+ Establishment Subcommittee(Papers) 13 Jan 99

For discussion
on 13 January 1999

EC(98-99)18

ITEM FOR ESTABLISHMENT SUBCOMMITTEE
OF FINANCE COMMITTEE

HEAD 148 -GOVERNMENT SECRETARIAT :
FINANCIAL SERVICES BUREAU

Subhead 001 Salaries
    Members are invited to recommend to Finance Committee the creation of the following permanent posts in the Financial Services Bureau -

    1 Administrative Officer Staff Grade B
    (D3) ($127,900 - $135,550)

    1 Administrative Officer Staff Grade C
    (D2) ($116,650 - $123,850)

PROBLEM

The Financial Services Bureau (FSB) does not have adequate staffing support at the directorate level to cope with the increasingly substantial and complex work in the wide range of policy areas handled, especially in respect of companies, insolvency, insurance, occupational retirement schemes (ORS) and Mandatory Provident Fund (MPF) schemes.

PROPOSAL

2.The Secretary for Financial Services (SFS) proposes to strengthen the directorate structure of FSB by the creation of -

  1. one permanent post of Administrative Officer Staff Grade B (AOSGB) (D3) to oversee the Companies section and Retirement Schemes and Insurance (RSI) section; and

  2. one permanent post of Administrative Officer Staff Grade C (AOSGC) (D2) to head the RSI section.
JUSTIFICATION

3.At present, SFS has the support of one Deputy Secretary (Financial Services) (DS(FS)) ranked at Administrative Officer Staff Grade B1 (AOSGB1) level who in turn oversees five policy areas, namely, Banking and Monetary Affairs, Securities, Financial Infrastructure, Companies, and Retirement Schemes and Insurance. The financial services sector has faced exceptional turbulence in the past year. The experience has not only highlighted the need to further strengthen the regulatory regimes in the banking and securities sub-sectors, but also reinforced the need to further enhance our competitiveness by providing state-of-the-art financial technology and updated legislation for the business environment as well as to develop other financial sub-sectors such as the provident fund schemes, retirement schemes and insurance to strengthen Hong Kong's position as a regional financial centre. The workload and level of responsibility of the existing DS(FS) has increased to a level that he cannot accord due attention to all these issues. SFS therefore proposes to create a new Deputy Secretary to be designated as Deputy Secretary (Financial Services)2 (DS(FS)2) to oversee the Companies and RSI sections and a Principal Assistant Secretary (PAS) (RSI) to head the RSI section. Upon the creation of the new DS(FS)2 post, the existing DS(FS) post will be renamed as DS(FS)1.

Companies Section

Review of the Companies Ordinance

4.The Government commissioned a two-year consultancy in late 1994 to conduct a comprehensive review of the Companies Ordinance with the objective that Hong Kong will be able to respond to developments in the corporate world and to have a Companies Ordinance for the 21st century. The consultancy study was completed in March 1997 followed by an 11-month public consultation which concluded in March 1998. The consultancy report and the public submissions are now under the scrutiny of the Standing Committee on Company Law Reform which is due to complete this major task within 1999-2000.

5.We envisage that in the coming year, the Financial Secretary would have to make a major decision, based on the Bureau's recommendations, on the future direction of the Companies Ordinance. This is an extremely important decision as it will have profound implications on the corporate regime in Hong Kong and significance to Hong Kong being a leading financial and commercial centre regionally and internationally. In order to maintain our competitive edge our neighbours, Hong Kong needs to be alive to the developments of corporate law in other comparable jurisdictions, including the UK, United States, Canada, Australia and Singapore. We need to be able to draw from such developments the right model for Hong Kong and to reform our own companies law.

6.In terms of weight and size, the Companies Ordinance is one of the largest and most archaic pieces of legislation on the statute book. Any major overhaul of the Companies Ordinance will require considerable high level policy input and steer over numerous critical areas of company law, such as whether there should be a "core company law", the decriminalisation of company law, the introduction of import and export provisions to facilitate international operations, derivative action, appraisal/buy out remedies, statutory compliance and restraining orders, class voting and capital structure of companies. Another major policy area that requires careful consideration will be the co-ordination with other related pieces of legislation, such as the Securities Ordinance and the Bankruptcy Ordinance, which are themselves undergoing reform. It is necessary to have a dedicated D3 officer to oversee the work to ensure that adequate and timely policy steer is provided at suitable junctures.

