The Hong Kong government will consult industry within the next six months on granting the Securities and Futures Commission new enforcement powers for disclosure breaches by listed companies. New legislation will allow the SFC to pursue people outside its jurisdiction--such as chairmen, CEOs or directors--and seek both criminal and civil penalties. At the moment, the regulator can only name and shame those guilty of breaking disclosure rules, but lawyers say the new powers will see fines and prison sentences being introduced. Tim Mak, an associate at law firm Herbert Smith in Hong Kong, believes this will be a major development for the market because it makes individuals much more vulnerable to tough SFC enforcement actions.
Martin Wheatley, SFC chairman, said the new legislation is currently being discussed by the Hong Kong government in a recent speech (CR, 5/15). He warned however, against limiting the new powers to listing rules requiring disclosure of price sensitive information, as opposed to the rules that require disclosure of other information such as related party transactions or major transactions. This will give no certainty that listed companies would be held accountable for making full and frank disclosure to the markets, he added.
Mak said the Hong Kong government is currently discussing the level of fines that can be imposed on individuals. He said the industry believes that the current legislation is insufficient because it does not act as a big enough deterrent. Mak’s advice to firms is to check internal controls and make sure everyone at the firm knows what the new rules are. He expects the new legislation to be introduced shortly after the consultation.
Eunice Chiu, SFC spokeswoman, did not respond to messages by press time.