Panelists at Legal Week's Corporate Counsel Forum Hong Kong say the city needs to tackle major challenges if it wants to retain its position as a key financial hub. Elizabeth Broomhall reports

Welcoming more than 100 delegates to Legal Week's third Corporate Counsel Forum Hong Kong, Solicitor General Frank Poon (pictured, bottom left) alluded to the city's recent ranking as 20th in the world for economic freedom and third as a global financial centre. He said the region's success was anchored in its judicial independence and the rule of law, which gives Hong Kong a competitive advantage over other cities. He credited both the government and overseas law firms with maintaining the pace of legislative reform.

It was during the forum's first panel discussion on Hong Kong's regulatory environment that the debate heated up, as panelists questioned the city's current ability to lead the way in Asia as the main financial centre, and pointed to the challenges it faces in the future if it wants to retain its accolades. Critically, they suggested that Hong Kong may need to address its regulatory and infrastructure issues in the face of real and increasing competition from Shanghai and Singapore, both of which are becoming increasingly aggressive and ambitious in their growth plans.

"If we look at Hong Kong as an international financial centre today it is indisputable that we have done very well," said Doug Arner, professor and head of the department of law at the University of Hong Kong. "But it's important to recognise that this is a continual process. Hong Kong is facing a series of major challenges at the moment."

Among them, he said, was a limited amount of human capital, which is currently a huge concern in the city and a strain on Hong Kong's future. Perhaps even more important is the rising cost of compliance for businesses, as regulators increase in number and scope. Industries affected so far include the over-the-counter derivatives and insurance markets, Arner said, both of which have been subject to a recent flood of new regulation. He added that a lack of effective communication between businesses and the authorities was potentially creating further problems, with some reporting to have found interactions difficult.

"Hong Kong is no longer the unregulated jurisdiction that perhaps it was 30 years ago," he stressed. "It now has a lot of regulators – regulators that have increasingly overlapping jurisdictions." 

However, Dorothy Chan (pictured, right), the general counsel for ING Bank, disagreed. She suggested that the rising administrative and cost burden was not limited to Hong Kong, and that conversations with the city's regulators involved understanding and negotiation. "I feel that while our regulatory environment is challenging, it is no worse than any of the other leading financial centres that we consider ourselves to be on a par with. 

"In all my dealings with the Securities and Futures Commission and Hong Kong Monetary Authority I've found them to be relatively commercial and open-minded. When I compare my experience dealing with the regulators in Hong Kong and Singapore, the approach in Hong Kong seems to be more business focused. Sometimes I feel that in Singapore [businesses] are ruled by fear. I think Hong Kong has been more reasonable in that respect."

Falling behind

A third panelist, Paul Abfalter, GC for the Telstra Group, said he was more concerned with the creeping influence of the mainland over Hong Kong regulation, adding that the city's recent ratings didn't necessarily paint a true picture of the regulatory environment. "We've got to be careful about the extent to which we celebrate that free rating," he explained. "The rating is a celebration of being a laissez faire environment, but it doesn't rate whether you've got a fair and open playing field; it doesn't rate firm investment, whether you're pro-consumer or the extent to which you're promoting economic efficiency. 

"Hong Kong has fallen behind in a few areas over the last few years. The journey of the competition law in particular was really disappointing for us; we're an industry that's had competition issues for more than a decade but they're pretty limited. And the meal that was made over the new competition law and how pervasive the lobbying against it was – it was disappointing from the point of view of Hong Kong regulation."

Another pressing issue in Hong Kong was the infrastructure, panelists said. In contrast to Singapore, which has been steadily developing its portfolio of cost-effective Grade A office space, Hong Kong continues to grapple with space issues and rising rental rates. 

"[Singapore has] created a natural competitive advantage in terms of office space for businesses and particularly financial services companies that tend to employ a lot of front-of-office staff – these organisations will seriously consider Singapore as a location to put their headquarters," said Chan. "And it also helps that the Singapore government is providing tax incentives for companies to locate their regional Asia-Pacific headquarters there."

She added: "[In Hong Kong] I think the environment for doing business and having a regional headquarters is deteriorating, primarily because of concerns over the air pollution and quality of the air for families, as well as something as simple as international school placements for expat staff who want to relocate from Europe. We've had tremendous difficulties getting sufficient primary and secondary school placements for staff."

China's gateway

The panelists concluded their discussion on a more positive note. Arner emphasised the point that, even with fewer multinational corporations (MNCs) headquartered in the city compared with years gone by, Hong Kong continues to be a gateway for Chinese companies looking to expand overseas. However, the panelists warned that the city should avoid complacency. 

"One real growth area that we have seen is in mainland companies setting up international operations in Hong Kong," Arner said. "That is massive growth and a huge opportunity and it means that Hong Kong has to have the human capital in place to service those companies as they go out to the Western world. So even if we're seeing less on the MNC side, on the Chinese side it's a much more logical proposition than Singapore."

Abfalter concluded: "Singapore has done a great job over the last 10 years of developing its public service generally, and several industry regulators are ahead in terms of policy – they aim to be leading policy regulators in Asia. 

"The challenge in Hong Kong from a broader economic and regulatory point of view is that it's giving the impression of hanging on – hanging on to industries that it's got. From a policy perspective, that really shows." 

The Legal Week Corporate Counsel Forum Singapore will take place on 30 October. Click here for more details.

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