Disclosure law means bosses face HK$8m fine
Lawmakers have approved controversial legislation requiring Hong Kong-listed companies and their senior executives to disclose price-sensitive information in a timely manner or face a fine of up to HK$8 million.
The change comes after almost 10 years of debate about tougher penalties for failing to disclose information that is likely to affect share prices, such as takeover and merger news, a substantial change in financial results or sudden loss of assets.
The new regulation is aimed at enhancing market transparency and matching international jurisdictions such as Britain and the European Union, which have also added civil liabilities for those breaching disclosure rules.
It comes as the securities watchdog is beefing up investor protection with the threat of jail terms and hefty fines for listing sponsors who fail to carry out proper due diligence on dodgy companies.
The Legislative Council yesterday approved the new provisions in the Securities and Futures Ordinance, which allow the Securities and Futures Commission to refer non-disclosure cases to a Market Misconduct Tribunal for a hearing.
The tribunal will rule on whether any listed companies and their senior officials failed to disclose price-sensitive information in a 'reasonably practicable' time to the public.
The tribunal, to be chaired by a judge and two lay members, can impose a range of penalties including a maximum fine of HK$8 million. Directors may face a ban for a maximum of five years, or be forced to attend corporate governance classes.
The change, which comes into effect in January, will add teeth to current regulations which allow only the Hong Kong stock exchange to reprimand those who break listing rules on non-disclosure. But the legislation is a watered-down version of the government's initial reform attempt in 2003 which proposed making non-disclosure a criminal offence carrying a jail term of 10 years and a fine of HK$10 million.
But after two rounds of consultations in 2003 and 2004, the plan was shelved after stiff opposition from the business sector, which considered the criminal sanctions too tough.
The government proposed the change again in 2010 but this time without criminal sanctions.
Secretary for Financial Services and the Treasury Chan Ka-keung said it was 'a good first step forward for a reform plan to establish a continuous disclosure culture in the local market and to assure investors can get more corporate information in a timely manner'.
Mike Wong Ming-wai, chief executive of The Chamber of Hong Kong Listed Companies, said members backed the legislation because civil liability was better than a criminal sanction.
Brian Fung Wei-lung, chairman of the Hong Kong Securities Association, said: 'The new law will hopefully help to enhance corporate governance and restore the confidence of investors in the Hong Kong market.'