1. The Consumer Council (the Council) would like to submit views to the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) regarding the consultation paper on the enhancements to the Deposit Protection Scheme (DPS) in Hong Kong. The Council welcomes and supports the proposals of adopting the gross payout approach to determine DPS compensation, amending the definition of quantification date (QD) and enabling the Hong Kong Deposit Protection Board (HKDPB) the use of electronic means for notification in the event the DPS is triggered. The Council's views are as follows.
GROSS PAYOUT
2. In its previous submissions to the HKMA and the HKDPB respectively in 2002 and 2009, the Council expressed concern on the full netting approach (i.e. a depositor's liabilities would be set off against deposits before his/her entitlement is determined). The Council was of the view that partial netting would mitigate the liquidity position of depositors, thus minimize their hardship due to a bank default, and thereby better align to the objective of the DPS to protect small depositors. The Council also proposed that the HKDPB should gather information on experiences of countries adopting partial netting approach to facilitate review for enhancing the level of depositor protection in Hong Kong.
3. The Council is pleased to note that the current proposal has taken into account of its views by adopting a gross basis for determination of compensation. As stated in the current proposal, application of a gross payout approach is consistent with the trend in the reforms undertaken by other major overseas deposit insurers. More importantly, under the proposed gross payout approach, depositors can have more ready access to compensation payment during a bank failure. The proposed gross payout approach would enable a faster payout to depositors from the current situation of nearly 6 weeks to within 7 days.
4. Notwithstanding the said benefits of improving the timeliness and efficiency of payouts to depositors, the Council considers it important for the HKDPB to carefully assess if there would be any worse off scenarios to depositors for moving from a net to a gross payout basis. Having said that the Council trusts the HKDPB would ensure "depositor's overall financial position would essentially be the same under both approaches" as noted in the consultation paper.
5. The Council appreciates the efforts by the HKDPB and understands the complexity for calculating the payout to depositors once bank failure occurs. The Council is of the view that the accuracy level of payment to each depositor should not be forgone as to ascertain the reliability and credibility of the financial system of Hong Kong.
QUANTIFICATION DATE (QD)
6. To remove the uncertainties in the reference date (i.e. QD) for determination of compensation payment, the Council supports the amendment of the definition of QD to the date of appointment of a provisional liquidator (PLD) or the DPS trigger date (TD), whichever is the earlier, to facilitate the compensation calculation process.
ELECTRONIC NOTICES
7. Whilst supporting the utilization of electronic channels by the HKDPB to notify depositors the compensation details, the Council emphasizes that the HKDPB should exhaust various channels, by both SMS and email instead of either one, when delivering payment details to depositors.
8. The Council is also of the view that the HKDPB should take caution on the information delivered via electronic means be thorough and the same with written notice to be sent to depositors after the disbursement.
OTHER COMMENTS
9. The current consultation sets out proposals for increasing the speed of payout. As stated previously, the Council considers it important for the Government to review the protection limit periodically to ensure its effectiveness in safeguarding the interests of depositors in Hong Kong. At present, the limit is set at $500,000.
10. Even though the current level was implemented in 2011, the Council puts forward information collected from overseas jurisdictions on the deposit protection limits for consideration of the HKDPB. In general, overseas jurisdictions offer a more advanced security level to depositors.
Coverage of deposit insurance in overseas jurisdictions
| Jurisdiction | Responsible Organization | Amount Covered * | Time for payout |
| Australia | Australian Securities and Investments Commission | AUD 250,000 (~HK$1,692,050) | Within 7 days |
| Canada | Canada Deposit Insurance Corporation | CAD 100,000 (~HK$688,478) | |
| Japan | Deposit Insurance Corporation of Japan | JPY 10,000,000 (~HK$664,855) | As soon as possible |
| Taipei | Central Deposit Insurance Corporation | TWD 3,000,000 (~HK$757,277) | |
| United Kingdom | Financial Services Compensation Scheme | GBP 85,000 (~HK$1,032,366) | Within 7 days |
| *Based on the exchange rate as at 18 Nov 2014. | |||
11. Apart from protection limit, the Council also proposes the extension of DPS coverage to deposits held in restricted license bands (RLB) and deposit-taking companies (DTC). The Council is of the view that under the persistently low interest environment coupled with the aggressive marketing practices of some financial institutions, depositors may be attracted to deposit their money with these institutions for higher interest rates, without realizing that their deposits would become unprotected if there is no extension of the DPS.
