Splitting top SFC job will avert an accident waiting to happen

PUBLISHED : Thursday, 07 July, 2005, 12:00am
UPDATED : Thursday, 07 July, 2005, 12:00am

'I personally am afraid that if the responsibility and accountability is not clear, that if the ship has two captains, then it may be an accident waiting to happen.'

Andrew Sheng


Securities and Futures Commission

I HAVE TO admit that he has a point. If the government wishes to split the top job at the SFC into two jobs of chairman and chief executive, then it ought to explain why it wants to do so and what the responsibilities of each should be.

We have been precious short of that sort of detail in this proposal, however, and it is understandable in these circumstances that the Legislative Council's bills committee should want to sit on the idea a little longer.

Nonetheless, it is regrettable. The problem is not that the government has no real idea of why it wants the split. The problem is rather that it is reluctant to explain its reasons in detail because they could easily be misunderstood and stir up a good deal of protest.

Thus, let me state them and, if I do not have them exactly right, I am reasonably certain that I am not too far off the official view of things.

The big problem with the SFC is that it suffers from a serious case of over-righteousness, which is perhaps inevitable with a regulatory body whose officials have little practical experience of the industry they are meant to regulate.

They want to ensure that we have a clean stock market, which is all very laudable but is easier said than done. Theft on the stock market is a great deal more difficult to prove than theft of the sort in which the policeman finds the loot in the burglar's hands and his fingerprints on a bedside drawer.

Not only do financial crooks invariably have much more money to hire clever lawyers for their defence, but insider trading (all securities offences really come down to dealing on the basis of privileged information) is an offence in which foreknowledge must be demonstrated.

The crime lies not in dealing. Dealers are expected to deal. It lies in dealing on the basis of information to which the dealer has privileged access and which he must not attempt to use for personal gain. Nailing someone for this sort of crime is akin to saying that the burglar is innocent unless it can be proven that he had foreknowledge that the necklace in his hand is exactly the one he would find in the bedside drawer.

And because it is so difficult to prove, securities regulators around the world have taken to demanding that the rule of law be bent for them. For instance, our SFC now has market misconduct tribunals that may not be able to send people to prison but can impose fines of millions of dollars on the basis of balance of evidence rather than the old standard of proof beyond a reasonable doubt.

Ask them why they need to do it and they will be entirely plain about their reasons. They will tell you that they cannot get convictions unless they are indulged with lower standards of proof than are allowed in criminal courts. Rule of law has thus been sacrificed to targeted conviction rates.

But, even then, it is not convictions these people get. Mostly, they settle for a payment implying guilt but no real judicial decision.

The result is that innocent people can be dragged through years of legal proceedings that destroy their careers and bankrupt them through legal costs, punished because charged, not because found guilty.

Along the way, the regulators also find that their new rules are never enough to close all the loopholes they think they see and then, as in the case of our SFC, we get ever more rules and amendments to the point that no one can keep up with this tsunami of regulation, much of it in any case the product of confused thought.

Thus, if our government has now listened to some voices of reason from the financial industry and decided to prescribe a dose of the real world for the SFC, I am all for it. Let us have a chairman who has actually worked as a financier and can rein in these people when they need restraint, which they sorely do.

But, of course, having already spurned real courts of law for their own creation of monkey courts, they may find the court of public opinion to their tastes as well and they have a winner in that court. Dare the government fully declare its very good reasons for a separate chairmanship and you can expect screams of protest about truth and righteousness betrayed through backroom dealings in Lower Albert Road.

Well, it is just not true. I am all in favour of bringing financial miscreants to justice but the way that our securities regulators prefer to do it threatens justice more than it does financial miscreants.

If Mr Sheng sees an accident waiting to happen, it is one we can help stop by splitting his job.