HKEX Consultation Paper on ‘Review of Listing Rules Relating to Disciplinary Powers and Sanctions’

The Stock Exchange of Hong Kong Limited (“HKEX”) published a consultation paper titled ‘Review of Listing Rules Relating to Disciplinary Powers and Sanctions’ (the “Consultation Paper”) in August 2020, which proposed changes in respect of HKEX’s disciplinary regime. The Consultation Paper follows a wide-ranging review of the HKEX’s disciplinary powers and sanctions under Chapter 2A of the Listing Rules, to ensure that the disciplinary regime continues to remain robust and effective. The consultation period had ended on 9 October 2020.

 

The key enhancements to the existing disciplinary regime are set out below.

1. Lowering existing thresholds for public statements regarding individuals
   
   Currently, the HKEX’s power to issue a public statement to the effect that a director continuing to remain in office is prejudicial to the interests of investors (“PII Statement”) can only be exercised where there has been a wilful or persistent failure by the director to discharge his responsibilities under the Listing Rules.
   
   The HKEX is proposing to remove this threshold as it is difficult in determining whether an action is wilful. This amendment will provide greater flexibility to the HKEX in being able to issue PII Statements against directors where warranted, without the need to prove that the director’s conduct is wilful or persistent.
   
   
2.  Enhancing follow-on actions in relation to public statements regarding individuals and publication requirements
   
   Currently, the follow-on actions which the HKEX may direct where an individual subject to a PII Statement remains in office as a director are limited to suspension or cancellation of listing of the issuer’s securities or any class of its securities. In order to bring the compliance attitudes and cultures within listed issuers into sharp focus for the purpose of benefitting the investing public, the following enhancements are proposed in case of serious misconduct:
   
   (a) The follow-on actions which the Listing Committee or the Listing Review Committee may direct include the denial of facilities of the market to that listed issuer for a specified period; and
   
   (b) The follow-on actions apply where an individual subject to a PII Statement continues to be a director or senior management member of the specified listed issuer.
   
   The HKEX also proposes that, after a PII Statement with follow-on actions has been made against an individual, the listed issuer identified in the statement must include a reference to the PII Statement in all of its announcements and corporate communications, unless and until that individual is no longer a director or a senior management member of the relevant listed issuer.
   
   
3. Introducing director unsuitability statements
   
   For more serious cases of misconduct where there is a evident or repeated failure by a director to discharge his responsibilities, the HKEX is proposing a new sanction, which would enable it to issue a public statement that, in its opinion, the director is unsuitable to occupy a position as a director or within the senior management of a named listed issuer or any of its subsidiaries.
   
   
4. Introducing secondary liability
   
   The HKEX is also proposing to introduce secondary liability for Listing Rule breaches in circumstances where it determines the person “has caused by action or omission or knowingly participated in a contravention of the Listing Rules”. These persons may include directors and senior management, substantial shareholders, professional advisers and their employees, authorised representatives, supervisors and a guarantor of an issuer in the case of a guaranteed issue of debt securities or structured products.
   
   Set out below are some examples of how secondary liability would be applied:
   
   (a) Chief Financial Officers for failure to obtain auditors’ agreement before publication and material inaccuracy of preliminary results announcement;
   
   (b) Chief Operating Officers for failure to disclose share charge in a timely manner and in its interim report;
   
   (c) Company Secretaries for material inaccuracy of listed issuer’s announcement of controlling shareholder’s transfer of shares;
   
   (d) Substantial Shareholders for breach of maintain minimum public float;
   
   (e) Financial Advisers for material inaccuracy of listed issuer’s Circular.

 

We believe the proposed enhancements could further enable the HKEX to take timely and effective disciplinary actions, which in turn promote market quality and maintain the integrity of the Hong Kong capital market.