Integrity of capital markets relies on professional conduct

Hong Kong's capital markets and its participants face a crossroads of opportunities and perils, underscored by recent developments that highlight three significant themes.

First, Hong Kong's regulators are very serious about holding the market's perceived gatekeepers accountable for the quality due diligence and disclosure on which investors depend. In January, the Securities and Futures Appeals Tribunal affirmed a 12-month ban on IPO sponsor Sun Hung Kai International for not exercising sufficient professional scepticism. And to augment the new regime, lawmakers will debate sponsor criminal liability later this year.

Company directors and officers are personally liable under the price-sensitive information disclosure regime introduced last year, and public accountants will soon face greater regulatory oversight.

Second, market participants are subject to increasing competition that has put pressure on deal execution and quality. WH Group's record 29 appointed bookrunners competing for the same pot of fees arguably hindered (rather than helped) its aborted IPO. And the debate over Alibaba's IPO listing venue certainly highlighted tensions between international stock market competitiveness and corporate governance.

Third, the current high-level focus on corporate corruption and fraud, such as the allegations against China Resources' former chairman, elevates concerns about expectations on gatekeepers to identify "red flags" and improprieties.

Since the global financial crisis, there has been a tremendous growth in financial legislation and regulation around the world to address misconduct and prevent another crisis.

Yet it's become clear that more rules alone are not enough and attention is turning towards business culture and conduct.