White Collar | The Financial Reporting Council will need more firepower to police the proposed third board

Ten years on, Hong Kong’s independent auditor Financial Reporting Council has been up and running well, but with only 22 staff on hand we have to ask if this tiny regulator has the right resources to get its job done.

This is a timely question, coming as Hong Kong Exchanges and Clearing is proposing to introduce a third board next year. A public consultation underway until August will help determine whether there is a need for the new board, which will operate as two separate markets catering to different size companies and different share holding structures.

A premium market, open to all investors, will host companies that can meet the eligibility requirements for a main board listing, but which have a dual-class share structure currently banned on the main exchange.

The second market will be focused towards start-ups and limited solely to professional investors. Inevitably, this board, designed to cater towards smaller, higher risk companies will provide more headaches of the Financial Reporting Council, as several studies show that start-ups typically have failure rates of 70 per cent.

As such, if this new start-up market is introduced next year, we can expect more investigations, which raises the question whether the council’s 22 staff are sufficient to handle the workload.

In terms of manpower, the Financial Reporting Council is far behind the Securities and Futures Commission’s 860 staff, and the new Insurance Authority, which is targeted to have 300 staff.