Insolvency

7.Another major facet of the work of the new DS(FS)2 post will be attending to the latest development in policy and legislation in respect of insolvency administration. The Law Reform Commission (LRC) is due to complete its third and final report on the comprehensive review of the winding up provisions in the Companies Ordinance. We envisage that the report will contain major recommendations that will call for a fundamental review of the future role and work of the Official Receiver (OR) and his office (ORO) as well as reforms to the winding up provisions - to the extent that there may be a need to enact separate piece of Insolvency legislation for Hong Kong.

8.In April 1998, the LRC Insolvency Subcommittee issued a Consultation Paper on the winding up provisions of the Companies Ordinance for public consultation. The Paper recommended the expansion of the ORO's contracting-out scheme and the setting up of a comprehensive scheme of licensing of insolvency practitioners covering liquidators in all forms of winding-up, receivers, trustees involved in bankruptcy and, if and when introduced, provisional supervisors. The ultimate aim would be to introduce professional insolvency practitioner qualifications based on examinations that would be established by the OR and the relevant bodies at a later date.

9.The LRC will release its final report in the spring of 1999. Thereafter, the Government will need to start its examination of the recommendations in full scale and to consider, at a policy level, the way forward. In the light of the LRC report, we need to examine how to reform the ORO to ensure that on the one hand, insolvency service can continue to be provided at an acceptable commercial and professional standard while on the other hand, the provision of such a service will not become an increasing burden to taxpayers. The fundamental question of Government's role in this respect and the issue of a separate piece of Insolvency legislation will also require careful consideration by an officer at senior level to ensure successful implementation of the necessary reforms.

World Trade Organisation (WTO)

10.A fresh round of WTO negotiation covering all trade in goods and services will start in 2000. The existing PAS(Companies) is the subject officer for all trade matters in respect of financial services. However, policy input and representation at negotiations in the international forums with important trading partners in the financial services sector will require the participation at a deputy secretary level.

Retirement Schemes and Insurance section

11.The retirement schemes and insurance industries are becoming increasingly sophisticated. In October 1993, the Occupational Retirement Schemes Ordinance (ORSO) came into effect and all Occupational Retirement Schemes (ORSs) were required to register through the Registrar of Occupational Retirement Schemes under the purview of FSB. There has been a steady growth in the number of ORSs since the enactment of ORSO. At present, there are over 17 000 ORSs and the employees covered reached 900 000. There is a need to monitor the legislative framework and the registration system so as to ensure the smooth and proper operation of these ORSs.

12.The recent establishment of the Mandatory Provident Fund Schemes Authority (MPFA) has created additional workload to FSB. With the phasing out of the present Mandatory Provident Fund Office, FSB will need to take up the responsibility to continue assisting the MPFA towards its full establishment. FSB will also need to handle all policy and legislative matters relating to the MPF system and act as the housekeeping bureau for the MPFA. The complexity and importance of such work is comparable to that of the Hong Kong Monetary Authority and the Securities and Futures Commission, and experience shows that FSB will need to have a team of staff to support SFS in the above duties and responsibilities. A directorate officer at the PAS level is required to act as the point of contact between MPFA and the Administration on all policy and housekeeping matters relating to MPFA including legislative amendments, policy issues, smooth operation of the MPFA, while DS(FS)2 will provide the steer on these policy issues.

13.At the same time, the insurance industry is also experiencing rapid growth and becoming increasingly complex as many new products have been developed in recent years. The contribution of the insurance industry towards the Gross Domestic Product in 1997 has grown to 3.9% and the number of appointed insurance agents is now over 41�00. There is an increasing need to put under constant review the regulatory and legislative framework for the insurance industry in order to maintain effective prudential supervision. The proposed PAS will be responsible for all policy matters relating to insurance and for reviewing periodically the regulatory framework. This can further the development of Hong Kong into an international insurance centre. He will also assume housekeeping responsibilities with respect to the Office of the Commissioner of Insurance (OCI).

14.At present, issues relating to retirement schemes and insurance are handled by DS(FS) and Assistant Secretary (AS) (RSI). (A directorate officer (D2) had temporarily been on loan to FSB to provide additional support to SFS during the setting up period of ORSO but was withdrawn since June 1996.) The situation is becoming increasingly unsatisfactory as the complexity and volume of work in connection with ORS, MPF and insurance are increasing. The creation of the PAS(RSI) post responsible for ORS, MPF and insurance matters will enable frequent and regular liaison with senior members of the MPFA, OCI, insurers, trust firms and major trade associations. On the other hand, the DS(FS)2 will, among his other duties, be able to maintain a more strategic view over the regulatory and legislative framework of the relevant industries, to provide the necessary steer on these issues and to furnish appropriate analysis and advice to SFS on policy matters.

15.PAS(RSI) will also provide support to DS(FS)1 on the Bureau's general administration matters which are currently shouldered by AS(RSI).

