How financial institutions understand priorities and launch corresponding services in building the Greater Bay Area

On July 31, 2020, the issue of the Implementation Plan for Providing Effective Financial Support for the Guangdong-Hong Kong-Macao Greater Bay Area has further refined and supplemented the more proactive, innovative, and actionable specific policies and measures for the financial support to GBA.

In brief

• What are the characteristics of the Implementation Plan, comparing with the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (Outline) and the Opinions on Financial Support for the Guangdong-Hong Kong-Macao Greater Bay Area (“Circular No. 95”)?
• How financial institutions seek opportunities amid the building of GBA？
• How the Implementation Plan promotes financial cooperation between and the coordinated economic and social development of GBA?

On 14 May 2020, the People’s Bank of China (PBOC), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC), and State Administration of Foreign Exchange (SAFE) issued the Opinions on Financial Support for the Guangdong-Hong Kong-Macao Greater Bay Area (“Circular No. 95”). Circular No. 95 supplements and expands upon the policies governing financial services under the Outline Development Plan for the GuangdongHong Kong-Macao Greater Bay Area (Outline). It consists of 4 overarching goals and 26 specific measures organized into 5 aspects.

On 31 July 2020, Guangdong Financial Supervisory Authority—in association with PBOC Guangzhou Branch, CBIRC Guangdong Office, CSRC Guangdong Office, PBOC Shenzhen Central Sub-branch, CBIRC Shenzhen Office, and CSRC Shenzhen Branch—co-issued the Implementation Plan for Providing Effective Financial Support for the Guangdong-Hong Kong-Macao Greater Bay Area (“Implementation Plan”). Building on the previous two documents, it contains 80 detailed, supplementary measures that implement the financial support to the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”), and is, therefore, of strategic importance to promoting financial cooperation between the three regions and the coordinated economic and social development of GBA.

Four overarching goals of the Outline include:

1. To support the real economy and provide strong financial support for GBA;
2. To promote cooperation, mutual benefits and financial complementarity and integration among Guangdong, Hong Kong, and Macao;
3. To be market oriented and optimize the allocation of financial resources;
4. To prevent systemic financial risk and promote financial openness and innovation in a steady and orderly manner.

Five aspects of the Circular No. 95:

1. Facilitating trade, investment, and financing: facilitating cross-border trade, investment, and financing in GBA as well as improving the convenience of foreign exchange and cross-border circulation;
2. Opening the financial sector: Promoting financial openness and financial cooperation between the Mainland, Hong Kong and Macao;
3. Boosting regional interconnectivity: financing channels and boosting interconnectivity of financial markets and financial infrastructures;
4. Enhancing financial services and driving innovation: Further enhancing financial services and innovation capacity in GBA;
5. Preventing cross-boarder financial risks: Preventing cross-border financial risks, enhancing regional coordination in cross-border financial regulation, and improving the risk prevention and control of cross-border capital flows.

Building on the 26 specific measures, the 80 implementation measures are more proactive, innovative, and actionable within the following three aspects:

1. The more proactive financial openness measures allow financial institutions to focus on steady growth in key areas, to help create an international financial hub;
2. On enhancing regional interconnectivity and cross-border financial services and preventing cross-border risks, the Implementation Plan proposes numerous policies that encourage product and service innovation, to address current regional shortfalls in fintech and cross-border finance;
3. Measures are logically categorized, and assigned to specific responsible government agencies, to accelerate implementation.

Implications of the 80 implementation measures are as follows:

