The government should consider expanding the role of the Securities and Futures Commission into a fully fledged corporate regulator after the recent foreign-exchange trading mess involving Citic Pacific.
Many people may be surprised that the SFC is not already the top watchdog in the market. But on closer scrutiny, we find a lot of regulatory loopholes that prevent the SFC from cracking down on listed companies and their directors.
Yes, the SFC has almost full regulatory powers over brokers, fund managers, investment bankers and financial advisers. There have been no brokerage failures in today's financial crisis, thanks to the SFC.
But could it have carried out the same health checks on Citic Pacific to ensure the firm had the risk-management provisions in place to avert the HK$14.63 billion in 'accumulator' losses last year?
The answer is no, as the SFC has no direct control over listed firms. That role belongs to the stock exchange.
The SFC can prosecute people for insider trading or market manipulation, according to the Securities and Futures Ordinance. What is not covered are many corporate governance failures, such as where listed companies lack sound risk-management systems.
The SFC cannot take action against companies or their directors if they are not breaching the law but only breaking listing rules or corporate governance codes.
