|KEY COUNTRY FACTS|
|System of government:||limited democracy (Special Administrative Region of China)|
|Currency:||Hong Kong dollar (HKD)|
|FX regime:||currency board at a fixed rate to USD|
|Treasury association:||The Hong Kong Association of Corporate Treasurers (HKACT)|
|Other professional financial/banking associations:||The Hong Kong Association of Banks|
- 1 Financial regulatory framework
- 2 Taxation framework
- 3 Banking service provision
- 4 Clearing and payment systems
- 5 Cash and bank account management
- 6 Corporate finance
- 7 Websites
Financial regulatory framework
Hong Kong Monetary Authority
Established in April 1993, the Hong Kong Monetary Authority (HKMA) is the government authority in Hong Kong responsible for maintaining monetary and banking stability. The HKMA is the office of the Monetary Authority (MA) which is appointed by the Financial Secretary under the Exchange Fund Ordinance. The powers, functions and responsibilities of the HKMA are set out in the Exchange Fund Ordinance, the Banking Ordinance, the Deposit Protection Schemes Ordinance, the Settlement and Clearing Systems Ordinance and other relevant Ordinances. While the MA reports to the Financial Secretary, the division of functions and responsibilities in monetary and financial affairs between the Financial Secretary and the MA is set out in an Exchange of Letters between them dated 25 June 2003. This Exchange of Letters also discloses the delegations made by the Financial Secretary to the MA under these Ordinances. At present, the HKMA has four major functions, namely:
- Maintaining currency stability within the framework of the Linked Exchange Rate system.
- Promoting the stability and integrity of the financial system, including the banking system.
- Helping to maintain Hong Kong's status as an international financial centre, including the maintenance and development of Hong Kong's financial infrastructure.
- Managing the Exchange Fund.
Hong Kong's legal framework for banking supervision is laid down by the Banking Ordinance. Section 7(1) of the Banking Ordinance provides that the principal function of the Monetary Authority is to promote the general stability and effective working of the banking system. The HKMA seeks to establish a regulatory framework that is fully in line with international standards, especially those recommended by the Basel Committee on Banking Supervision. The objective is to devise a prudential supervisory system to help preserve the general stability and effective working of the banking system, while providing sufficient flexibility for banks to make commercial decisions.
The tax environment in Hong Kong fosters a strong incentive to foreign investment. Hong Kong is renowned for its simple and lucid tax system and low-tax jurisdiction.
- Corporate income tax – the corporate income tax rate of 16.5% is amongst the lowest in the region.
- Capital gains – none.
- Taxation of dividends – none.
- Indirect taxes – stamp duty, estate duty, betting duty and hotel accommodation tax. In essence, only company profits, salaries and property rental income are taxable. This makes Hong Kong's effective overall tax bite much lower than all other developed countries. While most of these countries impose 40% to 50% tax on all income and profits, in Hong Kong the rates stand only at 15% for personal income tax and 16.5% for corporate.
Favourable tax rates aside, Hong Kong also adopts a territorial source principle of taxation. This means that income derived from outside Hong Kong by a local resident will not, in general, be double taxed in Hong Kong. Furthermore, many developed countries (e.g. the UK and Australia) also provide their residents with unilateral tax relief for Hong Kong tax paid on income derived from Hong Kong. To this extent, most foreign residents will not suffer double taxation. In addition, legislation provisions have been made years ago providing double taxation relief for certain businesses with internationally-based business activities, such as airline operators and shippers.
Banking service provision
Hong Kong is one of the world's most important financial centres, along with New York and London. Most of the world's 100 largest banks have a presence in Hong Kong – one of the chief contingents of international banks in the world. The banking sector has played a vital role in establishing Hong Kong as a major loan syndication centre in the region. Hong Kong maintains a three-tier system of deposit-taking institutions – namely licensed banks, restricted licensed banks, and deposit-taking companies (collectively known as “22 institutions”). At the end of May 2015, there were 157 licensed banks, 23 restricted licence banks and 23 deposit-taking companies in business. In addition, there are 64 local representative offices of overseas banks in Hong Kong. The major commercial banking players in Hong Kong are Standard Chartered Bank, HSBC, Bank of China, Hang Seng Bank and Citibank. Banks in Hong Kong offer a wide range of products for corporate customers, including deposit-taking, cash management, credit facilities, trade services, investments, insurance, treasury and capital market, as well as securities and custodian services. Authorised institutions in Hong Kong comply with the provisions of the Banking Ordinance which, among other terms, require them to maintain a healthy level of liquidity and capital adequacy ratios. They are also required to submit periodic returns to the HKMA, to adhere to statutory limits under the Banking Ordinance on loans to any single customer or to their directors and employees, and to seek approval for the appointment of their directors, chief executives and controllers.
