HONG KONG: Chief Executive of the Hong Kong Monetary Authority (HKMA) Joseph Yam Chi-kwong admitted the government body is duty-bound in the Lehman Brothers' minibond saga, but it did enough in warning the market and monitoring banking businesses.
Yam was the second official, after Secretary for Financial Services and the Treasury Chan Ka-keung, testifying in the Legislative Council (LegCo) subcommittee's hearing which probed issues related to the investment products sold by the global financial services firm.
Lawmakers criticized the HKMA for its incapacity in monitoring the sales of structural products.
"I started to warn the market about the high risk brought by derivative instruments since mid-2006. Banks were given guidance on selling derivatives...I think the risk warning was quite enough," Yam said in his first testimony.
Lehman Brothers collapsed on September 14, 2008. Its minibonds cost nearly 50,000 Hong Kong investors billions of dollars.
He agreed that minibonds were complicated and the name misled people into thinking that the products were bond.
Yam said it was the responsibility of banks but not monitoring bodies to explain the nature and risk of products to investors, though he did frequently communicate with the financial secretary and financial services chief on market fluctuation.
The authority to examine and approve investment products lies in the Securities and Futures Commission (SFC), and the HKMA has no power to re-check its work, he added. The SFC is also responsible for determining if the disclosure of a product's information is enough.
Facing criticism from lawmakers, Yam emphasized he was not shirking the responsibility of the minibond incident.
"In monitoring banks' activities, including the sale of mortgage-linked products, I and my colleagues have done what we can within our authority," he responded.
Responding to charges that HKMA's benchmark was too lenient when eight-mortgage linked products could be rated low-risk and medium-risk, Yam shrugged off the allegation, noting that investment risks rose sharply with the onset of the global economic crisis.
Yam noted that the SFC (Securities and Futures Commission) failed to require lenders to re-evaluate risks entailed in their products once the market changed.
He added that in response to HKMA intervention some lenders did raise risk evaluations to high. Some lenders also stopped recommending high-risk products to investors. Yam told lawmakers HKMA referred 178 alleged illegal sales to the investigating committee between April 2003 and September 2008. Yam admitted the HKMA has limited power in investigation and punishment, otherwise the probe into the minibond debacle could be speeded up.
However, he rejected allegations that the investigation was too slow.
Around 6,000 of the 20,000 complaints have been handled since last year, while 6000 cases have reached settlement with banks. Yam expected to complete investigation of 70 percent of complaints by next March.
Over 200 people are deployed to deal with the complaints. Yam said it is not easy to hire new staff and training takes time.
"But I guarantee that our heart lies with the investors. We want to help them," he added the authority would not tolerate any illegal behaviors but will handle it in an impartial manner.
Yam will be summoned again to the fifth hearing next Tuesday. Yet subcommittee chairman Raymond Ho Chung-tai did not predict how many times Yam will testify.
Around 200 minibond investors protested outside the LegCo during Yam's stay yesterday morning. They accused the HKMA of not being able to keep an eye on the investment products.
Peter Chan, chairman of the Alliance of Lehman Brothers Victims, requested Yam to resign as he never apologized for the incident.
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