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The Process Review Panel (PRP) for the Securities and Futures Commission (SFC) today (May 13) published its second Annual Report covering the work of the PRP from 1 January 2002 to 31 December 2002.

"In 2002, the PRP reviewed 48 completed cases covering various areas of the SFC's work. The PRP has concluded that in general, adequate safeguards and checks and balances are in place in the SFC's internal procedures. The decisions and actions of the SFC in carrying out its regulatory functions adhere to its established internal procedures," Mr Vincent Cheng, Chairman of the PRP, said.

"We have identified certain areas where there could be room for improvement and are pleased that the SFC has been positive in adopting our recommendations," Mr Cheng said.

In the past year, the PRP reviewed completed cases and internal procedures of the SFC which cover the following areas of the SFC's regulatory functions -

(a) routine inspection of intermediaries;

(b) registration of intermediaries;

(c) authorisation of collective investment schemes;

(d) granting of exemptions under the Companies Ordinance and the Securities (Disclosure of Interests) Ordinance;

(e) approval of prospectuses;

(f) handling of takeover and merger transactions and complaints by the Corporate Finance Division of the SFC;

(g) handling of complaints from the public about the conduct of SFC registrants; and

(h) public consultations.

The PRP also exchanged views with the industry on the SFC's internal procedures with a view to identifying areas for improvement, in particular procedures on handling complaints from the public about the conduct of SFC registrants, public consultations, and the appointment of auditors under Section 160 of the Securities and Futures Ordinance (SFO).

The second PRP Annual Report contains recommendations which cover a wide spectrum of the SFC's regulatory work. Specific recommendations accepted by the SFC include -

* Shortening the processing time of the inspection of intermediaries.

* Issuing interim replies to the inspected intermediaries on the initial findings of inspections.

* Setting out, in the approval letter of exemption issued to a prospectus issuer, the requirement of including in the prospectus a statement on the exemptions granted by the SFC from complying with the contents requirements of the prospectus. The purpose of including such a statement in the prospectus is to keep the investors informed of the exemption granted and the information omitted from the prospectus.

* Sharing of information amongst SFC divisions/departments on details of investigations, without undermining the effectiveness of data protection efforts.

* Ensuring that the procedures on handling complaints on securities trading are consistent with those of the Hong Kong Monetary Authority.

* Setting target dates for issuing substantial replies to complainants.

* Setting out objective criteria and internal procedures for the appointment of auditors under Section 160 of the SFO.

* Discussing with the licensed corporation concerned the scope of an audit before appointing an auditor under Section 160 of the SFO.

* Promoting education for market participants on the new practices and requirements arising from implementation of the SFO.

* Promulgating more clearly the qualification requirements for each regulated activity under the new licensing regime to be implemented under the SFO for the reference of industry participants.

"The co-operation and support rendered by the SFC to the work of the PRP is very much appreciated. We look forward to continuing to work closely with the Commission in the years ahead," Mr Cheng said.

In its third year of work in 2003, the PRP intends to focus on examining the new procedures formulated for implementing the new regulatory regime under the SFO. The PRP will also examine the mechanism for internal communication between SFC divisions/departments in operational matters and the interface between the SFC and the Stock Exchange of Hong Kong Limited in the execution of the new Memorandum of Understanding between them for implementing the SFO and for performing the dual filing function, to see if proper procedures are in place.

Copies of the Report are now available from the Government Publications Centre at G/F Queensway Government Office (Low Block). The Report and its Executive Summary can also be downloaded from the Financial Services and the Treasury Bureau website (www.info.gov.hk/fstb/fsb/topical/preport02.htm).

End/Tuesday, May 13, 2003

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• Download Executive Summary of the Annual Report (pdf format)