THE TOP COP

SFC Chair­man Carl­son Tong says Hong Kong is well served by a net­work of friend­ships un­der­pin­ning the reg­u­la­tory in­sti­tu­tions.

The Peak (Hong Kong) - - The Brief -

Carl­son Tong Ka-shing, chair­man of the SFC since Oc­to­ber 2012, started out with a small UK ac­count­ing firm earn­ing just £10 per week, while train­ing as a char­tered ac­coun­tant. From hum­ble be­gin­nings, he rose to be KPMG Asia-pa­cific chair­man be­fore re­tir­ing in 2011, han­dling big com­pany au­dits and IPOS along the way. But be­fore be­com­ing the top en­forcer for new list­ings in Hong Kong, Carl­son Tong was warned by close friends not to take the job. “The SFC is a reg­u­la­tor which does a lot of in­ves­ti­ga­tion. My friends warned me not to do it be­cause this job may lead me to lose all my friends in the se­cu­ri­ties mar­ket,” he tells The Peak. None­the­less, he re­gards the job as a mat­ter of civic duty. “I ac­cepted the job be­cause I wanted to achieve jus­tice, to get rid of mal­prac­tice in the mar­ket and to im­prove mar­ket qual­ity. It is a tough job but some­one needs to do it.” Tong, to­gether with SFC Chief Ex­ec­u­tive Ashley Alder, over­sees a team of nearly 900 staff en­forc­ing rules in the eq­ui­ties mar­ket place. Three decades of ex­pe­ri­ence as an ac­coun­tant have, he says, in­stilled the abil­ity to sep­a­rate friend­ship and busi­ness. “I have no re­grets ac­cept­ing the role as the SFC chair­man and I did not lose my friends ei­ther. My friends un­der­stand it is the job of the SFC to do the in­ves­ti­ga­tion in the mar­ket and that does not af­fect our friend­ship,” he says. It’s not an easy bal­anc­ing act. Since the list­ing of China’s H-shares in Hong Kong in 1993, Chi­nese com­pa­nies have come to rep­re­sent more than half of to­tal mar­ket cap­i­tal­i­sa­tion. Stock con­nects be­tween Hong Kong and Shang­hai in 2014, and Hong Kong and Shen­zhen in 2016, have tied the mar­kets to­gether. Mean­while, the much-an­ti­ci­apted bond con­nect launched on July 3, giv­ing in­ter­na­tional in­vestors ac­cess to China's US$ 9 tril­lion bond mar­ket via HKEX. He also hope hopes the pri­mary con­nect will be launched to al­low main­land Chi­nese peo­ple to sub­scribe to Hong Kong ini­tial pub­lic of­fer­ings.

“If these de­vel­op­ments can be achieved, it would at­tract large in­ter­na­tional com­pa­nies to list in Hong Kong, which would ben­e­fit the city as an in­ter­na­tional hub,” he said.

These changes added reg­u­la­tory chal­lenges. As the main­lan­ders’ trad­ing now rep­re­sent ten per cent of all turnover of Hong Kong mar­ket, it has put cross bor­der reg­u­la­tion un­der the spot­light.

At present, 13 per cent of Hong Kong fi­nan­cial firms are Chi­nese owned, sur­pass­ing the US as the largest for­eign owner of Hong Kong-based bro­ker­ages and fund houses. The SFC has to make sure these main­land in­vestors un­der­stand pru­dent risk man­age­ment in run­ning their Hong Kong fi­nan­cial firms.

Dur­ing a re­cent meet­ing be­tween the SFC and China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion Chair­man Liu Shiyu, the Chi­nese reg­u­la­tor ex­pressed con­cern about con stocks, which are penny stocks that go through re­peated splits to raise more funds from in­vestors, even though the com­pany does not have any prof­itable busi­ness. These schemes have caught many main­land in­vestors un­aware, re­sult­ing in lost in­vest­ments. Tong has said he wants to crack down on such stocks and ac­tiv­i­ties. “The SFC is op­posed to these ac­tiv­i­ties,” Tong said. “Stock list­ings should be aimed at rais­ing funds to ex­pand busi­nesses. Shell com­pa­nies should not be listed as they are bad for the rep­u­ta­tion of the Hong Kong mar­ket.”

