Syren Johnstone and Frederick Long on Environment and Governance: HKEX Guidance and Consultation (HK Lawyer)

"Environment and Governance: HKEX Guidance and Consultation"

Syren Johnstone and Frederick J. Long

Hong Kong Lawyer

September 2020

On 24 July 2020, HKEX announced two important initiatives. The first moves toward resolving a shortcoming in the regime for new listing applicants. The second aspires to improve Hong Kong’s environmental practices via a paperless listing regime. Both reflect a continuation of the environmental global leadership HKEX has shown, the most recent initiative being HKEX’s Sustainable and Green Exchange - STAGE. While both proposals set a directionally positive tone, there are some devils in the details.

Updated Guidance for New Listing Applicants

To date, it has been an anomaly that a listing applicant is not required to make disclosures in their listing documents as to their practices or standards regarding corporate governance (CG) or environmental, social and governance (ESG) (save in relation to certain conflicts of interests). This anomaly was the subject of recommendation C4.7.1 of the HKICPA’s Report on Improving Corporate 

     Governance in Hong Kong (December 2017). It proposed the listing applicant be required to make a statement about its CG practices in the prospectus in view of the listing rule (LR) provisions it will be subject to upon being listed. There is a strong argument that CG and ESG standards would be fostered, and investors better informed, by requiring a listing applicant to consider and disclose its practices prior to listing being granted. 

     Updated Guidance Letter HKEX-GL86-16 now requires applicants to have in place mechanisms that put them in compliance with CG and ESG “requirements” upon listing. Given that many provisions in LR Appendices 14 (re CG) and 27 (re ESG) are merely “comply or explain” not mandatory requirements, the guidance falls short of the more comprehensive progress envisaged by recommendation C4.7.1. In particular, it does not appear to procure “explain” disclosures that would deliver more meaningful information increasingly expected by responsible investors. More remains to be done.

A Paperless Listing Document and Subscription Regime

Despite international acceptance among regulators that electronic access equals delivery, Hong Kong’s penchant for printed prospectuses is environmentally wasteful and unnecessary. The present authors suggested in an earlier edition of this journal that Hong Kong already has a paperless prospectus regime that nevertheless needs modernising to properly accommodate electronic public offering and application processes (Hong Kong’s Paperless Prospectus Law, January 2020).

     One key hurdle is the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO), which prohibits a form of  application being issued otherwise than being “issued with a prospectus”. Per the SFC/HKEX 2010 Joint Consultation Conclusions, this is “commonly interpreted” as requiring a paper-based application form to be accompanied by a printed prospectus. An avenue for electronic prospectuses and printed application forms was subsequently provided by the Mixed Media Offering (MMO) introduced in 2010. Although a wholly paperless offering is possible under CWUMPO, Alibaba’s secondary listing in November 2019 took place subject to waivers from LR that posed uncertainties regarding printing requirements (see Hong Kong’s Paperless Prospectus Law, January 2020). 

     The HKEX Consultation Paper seeks to facilitate electronic-only offerings by proposing (i) the LR require listing documents to be published "solely in an online environment and cease printed form", and (ii) new listing subscriptions are “to be made through electronic channels only” (except MMOs). Item (i) envisages the LR being amended to recognise only electronic listing documents. HKEX expects CWUMPO’s prohibitions will deliver item (ii) – while the Exchange is statutorily empowered to make rules covering applications for the listing of securities, that does not appear to extend to matters concerning the offering of and application for securities. However, the proposal synchronises poorly with the law. Public offers are regulated by CWUMPO, which is silent, ie permissive save for the prohibition already noted, as to the medium of a prospectus or application form. Since the proposed changes to the LR have no bearing on the provisions of CWUMPO, listing applicants would in theory remain free to bulk-print a CWUMPO-compliant IPO prospectus and submit an online listing document cum prospectus to the Exchange. Futther, the CWUMPO prohibition applies to the issue of application forms, not vice versa, suggesting electronic subscription may also remain possible. 

     While such an outcome may seem absurd, and frustrates the intent of the proposal, the failure of the MMO to cause a shift away from bulk-printing prospectuses could be prognostic: will the proposed LR changes be sufficient to alter a cultural preference for printed prospectuses? Listing applicants and underwriters may be reluctant to tamper with customary IPO practices that have proven successful if they still have a choice when, commercially, environmental responsibility is typically a secondary consideration.

     To the extent the proposed changes to the LR, which are non-statutory and operate by way of contract, seek to remove the printed medium (albeit falling short of guaranteeing that outcome) they could be construed as an improper attempt to in practice negate what is legally permitted under CWUMPO. If so, it might cause difficulties for the SFC to approve the rule change having regard to its statutory responsibilities.

