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Library - Codes and Rules - Hong Kong

Hong Kong


  1. Laws
  2. Regulations
  3. Accounting Standards
  4. Listing Rules
  5. Official Codes and Guidelines

1. Laws

The Companies Ordinance (including subsidiary legislation)
The Ordinance, including subsidiary legislation, is administered and enforced by the Companies Registry.

The Securities and Futures Ordinance (including subsidiary legislation)
The Hong Kong Securities and Futures Commission (SFC) is the statutory regulator for the securities and futures market in Hong Kong and administers the Securities and Futures Ordinance.

1a) Consultation on new legislation

Companies Ordinance Rewrite: Consultation Paper on Accounting and Auditing Provisions (March 2007)
On March 29, 2007, the Financial Services and the Treasury Bureau (FSTB) issued this consultation paper, the first in a series of public consultations on the Companies Ordinance (CO) rewrite. The paper aims to consult the public on legislative proposals to improve the accounting and auditing provisions in the CO. The proposals have been developed to improve the disclosure and transparency of information in annual accounts, enhance compliance with the relevant requirements and save compliance and business costs incurred by companies. They include:

  • Making directors' reports more forward-looking, analytical and informative by requiring the inclusion of a business review, which would cover among other things, the principal risks and uncertainties facing the company and the likely future developments in its business while allowing most private companies to prepare simplified directors' reports.
  • Requiring directors to make a statement in the directors' report concerning their awareness of relevant audit information of which the auditors are unaware to ensure that the directors consider carefully whether they have disclosed all such information to their auditors.
  • Modernising and streamlining the provisions on directors' remuneration, along the lines of the Standing Committee on Company Law Reform's previous recommendations regarding the disclosure of individual director's remuneration packages, and the introduction of a directors' remuneration report.

A Consultation Paper on Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules (January 2005)
The consultation document gives the background and principles in drafting the proposed rules. The Securities and Futures Commission (SFC) proposals would put into force subsidiary legislation in accordance with its rule-making powers under the proposed revised section 36 of the Securities and Futures Ordinance (SFO). This paper should be read in conjunction with the "Consultation on statutory backing for Listing Rules" (read below), which sets out the government's proposals that would make certain amendments to primary legislation, mainly the SFO. The publication contains two appendices; Appendix 1 is the consultation draft to the Securities and Futures (Stock Market Listing) Rules, while Appendix 2 is the explanation and analysis of substantive changes from the current Stock Exchange Listing Rules.

Consultation on statutory backing for Listing Rules (January 2005)
In early 2005 the Hong Kong Government released an outline of the legislative amendments required to give "statutory backing" to parts of the Listing Rules. This followed a decision in 2004 to take some of the responsibility for enforcing the Listing Rules away from the Stock Exchange and give it to the Securities and Futures Commission (SFC), the aim being to improve enforcement and allow for a wider array of sanctions to be applied (such as fines and director disqualification). The sections of the Listing Rules to be given legislative backing include rules on disclosure, notifiable transactions and connected transactions. The SFC will start to enforce these sections once the amendments are passed (originally expected in 2006, but delayed), while Hong Kong Exchanges and Clearing will continue to enforce the remainder of the Listing Rules. The SFC also released a consultation paper in early January on the specific wording of its proposed amendments to the Securities and Futures (Stock Market Listing) Rules. For more, see www.sfc.hk

Consultation Conclusions on Proposals to Enhance the Regulations of Listing (March 2004)
On March 2004, the Financial Services and Treasury Bureau published the conclusions to its consultation paper on enhancing the regulation of listing. It recommended that the more important listing requirements be codified in statutory rules to be made by the Securities and Futures Commission (SFC) under section 36 of the Securities and Futures Ordinance. The Government, with the support of the SFC and the Hong Kong Exchanges and Clearing Ltd, would take the lead in improving the regulatory framework by amending the primary legislation.

Consultation Paper on Proposals to Enhance the Regulation of Listing (October 2003)
In October 2003, the Financial Services and Treasury Bureau (FSTB) published this paper to gather public opinion on a number of issues relating to better regulation of listing. They included:

  • Legal status of certain fundamental requirements in the listing rules of the Stock Exchange of Hong Kong (SEHK);
  • The manner of their enforcement; and
  • The roles of both the Securities and Futures Commission (SFC), as the statutory regulator, and the Hong Kong Exchanges and Clearing Ltd(HKEx), as the market operator, in performing the listing functions.

The consultation period ended on December 31, 2003, and the conclusions were published on March 2004.

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2. Regulations

Fit and Proper Guidelines (September 2006)
The new guidelines replace the December 2000 Fit and Proper Criteria and set out the criteria which the Securities and Futures Commission (SFC) will deploy to determine the eligibility of people applying to be licensed or registered under the Securities and Futures Ordinance, Cap. 571. The sponsor guidelines, incorporated into these guidelines, came into effect on January 1, 2007.