The DS(FS)1 post

16.After being relieved from the duties of the Companies section and the RSI section, DS(FS)1 will be able to focus better on his schedule of remaining responsibilities in banking, securities and financial infrastructure. There remain considerable policy and legislative issues on the banking and monetary side relating to the maintenance of an open, fair and efficient market and enhance Hong Kong's status as a major international financial centre. These include the follow up to the strategic review of the banking regulatory regime with a view to enhancing the effectiveness of banking supervision by the Hong Kong Monetary Authority, and competitiveness of the banking sector in heading towards the new millennium; monitoring of the developments and interactions between the banking, security and futures markets; formulating appropriate actions against market manipulation; and promoting the further development of a debt market in Hong Kong.

17.On the securities side, workload has increased substantially over the last 18 months essentially due to the Asian financial turmoil. This includes the follow-up measures in both the securities and futures markets arising from the recommendations in the Report on Financial Market Review (FMR) published by FSB in April 1998 and subsequently the 30-point programme announced in early September. Other initiatives are also expected to demand considerable policy input in 1999, including the establishment of a Second Board, i.e., the Growth Enterprises Market (GEM), as an alternative capital raising avenue for newly established and venture companies. Legislation, most notably the Composite Securities and Futures Bill, remains a substantive area of work on the securities side in the next one and a half year. Other legislative initiatives include the introduction of new legislation to regulate the securities margin financing activities, the implementation of a new investor compensation scheme under the Securities Ordinance, amendments to the Securities (Disclosure of Interests) Ordinance, legislation to provide statutory protection for the auditors of listed companies as well as those arising from the Report on FMR and the 30-point programme mentioned above, such as provision of statutory backing for the Takeovers Code and the Listing Rules of the Stock Exchange of Hong Kong, criminalisation of unreported short selling and false reporting to regulators and strengthening of penalties for illegal short selling.

18.In addition, DS(FS)1 will continue to provide the necessary policy steer to a number of important studies currently in progress to enhance the competitiveness of the financial infrastructure of Hong Kong. These include a study on the need and feasibility of establishing a financial services institute to provide co-ordinated input to human resources development in the financial services sector, and another study to examine the importance of information technology to the future development of the financial markets and measures to enhance efficiency and integrity of these markets with the advent of new technology. Meanwhile, another imminent task would be to oversee the Year 2000 compliance of the financial services sector and to further develop the financial infrastructure to help reduce default risk and enhance efficiency in related transactions. Specifically, DS(FS)1 is the chairman of the Steering Committee on Year 2000 Compliance in the Financial Services Sector in Hong Kong set up to co-ordinate the efforts of Government, financial regulators and the financial industry in tackling the Year 2000 problem. Given the importance of the Year 2000 issue and its significant impact on the financial services sector and the economy as a whole, DS(FS)1 will need to devote the time freed up by the creation of the DS(FS)2 post to more closely monitor the progress of work in this area, particularly in respect of industry-wide testing and contingency planning.

19. We set out the job description of the proposed DS(FS)2 and PAS(RSI) posts at Enclosures 1 and 2 respectively. A revised job description of the DS(FS)1 post is at Enclosure 3. An organisation chart showing the two proposed posts is at Enclosure 4. Encs.1&2
Encl. 3
Encl. 4


Alternative

20.There are currently four PAS posts underpinning the DS(FS). It would be impossible for the four PAS posts to absorb the duties of PAS(RSI) as they have their full schedule of duties. PAS(Banking & Monetary) is heavily involved in the necessary policy and legislative matters in connection with banking and the Hong Kong Monetary Authority, participation in international financial forums such as the Organisation for Economic Co-operation and Development, Asia Pacific Economic Co-operation and International Monetary Fund meetings, and monitoring credit rating and development of the debt market and the government's efforts in tackling money laundering.

21.As detailed in paragraphs 4 to 10 above, PAS(Companies) is heavily involved in a number of legislative amendments and review relating to corporate rescue, the Companies Ordinance, companies winding up provisions and the Bankruptcy Ordinance. The PAS(Companies) is also responsible for the housekeeping of the Companies Registry and the ORO and liaison with the Hong Kong Society of Accountants, and has to attend to WTO matters relating to financial services.

22.PAS(Securities) is also fully occupied by the implementation of the recommendations on a series of improvement measures contained in the Report on FMR published in April 1998 as well as the follow-up work on the 30-point programme announced recently by the Financial Secretary to strengthen the discipline and order of the securities and futures markets. In parallel, PAS(Securities) will also have to continue the house-keeping functions in respect of the Securities and Futures Commission, the Stock Exchange of Hong Kong, the Hong Kong Futures Exchange and the Hong Kong Clearing, and the processing of the Composite Securities and Futures Bill which is aimed to introduce into the Legislative Council within the 1998-99 legislative session. In addition, the workload relating to Insider Dealing Tribunal will remain a heavy commitment of the Securities Section and is likely to increase further with the increasing complexity and sophistication of the local securities market.

