Financial Market Integrity Index Sees Improved Sentiments in Hong Kong
08 July 2010 - Hong Kong
CFA Institute today released the 2010 Financial Market Integrity IndexTM (FMI Index) report for Hong Kong. Overall ratings of the 2010 FMI Index survey for Hong Kong improved from 2009 levels. Respondents in the survey gave Hong Kong an overall rating of 3.3 out of 5.0, compared to 3.0 in 2009 and 3.2 in 2008.
The FMI Index was designed to gauge CFA charterholders’ perceptions of the state of ethics and integrity of six major financial services markets globally, and how these perceptions change over time. The 2010 FMI Index survey was conducted to measure the level of integrity that CFA charterholders experienced in their respective markets – Canada, Germany, Hong Kong, Japan, the United Kingdom, and the United States. More than 2,700 investment professionals from 80 countries participated in the 2010 survey.
When asked if they would invest in Hong Kong, 77 percent of respondents from Hong Kong said they were likely or very likely to recommend investing in the market, compared to 66 percent in 2009, and 77 percent in 2008. Sentiment from overseas investment professionals also improved, with 55 percent of respondents from outside of Hong Kong saying they are likely or very likely to recommend investing in the market, a substantial increase from 37 percent in 2009 and a marginal increase from 54 percent in the 2008 survey, before the global financial crisis.
"Sentiment in every category rated in the survey showed significant improvement from 2009 to 2010," said Matthew Orsagh, CFA, director of Capital Markets Policy, CFA Institute, who is based in New York. "Many categories have also improved significantly from 2008. It is apparent that many in Hong Kong see their own market more favorably now when compared to some markets that suffered more through the financial crisis of the past few years."
The FMI Index is constructed to give equal weight to two dimensions of evaluations. They are (i) the ethical behavior of market participants and (ii) the effectiveness of market systems in ensuring market integrity. Ratings in both sections improved from the previous year.
The overall perception of the ethical behavior of financial professionals improved substantially from the previous year. Among the nine professional categories, the highest rating was earned by pension fund managers (3.7), and the lowest rating received by financial advisers (2.9). Despite the improved ratings, there are still concerns. Potential conflicts of interest, poor transparency in product disclosures, and the suitability of investment advice given by financial advisers are a few of the key concerns investment professionals still have.
On the effectiveness of regulation, the FMI Index survey asked respondents about their perception of the effectiveness of the Hong Kong market system. All questions received higher ratings compared to 2009, indicating that the respondents saw improvements in regulatory and legal systems, as well as enforcement efforts. "Enforcement has improved in the past few years with the criminalization of insider trading and several successful prosecutions for various types of market misconduct," a respondent said.
Katrina Tai, director of Capital Markets Policy, CFA Institute, who is based in Hong Kong, said, "There have been tightened regulations but the authorities can improve the perception of market integrity by further strengthening enforcement and vigorously pursuing suspected insider traders.”
A detailed Financial Market Integrity Index report of Hong Kong can be found here.