Interview with Etelka Bogardi

Global Publication March 2018

We speak with Etelka Bogardi, our new financial services regulatory partner based in Hong Kong, who joined us from the Hong Kong Monetary Authority.

Why did you join Norton Rose Fulbright?

One of the key things that attracted me to Norton Rose Fulbright was the strength of the financial services regulatory (FSR) team globally. I was really impressed by how our London (in fact, our global) team is creating a consultancy, bringing in people with compliance and operational backgrounds to tackle issues financial institutions have such as systems and controls that don’t fit squarely in the “legal” box. This multi-disciplinary approach is very forward thinking for a law firm. It’s a visionary group and the firm is clearly thinking about where the financial industry is heading as a whole.

In addition, my experience as a financial services lawyer at another international firm and then as senior counsel at the Hong Kong Monetary Authority (HKMA) fits in very well with the Financial Institution (FI) focus at Norton Rose Fulbright.

Tell us more about the regulatory bodies in Hong Kong.

There are three financial services regulators in Hong Kong which we engage actively with – the Insurance Authority, the HKMA and the Securities and Futures Commissions (SFC).

We are increasingly dealing with the Insurance Authority as the new insurance regime is taking effect and we have a very strong insurance practice in this region so that combination has created a lot more work for us in that space.

The HKMA is the front line regulator for licensed banks and deposit-taking companies, while the SFC is the frontline regulator for financial intermediaries or anyone performing regulated activities, including securities dealing and asset management.

It's a fascinating dynamic and much different to other countries’ models, for instance Singapore which has one financial regulator, the Money Authority of Singapore (MAS).

There is quite a bit of overlap between what the HKMA and the SFC does. For example, if a licensed bank has a securities or asset management arm, it is frontline regulated by HKMA, but many of the relevant laws, guidelines and regulations are issued and effectively overseen by the SFC, so clients need to be very vigilant and really consider both regulators for all their activities, especially since the regulators approach cases quite differently.

Clients must be prepared to deal with two separate sets of questions and two separate sets of people who may sometimes have different policy concerns and priorities (as well as enforcement tools at their disposal). Often amongst themselves, they will come to a decision on whether or not they (or one of them) will initiate enforcement action and what that will be but it’s not always entirely clear on what basis those decisions are made.

How has the FSR landscape changed in Hong Kong in the past 3 years?

There are more and more regulations, and both the regulators and financial institutions are working hard to keep up. A lot of the regulations start off as G20 commitments implemented through treaty-based organisations such as the Financial Stability Board or Bank for International Settlements which are then rolled out globally. Examples include the resolution and recovery regime, OTC derivatives reform, the Manager-in-Charge regime, which have all started elsewhere and have come to Hong Kong for adaptation and implementation in the local market.

I do think that we are coming through to the tail end of the big enforcement and mis-selling cases related to the financial crisis, so it will be interesting to see what the next enforcement wave would be. In the next 18 months or so, I believe we will see more personal accountability-type cases and also more anti-money laundering enforcement actions.

What are the key risks for FIs operating in Hong Kong?

There is a significant anti-money laundering risk in Hong Kong because the city is a conduit for money flows and I also think the regulators are increasingly concerned about the lack of their extra-territorial reach. This is why they are pushing for legislation and enforcement outcomes cross-border (the first conviction under section 115 the offshore marketing offence under the Securities and Futures Ordinance springs to mind); as well as increasing co-operation between national regulators, with a particular emphasis on Mainland China.

Generally there’s a lot more desire and need to work together with foreign regulators, particularly on issues like resolution planning where local regulators have to co-operate with regulators in home jurisdictions in crisis management groups and supervisory colleges, to work out what they are going to do if and when the next crisis comes.

Tell us about your experience working at the HKMA, what are some of the highlights and learning curves?

The key difference between working in private practice and at the HKMA is that, while at the HKMA, I was much more involved in the policy side and being responsible for accompanying pieces of legislation in the financial sector from start to finish, working with the Department of Justice and the Financial Services and Treasury Bureau- these were real highlights for me, though in many ways, it’s much less commercial. When you are in private practice, you are always trying to give your advice within commercial parameters, bearing in mind what is actually happening in practice in the markets and the commercial drivers. The regulators can sometimes take a more black and white legal approach.

What are clients most curious about when they find out you've been at the HKMA?

Often the client queries are on the intangible - why the regulator is approaching issues or matters a certain way and how the HKMA operates internally.

I was struck by the disparity between what regulators are thinking about versus what clients are asking about in practice. The bank resolution is a good example to cite for this, the discussion at the regulators end would be a very technical one – how the legislation should look like and the policies backing it, but with clients the practical cross border elements are almost always the most important ones. You respond to very practical questions like if they had a resolution action at headquarter level, what would happen if someone in Hong Kong was a counterparty and insisted on terminating a relevant contract; or “Do I need to change my contracts to cater for this?” There is sometimes a bit of misalignment in the thought process for regulators and for clients. The regulators have a very tough job but they don’t operate in a day-to-day business environment the way clients do. So with my experience, I advise clients on what I think the regulators’ objective is, what the policy is about and the practical implications which the regulators may not have filtered off; it’s important to ensure that we are providing practical advice that still keeps the client’s business compliant.

There is another angle which people forget which is the politics of it all – when a regulator wants to put in new rules, they have to approach the Legislative Council (LegCo) to get them passed, and there’s always a concern at the back of their minds on how what is proposed will be perceived by politicians and the general public.

For now, no two pieces of work I have received so far have been the same, which has made this practice very interesting to be in. It’s such a broad area, and questions I’ve fielded range from almost operational (reviewing to make sure operation models are compliant with supervisory policies) to a lot of cross-border work where there is a Hong Kong element and in determining whether or not a certain activity will be regulated in Hong Kong.

There’s also a lot of interesting work coming out of the fintech sphere, where companies are developing payment systems with blockchain elements, and on the insurance regulatory space, particularly from offshore insurers planning on activities in Hong Kong.

So what do you think are some of the key changes Hong Kong needs to make to become a true fintech leader in APAC?

Hong Kong has some unique structural characteristics which could pose challenges for the implementation of fintech and regtech solutions.

For one, it is dominated by large established financial institutions (29 of the 30 global systemically important banks are represented in Hong Kong) with a high degree of market saturation. As a result, it is not a place where technological change is driven by smaller fintech market disruptors. This dominance of incumbent FIs is evidenced by some of the regulatory responses, such as the fact that, unlike for example the UK or Singapore, the regulatory sandboxes are available only to institutions that are already licensed or those that have partnered up with licensed FIs. As a result, it is likely that the implementation of fintech in Hong Kong will be largely driven by existing FIs partnering up (or investing in) fintech start-ups, which may result in the pace of disruption being slower (and perhaps less innovative and nimble) than in jurisdictions where fintech development is more disruptor-driven.

Hong Kong also has a slightly more complex regulatory landscape. There are three main regulators (the HKMA, the SFC and the Insurance Authority) to navigate which can involve higher start-up costs for industry entrants. It can also be difficult to determine which regulatory regime will apply to any given fintech solution.

But the regulators are responding – as can be seen by the HKMA’s consultation in relation to Open Application Program Interface, the updated guidance on virtual banks and its other proposals for what it calls “New Smart Banking”.


Asia Head of FinTech and Financial Services Regulatory; Partner

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