Hong Kong Stock Exchange proposes to enhance disciplinary regime to deter misconduct

On 7 August 2020, The Stock Exchange of Hong Kong Limited (Exchange) published a consultation paper on proposed changes in respect of the Exchange’s disciplinary regime.

The proposals have a particular emphasis on strengthening the Exchange’s powers to hold accountable, and impose appropriate sanctions on, individuals responsible for misconduct and breaches of the Listing Rules.

Key proposals are summarised below:

Proposed enhancements to existing disciplinary sanctions and introduction of a new sanction

Current sanctions

Proposed changes

Reputational sanctions

Private reprimand

Enhance by enabling publication of the substance (without disclosing the identity of the parties)

Public statement involving criticism

Retain

Public censure

Public statement that the retention of office by the director is prejudicial to the interests of investors (PII statement)

Enhance by:

  • lowering existing thresholds of “wilful” or “persistent” failure - enabling the PII Statement to be made where the occupying of office may cause prejudice to the interests of investors
  • applying to former and current directors and senior management (Note) members of named listed issuers and their subsidiaries

Note: 

The Exchange proposes to define the term “senior management” for disciplinary purposes to include:

  • any person occupying the position of chief executive, supervisor, company secretary, chief operating officer or chief financial officer, by whatever name called
  • any person who performs managerial functions under the directors’ immediate authority
  • any person referred to as senior management in the listed issuer’s corporate communication or any other publications on the Exchange’s website or on the listed issuer’s website
 

Introduction of a new sanction:

Public statement that in the Exchange’s opinion a director is unsuitable to occupy a position as director or within senior management of a named listed issuer or any of its subsidiaries, in the case of serious or repeated failure by a director to discharge his responsibilities under the Listing Rules (Director Unsuitability Statement)

Remedial sanctions

Suspension or cancellation of listing as follow-on action if individual subject to PII Statement remains in office of the specific issuer

Enhance by including denial of facilities of the market as follow-on action

It is also proposed that, after a PII Statement with follow-on actions has been made against an individual, the listed issuer identified in the statement must include a reference to the PII Statement in all of its announcements and corporate communications, unless and until that individual is no longer a director or senior management member of the relevant listed issuer.

The other listed issuers of which the individual is a director are required to announce the PII Statement as soon as practicable. Any other listed issuers which appoint the individual as a director are required to disclose in the appointment announcement that the director is subject to a PII Statement.

The above will also apply in respect of a Director Unsuitability Statement, but only against the listed issuer named in the statement.

Denial of facilities of the market

Enhance by:

  • removing existing thresholds of “wilful’ or “persistent” failure to discharge responsibilities
  • extending the scope of the sanction to require a listed issuer to fulfil specified conditions (e.g. to remedy the breach) – rather than merely wait for a specified period to lapse

Suspension or cancellation of listing

Retain

Rectification or remedial sanctions

Ancillary or operational sanctions

Ban on professional advisers

Enhance by extending the ban to cover representation of any or a specified party

Report the offender’s conduct to another regulatory authority

Retain

Take such other action asappropriate

 

Relevant parties who may be subject to disciplinary actions

Proposed new parties

The Exchange proposes to expand the disciplinary regime to new parties, including:

  • employees of professional advisers of listed issuers and their subsidiaries;
  • guarantors of structured products;
  • guarantors for an issue of debt securities; and
  • parties who give an undertaking to, or enter into an agreement with, the Exchange.

Express obligations on professional advisers

The Exchange proposes to include the following express obligations on professional advisers when acting in connection with Listing Rule matters:

  • to use all reasonable efforts to ensure that their clients understand and are advised as to the scope of and their obligations under the Listing Rules; and
  • not to knowingly provide information to the Exchange which is false or misleading in a material particular.

Additional circumstances where disciplinary sanctions can be imposed

Secondary liability for Listing Rule breaches

The Exchange proposes to introduce secondary liability for Listing Rule breaches in circumstances where the Exchange determines the person “has caused by action or omission or knowingly participated in a contravention of the Listing Rules”. These persons may include, among others, CFO, COO, company secretary, substantial shareholders and financial advisers.

Failure to comply with requirements imposed by the Listing Division, the Listing Committee or the Listing Review Committee

The Exchange proposes to include an explicit provision permitting the imposition of a sanction in circumstances where there has been a failure to comply with a requirement imposed by the Listing Division, the Listing Committee or the Listing Review Committee of the Exchange, and that sanctions may be imposed on all relevant parties through secondary liability where a party has failed to comply with a requirement imposed by the Listing Division, the Listing Committee or the Listing Review Committee.

Duty to provide accurate, complete and up-to-date information when responding to the Exchange’s enquiries or investigations

The Exchange proposes to explicitly provide in the Listing Rules the obligation to provide complete, accurate and up-to-date information when interacting with the Exchange in respect of its enquiries or investigations.

Consultation will end on 9 October 2020.