23.PAS(Financial Infrastructure) is heavily involved in the Year 2000 compliance problem as we will need to co-ordinate with government departments, regulators and the industries to enhance the year 2000 readiness of their computers and networks. The feasibility study of setting up a Financial Services Institute will also ensure human resources development is meeting the demand of the financial services sector. PAS(Financial Infrastructure) will also need to assist DS(FS)1 in looking into how best to strengthen the financial infrastructure to maintain our competitiveness in the next century.

FINANCIAL IMPLICATIONS

24.The additional notional annual salary cost of this proposal at MID-POINT is -

$No. of Post
Administrative Officer Staff Grade B1,580,4001
Administrative Officer Staff Grade C1,443,0001
------------------
3,023,4002
===========

The full annual average staff cost of the proposal, including salaries and staff on-cost, is $5,254,740.

25.In addition, this proposal will necessitate the creation of one additional post of Personal Secretary I at a notional annual mid-point salary cost of $291,840 and the full annual average staff cost of $451,884.

26.No provision has been included in the 1998-99 Estimates to meet the cost of the proposed AOSGB post, which is estimated at $263,000 for the remainder of the financial year. Subject to Members' approval, we shall provide the supplementary provision required under delegated authority. We have included sufficient provision in the 1998-99 Estimates to meet the cost of the AOSGC post.

BACKGROUND INFORMATION

27.Since the re-titling of the then Monetary Affairs Branch (MAB) to Financial Services Branch in 1993 upon the setting up the Hong Kong Monetary Authority, the Branch had been left with one DS(FS) post at the AOSGB level. In view of the increasingly complex duties faced by this post, the Finance Committee approved in June 1994 upgrade of the post to the AOSGB1 rank.

28.Since September 1992, there had been an AOSGC on loan to then MAB to oversee the policy and legislative matters of ORS and insurance, and the general administration of the Branch. The submission to Finance Committee in June 1994 which sought the upgrading of the DS(FS) post also underlined the need to create a PAS post to head the RSI Section. Since the withdrawal of the loaned AOSGC in 1996, the duties have been shared by DS(FS) and AS(RSI).

CIVIL SERVICE BUREAU COMMENTS

29.Civil Service Bureau agrees to the need for an additional DS(FS) post and PAS(RSI) post to provide SFS with the necessary level of support in the various policy areas. The ranking of the proposed posts is appropriate, having regard to the scope, complexity and policy significance of the work involved.

ADVICE ON THE STANDING COMMITTEE ON DIRECTORATE SALARIES AND CONDITIONS OF SERVICE

30.The Standing Committee on Directorate Salaries and Conditions of Service has advised that the grading proposed for the posts would be appropriate if the posts were to be created.

-----------------------------------------

Financial Services Bureau
January 1999
(LU0255/WIN12)

Enclosure 1 to EC(98-99)18

Job Description of the Proposed
Deputy Secretary (Financial Services) 2 Post

Main Duties and Responsibilities

Answerable to the Secretary for Financial Services (SFS) for the following duties and responsibilities -

  1. To assist SFS in the formulation and development of policies and legislation on companies, insolvency, insurance, occupational retirement schemes and Mandatory Provident Fund Schemes matters.

  2. To co-ordinate housekeeping matters of the Office of the Commissioner of Insurance (OCI), the Mandatory Provident Fund Schemes Authority, the Companies Registry and Official Receiver's Office (ORO).

  3. To examine the future position and role of the ORO in the provision of insolvency service particularly in the light of the Law Reform Commission recommendations and to examine the future position and development of the OCI consequent to the full establishment of the Mandatory Provident Fund Schemes Authority.

  4. To represent the Government of the Hong Kong Special Administrative Region in the World Trade Organisation General Agreement on Trade in Services negotiations in trade in financial services.

  5. To undertake other duties as assigned by SFS, including preparation of speeches, drafting replies to Legislative Council Questions, liaison with Legislative Council Members and attending Executive Council and Legislative Council meetings.

Enclosure 2 to EC(98-99)18

Job Description of the Proposed
PAS (Retirement Schemes and Insurance) Post

To be responsible to Deputy Secretary (Financial Services)� (DS(FS)2) on -
  1. Policy and legislative matters relating to the Mandatory Provident Fund Schemes Authority (MPFA). Assist DS(FS)2 in the setting up and housekeeping of the MPFA, its policy and legislative matters, and handle the interface arrangements between the Office of the Registrar of Occupational Retirement Schemes and the MPFA.

