Blurring the line: How Hong Kong’s securities regulator is choking freedom of speech

PUBLISHED : Wednesday, 06 April, 2016, 5:00pm
UPDATED : Wednesday, 06 April, 2016, 5:01pm

The Securities and Futures Appeal Tribunal yesterday rejected the appeal by Moody’s Investor Services against the Securities and Futures Commission’s decision to publicly reprimand and order a fine on the agency for breaching the code of conduct by issuing a “red flags” report on mainland companies in July 2011.

Business, April 1

In Article 27 of the Basic Law the following words appear: “Hong Kong residents shall have freedom of speech, of the press and of publication.”

The meaning of these words may be perfectly clear to you and me but they are apparently a mystery to our lawmakers. Thus, instead of making their laws subject to the constitution, they have come up with the novel idea of making the constitution subject to their laws.

Specifically, in the Hong Kong Bill of Rights, they made freedom of speech subject to “the protection ... of public order”, which might be understandable except that they then followed the words “public order” with the words, in brackets, “ordre public”.

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The next step in the process of limiting our rights was to say that the French term “ordre public” has a wider meaning than the English “public order”. In particular, it may include such matters as economic order, which, obviously, hey, everyone can see so, encompasses the vital importance of the securities and futures industry.

It stands to reason, therefore, that any ordinance covering this industry should grant the agency appointed to enforce the ordinance the power to take “appropriate steps in relation to the industry”. And if this loose wording then allows this agency, acting as prosecutor, judge, jury and jailer all rolled into one, to invoke a self-made law, misleadingly labelled a code of conduct, to fine you millions of dollars because it says if you cannot prove the truth of an opinion you hold, well, we always do have an appeals tribunal to restore the Basic Law to us.

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Except that we don’t. Astonishingly, the Securities and Futures Appeal Tribunal has upheld this perverse ruling by the Securities and Futures Commission, a sad day for human rights in Hong Kong.

With a few more steps of their sort of reasoning, the SFC and its tame tribunal could soon turn freedom of speech into You-shut-up-or-you’ll-be-sorry.

The facts of the matter are that the American ratings agency, Moody’s, disturbed at how far the financial statements of many listed companies in China were proving at odds with the truth, came up with a new way of alerting investors – red flags, the more of them up on a stock, the more you had better keep your eyes open.

The system was new and not perfect. There were inconsistencies. There generally are in opinions that people hold, particularly in financial markets. Even auditors speak of a “fair view” rather than hard fact.

But it’s easy to pick a nit here and a zit there in any investment report and this is what the SFC did, concluding that Moody’s “painted an unfair, unclear and misleading picture of the companies”, and fining it HK$23 million, later reduced to HK$11 million.

Now let me explain something about freedom of speech to you regulators. Freedom of speech allows you to express opinions that may prove misleading. This is in the nature of freedom of speech.

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In my days as an investment analyst, for instance, there came a time when I decided on the basis of personal judgement that I could not really trust George Tan of the Carrian group. When a competitor then recommended the stock on the basis of a 16 per cent prospective dividend yield, I told some of our firm’s clients that I thought the dividend might not be paid.

I could not support that view with hard evidence. It could very well have proved misleading. I failed “to set out relevant justifications”, an offence with which the SFC has now tarred Moody’s and which the tribunal let stand.

I was right in the end but I could not serve my clients that way now without risking an SFC fine. Perhaps I also risked a libel suit by Mr Tan. He didn’t sue. Nor have I heard of any suit against Moody’s over its red flags.

Sometimes I think our civil rights would have been killed off long ago if we left them to lawyers and judges.