Hong Kong Passes Securities And Futures Bill

by Mary Swire, Tax-News.com, Hong Kong

14 March 2002

Hong Kong's Legco yesterday finally passed the massive Securities and Futures Bill after ten years of wrangling between government, regulators and regulated. The new law will replace replaces ten existing securities and futures ordinances and amounts to a comprehensive modernisation of the SAR's financial markets.

Opponents of the Bill say it will over-regulate the market, and say it gives too much power to the Securities and Futures Commission. Others say the Bill has not gone far enough to regulate the securities business of banks.

Even at this late stage, many members of Legco expressed opposition to aspects of the Bill. Councillor Margaret Ng Ngoi-yee said she supported the Bill as a whole but was strongly against a provision allowing the SAR Chief Executive to give directions to the SFC.

Democrat Albert Ho Chun-yan agreed: "I strongly oppose this provision as it would affect the independence of the SFC," he said. "It would allow the Chief Executive to become a super-regulator and give whatever directions he likes. This is unacceptable."

Secretary for Financial Services Stephen Ip Shu-kwan however said the provision was crucial as a last-resort curb on the powers of the securities regulator. He said the provision would be needed in the event SFC executives acted against the interests of the investing public.

Mr Ho also complained that the new legislation does not compel auditors to report fraud, although it protects them from being sued by clients if they report suspected fraud cases to the regulator. "The collapse of Enron has shown the importance of auditors reporting alleged fraud," Mr Ho said.

The Bill will make the SFC responsible for regulating the securities business of banks; their securities departments are currently regulated by the Hong Kong Monetary Authority, not by the SFC, which regulates brokers. The new law allows the SFC to penalise banks if their securities businesses are found to be in breach of regulations while allowing the HKMA to continue to operate as the frontline regulator conducting routine inspections.

Before the new law can come into force, Legco has to approve 39 pieces of subsidiary legislation outlining the detailed operation of the Bill. This process is expected to take several months.

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