Securities Bill passes after 10-year debate
Legislators yesterday passed the landmark Securities and Futures Bill, ending 10 years of debate over one of Hong Kong's most controversial pieces of financial legislation.
The Bill replaces 10 securities and futures ordinances and brings Hong Kong into line with international practice.
It has gone through at least four drafts since 1992, as the Government tried to meet the concerns of brokers, bankers and legislators.
Critics say the Bill brings too many regulations to the market, and fear it may give too much power to the Securities and Futures Commission. Others say the Bill has not gone far enough to regulate the securities business of banks.
Before yesterday's vote, legislators were given a final chance to voice their concerns. While some opposed certain provisions, they failed to block the Bill's passage.
Legislator Margaret Ng Ngoi-yee said she supported the Bill as a whole but was strongly against one of its provisions, which allows the SAR Chief Executive to give directions to the SFC.
Democrat Albert Ho Chun-yan shared her concern. 'I strongly oppose this provision as it would affect the independence of the SFC,' he said. 'It would allow the Chief Executive to become a super-regulator and give whatever directions he likes. This is unacceptable.'
Secretary for Financial Services Stephen Ip Shu-kwan said the provision was crucial as a last-resort curb on the powers of the securities regulator. He said the provision would be needed in the event SFC executives acted against the interests of the investing public.
The provision, the most controversial one in the Bill, was finally passed by legislators 30 to 20.
Another criticism was that the law stopped short of forcing auditors to report fraud at listed companies to the regulator.
The new legislation does not compel auditors to report fraud, although it protects them from being sued by clients if they report suspected fraud cases to the regulator.
'The collapse of Enron has shown the importance of auditors reporting alleged fraud,' Mr Ho said.
However, legislator Eric Li Ka-cheung, who represents accountants, said it was enough for the Bill to encourage auditors to report alleged fraud and there was no need to force them to do so.
'If the auditors were forced to report fraud, it would seriously affect the trust between accountants and their clients,' he said.
Mr Li said the accounting industry body would encourage accountants to voluntarily report fraud.
Henry Wu King-cheong, the legislator representing stockbrokers, voted in favour of the Bill but said it went too far in places.
'The new law may give too much power to the SFC, and some new regulations are tougher than those in overseas markets,' Mr Wu said.
He welcomed a provision that puts responsibility for regulating the securities business of banks in the SFC's hands. The securities departments of banks are regulated by the Hong Kong Monetary Authority, not by the SFC, which regulates brokers.
The new law allows the SFC to penalise banks if their securities businesses are found to be in breach of regulations while allowing the HKMA to continue to operate as the frontline regulator conducting routine inspections.
'This may lead to double standards between the regulation of brokers and banks' securities business,' Mr Wu said.
He hoped the HKMA and the SFC would soon sign a memorandum of understanding committing the watchdogs to apply the same regulation standards to both banks and brokers.
Banking legislator David Li Kwok-po, chairman and chief executive of Bank of East Asia, said the new law was sensible in its division of power between the SFC and the HKMA.
He said any possible regulatory overlap was avoided by allowing the HKMA to continue as the frontline regulator for the securities business of banks.
The law will not be enacted until the passage of 39 pieces of subsidiary legislation outlining the detailed operation of the Bill. The subsidiary legislation is expected to be passed in several months' time.
Questions remain - Page 2