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Directors’ duties as HKEX enforcement focus

 
(i) HKEX published its Enforcement Newsletter, covering full-year 2017.
(Click: full report)

Directors’ duties are the main enforcement focus. Other important areas, as reflected in enforcement statistics, are: inaccurate/incomplete/misleading disclosure in corporate communications, and failure to comply with procedural requirements regarding notifiable/connected transactions.

The enforcement cases cited are blatant breaches involving ignorance of Listing Rules; or individual directors entering into transactions without prior board approval.

Some general observations, as summarized below, are noteworthy.

What you should know/watch out for:

• (“Compliance Highlights”, P.16) Directors taking an active interest in the issuer
  (i) Issue:  there are cases involving directors who failed to attend any board meetings and did not possess adequate knowledge about the issuers’ affairs(ii)  HKEX reminder:
  — directors are collectively and individually responsible for the issuer’s Listing Rule compliance
  — not only pay attention to the issuer’s affairs at formal meetings
  — (at a minimum) take an active interest in the issuer’s affairs and obtain a general understanding of its business
  — must follow up anything untoward that comes to their attention
  — permissible to delegate; but does not absolve directors from responsibilities or applying the required levels of skill, care, and diligence

(ii) SFC’s “Enforcement Reporter” set out 2018 enforcement priorities
(Click: full report; press release)

Corporate fraud is at the top of the list; and SFC also monitors issuance of false or misleading financial statements. For listed issuers, other priorities are insider dealing and market manipulation.

The regulator also reminded issuers of its updated “Guidance Note on Co-operation with SFC”.
(Click: Dec 17 legal update)
 

Hot Trends

For your company’s macro risks discussion:
-The Global Risks Report 2018 (World Economic Forum)

• In light of global economic recovery, the top risks are environmental (climate change/natural disasters), and cyber attacks!!
• Yet, there are risks behind such economic recovery — growing income inequality; and populist politics…
• Inter-connectivity of risks makes risk management difficult!

Full Report: Useful executive summary!
 
 
This Update in PDF