The Government introduced the Financial Reporting Council (Amendment) Bill 2021 (the “Bill”) into the Legislative Council for scrutiny on 21 July 2021.

At present, the Financial Reporting Council (“FRC”, which according to the Bill will be renamed as the “Accounting and Financial Reporting Council”) serves as the independent regulator of auditors of public interest entities (“PIE”) and exercises powers of inspection, investigation and discipline over PIE auditors and their responsible persons in relation to their engagements for listed entities. Meanwhile, practice units and certified public accountants (“CPAs“) are, in general, regulated by the Hong Kong Institute of Certified Public Accountants (“HKICPA“) in all other respects.

The Bill seeks to extend the FRC’s regulatory functions to cover all practice units and CPAs by transferring certain regulatory powers currently exercised by the HKICPA to the FRC. These include proposals to:

• empower the FRC to issue practising certificates to CPAs and register CPA firms, corporate practices and local PIE auditors; and
• expand the FRC’s current powers of inspection, investigation and discipline over PIE auditors to cover practice units and CPAs.

Under the proposed regime, the HKICPA will continue to discharge various functions under the oversight of the FRC, including registering individuals as CPAs, ascertaining qualification for registration as CPAs by conducting examinations, arranging for mutual or reciprocal recognition of accountants, setting requirements for continuing professional development, setting accounting, auditing and ethical standards, and providing training.

The Bill is currently being considered by the Bills Committee of the Legislative Council, which is inviting interested parties to make submissions on their views regarding the Bill, with a closing date of 3 September 2021. For further information about the Bill, please refer to the Legislative Council website.

Launch of Anti-Sexual Harassment Hotline

With the widespread development of the #MeToo movement and additional funding from the Government, the Equal Opportunities Commission (“EOC“) established the Anti-Sexual Harassment Unit (“ASHU“) in November 2020 to strengthen efforts in combating sexual harassment through prevention, research, policy advocacy, policy guidance and training.

On 25 January 2021, the EOC announced the launch of the Anti-Sexual Harassment Hotline (the “Hotline“) operated by the ASHU, the goal of which is to provide a first port of call service to the public with information on provisions of the law, advice on where to lodge complaints of sexual harassment and seek redress, and referral to counselling and therapy services.

The introduction of the Hotline is a clear indication of the Government’s increasing emphasis on combatting sexual harassment in the workplace.  As such, it is vital for employers to take all reasonable actions in line with the government’s initiative.

Employers should review, and where necessary, revise their internal policies and handbooks to ensure that adequate anti-harassment policies are in place to both prevent and handle sexual harassment in the workplace.  Such policies should be extended to protect non-employees, such as independent contractors (e.g. consultants or workers on secondment), interns and volunteers.  Regular training should be conducted on the policy to ensure that both management personnel and employees are well informed of the company’s anti-harassment policy, and are aware of the internal complaint-lodging platforms and investigation procedures.  Moreover, employers should handle with caution when imposing appropriate disciplinary sanctions (such as suspension or summary dismissal) against an employee under investigation or found responsible for harassment to ensure that any such sanctions are imposed in accordance with the law.  Other legal issues that employers should also be aware of include the proper collection and handling of personal data during the course of an investigation in accordance with the Personal Data (Privacy) Ordinance, as well as the safeguarding of the confidentiality and anonymity of the parties involved.

Sexual harassment complaints expose employers to potential legal claims, and may also have serious implications on an employer’s reputation, company culture as well as morale.  Employers should therefore ensure that sexual harassment complaints are promptly and properly handled with a proactive approach.

This year the Government proposed to bring into operation the new inspection regime under the Companies Ordinance. The subsidiary legislation relating to implementation of the new regime (“Subsidiary Legislation“) was gazetted on 18 June 2021 and tabled at LegCo for negative vetting.

The key feature of the new regime is the restraint on public access to the usual residential addresses / full identification numbers of directors and company secretaries (collectively, “Protected Information“). Instead, their correspondence addresses / partial identification numbers would be made available for public inspection.

