The extraordinary collapse of US investment bank Lehman Brothers last September was perhaps the biggest single shock to the global financial system in recent times. Some Hong Kong investors have become caught up in what has become known as the Lehman Brothers minibond saga.

Our response has been to launch a full review of our regulatory framework. Our regulatory bodies, including the Hong Kong Monetary Authority and the Securities & Futures Commission, have made a series of recommendations. Some have already been implemented to improve investor protection. They include new codes regarding the conduct of financial intermediaries and guidelines to improve regulation of business operations.

Last Friday the Hong Kong Association of Banks announced plans to implement the recommendations on segregation between traditional banking and investment businesses by September this year as well as enhancements to risk profiling of customers with mandatory recording by July 1 this year. We expect more measures to take effect soon to further enhance our regulatory framework and restore public confidence in the financial system.

On the flip side of the coin we need to encourage innovation in the financial markets to properly prepare for the recovery ahead.

Over the past three decades Hong Kong has both benefited from and contributed to China's programme of economic reform and the process of opening up. Financial innovation - coupled with a spirit of mutual co-operation - has helped us a long way down the road of making our two financial systems even more complementary.

One particularly successful area has been the introduction of renminbi banking services, which were launched in Hong Kong in 2004.

As at end-January this year the outstanding amount of renminbi deposits held in Hong Kong banks exceeded 54 billion yuan. Renminbi services available in Hong Kong include deposits, credit cards and remittances.

We are also the only jurisdiction outside the Mainland to have a renminbi bond market, which was launched two years ago. So far there have been seven renminbi bond issues with a total worth of 22 billion yuan.

Another area where we are looking to expand our scope of financial services is through trade settlement using the Mainland currency. This follows an agreement by the Central Government in Beijing in December to allow eligible companies to use renminbi to settle trade transactions in Hong Kong.

Invoking Chatham House Rules for a moment I can tell you we expect encouraging announcements in this area very soon.

Position strengthening

Preparing for the recovery of the global financial markets means strengthening our position as our nation's most important city for global finance.

At the same time there are opportunities beyond our shores that must not be overlooked.

Our sound regulatory regime, liquid markets and deep pool of international talent help to make Hong Kong an ideal platform for Islamic finance.

In only the past year or so we have launched a variety of Islamic facilities and products. During the coming financial year we hope to make the necessary legislative changes to the collection of stamp duty, profits tax and property tax in order to create a level playing field for Shariah-compliant products vis-a-vis conventional ones. In other words our financial world is about to get even "flatter".

Global co-operation

Earlier this month I attended the G-20 Finance Ministers & Central Bank Governors Meeting as part of the Chinese delegation in a beautiful countryside setting called Horsham in England. The meeting reaffirmed, among other things, the importance of maintaining free trade with a commitment to fight all forms of protectionism.

The meeting also recommended several measures to strengthen the global financial system. We discussed appropriate regulation and oversight of all systemically important financial institutions, markets and instruments. Hedge funds, derivatives and credit rating agencies all came under the microscope.

A solid platform has been laid for the G-20 London summit next week. As a global financial centre Hong Kong will continue to contribute to the G20 discussions. We will also work closely with other economies and international financial institutions in co-ordinating our response to the crisis.

Once the global economic recovery begins I am confident Hong Kong will have an even greater role to play in international financial markets. I have no doubt Hong Kong will remain in the thick of the action.