Whenever analyzing a part of the financial industry of Hong Kong as an international financial centre, often (and knowingly) use the technical term - financial intermediation. This technical term refers to the process of routing savings into investments, a process that is extremely important for fuelling economic growth and development. Financial consultants utilize the term extensively in the hope that its repeated mentioning will act as a frequent reminder to all concerned. This includes the regulators and the regulated, the providers and the users of financial services - of this basic purpose of the financial industry. More pin-pointing to the providers of financial services, or financial intermediaries in Hong Kong, it is a reminder of the main function of their existence.
Very often financial markets deliver financial intermediaries in Hong Kong with opportunities for profit that comprise business strategies that may not be satisfactory, having relation to the basic purpose of the financial industry. It is not probable to be precise or comprehensive about the features, and to try the categorization, of such business strategies, so that financial intermediaries might abstain from intentionally getting active. Even though this would definitely provide useful support for the industry. Regulators prefer to hand over this to the financial intermediaries, who are more involved with the markets and who perceive better the aspirations and impacts of specific market plays.
Financial consultants believe that they have the ability to realize that it is in their long-term interest not to be indulged in business strategies that have the impact of weakening the general stability and efficient performance of the channels of financial intermediation for which they have been certified as service providers. Indeed, when certifying them, the regulatory authorities have adopted the view that they were fit and proper, this comprises, significantly, being able to operate in accordance with this valuable fiduciary duty as a licensee.
But every now and then it is well within the rights for regulators to provide such reminders. One by-product of the progress of information technology and globalization of financial markets is that chances to profit at the expense of the general stability and efficient working of financial intermediation channels have rose. For example, the capability to carry out financial deals through cyberspace and book them offshore has lead to a serious lack of market transparency, which is conducive to market manipulation, which erodes the integrity of the market. The development of large and complex international financial institutions has also delivered considerable challenges to the management of such institutions, so that the value of observing the fiduciary duty of financial intermediaries in Hong Kong may not have been provided with the focus it deserves at the working level.
Consider the fiduciary duty of certified banks in Hong Kong as a further testament. Financial consultants consider it the fiduciary duty of certified banks to carry out their business in a manner that does not weaken the general stability and efficient working of the banking system. Consultants do not anticipate, just as an example, that under the Linked Exchange Rate system banks should arrange for speculative attacks on the Link, which has the effect of eroding banking stability. The banking system has been, and will remain so, an unavoidable channel of financial intermediation for financial intermediaries in Hong Kong that is extremely important to economic growth and development. The long-term well-being of the community relies on the banking system in acting this role effectively.