  2. Policy and legislative matters relating to the authorisation and prudential supervision of insurers and insurance intermediaries in Hong Kong. Review on the regulatory framework of the insurance industry. Overseeing the promotion of Hong Kong as an international insurance and reinsurance centre. Assist DS(FS)2 in housekeeping matters relating to the Office of the Commissioner of Insurance.

  3. To assist DS(FS)2 in the examination of the future position and development of the OCI consequent to the full establishment of the MPFA.

    To be responsible to Deputy Secretary (Financial Services) 1 on - the general administration of Financial Services Bureau.

Enclosure 3 to EC(98-99)18

The Proposed Revised Job Description for
Deputy Secretary (Financial Services) 1
(Administrative Officer Staff Grade B1 (D4))

Main Duties and Responsibilities

Answerable to the Secretary for Financial Services (SFS) for the following duties and responsibilities -

  1. To deputise for and represent SFS at the highest levels within Government, in public and when negotiating with leading personalities within the financial services sector.

  2. To assist SFS in the formulation and development of policies and legislation on banking, monetary, securities, year 2000 readiness of financial services sector and financial infrastructure matters.

  3. To co-ordinate housekeeping matters of the Financial Services Bureau, the Hong Kong Monetary Authority and the Securities and Futures Commission.

  4. To undertake other duties as assigned by SFS, including preparation of speeches, drafting replies to Legislative Council Questions, liaison with Legislative Council Members and attending Executive Council and Legislative Council meetings.

For discussion
on 13 January 1998

EC(98-99)XX

ITEM FOR ESTABLISHMENT SUB-COMMITTEE
OF FINANCE COMMITTEE

HEAD 148 -GOVERNMENT SECRETARIAT :
FINANCIAL SERVICES BUREAU

Subhead 001 Salaries

    Members are invited to recommend to Finance Committee the creation of the following permanent posts in the Financial Services Bureau -

    1 Administrative Officer Staff Grade B
    (D3) ($127,900 - $135,550)

    1 Administrative Officer Staff Grade C
    (D2) ($116,650 - $123,850)

PROBLEM

The Financial Services Bureau (FSB) does not have adequate staffing support at the directorate level to cope with the increasingly substantial and complex work in the wide range of policy areas handled, especially in respect of companies, insolvency, insurance, occupational retirement schemes (ORS) and Mandatory Provident Fund (MPF) schemes.

PROPOSAL

2.The Secretary for Financial Services (SFS) proposes to strengthen the directorate structure of FSB by the creation of -

  1. one permanent post of Administrative Officer Staff Grade B (AOSGB) (D3) to oversee the Companies section and Retirement Schemes and Insurance (RSI) section; and

  2. one permanent post of Administrative Officer Staff Grade C (AOSGC) (D2) to head the RSI section.
JUSTIFICATION

3.At present, SFS has the support of one Deputy Secretary (Financial Services) DS(FS) ranked at AOSGB1 level who in turn oversees five policy areas, namely, Banking and Monetary Affairs, Securities, Financial Infrastructure, Companies, and Retirement Schemes and Insurance. The financial services sector has faced exceptional turbulence in the past year. The experience has not only highlighted the need to further strengthen the regulatory regimes in the banking and securities sub-sectors, but also reinforced the need to further enhance our competitiveness by providing state-of-the-art financial technology and updated legislation for the business environment as well as to develop other financial sub-sectors such as the provident fund schemes, retirement schemes and insurance to strengthen Hong Kong's position as a regional financial centre. The workload and level of responsibility of the existing DS(FS) has increased to a level that he cannot accord due attention to all these issues. SFS therefore proposes to create a new Deputy Secretary to be designated as Deputy Secretary (Financial Services)2 (DS(FS)2) to oversee the Companies and RSI sections and a Principal Assistant Secretary (PAS) (RSI) to head the RSI section. Upon the creation of the new DS(FS)2 post, the existing DS(FS) post will be renamed as DS(FS)1.

Companies Section

Review of the Companies Ordinance

4.The Government commissioned a two-year consultancy in late 1994 to conduct a comprehensive review of the Companies Ordinance with the objective that Hong Kong will be able to respond to developments in the corporate world and to have a Companies Ordinance for the 21st century. The consultancy study was completed in March 1997 followed by an 11-month public consultation which concluded in March 1998. The consultancy report and the public submissions are now under the scrutiny of the Standing Committee on Company Law Reform which is due to complete this major task within 1999/2000.