2a) Consultation Papers

Consultation Paper on the Regulation of Sponsors (May 2012)
On May 9, the Securities and Futures Commission (SFC) published a consultation paper on regulating IPO sponsors. IPOs have fuelled Hong Kong's market, the world's biggest for IPOs, but the SFC noted that of all the people involved in the IPO process, sponsors were "unique" in that "other experts and advisers...are subject to a range of legal, regulatory and professional obligations and responsibilities, whereas only sponsors have a function that begins and ends with the IPO itself and in that capacity are specifically licensed by the SFC". The Commission noted that "standards of sponsor work have fallen short of reasonable expectations" and in this consultation, the regulator clarified that sponsors had civil and criminal liability under Sections 40 and 40A of the Companies Ordinance. The two sections deal with civil and criminal liability for untrue statements, including a material omission, in a prospectus. The consultation ends on July 6, 2012

Consultation Conclusions to the Consultation Paper on the Regulation of Sponsors and Compliance Advisers (April 2006)
In April 2006, the Securities and Futures Commission (SFC) published the conclusions to the June 2005 consultation paper on the regulation of sponsors and compliance advisors. The document includes new sponsor guidelines, which are attached as Annex I. The guidelines, which will become effective on January 1, 2007, are part of the new regulatory regime and will be inserted in the Fit and Proper Guidelines.

Consultation Paper on the Regulation of Sponsors and Compliance Advisers (June 2005)
Due to a number of corporate scandals linked to initial public offerings because sponsors had failed to carry out proper due diligence on listing applicants, the Securities and Futures Commission embarked on a two-stage course of action to strengthen the sponsor regulatory regime.

In June 2005, this consultation paper, part of the second phase of action, was published containing proposals that would add a set of additional requirements specific to sponsors to the current licensing regime. The proposals have three main aspects:

  1. A sponsor should have proper internal controls and adequate supervision to ensure compliance with relevant regulatory requirements.
  2. The management, including the responsible officer, has the ultimate responsibility for the work conducted by the sponsor; and
  3. The sponsor should have competent staff and sufficient resources to carry out its work.

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3. Accounting Standards

Hong Kong Financial Reporting Standards
The Hong Kong Financial Reporting Standards (HKFRS) includes all HKFRS, Hong Kong Accounting Standards (HKAS), Statement of Standard Accounting Practice (SSAP), and interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). Accounting standards in Hong Kong are fully compliant with International Financial Reporting Standards (IFRSs), with the exception of several Hong Kong interpretations that do not have a counterpart in IFRSs.

Hong Kong Standards on Quality Control, Auditing, Assurance and Related Services
This term encompasses:

  • Hong Kong Standards on Quality Control (HKSQCs);
  • Hong Kong Framework for Assurance Engagements;
  • Hong Kong Standards on Review Engagements (HKSREs);
  • Hong Kong Standards on Assurance Engagements (HKSAEs);
  • Hong Kong Standards on Investment Circular Reporting Engagements (HKSIRs); and
  • Hong Kong Standards on Related Services (HKSRSs).

It also gives an overview of the relationship between Hong Kong's standards and the International Standards on Quality Control, Auditing, Assurance and Related Services issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants.

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4. Listing Rules

Rules and Guidelines on Listing Matters
Hong Kong's listing rules are extensive: six general chapters, 17 chapters on equity securities, two on listed investment vehicles, 16 chapters on debt securities, numerous practice notes, and 23 appendices. Despite a trend towards creating a "disclosure-based regime", the Stock Exchange of Hong Kong (SEHK) retains significant discretion in deciding whether or not to approve new listings. Rule 2.04 states: "It is emphasised that the Exchange Listing Rules are not exhaustive and that the Exchange may impose additional requirements to make listing subject to special conditions whenever it considers it appropriate." Primary enforcement of the listing rules rests with SEHK, although these powers will soon be shared with the Securities and Futures Commission (see above) and a dual-vetting regime for IPOs has been in place since 2003.

4a) Joint Policy Statement Regarding the Listing of Overseas Companies (March 2007)
On March 7, 2007, a joint policy statement was issued by the Securities and Futures Commission (SFC) and the Stock Exchange of Hong Kong (SEHK) to:

  • clarify the Listing Rules requirements governing the listing of overseas companies; and
  • provide a clear roadmap to assist companies incorporated outside Hong Kong or the Recognised Jurisdictions (the People’s Republic of China, Bermuda and the Cayman Islands) and their advisers when seeking a primary listing either on the Main Board or the Growth Enterprise Market (the “GEM”).

