SFC: Three ways the regulator is focusing on disclosure

Author: Ashley Lee | Published: 28 May 2014
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Hong Kong’s Securities and Futures Commission (SFC) is looking more closely at listed companies’ disclosure, according to Michael Duignan, senior director of the regulator’s corporate finance division.

Most of the effort in improving compliance culture will be focused on guidance and soft regulation. "Public enforcement action does have an encouraging effect but big sticks only take you so far," said Duignan.

Duignan, who joined the SFC in February of this year, focuses on the various aspects of the Securities and Futures Ordinance (SFO) that relate to listed companies.

Speaking at the Asialaw In-House Counsel Summit today, he described the division’s role as protecting members of the public investing in listed companies and ensuring that the right information is being disclosed to investors at the right time. 

Bolstering disclosure standards is an obvious way to achieve that goal, especially in relatively young capital markets compared with those in the US and EU. "Some of the inherent checks and balances that exist in arguably more developed markets are absent," he said.

The division has three primary objectives: to increase the compliance culture within listed companies and generally improve corporate behaviour; identify corporate misconduct within the scope of the SFO, in particular that which is prejudicial to the interests of shareholders; and to ensure that the listing of securities is not against the public interest as well as ensure that disclosure is sufficient to allow the investor to make an assessment regarding the issuer and the security.


  •       Michael Duignan, senior director of corporate finance at Hong Kong’s SFC, discussed his division’s priorities at the Asialaw In-House Counsel Summit;
  •       His division is looking to boost disclosure standards in the capital markets, focusing on meaningful disclosure rather than more of it;
  •       Other areas of interest include identifying prejudicial behaviour and prospectus review.

Encouraging meaningful disclosure

While companies don’t necessarily deliberately hide material information, they could be more forthcoming about the detail and significance of that information.

A lack of information might be the reason why there were few price movements based on corporate announcements in the last year: only 14% of profit alerts and warnings last year resulted in a price move.

"That makes me wonder about the other 86%," said Duignan. "If a company issues a profit alert and the price doesn’t change, that strikes me as rather odd."

Low liquidity could be a reason for the lack of movement, but Duignan believes that some announcements provide so little meaning that investors can draw no guidance from them.

Instead hard figures are needed in profit alerts. The indications suggest that some companies have started including more numbers, and Duignan encouraged all companies to match those efforts.

He refuted arguments that investors might be confused by too much disclosure, observing that no investor has approached him to complain about that issue in the Hong Kong market.

Prejudicial behaviour

The corporate finance division is also looking to identify behaviour prejudicial to the interests of shareholders, and to do so proactively by conducting in-depth reviews of companies selected using a risk-based approach.

"Public enforcement action has an encouraging effect but big sticks only take you so far"

"We’re trying to spot problems before they become scandals," he said, adding that people often point out the signs of a failure after the fact.

To better understand market trends and patterns, the regulator is also conducting thematic reviews by investigating issues of relevance to more than one company. That might result in changes to policy, listing rules or – in extreme circumstances – enforcement actions.

Prospectus review

Initial public offering (IPO) prospectus review has come under increased scrutiny since the public A1 filing requirement began on April 1. Duignan noted that there was a clear rush to get ahead of the publication deadline, with 60 prospectuses filed from February 1 to the end of March.

"Given that there were only four submissions in April, it’s too early to make assessments of the quality of documents under the new regime," he said.

But he’d heard anecdotal evidence that the regulations had some effect on how sponsors, banks, advisors and companies themselves have approached the process of drafting prospectuses. Sponsors are apparently asking more questions of companies, and are checking the facts to a greater extent than before, he said.

Duignan’s views expressed are his own, and do not represent those of the SFC.

See also

Hong Kong analyst disclosure regulations need clarity

Revealed: Hong Kong exchange to expedite IPOs

Paul Gillis: SFC should not regulate auditors