5.We envisage that in the coming year, the Financial Secretary would have to make a major decision, based on the Bureau's recommendations, on the future direction of the Companies Ordinance. This is an extremely important decision as it will have profound implications on the corporate regime in Hong Kong and significance to Hong Kong being a leading financial and commercial centre regionally and internationally. In order to maintain our competitive edge vis-�vis our neighbouring competitors, Hong Kong needs to be alive to the developments of corporate law in other comparable jurisdictions, including the UK, United States, Canada, Australia and Singapore. We need to be able Policy steer is required to draw from suchthose developments the right model for Hong Kong and to reform our own companies law.

6.In terms of weight and size, the Companies Ordinance is one of the largest and most archaic pieces of legislation on the statute book. Any major overhaul of the Companies Ordinance will require considerableplenty of high level policy input and steer over numerous critical areas of company law, such as whether there should be a "core company law", the decriminalisation of company law, the introduction of import and export provisions to facilitate international operations, derivative action, appraisal/buy out remedies, statutory compliance and restraining orders, class voting and capital structure of companies. Another major policy area that requires careful consideration will be the co-ordination with other related pieces of legislation, such as the Securities Ordinance and the Bankruptcy Ordinance, which are themselves undergoing reform as well. It is necessary to have a senior and dedicated D3 officer to oversee the work to ensure that adequate and timely policy steer is provided at suitable junctures.

Insolvency

7.Another major facet of the work of the new DS(FS)2 post will be attending to the latest development in policy and legislation in respect of insolvency administration. The Law Reform Commission (LRC) is due to complete its third and final report on the comprehensive review of the winding up provisions in the Companies Ordinance. We envisage that the report will contain major recommendations that will call for a fundamental review of the future role and work of the Official Receiver (OR) and his office (ORO) as well as reforms to the winding up provisions - to the extent that there may be a need to enact of a separate piece of Insolvency legislationOrdinance for Hong Kong.

8.In April 1998, the LRC Insolvency Subcommittee issued a Consultation Paper on the winding up provisions of the Companies Ordinance for public consultation. The Paper recommended the expansion of the ORO's contracting-out scheme and the setting up of a comprehensive scheme of licensing of insolvency practitioners covering liquidators in all forms of winding-up, receivers, trustees involved in bankruptcy and, if and when introduced, provisional supervisors. The ultimate aim would be to introduce professional insolvency practitioner qualifications based on examinations that would be established by the OR and the relevant bodies at a later date.

9.The LRC will release its final report in the spring of 1999. and tThereafter., tThe Government will need to start its examination of the recommendations in full scale and to consider, at a policy level, the way forward. In the light of the LRC report, we need to examine how to reform the ORO to ensure that on the one hand, insolvency service can continue to be provided at an acceptable commercial and professional standard while on the other hand, the provision of such a service will not become an increasing burden to taxpayers in general. The fundamental question of Government's role in this respect and the issue of a separate piece of Insolvency legislationOrdinance will also require careful consideration by an officer at a sufficiently senior level to ensure successful implementation of the necessary reforms.

World Trade Organisation (WTO)

10.A fresh round of WTO negotiation covering all trade in goods and services will start in 2000. While tThe existing PAS(Companies) is the subject officer forin all trade matters in respect of financial services., However, policy input and representation at negotiations in the international forums with important trading partners in the financial services sector will require the participation at a deputy secretary level.

Retirement Schemes and Insurance section

11.The retirement schemes and insurance industries are becoming increasingly sophisticated in recent years. In October 1993, the Occupational Retirement Schemes Ordinance (ORSO) came into effect and all Occupational Retirement Schemes (ORSs) were required to register through the Registrar of Occupational Retirement Schemes under the purview of FSB. There has been a steady growth in the number of ORSs since the enactment of ORSO. At present, there are over 17 000 ORSs and the employees covered reached 900 000. There is a need to monitor the legislative framework and the registration system so as to ensure the smooth and proper operation of these ORSs.

12.The recent establishment of the Mandatory Provident Fund Schemes Authority (MPFA) has created additional workload to FSB. With the phasing out of the present Mandatory Provident Fund Office, FSB will need to take up the responsibility to continue assisting the MPFA towards its full establishment. FSB will also need to handle all policy and legislative matters relating to the Mandatory Provident Fund System (MPF) and act as the housekeeping bureau for the of MPFA. The complexity and importance of such work is comparable to that of the Hong Kong Monetary Authority and the Securities and Futures Commission, and experience shows that FSB will need to have a team of staff to support SFS in the above duties and responsibilities. A directorate officer at the PAS level is required to act as the point of contact between MPFA and the Administration on all policy and housekeeping matters relating to MPFA including legislative amendments, policy issues, smooth operation of the MPFA, while DS(FS)2 will provide the steer onin these policy issues.

