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Jun 24 Legal Update

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HKEX consults on Corporate Governance Code

HKEX published a consultation paper on proposed enhancements to the Corporate Governance Code and related Listing Rules. The consultation period will close after 16 August. (Press release; full document).

It is intended that the proposals will come into effect on 1 Jan 2025, and apply to corporate governance reports (“CG reports”)/annual reports for financial years commencing on or after such date.

As regards proposals on independent directors (“INEDs”) serving more than 9 years (“Long-serving INEDs”) and overboarding, there will be a 3-year transitional period —effective on 1 Jan 2028, with compliance required by the conclusion of the AGM following 31 Dec 2027.

The proposals address 5 broad themes: board effectiveness, independence of Long-serving INEDs, board and workforce diversity, risk management and internal controls, and enhanced disclosure re: dividends.

In terms of the technical approach, the proposals introduce new “Code Provisions” (“CP”; subject to “comply or explain”). Some Code Provisions are upgraded to Listing Rules. For enhancing disclosure, there are changes in “Mandatory Disclosure Requirements” (“MDR”; disclosed under CG reports).

It is noted that HKEX will provide training and guidance materials (e.g. areas to be covered in a board performance review). Issuers are encouraged to visit its Corporate governance practices portal, and Board diversity hub (a repository containing information on issuers’ board diversity).

Key proposals are summarised in our Appendix I. (For details of amendments- see Appendix I of consultation document).

What you should do/watch out for:

  • Note the consultation period, for making responses as appropriate

  • The board and relevant teams be updated on the proposals, following management’s initial assessment of the impact (in light of implementation timeframe), e.g. Lead INED, overboarding, Long-serving INEDs, other gaps in policies/processes/disclosure

  • Detailed analysis by management for board discussions in due course

  • Note enhanced disclosure in CG reports, consider early-adoption where appropriate

 

Also in this issue

Legislation

(i) The Privacy Commissioner for Personal Data (“PCPD”) published “Artificial Intelligence: Model Personal Data Protection Framework” to provide internationally well-recognised and practical recommendations and best practices to assist organisations to procure, implement and use artificial intelligence (“AI”), including generative AI, in compliance with Personal Data (Privacy) Ordinance (“PDPO”) and its Data Protection Principles (“DPP”). (Press release; full document; leaflet)

In general, organisations sourcing third-party AI solutions should adopt a risk-based approach. The Model framework addresses 4 themes: AI strategy and governance, risk assessment and human oversight, customisation of AI models and implementation and management of AI systems, communication and engagement with stakeholders.

An overview summary of recommendations is set out in Appendix II. Our focus is on the governance, instead of the technical, aspects.

(ii) Competition Tribunal “cartel” case re: government subsidy scheme (Press release)

This is a cartel case re: government subsidy under its distance business porgramme (“D-Biz”).

Between May 2020 and Sept 2021, some IT service providers (Multisoft Limited and its parent company, BP Enterprise Company Limited and Noble Nursing Home Company Limited, KWEK Studio Limited), when providing quotations for IT solutions in applications for government subsidy, engaged in price-fixing, market-sharing, bid-rigging and/or sharing competitively sensitive information, in contravention of the First Conduct Rule of the Competition Ordinance.

The Tribunal ordered against the defendants.

The Competition Commission stresses in its press release, that combating anti-competitive conduct that aims to abuse public funding is one of its top priorities.

What you should watch out for/do:

  • “First Conduct Rule” means — parties acting together with an agreement, and/or engaging in a concerted practice, whose object or effect is “to prevent, restrict or distort” competition in HK

  • The first cartel case to use data screening to identify suspicious patterns that might be indicative of anti-competitive conduct

  • The first cartel case to successfully collaborate with a public body (Hong Kong Productivity Council) which provided crucial information/data for screening

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