July 21 Legal Update
New HKEX enforcement policy
HKEX published revised Enforcement Policy Statement and Enforcement Sanctions Statement, which have come into effect. In addition to the press release, HKEX’s latest Enforcement Bulletin also elaborates on the new statements.
By way of background, the Enforcement Bulletin noted that there was a notable rise in disciplinary cases during 1H 2021.
The Enforcement Policy Statement sets out HKEX’s latest enforcement priorities, namely the 3 concepts of responsibility, controls and culture, and cooperation. HKEX takes a broader approach, and these priority concepts will replace the enforcement themes in place since 2017. It is also important to note that “culture” goes beyond controls.
The press release explains that the new priorities reflect HKEX’s focus on individuals, and the critical importance of proactivity and vigilance. Having both the right attitude and framework towards Listing Rule compliance is essential for good corporate governance.
The Sanctions Statement sets out the general principles and factors in determining sanctions. It has been updated to reflect the new enforcement policy, and revised disciplinary regime (effective from 3 July 2021; read our May legal update). For instance, the list of factors (P.1, para 6) elaborates on some new enforcement priorities, notably culture, controls, and cooperation.
What you should know:
New Enforcement Priorities
— Directors’ primary responsibility (under companies’ law, Listing Rules, HKEX Directors’ Undertaking)
— Collective and individual responsibility (executive + non-executive directors)
— Non-executive directors (including independent directors) must take an active interest and follow up anything untoward
— Despite “delegation”, directors have a continuing supervisory role
— Professional advice – should apply an enquiring mind using own wisdom, experience and independent judgement
— Senior management also responsible
- Controls and culture
— (As a minimum) adequate and effective internal controls + risk management
— Regular review of such systems
— “Culture”: attitude towards compliance + corporate governance
— E.g. HKEX will consider if directors/ staff are informed, competent, and kept up to date via ongoing training and professional development
— Directors, senior management, and those with a responsibility for compliance should keep abreast of Listing Rules changes through regular training
— Regular director briefings on business/operations
— Expect documentary evidence of steps taken to discharge (individual/corporate) duties
What you should do/watch out for:
- Update your board and senior management on the developments
- Directors’ duties
— Reinforces themes of taking an “active interest” in company; continuing supervisory role despite “delegation”; apply an “enquiring mind” re: professional advice
- Senior management responsibility
- Internal controls + risk management systems
— Assess your compliance-related systems
— E.g. regular updates
— Beyond adequate controls (which are a minimum only)
— Implement necessary actions e.g. regular briefings/training on Listing Rule changes to directors/ senior management/ those responsible for compliance
- Keep documentary evidence of steps in place
- Co-operate in investigations
- While the 3 new enforcement priorities reflect a broader HKEX approach, ensuring compliance with specific procedural requirements (e.g. “notifiable and “connected transactions”) remain important
Also in this issue