13.At the same time, the insurance industry is also experiencing rapid growth and becoming increasingly complexity as many new products have been developed in recent years. The contribution of the insurance industry towards the GDP in 1997 has grown to 3.9% and the number of appointed insurance agents is now over 41�00. There is an increasing need to put under constant review the regulatory and legislative framework for the insurance industry in order to maintain effective prudential supervision. The proposed PAS will be responsible for all policy matters policies relating to insurance and forto reviewing periodically the regulatory framework. This which can further the development of Hong Kong into an international insurance centre. He will also assume housekeeping responsibilities with respect to the Office of the Commissioner of Insurance (OCI).

14.At present, issues relating to retirement schemes and insurance are handled by DS(FS) and Assistant Secretary (AS) (RSI). (A directorate officer (D2) had temporarily been on loan to FSB to provide additional support to SFS during the setting up period of ORSO but was withdrawn since June 1996.) The situation is becoming increasingly unsatisfactory as the complexity and volume of work in connection with ORS, MPF and insurance are increasing. The creation of the PAS(RSI) post responsible for ORS, MPF and insurance matters will enable frequent and regular liaison with senior members of the MPFA, OCI, insurers, trust firms and major trade associations. On the other hand, the DS(FS)2 will, among his other duties, be able to maintain a more strategic view over the regulatory and legislative framework of the relevant industries, to provide the necessary steer on these issues and to furnish appropriate analysis and advice to SFS on policy matters.

15.PAS(RSI) will also provide support to DS(FS)1 on the Bureau's general administration matters which are currently shouldered by AS(RSI).

The DS(FS)1 post

16.After being relieved from the duties of the Companies section and the RSI section, DS(FS)1 will be able to focus better on his schedule of remaining responsibilities in banking, securities and financial infrastructure. There remains a lot of considerable policy and legislative issuesmatters on the banking and monetary side relating to the maintenance of to provide an open, fair and efficient market and enhance Hong Kong's status as a major international financial centre. These include the follow up to the strategic review of the banking regulatory regime with a view to enhancing the effectiveness of banking supervision by the Hong Kong Monetary Authority, and competitiveness of the banking sector in heading towards the new millennium; monitoring of the developments and interactions between the banking, security and futures markets; and formulating appropriate actions against market manipulation; and promoting the further development of a debt market in Hong Kong.

17.On the securities side, workload has increased substantially over the last 18 months essentially due to the Asian financial turmoil. This includes the follow-up measures in both the securities and futures markets arising from the recommendations in the Report on Financial Market Review (FMR) published by FSB in April 1998 and subsequently the 30-point programme announced in early September. Other initiatives are also expected to demand considerable policy input in 1999, including the establishment of a Second Board, i.e., the Growth Enterprises Market (GEM), as an alternative capital raising avenue for newly established and venture companies. Legislation, most notably the Composite Securities and Futures Bill, remains a substantive area of work on the securities side in the next one and a half year. Other legislative initiatives include the introduction of new legislation to regulate the securities margin financing activities, the implementation of a new investor compensation scheme under the Securities Ordinance, amendments to the Securities (Disclosure of Interests) Ordinance, legislation to provide statutory protection for the auditors of listed companies as well as those arising from the Report on FMR and the 30-point programme mentioned above, such as provision of statutory backing for the Takeovers Code and the Listing Rules of the Stock Exchange of Hong Kong, criminalisation of unreported short selling and false reporting to regulators and strengthening of penalties for illegal short selling.

18.In addition, DS(FS)1 will continue to provide the necessary policy steer to a number of important studies currently in progress to enhance the competitiveness of the financial infrastructure of Hong Kong. These include a study on the need and feasibility of establishing a financial services institute to provide co-ordinated input to human resources development in the financial services sector, and another study to examine the importance of information technology to the future development of the financial markets and measures to enhance efficiency and integrity of these markets with the advent of new technology. Meanwhile, another imminent task would be to oversee the Year 2000 compliance of the financial services sector and to further develop the financial infrastructure to help reduce default risk and enhance efficiency in related transactions. Specifically, DS(FS)1 is the chairman of the Steering Committee on Year 2000 Compliance in the Financial Services Sector in Hong Kong set up to co-ordinate the efforts of Government, financial regulators and the financial industry in tackling the Year 2000 problem. Given the importance of the Year 2000 issue and its significant impact on the financial services sector and the economy as a whole, DS(FS)1 will need to devote the time freed up byfrom the creation of the DS(FS)2 post to more closely monitor the progress of work in this area, particularly in respect of industry-wide testing and contingency planning.

