Hong Kong pushes to open Greater Bay Wealth Connect to brokers

[HONG KONG] Hong Kong regulators have opened the door for brokerages to participate in a wealth management link with the mainland, giving more competition to banks already in the programme to vie for an estimated US$500 million in annual fees.

The Securities and Futures Commission (SFC) has given an in-principle nod to expand Wealth Management Connect to the hundreds of licensed brokerages in the city, subject to applications and other requirements, according to people familiar with the discussions who asked not to be identified. The move would need approval by mainland Chinese regulators.

An SFC spokesperson declined to comment.

Wealth Connect, launched last year, allows for cross-border investments in the Greater Bay Area, a region of 70 million people that includes Hong Kong and mega-cities in the southern mainland such as Shenzhen and Guangzhou.

The link kicked off in October and has a current lineup of 23 approved Hong Kong banks, including HSBC and Citigroup. It attracted some 13,000 individual investors in the first month.

A hurdle that needs to be overcome for Hong Kong brokerages to join up is that they are currently prohibited from distribution and soliciting clients in mainland China.

Local lawmaker Yim Kong, who's also executive director of China Merchants Port, said he hopes for a push to establish mutual recognition of qualification and licences between Hong Kong and the mainland that will eventually open the door for brokers to participate in Wealth Connect.

Another lawmaker, Tan Yueheng, who's chairman of Bank of Communications International, said any in-depth discussions on the matter are likely to start after the pandemic subsides when full cross-border movement is allowed again.

Hong Kong Investment Fund Association said an expansion of the programme would be a welcome step, but it flagged that other improvements should also be looked at.

The programme needs to expand the scope of products banks can offer to customers to allow for better portfolio construction and diversification, said Sally Wong, the association's chief executive. It currently only allows banks to offer low-to-medium risk products. The "execution-only" model that bans banks from giving investment advice also needs to be changed, she said.

Mainland investors need advice since it's the first time many of them are investing offshore, said Wong, whose association represents more than US$1.6 trillion in assets under management.

Under current rules, eligible Hong Kong banks to the programme carry a SFC type 1 licence to deal in securities and engage in retail banking or private banking business. There are 1,487 corporations, including brokers and asset managers, with the same licence as of December 2021, according to the SFC registry. BLOOMBERG