    For these reasons, the Consultation Paper may have overshot the mark by seeking to “outlaw” a printed option and going beyond international standards that enable, not restrict. Why not undertake a less ambitious clarification of the LR that simply removes the need for waivers? Absent a change in the permissive and media-neutral laws currently enjoyed by Hong Kong, re-aligning endemic practices and preferences with environmental aspirations may rely on regulators providing stronger incentives. A little pushing at the envelope of regulation may nevertheless be necessary to help practices modernise, and to lead. 

A fuller discussion of the above and other issues is provided in our Submission to the Consultation, which can be found at the author’s page at SSRN.com/ abstract=3670542.

Joint Submission to HKEX's July 2020 Consultation Paper on Paperless Listing 

Syren Johnstone, Faculty of Law, University of Hong Kong; Asian Institute of International Financial Law
Frederick J. Long, Olympus Capital Asia, Hong Kong
Date Written: September 1, 2020 

Abstract On 24 July 2020, HKEX announced two important initiatives. The first moves toward resolving a shortcoming in the regime for new listing applicants. The second aspires to improve Hong Kong’s environmental practices via a paperless listing regime. While both proposals set a directionally positive tone, there are some devils in the details. The first represents a small step with more to be done to implement recommendations made in a report by the HKICPA in December 2017. The second synchronises poorly with the law, may not bring about the desired outcome and may have overshot the mark as to what could have been more simply done.

On 18 December 2020, the HKEX released its Consultation Conclusions in a document titled "Proposals to Introduce a Paperless Listing & Subscription Regime, Online Display of Documents and Reduction of the Types of Documents on Display".  The document cited and quoted extensively from Johnstone and Long's Joint Submission (at paras 129-130, 132-134, 136 & 138) and approved of their arguments to move towards a paperless regime.

New CCPL Survey on Future Directions in Hong Kong’s Governance

Former CCPL Director, Puja Kapai, recently published Future Directions in Hong Kong’s Governance, findings from a public opinion survey conducted between August and September 2017 with a sample of 500 randomly selected respondents aged 18 or above living in Hong Kong. The household surveys were administered through face-to-face interviews. The study sought to understand Hong Kong people’s priorities and life satisfaction levels as well as their attitudes towards and expectations of politics and governance in Hong Kong. Specifically, the survey included items on public trust towards political parties, institutions, the government, and individuals of diverse backgrounds as well as the public’s prioritisation between economic and livelihood issues and democratic governance. In synthesising the data, the study also mapped the correlation between various demographic factors such as gender, age, education, and income levels and attitudes towards politics, governance, priorities, and life satisfaction.

      The project’s underlying objectives are timely and of significance at this juncture in Hong Kong’s political journey. The findings are distinct from other public opinion polls carried out to date in that they are obtained from face-to-face rather than telephone interviews. They also shed light on the underlying variables which appear to be determinative of public opinion on specific challenges facing Hong Kong at this time.

     Offering data-driven recommendations to guide the agenda of political parties, their leaders, and most importantly, the incumbent administration, the project seeks to underscore the importance of creating conditions and prioritising areas that are conducive to the effective engagement and governance of Hong Kong people going forward.

    The findings have been summarised and presented in two segments to distinguish the overall outcomes of the study from the distinct voices of Hong Kong’s youth, who portrayed a significantly different perspective on a range of issues, warranting a separate and focused analysis. Therefore, in addition to the Report presenting the Core Findings of the research, a dedicated report on Youth Perspectives has also been produced, offering a focused review of youth voices in Hong Kong, which are vital to any conversation on the future of governance in Hong Kong given the role of the youth in shaping Hong Kong’s future.

      Between May and June 2018, these Reports and the recommendations therein were presented to Mr Matthew Cheung, Chief Secretary for the Administration of the HKSAR, members of the Hong Kong Legislative Council, a range of consular representatives from different countries in Hong Kong, and youth groups. The presentations were conducted in small groups and generated much discussion and reflection on the part of all stakeholders engaged.  The full reports can be accessed here.

CCPL's Submission to the Working Group on Gender Recognition in Hong Kong

December 2017. The Centre for Comparative and Public Law (CCPL) in the Faculty of Law at the University of Hong Kong welcomes the opportunity to comment on the Consultation Paper published by the Hong Kong SAR Government’s Inter-departmental Working Group on Gender Recognition (IWG). 

