Aug 24 Legal Update
Top stories
HKEX consultation on new phase of paperless reforms
HKEX published a consultation paper on proposals to further expand its paperless listing regime and other rule amendments. The consultation period will close after 18 October. (Press release; full document).
Our focus is on proposals regarding continuing obligations of issuers of listed equity securities:
(Note: some proposals are not applicable to other types of issuers, e.g. public debt issuers; see Table 1, P.3 of consultation paper)
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(1) Electronic instructions from securities holders: to provide an option for securities holders to send “requested communications” to issuers electronically
(Note: previous HKEX paperless reforms relate to communications from issuers)
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(2) Real-time electronic payment of “Corporate Action Proceeds”: option for securities holders to receive the same (e.g. dividends) electronically via CHATS (Clearing House Automated Transfer System, operated by Hong Kong Interbank Clearing Limited)
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(3) Hybrid general meetings and E-voting: (to the extent permitted by applicable laws) issuers to ensure their constitutional documents enable them to do so
Proposals 1 and 2 are also related to the “Uncertificated Securities Market” regime (USM). It is intended that they will come into effect when USM is implemented, expected to be around the end of 2025.
Proposal 3 is expected to be implemented shortly after the consultation conclusions are published.
Further details on Proposal 1 are set out below.
What you should know
Electronic instructions from securities holders
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Option for securities holders to send requested communications to issuers electronically
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“Meeting Instructions” re: a meeting of securities holders, including an indication as to attendance and proxy-related instructions
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“Non-meeting Instructions” re: “Actionable Corporate Communications” (except response to provisional allotment letter in a rights issue)
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Issuers might need to amend constitutional documents
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Issuers expected to have appropriate arrangements to verify the authenticity of requested communications
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Free to choose authentication mechanisms
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Transitional period
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1 year for “Standardised Requested Communications” (dividend election instructions, meeting instructions)
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Longer for “Non-standardised Requested Communications” (e.g. relating to a rights issue)
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What you should do
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In light of the consultation period, to make responses as appropriate
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Note the interaction with the USM regime, for future preparations
Also in this issue
Regulators
(i) AFRC published its 2024 Annual Compliance and Investigation Report. (Press release, Report)
Our focus is on AFRC’s guidance for stakeholders, including board of directors, audit committee and management of listed companies (Section 4 of report, P.51).
What you should do
Guidance for directors/audit committee/management
Board of directors
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Current challenging global economy brings uncertainties to listed companies, making them more susceptible to fraudulent activities
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Should establish a proper control environment
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Maintain policies and procedures for internal controls to detect fraud and errors
Audit committees
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Maintain a constructive dialogue with external auditors throughout the entire process
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From planning to completion
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In-depth and timely communications
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On identified risks, significant findings and observations made by the auditors
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In the event of a change of auditor
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Ensure that disclosures on resignation are complete and accurate, especially re: unresolved audit issues and disagreements with management
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Ensure that incoming auditors possess the necessary competence and capabilities
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Management of listed companies
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Engage in effective planning
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Allocate sufficient resources and competent personnel to assist in preparing the financial statements.
Legislation
(ii) The Privacy Commissioner for Personal Data (“PCPD”) issued a new version of the “Code of Practice on the Identity Card Number and other Personal Identifiers: Compliance Guide for Data Users” (the Compliance Guide). (Press release, Compliance Guide, Leaflet)
The Compliance Guide aims to assist organisations in complying with the requirements under PCPD’s “Code of Practice on the Identity Card Number and other Personal Identifiers” as regards the collection, retention, use and security of ID card numbers, copies of the ID card and other personal identifiers.