The statement also covered factors that would affect the eligibility of companies that were looking to list in Hong Kong

4b) Amendments to the Listing Rules

Rule amendments relating to corporate governance issues (March 2004)
In January 2004 the Hong Kong Exchanges and Clearing (HKEx) amended a number of listing rules. Key changes included:

  • Listed issuers must appoint at least three independent non-executive directors, instead of only two as before.
  • Listed issuers must disclose the remuneration of individual directors; previously they could disclose remuneration of directors by "bands".
  • Independent shareholder approval is required for any refreshments of the general mandate after the annual general meeting. Previously,listed issuers could issue securities representing up to 20% of their issued share capital under a general mandate approved by shareholders, and there was no restriction on the number of refreshments of the general mandate.
  • Definition of "transactions" for the purpose of notifiable transactions.

For a summary of the amendments, please read the press release from HKEx.

4c) Consultations on Amendments to the Listing Rules

Consultation Conclusions on Proposals in the Combined Consultation Paper
On November 28, 2008, Hong Kong Exchanges and Clearing Limited (HKEx) published the conclusions to its January 2008 consultation paper (see below), listing the amendments to the listing rules, which will come into effect on January 1, 2009.

Among the new amendments that will bring changes to the corporate governance structure are:

  • Voting by poll will be mandatory for all resolutions at shareholder meetings from January 1, 2009;
  • A new provision will be added to the Code on Corporate Governance encouraging companies to release their meeting notices and final agendas at least 20 working days (ie, 28 calendar days) before AGMs and EGMs. Although voluntary, this provision will be governed by the Code’s “comply or explain” requirement; and
  • The information gathering powers of HKEx have been strengthened with regard to investigations and disciplinary cases.

HKEx Combined Consultation Paper (January 2008)
On January 11, 2008, Hong Kong Exchanges and Clearing Limited (HKEx) published this consultation paper, combining a number of proposed changes to the Listing Rules. The paper seeks the market’s views on eighteen substantive policy issues. It sets out draft amendments to the Main Board Listing Rules and the Growth Enterprise Market Listing Rules to implement those proposals. The proposals and draft Rule amendments have been prepared in consultation with the staff of the Securities and Futures Commission (SFC).

The substantive policy issues dealt with in the paper include:

  • Proposed amendment to the Listing Rules with regard to the minimum level of public float and the constituents of “the public”, as well as seeking views on the need for a minimum level of market float and the manner in which it should be regulated.
  • Proposed Listing Rules’ amendments to codify disclosure practices about announcements for issues of securities for cash, regardless of whether general mandates are involved, and disclosure of the allocation basis for excess shares in the rights issue/open offer announcement, circular and prospectus.
  • HKEx seeks public comment on the extent to which voting by poll should be made mandatory at general meetings and the minimum notice period required for convening shareholders meetings.

The consultation period ends on April 7, 2008, with publication of the conclusions to be in the second quarter of 2008.

Final proposal to upgrade the Listing Rules (January 2003)
On January 17, 2003, Hong Kong Exchanges and Clearing Ltd (HKEx), the holding company for the stock and futures exchanges and the regulator of listed companies, released a set of proposals for enhancing corporate governance standards within its Listing Rules. These amendments should be implemented by mid-2003.

Proposal to upgrade the Listing Rules (January 2002)
In January 2002, Hong Kong Exchanges and Clearing (HKEx), the holding company for the stock and futures exchanges, released a consultation paper on raising corporate governance standards in the Listing Rules. A five-month consultation period followed, with the final report being published in early 2003.

HKEx Continuing Listing Criteria (November 2002)
In November 2002, Hong Kong Exchanges and Clearing (HKEx), the holding company for the stock and futures exchanges, issued a consultation paper on whether or not Hong Kong should introduce continuing listing standards that companies must meet in order to remain listed. The paper also considers the issues of low-priced securities, which are often subject to market manipulation, and alternative markets for delisted securities. The consultation period ended on February 28, 2003.

4d) Other Consultations

Consultation Paper on the Growth Enterprise Market (July 2007)
The consultation paper puts forward the proposals by the Hong Kong Exchange and Clearing Limited (HKEx) for the further development of the Growth Enterprise Market (GEM). HKEx began its review process in 2005, commencing with informal interviews with market practitioners. This led to a discussion paper which was issued in January 2006, and set out three structural options for GEM:

  • GEM as a second board;
  • GEM and the Main Board to merge as a single board;
  • New alternative market.

Following the responses to the discussion paper at the end of April 2006, the market seemed to prefer the third option of a new alternative market, along the lines of London's AIM. However, HKEx and the Securities and Futures Commission does not feel the Hong Kong market is ready for the AIM model, and since the second option of a merger of GEM and the Main Board did not receive much support, HKEx is of the view that repositioning GEM as a second board is the best way forward. The consultation period ends on October 31, 2007.

