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
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.
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
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
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.
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
"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.
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.
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