Clearing and payment systems
The interbank clearing systems in Hong Kong are operated by Hong Kong Interbank Clearing Ltd (HKICL), a private company jointly owned by the HKMA and the Hong Kong Association of Banks. There are three main types of clearing systems in Hong Kong, all of which operate in accordance with the real-time gross settlement (RTGS) infrastructure launched in December 1996:
- RTGS payments (HKD, USD, Euro and Renminbi (RMB)) – also known as the Clearing House Automated Transfer System (CHATS), these payments are settled in real time on a gross basis via a Settlement Institution (SI). The SI for HKD RTGS, USD RTGS, EUR RTGS and RMB RTGS are the HKMA, HSBC, Standard Chartered Bank (Hong Kong) Limited and Bank of China (Hong Kong) Limited respectively. While all banks in Hong Kong are required to maintain a settlement account with the HKMA to participate in HKD RTGS, it is optional for them to maintain a settlement account with other SIs and directly participate in RTGS of other currencies. Alternatively, they can participate indirectly through another direct participating bank. RTGS has been linked to payment systems of other countries, e.g. MY RTGS, to provide Payment versus Payment (PvP) for foreign exchange transactions to reduce settlement risks. To further facilitate interbank transactions, starting from November 2009, USD and EUR RTGS services became available on public holidays that fall on weekdays, with the exception of New Year's Day. In 2014 a cross-border payment-versus-payment (PvP) link between the USD CHATS and the Thailand’s RTGS system BAHTNET system was launched for settlement of USD and THB foreign exchange transactions.
- Paper cheque clearing – Hong Kong has implemented cheque imaging and truncation in 2003 in which cheques are exchanged in image format. Physical cheques are only required to submit for exchange if the cheque amount exceeds a pre-defined threshold (HKD 100,000) (Any item arousing suspicion will also need to be physically presented).
- ECG (electronic clearing) – ECG is designed to handle high-volume and low-value payments that are cleared and settled in bulk. ECG items include autopay-in and autopay-out (i.e. ACH payments or direct debit and credit), direct debit consumer payments at point of sales (Easy Pay System) and Automatic Teller Machines.
The People's Bank of China appointed Bank of China (Hong Kong) Limited as the Clearing Bank for RMB business in December 2003. The RMB business in Hong Kong started in 2004 and its scope has expanded since then. Prior to the introduction of the RMB trade settlement business in July 2009, banks in Hong Kong participating in the RMB business scheme (Hong Kong Participating Banks) offered a range of retail banking services such as deposit-taking, currency exchange, remittance, debit and credit cards, cheques, and the subscription and trading of RMB bonds. However, since July 2009, Hong Kong Participating Banks have been able to provide a wider range of RMB services, including trade finance. To support the operation of RMB business, the RMB Real Time Gross Settlement system in Hong Kong was upgraded from the RMB Settlement System in June 2007. The major responsibilities of the RMB Clearing Bank in Hong Kong are to:
- open RMB settlement accounts for Participating Banks for the inflow and outflow of RMB funds; open a settlement account with the People's Bank of China's Shenzhen sub-branch to centralise the inflow and outflow of RMB funds of the Clearing Bank and the participating banks;
- collect and distribute RMB banknotes;
- provide clearing services for RMB remittances and RMB cards and bonds issued by Hong Kong banks;
- provide services for the Participating Banks to square their RMB open positions that result from the conversion of RMB into Hong Kong dollars and vice versa.
