Irrespective of undergoing studies on Macau’s role beyond being a China-PSC conduit, it is important to acknowledge the limitations and structural debilities of the current financial services sector.
By Jorge Costa Oliveira
Partner and CEO of JCO Consultancy
Historically, Macau’s governments have restricted the number of banking licenses and have not allowed many new operators. This has resulted in a very small number of operators in Macau’s banking and insurance sectors.
The concomitant protection they have enjoyed over the years, the concept of universal banking, the limited size of Macau’s market, and the availability of sophisticated services in Hong Kong and Shenzhen, have all contributed to a stagnant banking and insurance sector and the non-existence of a variety of financial operators one would normally find in relevant cities worldwide. There are no brokerage companies, no financial leasing operators, no private equity or hedge funds, no exports insurers, etc.
This reality and its inherent limitations are reflected in the sectoral regulatory authority – the Monetary Authority of Macau (AMCM).
The first and most fundamental policy decision facing Macau’s authorities pertains to the redefinition of its financial services sector’s legal and regulatory framework. It is reasonable to assume that there will be such a redefinition; after all, one is not “writing on blank paper.” Limited as it may currently be, it seems unwise to reset all from scratch.
Ideally, policymakers should clearly determine what is to be included within Macau’s financial services sector. In normal circumstances, this never happens in complicated matters, as it would indubitably require time to be appropriately thought through. However, to implement the GBA’s “Outline Development Plan”, consideration will have to be swift. As such, the studies taking place, and their respective consultation with the government, should be expedited.
Since the policy decisions involved are of paramount importance, Macau’s Government should open the debate with civil society. This is unusual in Macau, but we are dealing with quasi-foundational decisions in matters that transcend the know-how of Macau’s bureaucrats and high-level officials. An open attitude is not only the right thing to do – the Government must lead and decide, yet not carry the burden alone – but also an intelligent pro-active approach since there will be a fast pace in the creation of critical mass in a few years.
The referred to redefinition could and should be made within the boundaries of Macau’s Romano-Germanic-based legal system. The world’s financial centers have rebuilt sectorial legal and regulatory frameworks respecting the foundations of their respective legal systems. What’s more, some of the most relevant financial centers have been created in Romano-Germanic-based legal systems (Continental Europe, Japan, Brazil, etc). Each branch of a legal system tree should be made of the same stuff as the tree. Otherwise, countless problems will emerge and the branch will wither.
To do it well, reforming Macau’s financial services’ legal and regulatory framework will have to be carried-out gradually, as it is a complex undertaking. Several politicians will want to speed things up and “copy & paste” some other model from a reference jurisdiction. What previous experience shows is that transplanting large-scale models of sectorial legal frameworks does not work.
It is possible to regulate specific features or components of the legal framework based on an well proven reference jurisdiction; sometimes it is even desirable to make as little changes as possible (eg, when there is a recognized international standard). However, for many aspects of the legal regulatory field’s architecture, the exercise is far more complicated. On the one hand, it is necessary to take into account the existing features of Macau’s legal system and its local regulatory authorities. On the other hand, it is necessary to have regulatory institutions that work well, that understand the market and its main players and that realize that protecting investors’ interests must be a top priority in itself.
The temptation of using current entities on reform work is inevitable, and to some extent, understandable. Macau’s past experience in the casino gaming sector shows us that the main failure is in establishing a new regulatory framework for that sector was the political decision to maintain a discredited and ineffective supervision authority – the Gaming Inspection and Coordination Bureau (DICJ).
As deplorable as that was, Macau’s potential as gaming center was, and is, so great that it was possible to introduce meaningful change in the sector and, with it, in Macau and in the region as a whole.
In the financial services sector, however, Macau has no regional monopoly nor many other advantages; quite the opposite, Macau is one of the least qualified relevant regional centers within the GBA.
In summary, the reform of Macau’s financial services’ legal and regulatory framework should:
– depart from the current framework;
– respect Macau’s legal system features;
– be implemented gradually, with appropriate planning;
– be subject to open public consultation;
– involve as many international qualified entities as possible;
– create units that can start preparing the legal and regulatory framework for new areas and products on financial services; with
– extensive resort to qualified outsourcing.