination on mandatory clearing to address the challenges related to accessing central counterparties and their mutual recognition. This will avoid potential conflict among regulatory frameworks by different jurisdictions.
“It is important to develop and implement an internationally accepted framework for recognition of central counterparties based on international standards recommended by the relevant bodies. Our financial regulators will continue to participate in the international discussion through the Financial Stability Board and the International Organisation of Securities Commissions,” he noted.
Tsang said that apart from participating in international bodies, Hong Kong will continue to commit itself to implementing the international financial regulatory reforms, taking into account our local circumstances.”
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