Kong’s Securities and Futures Commission (SFC)
will work to maintain a close enforcement dialogue with the
China Securities Regulatory Commission (CSRC) as more small and
non-state owned Chinese companies come to list in the
SFC’s new chief executive, Ashley Alder, told IFLR it was important for the regulators to
sustain a very interactive and practical relationship with
regards to ListCo enforcement.
follow last week’s revelation by CSRC vice
chairman Yao Gang of the agency’s plans to revise
rules to enable more SME and private Chinese companies to list
in Hong Kong. The CSRC also intended to encourage ChinaCos to launch
renminbi-denominated share offerings in Hong Kong this year, he
the gradual internationalisation of RMB, and introduction of
RMB-denominated products, had helped to foster a close
interaction with the CSRC and led to the implementation of a 'people exchange’
involving secondees from each
agency. "It is important to continue this level of contact both
on the operational and on the policy front," he said.
He also emphasised the importance of
sponsor work. "Given that private and overseas companies will
now take up a greater proportion of listings in Hong Kong, in
particular the onus will be on the sponsors, more so than ever,
to ensure they have done the work to select the right companies
to sponsor," he said.
The SFC would
more closely detail its expectations regarding sponsors'
obligations and financial institutions’ internal
reporting systems in the revamped Code of Conduct for sponsors,
which is targeted to be published
at the end of Q1 or early Q2 this
year, he said. The new code would expand on
sponsors’ due diligence requirements in the
current rules, and also better articulate what internal
protocols should be in place to ensure sponsors’
reporting systems and internal controls were working
efficiently throughout the life of a listing.
would also work to encourage better collaboration between
auditors and sponsors on initial public offerings (IPOs) so as
to better guarantee good disclosure in documents and overall
investor protection, he said.
insisted any progress on this front needed to be industry- and
not regulator-led. "I hope if I talk about the need for this
conversation between auditors and sponsors to take place, they
themselves will start addressing the issue," he said. "I have detected real willingness within
the industry to adopt a more collaborative approach, including
more information sharing."
is that, when working on a deal, reporting accountants have
quite extensive insight into a business going beyond reported
numbers, and they should be able to share and discuss that
information with sponsors and others to ensure overall
disclosure is optimal," he said.
accountants operate in an isolated, ring-fenced manner," he
said. "I’d be interested in hearing from the
auditing profession, and the sponsors, as to whether they are
willing to come up with a new way of working together," he
partner, and former SFC enforcement executive director, Alan
Linning said it was absolutely right to revamp the sponsors
code. "This has been a concern for the last decade, which
Ashley knows only too well given his specialties," he said.
important also for the market to understand that some degree of
cooperation existed between the SFC and CSRC so as to make
clear there are no safe havens.
"One of the
key planks to any investigation, or action that needs to be
taken against dodgy initial public offering (IPO), often
involves the mainland," he said. "Attaining adequate
interaction with their mainland counterparts therefore remains
a continuing enforcement challenge for the SFC.
It’s an important practical issue that goes
hand-in-hand with sponsor liability and enhancing due
Bank’s legal counsel Adeline Lee said all market
players and legal practitioners concerned will pay due
attention as to the SFC’s progress. "The key is,
inter alia, policy formulation,
implementation, execution and supervision."
But, one Hong
Kong-based bankers’ counsel said he found
Alder’s tough talk on sponsors odd given that the
SFC had to-date provided no more guidance on the matter than
issue sanctions on those found in breach of the rules so the
market can react?" he asked. "The SFC’s actions in
this regard have so-far amounted to mere notifications of rule
violations. If nobody is forced to pay the associated fine,
then nobody understands the consequences of infringement and
the SFC’s actions have no impact."
in-house counsel based in the city criticised the
SFC’s indecision on product development. "It is
costing the market," he said. He cited the
regulator’s inability to promote plain vanilla
index- or equity-linked structured finance products to market,
by way of example.
"To not allow
such products is damaging the market," he said. "We need a
regulator that is happy to strike a balance between investor
protection and facilitating market development."
regulation had become too politicised post-2008," he said. "We
need a regulator that is willing to take action that is not
politically motivated and that bolsters market confidence."
challenged the notion regulators had become overly-political.
"If you look at the history of regulation in Hong Kong, it
follows a much more calibrated approach than some regulations
overseas which saw large swings towards deregulation in the
years before 2008 and then re-regulation following the
financial crisis," he said. "The
political atmosphere in Hong Kong is not as extreme, and Asia
was not affected by the financial crisis in the same way as
Western markets. We will adhere to
G20 commitments but we must be careful not to overreact."
He added that
it was quite right that the regulator looked carefully at new
products coming to market. "There
is always a balance to be struck between investor protection
and market development and it is important to realise that they
are not mutually exclusive," he said. "If we feel a product is
suboptimal as far as investor protection is concerned on a
number of levels, such as disclosure, structure and
counterparty risk, then it is perfectly legitimate to look at
that product against the background of what has happened
globally in the past few years and basic tenets of investor
It was quite
clear, he said, that there had been progress in terms of market
"In terms of
market development, we just approved a whole new set of
exchange-traded funds and RQFII funds in a short space of time.
Provided we have satisfied ourselves there are not any untoward
investor protection issues, we get on with it."
But he said
it would never be right for a regulator to take a relaxed
approach to investor protection. "Issuers also understand that
the last thing they want to do is issue products that are
going to land them in trouble," he said.
short position reporting regime change followed that rationale,
however, argued the SFC needed to give further thought to the
planned rule change.
in their current form, Hong Kong’s short position
reporting regime would be one of strictest in world," he said.
"There has been widespread concern in the market about the
impact this level of stringency will have on the industry."
the SFC would be forced to further examine its proposal before
the new regime became law.
stands, the bill’s passage through Hong
Kong’s Legislative Council looks set to be a
tortuous process," he said.
disagreed. "There are short position reporting regimes in other
jurisdictions that differ in terms of thresholds or
reporting requirements," he said.
"But industry participants I have spoken to are happy with the
approach we have taken to detect
any significant build-up of short positions from a monitoring
risk perspective, but not to indentify the individual short
On January 12, Alder revealed
his agenda for the year ahead.
At the inaugural meeting of the Hong Kong Corporate Counsel
Association’s (HKCCA) Financial Institutions
Group, Alder stipulated market consultations would be taking
place on the legal liability of sponsors, revamping the Code of
Conduct for sponsors, clarifying the SFC’s joint
policy statement with the Hong Kong stock exchange concerning
overseas listings and electronic trading rules, among
others. It was the SFC’s aim to deal with the
practical problems faced by the industry while insuring the
solutions "up everybody’s game", he said.