WTO Negotiations on Financial Services
Position Paper by the Hong Kong Coalition of Service Industries
April 1997
Banking
In our view, there is a compelling argument for the early liberalisation of financial
services throughout the region. We believe that Hong Kong's voice in this aspect of the
WTO negotiations carries particular moral weight as the territory has long offered a level
playing field for all entrants, and welcomed innovation and competition. The territory's
success bears witness to the economic benefits of liberalisation.
A particular concern centres on the provision of personal banking and financial
services. A number of WTO members remain reluctant to allow full access, or equality of
treatment, for foreign institutions in these markets. We believe that properly regulated
foreign institutions should be allowed the following pari passu with domestic banks:
The freedom to distribute. Each bank's choice of distribution channels (whether branch,
automatic teller machine, telephone or other) should be a commercial decision, rather than
decided by ministerial fiat. Current obstacles to this in a number of countries include
restrictions on new branches, additional ATMs and sharing ATM networks. We note - and
welcome - a measure of easing on these points by such counties as the Philippines and
Indonesia, but others, in particular Malaysia but also to a lesser extent Singapore and
Thailand, have maintained a very restrictive policy.
The freedom to price. We believe the price of financial services should be far more
market-driven than is often the case.
The freedom to allocate resources rationally. Many countries in the region apply
qualitative or quantitative controls on foreign banks' activities: for example, compelling
them to lend to certain sectors of the economy. Such restrictions are often not
commercially justified, and distort the market. We recognise that the state has proper
social and macro-economic responsibilities, but these should be discharged directly by
government agencies rather than through market-distorting regulation.
The freedom to offer a full service. In Malaysia banks are forbidden to meet their
customers' legitimate needs for e.g. insurance, unit trusts or other investment products
(particularly when these are registered in another jurisdiction). In Singapore although
banks are allowed to provide some related services, in practice this applies only to a
very limited extent.
We believe it is in the consumers interest to be able to choose both product and
supplier; and that early and thorough financial liberalisation will benefit the whole
region.
Capital market
There is an urgent need for the infrastructure capital markets for countries
around the world to be upgraded in the following ways.
First, there is a need for central registration and depositories to be established in
each market so that the cumbersome, onerous, time consuming and risky process of moving
share certificates from one place to another and registering ownership of books controlled
by listed companies can be eliminated.
With the establishment of central registration and depositories, book entry ownership
recording and paperless trading can proceed. There should then be the establishment of
computer operated trading system combined with complete and open disclosure of price and
volume on real time basis. This will result in greater liquidity for the markets and
therefore a safer environment for both institutional and individual investors.
In almost every emerging market around the world, there are instances of abuse of
minority shareholder rights. This is particularly salient in countries where ownership by
important families or by the government dominate the markets so that minority rights are
given short shrift. We therefore recommend that enforceable rules and regulations be put
into effect which practice minority rights.
Finally, the practice of restricting foreign ownership levels by foreign investors and
discouraging establishment of different classes of shares with different voting and
shareholder rights should be abandoned. Such practice leads to poor liquidity for the
market and also creates a disadvantaged environment for foreign investors.
