Hong Kong’s Market Misconduct Tribunal (MMT) has sanctioned Mayer Holdings Limited (Mayer) and nine of its former senior executives who were found to have failed to disclose inside information as soon as reasonably practicable under the Securities and Futures Ordinance (SFO).
The MMT found that Mayer had no written guidelines and/or internal control policies on the statutory requirements to disclose inside information in a timely fashion, which meant it was in breach of the disclosure requirement. The MMT also found that the nine former executives had not taken all reasonable measures to ensure proper safeguards were put in place to prevent the breach and that their intentional, reckless or negligent conduct had resulted in the breach.
The MMT found that one of the former senior executives, Tommy Chan Lai Yin, a member of the Hong Kong institute of Certified Public Accountants, had “completely ignored his duties as Mayer’s company secretary to ensure the company’s compliance with the disclosure requirement and that his conduct reflected a reckless indifference to his responsibilities”.
The Securities and Futures Commission’s (SFC) Acting Executive Director of Enforcement, Kenneth Luk commented that:
“company secretaries of listed corporations also bear the primary burden to ensure that the listed corporations are in compliance with relevant disclosure requirements under the SFO. Together with company directors, they play a critical role in upholding transparency and adhering to regulation obligations”.
Mr Luk said that the SFC was “committed to holding senior management accountable when their actions compromise the interests of the company and its shareholders.”
The MMT ordered that Mayer and the nine former senior executives should pay a total fine of HK$4.65 million and that the nine should be disqualified from being a director or being involved in the management of a listed corporation for a period ranging from 20 to 50 months. The MMT recommended that the AFRC should take disciplinary action against Mr Chan.
The action goes to show the increasing willingness of Hong Kong regulators to work together, something which was highlighted in their first joint statement last July.1 That statement addressed “an observable increase in cases of listed issuers channelling a company’s funds to third parties in dubious circumstances under the pretext of loans”, loans which were “often approved or granted without sufficient commercial rationale and appropriate documentation, and in some cases without adequate risk assessments, due diligence or internal controls”.
The statement set out the conduct, standards and practices that listed issuers, their directors, audit committees and auditors should adhere to in relation to loans and similar arrangements.
Need for training
Separately, the AFRC has published an article highlighting the importance of continuous professional development (CPD) in ensuring audit quality and managing talent.2The move follows the publication in November 2023 of the regulator’s oversight report which highlighted significant failings in this area (see Hogan Lovells alert Ticking the boxes - Hong Kong accountants regulator highlights failings in professional training compliance).
The article highlights the link between CPD and audit quality “in the context of the need for auditors to acquire new skills and the ongoing transformation of the audit profession.”
Some 64 per cent of firms under review were identified as “having insufficient internal training and / or insufficient monitoring of external training attended by professional staff”. Tracy Wong, Acting Head of Policy, Registration and Oversight said that “such deficiencies adversely impact firms’ ability to deliver quality audits and negatively affect staff morale”.
The note said that firms should take five actions to ensure effective CPD management:
- Regularly assess the upskilling needs of staff;
- Promote professional qualifications and offer training sponsorships;
- Focus on outcomes both at the individual and firm level;
- Prioritise efforts to expand the talent pool of the audit profession by attracting and developing audit staff; and
- Encourage staff to broaden their skills, embrace innovation and adopt a mindset of continuous and lifelong learning.
Authored by Yolanda Lau and Nigel Sharman.
1 SFC and AFRC join forces to combat misconduct by listed issuers, SFRC, AFRC 13 July 2023