Cyber crime is an­other fo­cus, and the com­mis­sion has urged bro­kers to step up cy­ber­se­cu­rity mea­sures. Such is­sues are no longer a mat­ter for aca­demic dis­cus­sion. So far, there have been 27 cy­ber­at­tacks on 12 firms in which trades were be­ing ex­e­cuted by a hacker in the name of the firm. With in­vestors now trad­ing stocks via com­puter, or even smart phone, cy­ber­se­cu­rity is now of para­mount im­por­tance and the SFC has pro­posed mea­sures to deal with it, ac­cord­ing to Tong.

But one of the big ques­tions of the day is how Hong Kong should reg­u­late its fi­nan­cial in­dus­try. “I think each model has its own ben­e­fit. The Hong Kong model of hav­ing dif­fer­ent gate­keep­ers works well as long as we have close com­mu­ni­ca­tion to avoid any gaps in be­tween,” Tong said. Main­tain­ing re­la­tion­ships be­comes crit­i­cally im­por­tant, yet that may not al­ways work.

The SFC and Hong Kong Ex­changes and Clear­ing last year joined to­gether for a con­tro­ver­sial con­sul­ta­tion on list­ing re­forms that would al­low the SFC to take a more up­front role in ap­prov­ing new list­ing and set­ting poli­cies. The con­sul­ta­tion lasted from June to Novem­ber 2016 and drew 8500 sub­mis­sions from bro­kers, listed com­pa­nies and fi­nan­cial pro­fes­sion­als – it was voted down by 94 per cent of re­spon­dents. The con­sul­ta­tion has led some an­a­lysts to call this a turf war be­tween the SFC and the HKEX, but Tong said the whole ex­er­cise aimed at im­prov­ing mar­ket qual­ity.

“There was no power strug­gle be­tween the SFC and the HKEX. The SFC is al­ways the ul­ti­mate reg­u­la­tor in the se­cu­ri­ties mar­ket in Hong Kong and we reg­u­late the HKEX, which has a pub­lic duty as it has monopoly status in stock trad­ing in Hong Kong,” he said. “On the other hand, HKEX and the SFC also work as part­ners to de­velop the mar­ket to at­tract more in­ter­na­tional list­ings and to cap­ture the op­por­tu­ni­ties aris­ing from the Belt and Road Ini­tia­tives. We work to­gether closely,” he said.

Tong said he has break­fast and lunch with HKEX Chair­man Chow Chung-kong at Hong Kong Club all the time (he refers to the club their “can­teen”). HKEX Chief Ex­ec­u­tive Charles Li Xiao­jia and Ashley Alder also have reg­u­la­tor meet­ings. Tong is a mem­ber of the ad­vi­sory body of the HKMA, while he also reg­u­larly meets with Nor­man Chan. He and IA Chair­man Moses Cheng Mo-chi have been longterm friends as they were both for­mer chair­man of list­ing com­mit­tee at dif­fer­ent pe­riod of time. “We are all close friends and we work closely on reg­u­la­tion in Hong Kong,” he said.

In the end, Hong Kong’s fi­nan­cial de­vel­op­ment re­quires suit­able reg­u­la­tion, ac­cord­ing to Tong. “De­vel­op­ment un­ac­com­pa­nied by suit­able reg­u­la­tion will not be sus­tain­able.”

“HKEX AND THE SFC ALSO WORK AS PART­NERS TO DE­VELOP THE MAR­KET TO AT­TRACT MORE IN­TER­NA­TIONAL LIST­INGS AND TO CAP­TURE THE OP­POR­TU­NI­TIES ARIS­ING FROM THE BELT AND ROAD INI­TIA­TIVES. WE WORK TO­GETHER CLOSELY” – Carl­son Tong

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