Financial regulation

Bigger say for Hong Kong’s securities watchdog will lead to better investor protection: study

Study finds Hong Kong lags behind the NYSE when it comes to protecting shareholders’ interests, which can be boosted by sharpening the city’s edge in corporate governance

PUBLISHED : Wednesday, 02 May, 2018, 10:49pm
UPDATED : Wednesday, 02 May, 2018, 11:00pm

The Securities and Futures Commission should have more power over listed companies to protect shareholders’ interests, a study said on Wednesday.

The suggestion comes as Hong Kong Exchanges and Clearing, the operator of Asia’s third-largest bourse, this week started allowing technology companies with dual-class shareholding structures and biotechnology firms with no revenue to list in Hong Kong – the biggest stock exchange reform in 25 years.

The securities watchdog should be given more flexible powers such as allowing it to fine listed companies rather than having to initiate suspension proceedings as is done currently, according to a study on corporate governance conducted by two scholars at the University of Hong Kong and commissioned by the Hong Kong Institute of Certified Public Accountants (HKICPA).

“The new weighted voting rights rule is another evolution in Hong Kong’s market. As with other developments it is necessary to ensure Hong Kong’s corporate governance system remains fit to protect shareholders’ interests,” Syren Johnstone, one of the authors of the report and a principal lecturer at the University of Hong Kong, said at a media briefing.

Hong Kong rivals the New York Stock Exchange in terms of initial public offering volume, but lags behind its American peer when it comes to protecting shareholders’ interests, the report said.

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“The global financial markets are very competitive, and market integrity is key to investor confidence which can be boosted by sharpening Hong Kong’s edge in corporate governance,” said Raphael Ding, chief executive and registrar of HKICPA.

The Hong Kong government should take the lead and establish a corporate governance unit to protect investors, the report said.

Wong Kim Man, convenor of the HKICPA corporate governance working group, said Hong Kong needs to strike a balance between business development and investor protection to stay competitive.

The SFC should require listed companies to disclose breaches of listing rules when they happen, instead of waiting for quarterly or annual results to include such breaches, HKU’s Johnstone said.

“The legislation is already there. The SFC can easily do it tomorrow,” he said.

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The report also suggested the regulator expand existing arrangements to non-Hong Kong companies especially those from mainland China as they make a large part of the Hong Kong market. “The [enforcement] gap leaves investors vulnerable to abuse,” it said.

About 90 per cent of total funds raised in IPOs and nearly 70 per cent of average daily turnover were attributable to mainland enterprises in 2016, according to figures from the HKEX.