HONG KONG (BLOOMBERG) - Now even Hong Kong's top market regulator is warning that the city's development as an international financial centre (IFC) is at risk.
After years of political upheaval and a deepening isolation because of Hong Kong's zero-Covid-19 strategy, the Securities and Futures Commission (SFC) is struggling to police the city's US$6.3 trillion (S$8.5 trillion) market.
Grappling with a brain drain due to emigration and job switches, the watchdog lost 12 per cent of its employees last year, including 25 per cent of its junior professional staff, forcing those remaining to work 12-hour days to cover the workload, according to former employees.
In a budget statement submitted this month to the city's legislature, where it asked for approval to boost pay after a one-year salary freeze, the SFC said: "Without the appropriate number and mix of staff, the commission will not be able to deliver on the various initiatives underpinning Hong Kong's development as an IFC."
While government officials have been adamant that the city will remain a vibrant international hub, the SFC's concern echoes those of businesses groups about the long-term impact of the brain drain and difficulties in recruiting from abroad. The population shrank at a record pace in the year ended last June as expatriates and locals alike left the city, fed up with navigating its stringent Covid-19 controls and a deepening political crackdown by Beijing.
SFC chief executive Ashley Alder was blunt in his testimony to lawmakers this month. "Do the higher levels of staff turnover affect our work?," he said. "The straightforward answer is yes."
The staffing crunch comes as the regulator is facing an increasingly complex environment - with a new listing regime for blank-cheque companies, the emergence of digital assets, and green finance initiatives. The city is seeking to lure more initial public offerings, especially from mainland Chinese companies as political tension is making it harder for those firms to raise money in the United States.
In the year ended March 2021, the regulator started 4 per cent more investigations and almost tripled the criminal charges it filed, leading several high-profile raids to clamp down on ramp-and-dump stock schemes that proliferate in the city. It is also contending with a 31 per cent jump in merger deals that need scrutiny and a 10 per cent increase in local funds following the city's push to lure private equity firms and family offices with tax breaks.
The situation got so dire that top management had to formally bring it up to the board late last year, about three months before the public announcement at the Legislative Council, according to two people familiar with the situation.
While longer working hours and redeployments have so far largely allowed the crunch to be handled, the situation is starting to have consequences. One company under investigation waited for more than a year due before it received notification that the SFC would drop its probe, the Process Review Panel found. The case officer left before she was able to conclude the investigation, which had to be finished by another employee.
The excessive workload was "reflective of the very tight manpower with which the division has been operating over the past few years", the SFC said.
The regulator is now seeking to bump up pay by 4.5 per cent in the coming financial year to cope with the brain drain. Even so, two managers, who asked not be named talking about internal matters, said they doubted that the proposed raise will make any difference in shoring up the situation.
Currently, the regulator has only 20 job openings listed, 11 of which are temporary, part-time or contract based.
Overworked and frustrated with additional projects and ad hoc investigations, burnt-out regulators have better options in the private sector where they can secure pay increases of as much as 30 per cent, according to former SFC officials and headhunters.
An increased need for talents to fill roles such as head of government and regulatory affairs and the digital transformation has attributed to the departure of regulators, according to Ms Yip Fung Mei, managing director and Hong Kong head at Global Sage, who specialises in senior-level recruitment in insurance, regulatory and government affairs and human resources.
Covid-19 has accelerated some people's plans to take early retirement and move abroad, particularly as Hong Kong "is such an expensive place to live", said Ms Yip.
Unlike banks or private firms with deep coffers to offer lucrative bonuses and packages to lure staff, the levy-funded SFC can only offer a limited upside to retain employees. Even so, regulators are still well-paid compared with others in the city, and the SFC has bumped up pay at a faster rate than the Hong Kong Monetary Authority, the salary leader, over the past five years.
While the SFC attributed part of the failure to fill vacancies to Covid-19 limiting available candidates from outside the city, international talents are actually still open to taking jobs in Hong Kong, according to Ms Yip.
Among those who have recently left, part of the reason was to seek a better work-life balance. Outsiders are also clamouring for the watchdog to move faster on digitalisation to cut down on unnecessary and cumbersome communications.
"The SFC has done some good work on its recently launched electronic licensing platform to make our life easier," said Ms Josephine Chung, director of Hong Kong-based consultant Compliance Plus, which advises on compliance and licensing for financial institutions. "But there is much more to be done to streamline the work flow, especially when it is run by fewer staff right now."