Since the global financial crisis, many new and voluminous financial and securities laws and regulations have been passed around the world to seek to address the systemic risks and improprieties.
Globally, there is a growing recognition by legislators, regulators academics, the judiciary, as well as senior financial institution leaders, that more regulations alone do not address these structural issues, especially in circumstances where financial sector and corporate actors face stressful and highly competitive operating environments, complex institutional settings and rising transactional costs.
Increasingly, the next wave of legislative and regulatory focus is on business culture and individual conduct and behaviour, where education and a “tone from the top”, in conjunction with strong enforcement and supervision, is appreciated to play an important role in instilling an appropriate culture and developing skills and competence in professional judgment as opposed to “box-ticking exercises”.
Examples of this trend include the UK Parliamentary Commission on Banking Standards Final Report on Changing Banking For Good, the speeches of UK Financial Conduct Authority CEO Martin Wheatley as well as the key themes of the HK Securities & Futures Commission (SFC) Regulatory Forum in January 2014.
At the same time, as highlighted by the Kay Review on UK Equity Markets, there is also an increasing appreciation that information asymmetry cannot be addressed by the mere release of voluminous and noisy data. In the words of US Securities and Exchange Commission (SEC) Chairman Mary Jo White, “finding out what is on investors’ minds will improve the overall quality of the information we provide.”
Effective on October 1, 2013, the new SFC sponsor regime to improve IPO diligence and disclosure standards codified the Stock Exchange listing rule requirement that financial intermediary sponsors exercise “professional scepticism” in the exercise of their due diligence in preparation of IPO prospectuses, and subjects IPO bankers as market gatekeepers to increased civil liability. Criminal liability is to be considered in the Legislative Council this year.
Almost concurrently, effective on January 1, 2013, Hong Kong listed companies and their directors, officers and senior management became personally liable for not timely disclosing price sensitive information under the new SFC statutory regime. By analogy, the SEC’s Regulation FD requires US publicly traded companies to disclose material information to all investors at the same time to address the issue of selective disclosure.