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Recent developments in corporate governance in Hong Kong and the PRC

Recent developments in corporate governance in Hong Kong and the PRC

Corporate Governance Action Plan

The government, together with the SFC and the HKEx, has drawn up an action plan for 2003 to further improve corporate governance in Hong Kong.

The aim of the plan is to upgrade the quality of the equity market to maintain Hong Kong’s competitiveness as an international financial centre and the preferred support base for companies operating in the Mainland. The plan identified priority areas and devised a timeframe for implementation of the various improvement measures.

The plan is divided into five priority areas. They are:

Priority I: Upgrading the Listing Rules and Listing Functions

By 1st quarter 2003:

HKEx to complete streamlining of the listing process in order to improve quality control at the point of entry by focusing on critical matters.

By 2nd quarter 2003:

HKEx to introduce amendments to the Listing Rules and promulgate a revised Code on Best Practice to implement various corporate governance measures consulted on since January 2002 (i.e. the publication by the HKEx of the Consultation Conclusions on Proposed Amendments to the Listing Rules Relating to Corporate Governance Issues in January 2003 (the original consultation paper was published in January 2002) – see below separate heading).

By 4th quarter 2003:

The Administration to follow up the recommendations of the expert group appointed by the Financial Secretary scheduled for publication in March 2003 with a view to improving Listing Functions; and delineating the roles of FSTB, SFC and HKEx under the tiered regulatory structure.

By phases, starting from the 2nd quarter to 4th quarter 2003:

HKEx to amend the Listing Rules to improve the initial and continuing listing requirements and delisting procedures, following consultation started in July and November 2002.

Priority II: Tightening the regulation of IPO intermediaries

By 1st quarter 2003:

HKEx to consult the market on amendments to the Listing Rules to tighten regulation of IPO intermediaries, in particular sponsors and financial advisers. The aim is for implementation in 2nd half of 2003.

SFC to put forward proposals to the Standing Committee on Company Law Reform (SCCLR) on amendments to the Companies Ordinance to extend the prospectus-related liability to IPO sponsors, and possibly, other IPO intermediaries, for ensuring quality disclosure to investors. The consultation paper on the regulation of sponsors and independent financial advisers was jointly released by the SFC and the HKEx in May.

By 3rd quarter 2003:

FSTB, in consultation with the Hong Kong Society of Accountants, to finalise legislative proposals to enhance the regulation of the accountancy profession.

Priority III: Effective Roll Out of the Securities and Futures Ordinance (see below separate heading)

By 1 April 2003:

The plan is that the SFC should formulate an effective strategy for enforcing the SFO, in particular with regard to execution of “dual filing”, enquiries into corporate misconduct, regulation of licensed IPO sponsors, cooperation with HKEx in combating pre-IPO market manipulation, etc. The SFC to adopt a case specific approach as a corporate regulator under the SFO and “dual filing”. The SFO is currently in place.

Priority IV: Successful completion of SCCLR Phase II Corporate Governance Review (see below separate heading)

By 1st quarter 2003:

The Administration, the SFC and HKEx to render full support to the SCCLR for completion of its Phase II Review, with the SFC and HKEx putting forward further proposals to SCCLR, including amendments to the Companies Ordinance on related party transactions, shareholders’ rights, disclosure requirements, liability of professional advisers relating to misstatements in listing documents etc. The Consultation Paper on Proposals made in Phase II of the Review was published in June 2003.

Priority V: Early implementation of SCCLR Recommendations from its Phase I Corporate Governance Review

By 1st quarter 2003:

FSTB and SFC to release a joint consultation paper on empowering the SFC to conduct derivative actions on behalf of minority shareholders of a listed company, including legal issues, scope and effectiveness of remedies, and possible implementation arrangements. Consultation, which started in May 2003, was completed on 26 July 2003.

By 2nd quarter 2003:

FSTB to introduce to LegCo a Companies (Amendment) Bill to enhance corporate governance by implementing SCCLR Phase I recommendations relating to shareholders’ remedies.

By 4th quarter 2003:

FSTB, in consultation with the listed sector and the accountancy profession, to finalise and take forward a proposal to establish a Financial Reporting Review Panel to investigate financial statements of companies and enforce changes thereto.


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