Corporate governance enforcement in Hong Kong Charles Grieve Director, Corporate Finance Division Securities & Futures Commission Hong Kong

Enforcement of common law duties 13 September 2006 Enforcement of common law duties Fiduciary duty to the company Company has to enforce duty New right for shareholders to sue in the name of the company Expensive

Enforcement problems Jurisdictional issues 13 September 2006 Enforcement problems Jurisdictional issues significant portion of listed companies in PRC PRC not MMOU signatory Cross-border listings bring problems Greater cross-border regulatory co-operation essential IOSCO APRC helping co-operation

Enforcement of legislation 13 September 2006 Enforcement of legislation Shareholder rights enforced by shareholders through the courts Criminal acts prosecuted by ICAC & police courts are prepared to hand down hard penalties Directors obligations by regulators late filing; proper books and records depends on courts’ view of seriousness

Enforcement against others 13 September 2006 Enforcement against others New licensing regime for sponsors - January 2007 Action against 4 sponsors in last 2 years settlement of HKS 30 million Deloitte agreed to refrain from acting as sponsor for 9 months Regulation of auditors FRC and AIB increased oversight

Enforcement of Listing Rules 13 September 2006 Enforcement of Listing Rules Limited sanctions No powers to obtain evidence Limited appetite to judge on compliance with fiduciary duties Securities legislation – false and misleading information to regulators

Way forward SFC to take on key elements of Listing Rules 13 September 2006 Way forward SFC to take on key elements of Listing Rules periodic reporting, ongoing reporting of price sensitive information, transactions that need shareholder approval statutory powers to investigate, greater sanctions on individuals: fines, disqualification egregious cases go to criminal courts Does not cure jurisdiction problem

Thank you