Certain specified persons may apply to the Registrar for access to Protected Information. Upon such applications and subject to meeting the requirements under the legislation, the Registrar may disclose the Protected Information to the specified persons. Examples of specified persons are a member of the company, a solicitor, a CPA (practising) and a financial institution.

According to the proposed timeline, the new regime will be implemented in three phases:-

• Starting on 23 August 2021, a company may withhold Protected Information from inspection despite the requirements for such information to be contained in the company’s registers.
• Starting on 24 October 2022, the Registrar must not make available for public inspection the Protected Information contained in a document that is required by the Ordinance under which the document is registered with the Companies Registry to contain such information.
• Starting on 27 December 2023, data subjects may apply to the Registrar for withholding from public inspection their Protected Information contained in a document already registered with the Companies Registry before 24 October 2022.

On 16 July 2021, the Chairman of the Subcommittee on the Subsidiary Legislation indicated that the Subcommittee would not propose any amendments to the Subsidiary Legislation and would submit a written report in due course.

Full texts of the Subsidiary Legislation are available here.

The changes to the Listing Rules relating to disciplinary sanctions and powers (Disciplinary Related Rules Changes) came into effect on 3 July 2021. Shortly after the Disciplinary Related Rules Changes have come into effect, The Stock Exchange of Hong Kong Limited (HK Stock Exchange) published a revised Enforcement Policy Statement (Policy Statement) and a revised Enforcement Sanctions Statement (Sanctions Statement) on 8 July 2021. The Policy Statement and the Sanctions Statement reflect both recent developments and the HK Stock Exchange’s view of current enforcement priorities.

There are three enforcement priorities specifically set out in the Policy Statement: (1) responsibility; (2) controls and culture; and (3) cooperation. To further elaborate, (1) responsibility refers to the key priority behind the HK Stock Exchange’s enforcement actions, that is to ensure that those individuals who are responsible for discharging duties in connection with listing matters, and those who are culpable of failures and misconduct, are held to account; (2) controls and culture includes as a minimum the implementation of appropriate and effective internal controls and extends to the culture of the company, and the attitude towards compliance and corporate governance; and (3) cooperation is a straightforward concept: failure to respond to or cooperate with the HK Stock Exchange when there is a duty to do so will be viewed as serious misconduct.

The Sanctions Statement, which is a statement on the principles and factors in determining sanction, has been updated to reflect the Disciplinary Related Rules Changes. For example, whether there was wilful or persistent failure by the issuer to discharge its responsibilities under the Listing Rules is no longer a matter which will be considered before deciding that facilities of the market be denied for a specified period since the threshold of “wilful or persistent” failure has been removed under the Listing Rules.

For more details, please refer to the revised Policy Statement here and the revised Sanctions Statement here

Following a huge support from the market, on 6 July 2021, Hong Kong Exchanges and Clearing Limited (HKEX) confirmed to introduce FINI (Fast Interface for New Issuance) – a new digitalised platform for Hong Kong IPO settlement.  HKEX expects to roll out FINI in the fourth quarter of 2022, at the earliest.

The purpose of FINI is to provide a common venue for market participants and regulatory authorities who are involved in the end-to-end Hong Kong IPO settlement process (including the listing initiation, subscription, pricing, allotment, payment, regulatory approval and stock admission processes) to interact with each other. FINI aims to modernise and streamline the settlement process, and shorten the cycle between IPO pricing and commencement of trading.

Currently and for a long time, a typical Hong Kong IPO settlement cycle means “T+5” i.e. an average of five business days are required for new shares to become tradeable in the secondary market after pricing of an IPO.  FINI will be launched with a “T+2” IPO settlement timetable as the initial standard cycle although a “T+3” or longer IPO settlement period may be allowed upon advance request by issuers.  A shorter IPO settlement cycle is believed to be able to reduce market risk exposure and alleviate the impact on liquidity in Hong Kong dollar.

For more details, please refer to FINI Concept Paper Conclusions at here