Secretary for Financial Services & the Treasury Prof KC Chan has called for global co-operation in restoring stability in the financial system at the Euro Finance Week Lead Conference in Frankfurt.

Addressing the Restructuring the Global Financial Architecture-the Road Ahead conference today, Prof Chan said unilateral action by individual regulators will jeopardise the chances of successful regulatory reform of the financial industry.

Only an approach to regulation that goes beyond borders and has the capability of overseeing the organisation in its entirety will serve the purpose, he added.

"What is required now is a re-commitment to co-operation between governments and closer collaboration among regulators in leading markets to deal with the financial crisis. Hong Kong stands ready to be part of this global effort to restore stability to our financial system."

While Hong Kong weathered the financial crisis well with no systemic failures, Prof Chan said the city will not be spared from any major financial institution collapse regardless of how far away the city is by distance, how far removed the company is in structure terms, or how well our local economy is holding up.

He said Hong Kong supports the global efforts towards enhancing transparency of the over-the-counter derivatives markets, particularly the G20's recommendations to require all these derivative contracts to be reported to trade repositories and move all standardised over-the-counter derivative contracts to exchanges or electronic trading platforms, and be cleared through central counterparties by end-2012.

"The increased transparency of this previously mysterious market would give the authorities a more complete picture of the positions that are building up and hence a better handle on the potential risks to global and domestic financial stability. Global co-operation among the regulators in overseeing clearing houses and sharing information collected by trade repositories is essential," Prof Chan said.

As the growth speed of the hedge-fund industry has raised concern that sooner or later "systemically important" hedge funds will emerge requiring regulators to prepare for any potential risk to financial stability caused by their failure, Prof Chan said the city supports the International Organisations of Securities Commissions' recommendation for co-operation between regulators and the hedge-fund industry associations to identify the reporting standards of hedge-fund managers.

Hong Kong, he noted, has developed a set of guidelines on the basis of the principles the Financial Stability Board issued with a view to providing broad guidance on the governance and control arrangements for, and operations of, a sound remuneration system for the banking sector.

The Government is now consulting the local banking sector on the guideline and aims to finalise it for implementation by year's end. Prof Chan added Hong Kong's proposed reforms have veered towards bolstering the city's regulatory structure to enhance investor protection, rather than tightening prudential regulation of banks.