Hong Kong's Securities and Futures Commission (SFC) was
established in 1989 by the Securities and Futures Ordinance.
Since then, the SFC has been a leading regulator in the
Asia-Pacific, recently becoming first mover in a set of
controversial sponsor regulations. IFLR
SFC chief executive Ashley Alder about his plans for Hong
Kong to retain its place as one of the world's leading
IFLR: For someone who has lived in Hong Kong for more
than 20 years with experience on both sides of the fence (as
a corporate lawyer and a regulator), what are some of the
most significant market developments since the handover in
Against the backdrop of 'One Country, Two Systems', Hong
Kong has flourished as a hub for international capital flow
with our extremely strong system of rule of law and financial
During my career as a corporate lawyer, I witnessed how
Hong Kong established itself as the premier listing venue for
Mainland companies, which now account for more than half of
the market capitalisation of the Hong Kong stock exchange
(HKEx). This was accompanied by a high level of participation
by international investors, with non-Hong Kong investors
consistently accounting for more than 60% of Hong Kong's
asset management business.
From a regulator's point of view, during my previous stint
with the SFC 10 years ago, there was a lot of focus on
corporate governance after incidents such as the dotcom bust
and the collapses of Enron and Worldcom. Now there is an
extreme focus on systemic risks, market stability and close
supervision of financial institutions as a reaction to the
2008 financial crisis. So although governance is vital, much
of the global regulatory effort is now directed at ensuring
the safety of the system across banks and markets while
accepting that this increases costs for market
IFLR: What are the key challenges for Hong Kong to
maintain its status as an international financial
Although there has been no taxpayer bailout of financial
institutions in Asia or Hong Kong since the 2008 financial
crisis, the failure of trust across the whole financial
industry is a global issue. Hong Kong's attraction for
companies and investors located elsewhere gives rise to a
significant jurisdictional and enforcement challenge.
Therefore, Hong Kong must deal with cross-border risks
properly to ensure confidence and maintain overall trust in
Underpinning this is the need to ensure transparent and
efficient flow of market information. In this regard, we have
two major initiatives.
We have been stressing that initial public offering (IPO)
sponsors are critical gatekeepers of listing quality and we
are about to issue our Consultation Conclusions on regulation
of sponsors. Fundamentally, we will focus on the integrity of
the due diligence process and clarifying liability for untrue
statements in prospectuses. Secondly, on corporate
disclosure, under a new law (Part XIVA of the Securities and
Futures Ordinance) that will become effective on January 1
2013, listed companies in Hong Kong will have a statutory
duty to disclose price sensitive information in real
We will maintain the highest regulatory standards because
this is the only way to match quality listing candidates and
investors in the longer term. And that is also why we have no
wish to join in any 'race to the bottom' so far as regulation
IFLR: With the growing importance of international
cooperation, is the SFC taking a more active role in global
and regional regulatory efforts?
We emphasise the need to work hard on the development of
consistent and detailed international standards which frame
our own reforms, and our proposals to regulate the
over-the-counter (OTC) derivatives market, on which we are
working together with the Hong Kong Monetary Authority,
represent a good example of this approach.
The SFC is a board member of the International
Organization of Securities Commissions (Iosco) and takes a
very active part in Iosco's policy and standard setting
The SFC will chair the Asia Pacific Regional Committee -
one of the four regional committees of Iosco - starting in
May 2013. We are also a member of the Financial Stability
Board's Regional Consultative Group for Asia.
IFLR: How will Hong Kong's role evolve in the ongoing
process of RMB internationalisation? How will Hong Kong
cement its position as the top RMB hub in face of competition
from markets such as Singapore?
Hong Kong acts as the hub for two-way capital flows and
therefore has a unique position in the process of RMB
internationalisation. However, we are aware that offshore RMB
business is by no means a monopoly.
To stay competitive, Hong Kong needs to align the
development of its own financial markets with the increasing
sophistication of China's interaction with global investors
The development of RMB business in Hong Kong has come a
long way and we have seen some very significant developments
in recent months. In October, we saw the world's first
security equity traded in RMB outside Mainland China. We now
have four physical A-share ETFs, traded in both RMB and HKD,
which raise funds in Hong Kong and directly invest into
Mainland's securities market.
IFLR: Under 'One Country, Two Systems', how does the SFC
cooperate with its Chinese counterparts?
For cross-border regulatory issues, the SFC has entered
into memorandums of understanding (MOUs) with Mainland
financial regulators including China Securities Regulatory
Commission, China Insurance Regulatory Commission and China
Banking Regulatory Commission.
Under these MOUs, we have in place effective communication
and coordination mechanisms with our Mainland counterparts.
We also maintain close dialogue with People's Bank of China,
State Administration of Foreign Exchange and other Mainland
IFLR: In view of the aforementioned challenges in the
local market and changes in the global regulatory landscape,
what are the SFC's priorities in 2013?
Apart from the initiatives for IPO sponsors and the OTC
derivative market, we will also be analysing feedback on our
recent market consultation on electronic trading, which
raised questions about direct market access, algorithmic
trading and internet trading. In view of the growing volume
of listing applications from non-Mainland overseas companies,
we are working with the HKEx to review the overall regulatory
approach to overseas companies seeking primary or secondary
Other initiatives in the pipeline include a revamp of the
rules which allow a different regulatory approach for
professional investors, an examination of dark pool trading,
and work to enhance Hong Kong's role as an asset management
centre, including further work on the regulation of the
investment product life cycle.
These are some of the initiatives on our agenda, but the
bulk of what we will do is to regulate focusing on
consistent and proactive supervision of products, markets and
financial firms and effective enforcement when we find
misconduct to send a loud and clear deterrence message, and
when possible, achieve recompense for investors.
In the recent Hontex case, we won a court order against
the company concerning misleading information in its
prospectus, resulting in about HK$1 billion ($129 million)
recompense to investors. We also fined its IPO sponsor, Mega
Capital, HK$ 42 million. Achieving sanctions for misconduct
and seeking recompense for investors will continue to be a
core theme to deal with misconduct in our market.
For more of IFLR's 30th anniversary coverage
Ashley Alder: why CSRC-SFC policy interaction is
SFC head reveals his 2012 agenda
SFC reveals what's next in IPO sponsor crackdown