The View | Regulators could be about to make a huge mistake on identifier rules that affect company directors
Policymakers should shelve plans to restrict publication of directors’ details and instead focus on improving the depth and quality and of corporate filings
Whether it be in the public or private domain, Hong Kong has developed a reasonably effective system of corporate disclosure to show what is being done in the name of shareholders and by whom. Historically, minorities suffered “abuse” when controlling interests shoved through related party transactions on poor terms. Such antisocial behaviour has been tackled over the last 30 years on multiple fronts, but recent incidents show the continued presence of bad actors.
Hong Kong risks a genuine system failure if it continues down this path away from openness and toward selective disclosure
Consider a recent High Court case revolving around public announcements made by a listed firm which may just as well have come from 1986 as 2016. It involved a director attempting to pass off the sale of an asset to his listed company as an “arm’s length” transaction, when in fact the sale ultimately benefitted a company held by him, and helped him pay off personal debts.
In such situations, the asset is often held offshore with the ultimate ownership being difficult to verify. While the Listing Rules require the director to declare whether he or she had an interest in the deal, there is no stipulation forcing disclosure of the ultimate owner.
For any interested third party attempting to trace such information, the system is based on the assumption that the underlying ownership of a company, although potentially opaque, is truthfully disclosed and so can be verified. The concern is that the lobbying power of interests that would prefer to keep a lid on awkward disclosures could be enough to compromise a system of market-driven regulation which relies on openness and a free flow of information.
This is a big deal for a supposed top tier financial centre as being able to assemble the “facts” on counterparties or customers is now essential for financial institutions and professional advisers which face exacting compliance obligations. For any institution wanting to do the right thing, the big constraint remains the quality and availability of information on market players.
In recent years, Hong Kong has worryingly toyed with a deliberately more opaque system of disclosure. After the personal business dealings of senior Beijing leadership figures were revealed by journalists who had trawled disclosures listed in the Companies Registry, it was proposed in 2013 to remove key identifiers (ID card numbers and home addresses) for directors.
