Hong Kong's SFC urged to strike 'the right balance' in enforcement

Market participants applaud regulator's tough stance on malpractice, but some warn that too many rules may discourage new listings

PUBLISHED : Thursday, 23 January, 2014, 1:19am
UPDATED : Thursday, 23 January, 2014, 1:19am

Hong Kong financial professionals said they support the Securities and Futures Commission in expanding its muscle on enforcement but warn that excessive zeal in an over-regulated market may discourage new listings.

"The SFC is doing the right thing to crack down on market malpractices. A well regulated market can attract international investors to continue to trade in the local market," Ben Kwong Man-bun, chief operating officer of brokerage firm KGI Asia, said. "However, the SFC must also strike the right balance and not make the local market too restrictive. If companies find the compliance cost too high to list here, they may consider elsewhere."

The comment came a day before the annual SFC regulatory forum where regulators from around the region gather to discuss new directions in regulation.

The city is reviewing whether it should relax the listing rule to attract new listings.

A well regulated market can attract international investors

The Post learned in November that the government-appointed Financial Services Development Council had begun a review of the city's listing rules. This came after Hong Kong Exchanges and Clearing lost its bid to land mainland e-commerce giant Alibaba's potential US$15 billion initial public offering last year.

The city does not accept dual structure listings so it rejected Alibaba's request for its founder and certain senior executives to nominate a majority of the board. Alibaba now may list in the US which allows dual share structures.

One fund manager believes the current rules are appropriate and do not need changing.

Mark Konyn, chief executive of fund company Cathay Conning Asset Management, said Hong Kong did not need to lower its standards to attract new listings.

"Hong Kong has taken a tough stance on this issue recently and there will be those companies seeking a listing that will be discouraged. However, the alternative is to lower the standards for the entire market which would compromise Hong Kong's position as a financial centre," Konyn said.

"Rather than view this as an imposition the message should focus on the fact that higher standards allow companies greater access to international capital as large and international institutional investors seek higher standards.

"It is these longer-term institutional investors that will provide the capital companies are seeking repeatedly," he added.

On Tuesday, a report by law firm Freshfields Bruckhaus Deringer showed the regulator increased the number of enforcement actions, including fines and prosecutions, by nearly 50 per cent over the past year.

"Increased enforcement action of the regulator may also help boost investor confidence if the action is conducted appropriately," said David Lee, partner at law firm Norton Rose Fulbright.

"The SFC has an active track record of conducting enforcement action and has used the full scope of the securities law to protect shareholders' interest in line with its publicised goal of restorative justice," Lee said.