WTO Negotiations of Financial Services
A Position Paper by the Hong Kong Coalition of Service Industries
May 1997

Banking

1. 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.
2. A particular concern of Hong Kong centres on the provision of personal banking and financial services. A number of PBEC member economies 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:
   1. 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 some counties (Philippines and Indonesia), but others (in particular Malaysia but also to a lesser extent Singapore and Thailand), have maintained a very restrictive policy.
   2. The freedom to price. We believe the price of financial services should be far more market-driven than is often the case.
   3. 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.
   4. The freedom to offer a full service. In come countries (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 others (Singapore) although banks are allowed to provide some related services, in practice this applies only to a very limited extent.
3. 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

4. There is an urgent need for the infrastructure capital markets for countries around the world to be upgraded in the following ways.
   1. 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.
   2. 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.
5. 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, for example, Indonesia. We therefore recommend that enforceable rules and regulations be put into effect which practice minority rights.
6. 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, as experienced in Thailand, Philippines, Korea, Taiwan and to a lesser extent Singapore, should be abandoned. Such practice leads to poor liquidity for the market and also creates a disadvantaged environment for foreign investors.

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