1. Banking: Boosting cross-border banking services, green finance, and fintech

1. The Implementation Plan drives implementation of the cross-border Wealth Management Connect pilot scheme, which will help developing innovative cross-border WMPs, building operational and sales channels, tapping into the massive local wealth, attracting incremental capital, strengthening business and brands.
2. It facilitates cross-border trade and circulation of foreign and local currencies. Policies that facilitate cross-border funds circulation (RMB and foreign currencies) allow commercial banks to improve operational efficiency and cut costs, but they need to implement prudential supervision principles and strengthen their monitoring frameworks.
3. It provides a detailed arrangement for facilitating financing for Guangdong, Hong Kong, and Macao businesses and individuals. By Enriching commercial banks’ range of cross border investment and financing services and promoting product innovation, though banks have to become more adept at running international businesses.
4. It bolsters interconnectivity of regional financial markets and financial infrastructures. Commercial banks should capitalize on the synergies, market interconnections, mutual recognition of products, and talent exchange among financial institutions, to integrate internal resources, enhance interbank cooperation, and help build a multi-layered financial market.
5. It helps building a service system for green finance products and services. Commercial banks should fine-tune their green finance strategies, organizational structures, management frameworks, and product and service offerings to adapt to innovations and changes in financial rules, industry planning, and application scenarios.
6. It boosts financial services and innovation to support hi-tech companies and scientific and technological progress. As GBA is a forerunner in financial innovations and has international experience and institutional advantages in finance, GBA-based commercial banks should explore ways of integrating technology and finance while building up technical capabilities.

2. Insurance: Greater opening of market and integration of cross-border services

1. The Implementation Plan further opens the insurance sector. Broader fundraising and investment channels for insurance companies and asset managers enable greater collaboration and complementarity with banks’ asset management products and investment funds
2. It provides detailed policies on cross-border insurance payments and receipts. Directly addressing insurance coverage for mainland residents traveling abroad, the new policies expressly permit: i) currency exchange for cross-border insurance funds in GBA and; ii) insurers in HK and Macao to develop insurance products in line with these policies and compliance requirements.
3. It facilitates the developing GBA-exclusive critical illness insurance products. Given the policies promoting the integrated development of GBA insurance markets, insurance companies should optimize product design and pricing and improve overall service capabilities in areas such as claim management and payment.

3. Asset Management: More participants bring new opportunities for innovation and growth

1. The Implementation Plan provides concrete measures for piloting cross-border investment of private equity funds. Two-way cross-border capital flows benefit enterprises and private equity funds. Funds should take this opportunity to enhance fundraising channels and product innovation.
2. It helps building a more diversified and open asset management market in the GBA. The Implementation Plan promises broader and more open investment channels for assets under management. Mainland asset managers need to optimize their organizational structures, staff composition, capital expenditure, and technology applications to cope with the increased industry professionalism and financial complexity following the entry of overseas competitors.
3. It promotes innovation in the asset management sector. To correspond to industry innovations and changes, asset management institutions can strengthen cooperation with domestic and overseas financial service providers to build a competitive edge in fundraising, product development, talent management, and technological resources.

4. Fintech: Greater financial support for technology and innovation and wider applications

1. The Implementation Plan creates new financing channels for tech companies More diverse ways for finance to support technology and innovation to enable GBA-based enterprises to more easily obtain funding support and innovate further.
2. It helps deploying new technologies in financial services. The application of digital currencies, blockchain, the internet, big data, and 5G not only expands the breadth and depth of financial services, but also reinvigorates existing financial institutions.

5. Regulation: More effective regulatory coordination to prevent financial risks

1. The Implementation Plan prioritizes talent training and exchange policies. Talent cultivation and exchange policies promote interaction between finance professionals and are crucial to creating a diversified financial market in GBA.
2. It helps in establishing a multi-dimensional cross-border dispute resolution mechanism. It Creates a multi-dimensional system for resolving cross-border financial disputes facilitates the convergence of financial rules and standards in GBA, thereby propelling cross-border financial cooperation and innovations.
3. It helps strengthening IT risk management and cybersecurity. Policies stress that financial institutions should be well-prepared for the information security and cybersecurity challenges brought by fintech, and that they should build effective lines of defense to safeguard financial data.

In summary, the Implementation Plan, consisting of 80 measures, is a detailed roadmap for Circular No. 95 that tells financial institutions the roles they can play in building the GBA of tomorrow. It will help GBA-based financial institutions better understand priorities and launch corresponding services and will encourage all stakeholders to contribute to a stronger GBA, with coordinated economic and social development within the region, by taking advantage of the available financial policies and instruments.