Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Annual Dinner of the Hong Kong Institute of Company Secretaries today (January 21):
Ms Suen (Samantha), Distinguished Guests, Ladies and Gentlemen,
It is my pleasure to be here tonight, to be in the company of the corporate elite, companies secretaries profession, the 'guardians of compliance' who ensure that companies comply with the various laws and regulations governing their operation. You play a very important role in upholding good governance of companies in Hong Kong.
Let me, first of all, wish you a happy and prosperous 2003! At the beginning of the year, or depending on one's perspective, the end of the year according to the Lunar calendar, it is timely to take stock of the past, reflect on the challenges we are facing, and map out the strategies to achieve our targets in the next twelve months. The Government has just gone through this consolidation and planning process in the form of the Policy Address delivered by the Chief Executive.
The Policy Address highlights financial services as one of the main pillars of Hong Kong's economy and the figures speak for themselves. Financial services which include banking, securities, insurance, fund management and other related services employ about 6% of our working population, i.e., over 180 000 people. Being a value-added sector, its activities account for a disproportionately larger share of our GDP, about 13%.
On financial services, our clear Mission is to maintain and enhance our competitiveness as an international financial centre and the premier capital formation centre of our country. Our twin objectives are to upgrade the quality of our market by bringing our corporate governance standards in line with best international practice, and to be the preferred support base for Hong Kong and mainland companies, providing high quality international financial and other professional services. With good corporate governance firmly established, the quality of our market will improve, making it more attractive to both international as well as local investors.
Pause and Think
Recently, I have paused and given further thoughts to our efforts to enhance corporate governance and upgrade the quality of our market.
This is not simply a reaction to Enron. Over the last few years, in parallel with international developments, we have devoted considerable efforts to promoting reforms in corporate governance. Thus, the Standing Committee on Company Law Reform (SCCLR) launched a comprehensive review of corporate governance in 2000, and issued its Phase I Consultation Paper in July 2001. In January 2002, the Hong Kong Exchanges and Clearing Limited (HKEx) issued a consultation paper on corporate governance, which covers protection of shareholders' rights, directors and board practices, and corporate reporting and disclosure of information. As you know, the outcome of the consultation exercise has just been published. The Securities and Futures Ordinance (SFO) which contains specific and effective measures to combat market misconduct, was also enacted last year and is about to commence operation. Our professional bodies, the Hong Kong Institute of Companies Secretaries, the Hong Kong Society of Accountants, Institute of Directors, have all been active in promoting good corporate governance. We have witnessed, in the past few years, large scale conferences, lively debates, in-depth researches, and extensive community consultation on the subject. I hasten to add that HKICS alone organized three prominent and well-attended conferences on corporate governance featuring heavy weight speakers with very thought-provoking discussions. So we are in many ways a leader in this field in this part of the world.
Nevertheless, the Enron and Worldcom incidents in the United States have brought the importance of good corporate governance sharply into focus internationally, not least because the US has been regarded as the international standard setter with the most sophisticated regulatory structure. Inevitably, governments and regulators worldwide have been forced to revisit the regulatory landscape as well as review the pace and direction of reform.
Hong Kong's Corporate Governance Action Plan
In the financial services sector, my focus is on the quality of market. We position the Hong Kong market to attract and retain quality 'I's: issuers, intermediaries and investors. Our goal is to make the 'Hong Kong Brand' something to which both issuers and investors aspire: issuers would want to come here to raise capital and investors would seek after the products listed on our stock exchange. Quality is the key to liquidity, and in turn, prosperity. Towards this end, I, together with the Securities and Futures Commission (SFC) and HKEx, have reviewed the measures proposed by all concerned parties to improve corporate governance. We have drawn up an Action Plan to identify priority areas, assign ownership and devise a timeframe for implementation of the various measures. Allow me to highlight some of the milestones in our Action Plan for 2003.
As I just mentioned, HKEx sought public views on a range of initiatives to improve corporate governance of listed companies in 2002. HKEx has just published the outcome of its consultation exercise. This year will be the year we expect results, with amendments to the Listing Rules and the Code of Best Practice which implement such initiatives; completion of the process to streamline the listing process; and improvements to the initial and continuing listing requirements and de-listing procedures.
IPO-intermediaries play an indispensable role in ensuring that only quality products are allowed into our market. In the light of recent corporate incidents, we recognize that the landscape within which IPO-intermediaries operate has changed. There is a need to tighten regulation. Towards this end, HKEx would consult the market on amendments to the Listing Rules specifically on this aspect. Proposals will also be made to amend the Companies Ordinance to extend the prospectus-related liability to IPO sponsors and possibly other IPO intermediaries for ensuring quality disclosure to investors.
Auditors provide health checks to the financial statements and accounts of corporations, in particular our listed sector. Taking into account international trends and local developments, we see scope for improving the accountants' regulatory regime. We will be working closely with the profession this year to put in place the necessary measures to enhance transparency and independence.
April 2003 will be a landmark in the history of our securities legislation: the Securities and Futures Ordinance will come into effect then. SFC together with the Hong Kong Monetary Authority and HKEx are now making the final preparations for the effective enforcement of the Ordinance, in particular with regard to execution of the 'dual filing' arrangements, inquiries into corporate misconduct by listed companies, regulation of licensed IPO sponsors, cooperation with HKEx in combating pre-IPO market manipulation. I envisage SFC adopting a case specific approach as a corporate regulator. Effective enforcement of the SFO is essential to upholding market quality and inspiring confidence on investors.
Regardless of how sophisticated one's regulatory regime may be, one cannot completely eliminate fraud and other misconduct. An essential element in raising investors' confidence therefore, is to ensure that proper sanctions and remedies are available if and when things go wrong. While effective remedies against fraud and corporate misconduct are available in our legislation and codes, there is no place for complacency. In mid 2003, we will be seeking to amend the Companies Ordinance to improve the provisions on shareholders' remedies and to provide for statutory derivative action. Separately, we will also consult the market on the concept of empowering SFC to take derivative action on behalf of shareholders. We also aim to put together proposals on the establishment of the Financial Reporting Review Panel to investigate financial statements of companies and enforce changes thereto.
Upgrading the quality of our market is a continuous process, and we will soon see SCCLR completing the second phase of its Corporate Governance Review with further recommendations for improvements.
Ladies and gentlemen, corporate governance is a multi-faceted subject; enhancing it requires joint effort by all players. While good legal and regulatory framework are important, they are only as good as the people seeking to implement them. A culture of respect for good corporate governance is fundamental to our endeavours to preserve the 'Hong Kong Brand'. Therefore, Directors' training, shareholders' education, practitioners' continuing professional development programmes are all important ingredients to our success. In this regard, the HKICS is one of the key movers and our allies in fostering the culture of respect for good governance.
Ladies and gentlemen, may I once again thank HKICS for giving me this opportunity to share my thoughts with you. As reflected in our Corporate Governance Action Plan for 2003 which I have just outlined, we have a full agenda in the year ahead. To achieve every item on the agenda is no easy task and demands a lot of hard work by all of us. Your support is vital, in terms of ensuring corporate compliance and more importantly, in raising governance awareness. Remember that the 'Hong Kong Brand' is what we choose to make it and it is in our common interest to make the 'Hong Kong Brand' a "must have" "ming pai".
End/Tuesday, January 21, 2003