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GRC Professional : GRC Summer 2012
25 One of the top priorities is to position the SFC to facilitate Hong Kong’s development as an international financial centre and a leading offshore RMB [renminbi] hub while holding the line on investor protection. to achieve a workable solution. In addition, there’s the challenge of harmonising or otherwise dealing with different national or regional responses to the crisis, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US and the Markets in Financial Instruments Directive II in Europe. What have been some of the SFC’s specific responses since the start of the GFC? The SFC rolled out a package of measures in 2010 to strengthen the regulatory regime governing the sale of investment products. Measures taken to enhance product transparency include the requirement for all publicly offered investment products to have product key facts statements, and for unlisted structured investment products, mandatory market-making and cooling-off periods. At the point of sale, intermediaries are required to discharge their duties in accordance with the Code of Conduct, which includes, for example, the requirement to ensure the client understands the nature and risks of derivative products. To be in step with global regulatory developments, a new regulatory regime governing credit rating agencies operating in Hong Kong became effective on 1 June. Rating agencies and their analysts who provide credit rating services in Hong Kong are now required to be licensed and are subject to supervision by the SFC. To further enhance our ability to access data on short positions and monitor short selling activities in the Hong Kong market, we aim to implement a short position reporting requirement in the first quarter of this year. What’s your response to concern in the business and financial community about greater regulation? The regulatory pendulum tends to swing markedly over time in response to successive crises. As deregulation has been identified as a cause of the financial crisis that unfolded in 2008, it’s understandable that the pendulum is now swinging towards a great deal of re- regulation. I believe, though, that the issue is not about how much regulation, but rather, quality regulation. In Hong Kong, the amplitude of our pendulum is not normally as extreme as elsewhere – that is, we don’t oscillate between over-regulation and under-regulation as much as some other markets. It will continue to be the case, because it’s important to balance investor protection and market development. However, it’s important that Hong Kong remains in lockstep with the main goals of international regulatory reform. What are the key challenges for corporate governance? The financial crisis raised issues of inadequate risk management and misalignment of executive compensation. At the global level, the G20 and the FSB have taken various steps to address these issues. The key challenge continues to be how to encourage companies to embrace good corporate governance practices and not just adopt the form. Regulators can only set the rules. Good corporate governance practice is really about establishing a corporate culture that promotes good ethical behaviour. All stakeholders, and particularly the investing community, have to play their part to encourage companies to embrace and adopt higher standards of corporate governance practices. •••
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