New SFC chief has plateful of problems on financial menu
The Securities and Futures Commission finally has a new boss and we are lining up to give him our wish list.
The overall response has been positive to the government's announcement that Herbert Smith Asia head Ashley Alder will succeed Martin Wheatley as head of the Securities and Futures Commission from October 1 for a three-year term.
The 52-year-old Briton is a first-class honours graduate from Cambridge University and has been focused on mergers and acquisitions and other listed company related legal advisory roles for decades.
Having been in Hong Kong since 1989, he has local knowledge and in fact worked at the SFC as executive director of corporate finance from October 2001 to 2004.
His international background will be a plus for the Hong Kong securities watchdog as it prepares to handle an increasing number of international issues such as regulation of over-the-counter derivative trading, electronic dark pools platforms and cross-border listing issues. Cheung Fai-hung, an Allen & Overy regulatory partner, said the appointment of an international lawyer was an important development given the rapidly increasing complexity of the financial sector and the cross-border regulatory issues.
During his last brief stint at the SFC, the problem of regulating cross-border listings was already on the agenda and he said the SFC needed to have closer ties with the China Securities Regulatory Commission on corporate governance issues.
Hong Kong now has over 500 mainland-related firms listed in the city of a total of about 1,400. The operations of these mainland companies are based in the mainland, which is off the regulatory radar for the SFC. Some say Wheatley was not proactive enough in forging ties with mainland regulators.
As Mark Lin, a partner at Hogan Lovells of Hong Kong, said: 'Having worked in Hong Kong for so many years and been personally involved in some of the high-profile listings of Chinese companies, Ashley can hopefully answer some of the criticisms levelled at his predecessor in the development of closer relationships with his counterparts in mainland China.'
Investor protection will be a key issue for Alder as no one wants to see a repeat of the minibond saga in which banks and brokers are said to have misled people about the risk level of structured products issued or guaranteed by the US investment bank Lehman Brothers.
When the lender collapsed in September 2008, investors lost everything and many wonder why the SFC would have allowed such complicated products to be sold to retail investors in the first place.
Another battle for Alder is to tighten regulation of investment banks which acted as listed sponsors. In Martin Wheatley's farewell interview in June, he pointed out the poor quality of many new listings and said tighter regulation and punishment of sponsors were needed.
New listing scandals are increasing. One example is the well-publicised accounting problems at sport fabric maker Hontex International Holdings, which the SFC suspended from trading 64 days after its listing on Christmas Eve 2009. These issues have tarnished the reputation of the local market.
Alder therefore certainly has his work cut out for him. It is only to be hoped he will introduce some real tough measures against sponsors who have failed in their duties to conduct due diligence on the companies going public.