19.We set out the job description of the proposed DS(FS)2 and PAS(RSI) posts at Enclosures 1 and 2 respectively. A revised job description of the DS(FS)1 post is at Enclosure 3. An organisation chart showing the two proposed posts is at Enclosure 4.

Alternative

20.There are currently four PAS posts underpinning the DS(FS). It would be impossible for the four PAS posts to absorb the duties of PAS(RSI) as they have their full schedule of duties. PAS(Banking & Monetary) is heavily involved in the necessary policy and legislative matters in connection with banking and the Hong Kong Monetary Authority, participation in international financial forums such as the OECD, APEC and IMF meetings, and monitoring credit rating and development of the debt market and the government's efforts in tackling money laundering.

21.As detailed in paragraphs 4 to 10 above, PAS(Companies) is heavily involved in a number of legislative amendments and review relating to corporate rescue, the Companies Ordinance, companies winding up provisions and the Bankruptcy Ordinance. The PAS(Companies) is also responsible for the housekeeping of the Companies Registry and the ORO and liaison with the Hong Kong Society of Accountants, and has to attend to WTO matters relating to financial services.

22.PAS(Securities) is also fully occupied by the implementation of the recommendations onof a series of improvement measures contained in the Report on FMR published in April 1998 as well as the follow-up work on the 30-point programme announced recently by the Financial Secretary to strengthen the discipline and order of the securities and futures markets. In parallel, PAS(Securities) will also have to continue the house-keeping functions in respect of the Securities and Futures Commission, the Stock Exchange of Hong Kong, the Hong Kong Futures Exchange and the Hong Kong Clearing, and the processing of the Composite Securities and Futures Bill which is aimed to introduce into the Legislative Council within the 1998-99 legislative session. In addition, the workload relating to Insider Dealing Tribunal will remain a heavy commitment of the Securities Section and is likely to increase further with the increasing complexity and sophistication of the local securities market.

23.PAS(Financial Infrastructure) is heavily involved in the Year 2000 compliance problem as we will need to co-ordinate with government departments, regulators and the industries to enhance the year 2000 readiness of their computers and networks. The feasibility study of setting up a Financial Services Institute will also ensure human resources development is meeting the demand of the financial services sector. PAS(Financial Infrastructure) will also need to assist DS(FS)1 in looking into how best to strengthen the financial infrastructure to maintain our competitiveness in the next century.

FINANCIAL IMPLICATIONS

24.The additional notional annual salary cost of this proposal at MID-POINT is -

$No. of Post
Administrative Officer Staff Grade B1,580,4001
Administrative Officer Staff Grade C1,443,0001
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3,023,4002
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The full annual average staff cost of the proposal, including salaries and staff on-cost, is $5,254,740.

25.In addition, this proposal will necessitate the creation of one additional post of Personal Secretary I at a notional annual mid-point salary cost of $291,840 and the full annual average staff cost of $451,884.

26.No provision has been included in the 1998-99 Estimates to meet the cost of the proposed AOSGB post, which is estimated at $263,000 for the remainder of the financial year. Subject to Members' approval, we shall provide the supplementary provision required under delegated authority. We have included sufficient provision in the 1998-99 Estimates to meet the cost of the AOSGC post.

BACKGROUND INFORMATION

27.Since the re-titling of the Bureau in 1993 upon the setting up the Hong Kong Monetary Authority, the Bureau had been left with one DS(FS) post at the AOSGB level. In view of the increasingly complex duties faced by this post, the Finance Committee approved in June 1994 upgrade of the post to the AOSGB1 rank.

28.Since September 1992, there had been an AOSGC on loan to FSB to oversee the policy and legislative matters of ORS, insurance, and the general administration of the Bureau. The submission to Finance Committee in June 1994 which sought the upgrading of the DS(FS) post also underlined the need to create a PAS post to head the RSI Section. Since the withdrawal of the loaned AOSGC in 1996, the duties have been shared by DS(FS) and AS(RSI).

CIVIL SERVICE BUREAU COMMENTS

29.CSB agrees to the need for an additional DS(FS) post and PAS(RSI) post to provide SFS with the necessary level of support in the various policy areas. The ranking of the proposed posts is appropriate, having regard to the scope, complexity and policy significance of the work involved.(Content to be provided by CSB)

ADVICE ON THE STANDING COMMITTEE ON DIRECTORATE SALARIES AND CONDITIONS OF SERVICE

(Content to be provided by CSB)

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Financial Services Bureau
January 1999

Enclosure 4 to EC(98-99)18