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5. Official Codes and Guidelines

Code of Corporate Governance (Appedix 14, HKEx Listing Rules, January 2012)
The HKEx published the new Code at the beginning of 2012 , following the publication of its Consultation conclusions in October 2011 (see below).

Consultation Conclusions on Review of the Corporate Governance Code and Associated Listing Rules
On October 28, 2011, the Stock Exchange of Hong Kong (SEHK) published its Consultation Conclusions on Review of the Corporate Governance Code and Associated Listing Rules. There were several proposals the market was overwhelmingly against and, as a result, the Exchange either dropped or modified these proposals. It dropped a proposal to cap the number of independent non-executive director (INED) positions that an individual could hold, and another requiring a minimum amount of training (8 hours) per year. Instead, issuers will simply have to disclose in their corporate governance reports how much training their directors undertake. The Exchange also backed away from a new proposal recommending that issuers set up a committee called the "corporate governance committee". Most Rule amendments will be effective on January 1, 2012, but the new Rule requiring the issuer to appoint INEDs representing at least one-third of the board must be complied with by December 31, 2012.

Consultation Paper on Review of the Code on Corporate Governance Practices and Associated Listing Rules (December 2010)
On December 17, 2010, Hong Kong Exchanges and Clearing Limited (HKEx) published a new consultation paper on proposed changes to the Code on Corporate Governance Practices and certain Listing Rules related to corporate governance. The Code has not been updated since it was introduced in January 2005 and HKEx believes that because of changes to the market, both locally and overseas, updating the Code and related listing rules is warranted. The paper proposes upgrading certain code provisions to rules, while many of the recommended best practices will be upgraded to code provisions. HKEx stated that the review and proposed rule amendments include measures to:

  • Improve transparency by bolstering requirements for disclosure and communication with stakeholders;
  • Enhance the quality of directors and company secretaries by requiring training; and
  • Require greater involvement by independent non-executive directors in the board committees they sit on.

The consultation ended on March 18, 2011.

Non-statutory Guidelines on Directors' Duties (October 2007)
In October 2007 the Companies Registry of Hong Kong published this non-statutory guidelines on directors' duties. The booklet provides an outline of the general principles a director needs to be aware of while performing his functions and exercising his powers, such as:

  • Duty not to enter into transactions in which the directors have an interest except in compliance with the requirements of the law.
  • Duty not to make unauthorised use of company's property or information.
  • Duty to keep proper books of account.

Companies should give copies of these guidelines to new directors, even if they do not organise formal induction training for directors. The Companies Registry recommends directors read more detailed reviews of the role and duties of directors in law at such websites as the Hong Kong Institute of Directors: www.hkiod.com.

Code on Corporate Governance (Appendix 14, HKEx Listing Rules, January 2005)
The new Code is a big improvement on Hong Kong's original Code of Best Practice, a terse document dating back to 1993, but still falls short of international standards in many ways. It has been published in conjunction with a new set of rules requiring issuers to include a "corporate governance report" in their annual reports.

New Hong Kong Code on Corporate Governance (November 2004)
On November 19, 2004, the Stock Exchange of Hong Kong published a final report on its new "Code on Corporate Governance Practices" (initially released in late January 2004 for public comment).

Guide for Independent Non-Executive Directors
In July 2000 the Hong Kong Institute of Directors (HKIOD) first published these guidelines for independent non-executive directors to provide concise, user-friendly guidance. A second edition followed in September 2003. The booklet aims to help directors understand the responsibilities of being an independent voice on the Board and the authority and limitations the role carries through twelve principles such as:

  • The role of the independent non-executive director, which involves supervising management, participating in the direction of the company's business and affairs, and speaking out firmly and objectively on these and other issues that may come before the Board.
  • Devoting sufficient time; it reminds people that before they accept an appointment to the Board they must have a realistic view of the amount of time they will need to devote to the job.
  • Confidentiality and disclosure of interests. Directors should not divulge confidential company information to third parties that they learned in their capacity as a director without the permission of the company.

Hong Kong Code of Best Practice, Appendix 14 (1993) (Replaced)
Hong Kong enjoyed the distinction of being the first place in Asia to produce an official code of best practice--and the only market with one before the Asian crisis. It released its code in 1993, inspired in large part by the publication of the Cadbury Report in the UK the previous year. The code formed Appendix 14 of the Stock Exchange Listing Rules. The code had another distinguishing feature: it was Asia's shortest (just over a page), most narrowly focussed (relating mainly to board meetings and director behaviour) and least ambitious corporate governance code. In contrast to virtually all major Asian markets, for example, Hong Kong did not mandate audit committees.

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