In 2009, a pilot scheme for cross-border trade settlement was initiated across five mainland China cities, Hong Kong, Macau and select ASEAN countries. In August 2011, in light of initial success and ongoing regulatory changes, the scheme was extended from 20 provinces to the whole of mainland China. By June 2012, all Chinese companies with an import-export licence were allowed to settle trade in renminbi. In August 2012 Hong Kong banks were permitted to offer RMB services to non-residents. On the investment front, the Chinese market was liberalising, too. In October 2011, all domestic mainland corporates were allowed to participate in the Dim Sum Bond market; and by December, channels were broadened to allow for the repatriation of offshore renminbi funds to China for foreign direct investment purposes. In addition to changes around trade and investment, the Chinese government has made efforts to gradually open its capital accounts – a key requirement for full convertibility. The following table is a review of these RMB services offered in (or through) Hong Kong:
|Table 1: Types of cash management solutions|
|Account services||Payment services||Receivables services||Liquidity management|
|Current / Savings accounts, Certificates of deposit Client Account Services, Phone banking, Loans, Trade financing||RTGS (HKD/USD/Euro/RMB), Telegraphic transfers, Cheques, Automated clearing house, ACH direct credits, ACH payroll, Demand drafts, Cashier’s orders (HKD/USD), Credit card, Debit card, Internet bill payment, EPS (Easy Pay System), Electronic payment, Automated teller machines, Jet Payment, EPSCO electronic fund transfer, Multi currency solution (MCS)||Inward remittances, ACH direct debits, Retail lockbox, Wholesale lockbox, Local cheque clearing (HKD/USD)||Pooling (in-country and regional), Sweeping (in-country and regional), Bal-ance aggregation|
Any individual, company or financial institution can open a RMB bank account with any bank in Hong Kong.
There are no longer any limits on the amount of RMB renminbi that can be purchased or sold by individuals and companies with banks in Hong Kong.
There is no longer any restriction in Hong Kong on RMB fund transfers but cross-border fund transfers to and from Mainland China are subject to relevant rules and regulations in Mainland China.
With the launch of the RMB trade settlement pilot scheme in July 2009, Hong Kong Participating Banks can now provide trade finance to financial institutions overseas and corporates outside Mainland China.
Credit and debit cards
Hong Kong Participating Banks can issue RMB debit and credit cards in Hong Kong to residents and non-residents. RMB debit and credit cards issued by Mainland banks are also accepted by retailers in Hong Kong.
RMB cheques drawn on current accounts held with Hong Kong Participating Banks can be used both in Hong Kong and on the Mainland. Within Hong Kong, customers can make payments and fund transfers. On the Mainland, RMB cheques can be used for consumer spending in Guangdong Province, subject to a daily limit of RMB80,000 per account.
All entities, both in Hong Kong and overseas, are now permitted to issue RMB bonds in Hong Kong, in accordance with market and regulatory practices following the same practices as other currencies. All individuals and entities with a RMB bank account are also permitted to invest in RMB bonds in Hong Kong.
Cross-border trade settlement
The launch of the pilot scheme for cross-border trade settlement in RMB on 6 July 2009 was a significant milestone in the continuing development of RMB business in Hong Kong. The scope of RMB banking has been expanded with participating authorised institutions now offering a range of services for trade enterprises using RMB as the settlement currency for their trades with Mainland China.
Cash and bank account management
Any corporation, financial institution and individual – regardless of their business location or residential status – can open accounts of any nature in any currency (including RMB for general purpose) denomination with any bank in Hong Kong. Designated Business Customers (DBC) are allowed to open a specific type of RMB DBC account in Hong Kong which comes with specific arrangement of fund transfer and currency exchange (e.g. only from RMB to HKD). Since 25 February 2004, RMB deposit-taking accounts, currency exchange and remittances have been permitted in Hong Kong. According to statistics published by HKMA, total RMB deposits with authorised institutions stood at RMB1.1 trillion at the end of 2014.
Hong Kong is a member of FATF (Financial Action Task Force).
Major banks in Hong Kong offer a full range of cash management services to their corporate and institutional customers via electronic banking, direct server-to-server connections, or through the internet. This typically covers account services, payments, receivables and liquidity management. In the past few years, there has been an increasing trend of:
- Integration into the customer’s back office, facilitating straight-through processing of transactions. This would typically cover payments, collections and automated reconciliation of accounts payables and receivables.
- Moving away from vanilla product offerings to solution-based offerings.
- Demand for more sophisticated liquidity management solutions including zero-balance accounts, pooling and cash concentration.
- Integrated solutions for the entire transaction processes, both in-country and regional.
As of July 2015, there were 1,595 listed companies in Hong Kong. The amount of funds raised in the Hong Kong equity markets (for both the main board and the growth enterprise market) was at HK$80.5bn. At July 2015, the market capitalisation was about HK$27.4 trillion. Hong Kong Exchanges and Clearing Limited is the holding company of The Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchange Limited and Hong Kong Securities Clearing Company Limited. These three organisations use a shared website.
Hong Kong Monetary Authority
- [www.hkma.gov.hk www.hkma.gov.hk]
Census and Statistics Department
Hong Kong Stock Exchange
The Hong Kong Association of Corporate Treasurers (HKACT)
World Federation of Exchange
Business & Finance – Hong Kong Government News
Hong Kong Interbank Clearing Limited