Closing the Gaps in China’s Laws and Regulations


Former Head of Hong Kong's Central Policy Unit, author and research fellow of the Hong Kong Institute for Monetary Research; keynote speaker at the 2012 ACFE Asia-Pacific Fraud Conference, 4-6 November in Hong Kong

You plan to speak on China’s dysfunctional banking system and its need for reform despite years of attempts. What role do anti-fraud professionals play in changing that trend?

The progress of banking and financial reforms in China has been repeatedly undermined by problems of law enforcement. So much of banking is based on trust, and its products are mostly book entries – computer transfers from one account to another – that fraud is a constant danger. This threat is best controlled when governments have effective, proactive regulatory and supervisory systems. Fraud thrives when banks, their owners and executives ignore the need to avoid illegal and improper behaviour. Before the switch from central planning and total state control over every aspect of life in the late 1970s, the Chinese banking industry had been simply the government’s paymaster and bookkeeper, as well as offering a safe savings bank to the nation’s citizens. Over the last 35 years, the leaders of the banking industry have been struggling to build, virtually from scratch, the legal systems, the regulatory infrastructure and the banking professionals needed by a national economy which has become the second largest in the world. Wherever a gap still remains in the law or the regulatory apparatus, the door remains ajar for the fraudster; and the temptations are large. The risk of detection is limited by defects in legislation, supervision and management. You see this in the way the nation’s leaders regularly complain in public.

What is unique about the group of fraud-fighters you will address in Hong Kong?

Hong Kong’s record in eliminating malpractice in business and government is extraordinary. In the late 1960s, it introduced some of the most draconian legislation in the world against misconduct by business executives and officials in order to stamp out corruption. In 1974, the battle was won almost overnight when the community made plain that it would accept nothing less than zero tolerance of all dishonest and corrupt practices in the public sector. Quite soon, the same standard was applied to the private business world. Thus fraud fighters have a great advantage in Hong Kong in that they have total community and government support. The Independent Commission Against Corruption ensures that law enforcement agencies are open to investigation if they are suspected of engaging in corrupt conspiracies to conceal fraud. Hong Kong’s increasing importance as the international financial centre meeting China’s needs and matching New York and London in its standards means that the professional and supporting services for business expect to comply with world-best practices when it comes to due diligence, compliance and accounting procedures.  

What do you most hope attendees will take away from your address?

The basic message of my presentation is the determination of China’s leaders to create a modern, competitive and stable banking system, free from fraud and corruption, no matter how long it takes to overcome the obstacles. The goal is to achieve the integrity and efficiency the public expects to be able to take for granted from its bankers. But the banks cannot escape from the constraints that the rest of the economy and society in general face. Throughout the reform decades, it is encouraging that China’s central bankers and regulatory officials have consistently drawn public attention to the financial system’s failings and never sought to create a false sense of security among the Chinese people.

Read more about Professor Goodstadt and the other keynote speakers at this year’s ACFE Asia-Pacific Fraud Conference.