Bankers based in Singapore tend to bad-mouth Hong Kong and vice versa. Even if they work for units of the same far-flung investment bank there's a kind of loyalty to the host centre.
"People in Hong Kong don't appreciate that they're part of China," whispers one Singapore-based Briton. "Can you imagine the implications? The sensible overseas Chinese are putting their money here, just to be safe."
"Singapore is paranoid about banking secrecy," counters a senior Hong Kong-based banker. "If you have a branch there you're not allowed to know who its depositors are. How can you exercise proper control?"
The two centres have a history of not-so-healthy rivalry. They each claim to be the Asian financial centre of choice, because of the quality of their financial markets, labour force, communications, and regulatory framework. Because they serve different hinterlands they haven't needed each other. And they have tended to exult in each other's misfortunes the closure of Hong Kong futures exchange in 1987, or Singapore's Pan-Electric scandal of 1985.
But various events have forced them to be more cooperative. For example, the Mexican peso crisis in early 1995, which affected currencies and equity markets in Asia, prompted bilateral repo arrangements between central banks, including the Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA). The Barings debacle of February 1995 taught regulators and exchanges the virtue of keeping each other informed. A multilateral agreement between exchanges was signed in Boca Raton, in Florida, a year ago. But it took the MAS and the Hong Kong Securities & Futures Commission (SFC) another year to sign a bilateral memorandum of understanding on the exchange of information. They finally signed last month.
Both Singapore and Hong Kong recognize that establishing the right regulatory framework is vital to their growth as a financial centre. Both have worked to achieve the capital adequacy standards for banks set by the Basle Committee on Banking Supervision on credit risk and will do so for market risk in 1998. Both are striving for transparency and integrity in their securities and futures markets. Nevertheless the two centres have developed different strengths, and the regulatory style is different. The MAS is said to be more authoritarian, bureaucratic and tough, while the Hong Kong regulators, led by the HKMA, are more liberal, more open to negotiation, but have also become increasingly strict and demanding of information. Is there a point in the future where the two regulatory styles will converge on accepted international best-practice?
"The competence of the MAS," says a UK banker, "far exceeds that of their western counterparts. They're much better than the Bank of England. Okay, it's easier with an economy of only 2.7 million people. But they're outstanding." As a Singapore-based banker he has some vested interest in saying this. The Singapore authorities are quite intolerant of criticism. Later in the conversation he admits: "Yes, we all get fed up with the MAS." Then hastily qualifies his remark: "But you have to stop and think why they're doing it." Doing what?
All those regulated by the MAS admit to an element of fear. It stems from not quite knowing how a request will be received, how long the MAS will take to answer, or whether it will answer at all. It also stems from the knowledge that any infringement will be dealt with severely. The result is a degree of self-regulation or self-censorship by banks and financial institutions, in anticipation of what the MAS might do if it finds out.
"If you write to the Hong Kong Monetary Authority for guidance," says a Hong Kong-based banker, "they'll give you an answer. If you write to the MAS, they won't. But two years later they might say what you've been doing is wrong." To be safe, you don't risk whatever innovation you were contemplating. Or you do it elsewhere.
Singapore regulators protest that they are not difficult or arrogant, or any of the other epithets that frustrated bankers care to use. "We have clear rules," says MAS deputy managing director Koh Beng Seng. "But our market is open and not stricter than any other market. Liberalizing doesn't mean you shouldn't have rules."
The time-lag between applications and an MAS response can be explained by the authority's concern that its answer should be right. "It is most essential," says Koh, "that the financial system shouldn't be disrupted and that the interests of investors and depositors are safeguarded." Once it's sure that won't happen, the MAS is quite happy for a bank to launch and trade financial instruments, provided its senior management demonstrates it understands and can manage the risk.
Koh Beng Seng is at the pinnacle of financial supervision in Singapore. His banking and financial institutions group oversees not only banks, but also securities houses and fund managers, the stock exchange and Simex, the futures exchange. His young appearance and abrupt manner make some of his interlocutors uncomfortable. It may also be that his hands-on approach causes bottlenecks in the system. Apparently, Koh signs off on everything.
Primary mission
But Singapore's record speaks for itself. "Our primary mission is to enforce our rules," says Koh. "It would be a concern if banks weren't worried about the actions that would be taken if rules are violated. That's a self-enforcing mechanism if you like."
The MAS is "tough but benign," affirms a senior Singapore banker. "I've yet to notice any mean streak in any decision they've made. They're objective and professional, not personal."
Singapore remains an attractive location for banks, says Koh, "because they are able to conduct their financial activities within a sound and secure environment. This is why there are so many banks operating here and why some have even returned."
The Singapore regulator's tough image owes a lot to the government's policy on the Singapore dollar. It discourages offshore use as much as it can, forbidding Singapore-based institutions from lending Sing dollars to non-residents. There is an offshore market that it can't control, but banks based onshore are careful not to lend Sing dollars offshore, even to their own branches.