Overhaul at SFC leaves cynics looking for missing piece of puzzle
THERE ARE MANY regulatory weaknesses and nefarious corporate deeds to rile and abhor in Hong Kong's securities market. Shoddy disclosure, self-serving transactions, pitiful reporting, crooked directors, flagrant pump and dump schemes. One might argue these are obvious crusade targets.
The governance framework of the Securities and Futures Commission on the other hand, is not. Yet the government has chosen to wholeheartedly sink its teeth into the upper power echelons of the regulator, 'in line with good corporate governance practice', in what feels like breakneck speed, and somewhat out of the blue.
The idea is to split the chairman's post into two positions: a non-executive chairman, much like Charles Lee at the Hong Kong Exchanges and Clearing, who would perform a loftier agenda-setting role for about $100,000 a year; and a highly-paid chief executive who would oversee the day-to-day work.
In a matter of days, the government mooted its proposal and submitted it to the Legislative Council, the job reshuffle requiring an amendment to securities law. The sudden sense of urgency has been interpreted in two ways. Either the government has discovered the error of its ways in backtracking on far-fetching market reform two years ago and is committed to meaningful change, this being just the tip of the iceberg; or it is a ploy to dilute the regulator's power.
Neither quite makes sense.
Taken at face value, the concern behind the government's proposal would seem to be that the balance of power at the regulator rests unhealthily in the hands of one man, current chairman Andrew Sheng.
An overbearing SFC is the bane of many a market grouch, but it is a complaint that is levelled at the agency in general, not at one specific person. And unless there is a massive scandal being missed here, individual gripes that do get aired in public tend to be with the frontline enforcers, not the top boss.
This aching concern to split the most senior role comes with little evidence that it is either a hotbed of abuse, or at risk of being so. In a submission to Legco, the government argues internal governance at the SFC is critical 'so that the SFC is, and is seen to be, a credible, effective and independent regulator'.
Exactly who is saying this is not the case is, however, a point that seems to be missing from the Legco paper. Nor is there a wealth of cases where it has been suggested there is a conflict inherent in Mr Sheng's role.
Concerns that are being voiced are targeted more at the grassroots level of enforcement, where the SFC has the power to decide penalties and fines for misdeeds by licensees. It seems rather far-fetched to assume Mr Sheng sits in at this level, the chairman being more associated with breakfast briefings than legal briefs.
There is of course the personality issue. It does not take a rocket scientist to deduct a somewhat rocky patch between Mr Sheng and the government when the topic of his contract came up in August last year. It was literally an 11th-hour deal, leaving little to the imagination in the tone of relations.
That being the case, this could be a cunning plan to make the position unattractive to Mr Sheng when his contract comes up for renewal next year. Few would, however, believe Mr Sheng would be seeking another term, and should the government wish to wash its hands of the current chairman, it could simply hire someone else.
So that leaves the dilution of SFC powers in general. It is a compelling case to say that by putting the strategy side of the SFC in the hands of what is expected to be a part-time person, it becomes a less potent animal. A core concern here is finding the right individual, someone who understands the complexities of the law and regulation involved, and is willing to do the job for just $100,000 a year. The test will be in the candidate chosen by government: if it is to be a corporate toady who succumbs to vested interests, as cynical minds would suspect, then the game would pretty much be up.
Yet again, with the chairman slot up for grabs next year, should the government want a more pliable individual for the job, it need only put its recruitment efforts into action.
It ultimately seems to be a lot of trouble to go to for something that will deliver little in the way of meaningful change, leaving an overwhelming sense that there is a very large piece of this puzzle missing.
Should this cynicism, however, turn out to be much ado about nothing, the mere fact that this proposal is being taken with such Machiavellian scepticism in the market still speaks volumes in itself.