A Principles-Based Response to the Proposed Reform of the Governance Structure for Listing Regulation in Hong Kong

The June 2016 joint consultation on listing regulation arises out of a renewed concern to ensure the Hong Kong market remains fit for purpose in meeting current and emergent challenges and demands. This paper undertakes an analysis of the consultation applying a law and principles based approach. This approach requires the listing regime to be suitable not only in view of market conditions but also in view of internationally accepted practices and standards concerning regulatory oversight. While it is recognized that regulatory evolution requires progressive innovation, the two new SEHK sub-committees envisaged by the joint consultation give rise to several areas of concern. The reasons for implementing the changes proposed are not well explained in the consultation and no clear case is presented as to why the sub-committee structure would provide improvements. Putting the SFC into a frontline decision-making role is problematic under the current statutory framework, and is not necessarily a forward moving step toward a system of statutory listing regulation. It implements changes that bypass legislative intent and renders certain statutory laws meaningless, it may subject the SFC to corporate laws that would impact on its ability to act as an independent regulator, and it would diminish regulatory accountability and clarity. The risk that the changes could be regarded as legislation by regulation would weaken, not strengthen, the SFC's regulatory mandate over public listings. These problems run counter to the intent of the Proposal to improve listing regulation and carry the risk that Hong Kong's governance of listings, particularly the role of the statutory regulator in it, would be at odds with international best practices. The conclusion of this paper is that progressing with the sub-committee proposal would not be a positive development unless and until the issues identified in this paper are properly addressed and resolved. It is suggested that a more holistic view of market development needs to be adopted that extends beyond the decision making mechanisms of the dual filing regime and identifies more precisely the specific issues that are problematic. Doing so would permit more targeted and sustainable oversight mechanisms to be developed