What is banking and finance law? Banking and finance law concerns the fundamental principles of security and financial services law. It covers both local and international developments from a practical and policy perspective. Areas of banking and finance law include understanding about electronic banking, international transactions, international institutions, project finance, acquisition and leveraged finance, securities, debt capital markets, asset finance and so on.

Banking

Banking law deals with two relationships:

1. The relationship between banks and customers
2. The relationship between one bank and another

The special features of the Hong Kong banking industry are as follows:

1. All leading international banks operate in Hong Kong.
2. Not all financial institutions have the authority to do the full range of banking business. It depends on the type of licence the institution holds.
3. There is no central bank in Hong Kong.
4. There are relatively few local Chinese banks.
5. Hong Kong does not distinguish between offshore and domestic banking business, as a result this leads to intense competition.
6. Hong Kong' s banking system is free from government interference.

Financial institutions are classified into three categories: banks, restricted licence banks and deposit-taking companies.

Banks

All commercial banks holding a valid banking licence are in this category. They are entitled to provide the full range of banking business without any restriction.

Restricted Licence Banks

Investment banks and merchant banks fall into this category. They accept only large sums of money as deposits. They engage in several other activities such as foreign exchange and securities transactions, underwrite shares, give advice on takeover and mergers and provide private banking services.

Deposit-taking companies

Finance companies come within this description. They must not take a deposit of less than HK$100,000 and it must be for a minimum period of three months. They are not subject to any restrictions on the rate of interest offered to depositors.

Deposit-taking companies lend money and engage in hire purchase business, factoring and leasing of equipment to business enterprises. They must be registered under the Banking Ordinance.

The object of the Banking Ordinance is to regulate banking business and the taking of deposits and to make provisions for the supervision of authorised institutions so as to provide a measure of protection to depositors.

The banker-customer relationship is basically a contractual relationship. The bank undertakes to receive money on deposit and collect cheques on behalf of its customers. The customer agrees to take reasonable care in writing cheques. The exact nature of the relationship is that of debtor and creditor.

Sometimes the banker-customer relationship gives rise to agency functions. When the bank executes the customer's mandate it is acting as the customer's agent. The duty of care is that of agent to principal.

Finance

"Securities" includes shares, stocks, debentures, loan stocks, funds, bonds or notes issued by public companies, and instruments carrying the right to purchase or subscribe to securities or interests therein.

The Securities and Futures Commission (SFC) is the principal regulator of dealings in securities, investments schemes and investment arrangements.

The Stock Exchange of Hong Kong (SEHK) is a public company limited by shares incorporated under the Companies Ordinance. Management of the SEHK is vested in the Exchange Council. It has a statutory duty to maintain a fair and orderly market.

The Hong Kong Securities Clearing Corporation developed the Central Clearing and Settlement System in which it is the central risk-taker for securities trading in the Exchange.

The new Anti-Money Laundering Ordinance (AMLO), which came into effect on 1st April 2012 has also had significant impact on how the whole industry operates. This includes law firms. If you want to know more information about the new AMLO please click here for more information. Alternatively, you may want to contact an investment advisor.