     This submission identifies recent interpretative materials produced by international human rights treaty monitoring bodies that shed light on the content of relevant human rights provisions that apply to Hong Kong. The Consultation Paper, while providing an impressive and thorough overview of gender recognition schemes from around the world, does not fully evaluate whether – or which of - these schemes comply with Hong Kong’s international human rights obligations. Consistency with human rights should be the IWG’s primary consideration when reviewing submissions and ultimately proposing a gender recognition scheme suitable to the Hong Kong context. Human rights and the rule of law are core societal values in Hong Kong and cornerstones of the SAR’s constitutional framework. 

     Our responses to the issues raised in the Consultation Paper are summarized below. These are based on developments in international human rights law as reflected in the treaty body comments described in section II. 

1. International human rights law applicable to Hong Kong mandates the introduction of a gender recognition scheme that enables a person to acquire a legally recognized gender other than his or her birth gender. Response to issue 1: yes. 
2. The requirements discussed in the Consultation Paper related to medical treatment (including, but not limited to, sex reassignment surgery and hormone therapy), immigration, marital and parental status, age, etc., are inconsistent with human rights and should not be introduced. A self-determination model that does not necessitate medical intervention or other unjustifiable conditions would likely be the most compliant with Hong Kong’s human rights obligations. Responses to issues 2-12: no. 
3. The scheme should be based on legislation in order to ensure clarity and consistency. If the legislative process results in unacceptable delays, however, an administrative procedure might serve as a reasonable stopgap measure until appropriate legislation can be finalized. Response to issue 13: the gender recognition scheme should be based on a legislative framework. 
4. The 2004 UK Gender Recognition Act does not fully comply with international human rights law. We note, however, that the UK intends to amend the 2004 Act to remove all medical preconditions. A future revised Act may be an appropriate model for Hong Kong to consider. In the meantime, however, the Act in its current state is flawed. Response to issue 14: no. 
5. Introducing a dual-track scheme would be unnecessarily complicated and likely contain elements that are inconsistent with self-determination and international human rights obligations. Response to issue 16: no. 

Section II of this submission notes a selection of recent, relevant interpretive comments by United Nations (UN) human rights treaty monitoring bodies that elucidate Hong Kong’s human rights duties and support these responses. These comments confirm that Hong Kong is obliged under international human rights law – and domestic constitutional law - to introduce a gender recognition scheme based on self-determination without medical or other unreasonable requirements. Section III explains that any restrictions on a right to gender recognition, including medical and other requirements, must be evaluated according to a proportionality analysis. Section IV disputes claims that gender recognition is a particularly divisive issue in Hong Kong based on recent research. Section V reflects on connections between the rights to gender recognition and equality and non-discrimination and the need to proceed simultaneously with the introduction of both gender recognition legislation and an anti-discrimination ordinance on the grounds of gender identity.  Click here to download the full submission which was prepared by Kelley Loper, Director of CCPL, with the assistance of Lili Ullmann, Assistant Reserach Officer in Human Rights, CCPL.

CCPL Submission on Combatting Domestic and Sexual Violence (HK Legislative Council)

"Submission to the Legislative Council Social Welfare Panel's Subcommittee on Strategy and Measures to Combat Domestic and Sexual Violence"

Puja Kapai

Centre for Comparative and Public Law

2 October 2015

The Executive Summary of the Research findings (Appendix) makes a number of Recommendations, including: 

1. Set up a multi-agency response network with regular cooperation between police, health services, legal profession, government agencies and NGOs for each case to improve the quality of domestic violence services for ethnic minority victims. This would obviate the need for victims to repeatedly tell their stories and would also save resources and time, particularly where interpreters and third party interveners are necessary to come to a comprehensive view of the situation and conduct risk assessment. 

2. Set up and implement a uniform and coordinated data intake and collection process to record disaggregated data and allow for a systematic review and evaluation of the patterns of help-seeking, follow up and service provision on an ongoing basis. This would assist in informing strategies for intervention to ensure their suitability in cross-cultural settings. 

3. Mandatory and Regular in-service training for front line responders, including the police officers, lawyers, healthcare professionals, social workers and other service providers, in human rights and cultural sensitivity to ensure that knowledge can be harnessed and applied when handling domestic violence amongst ethnic minorities. 

4. Review the quality and impact of existing materials.The experiences shared by the ethnic minority women in their encounters with frontline staff and respondents and the interviews with frontline responders revealed that some of the materials used in cultural sensitivity training contain harmful and negative stereotypes about ethnic minority and immigrant women. 

5. Establish a one-stop shop service centre in the long run for ethnic minority and immigrant women, to improve cultural intelligence and competence to handle the needs of ethnic minority victims and empower them in terms of financial independence, literacy, vocational training and social integration. 

6. Establish specialist agencies for the intake of ethnic minority and immigrant victims of domestic violence, such as those in place in United Kingdom.

Click here to download the full submission.

CCPL Submission on the Review of the Environment, Social and Governance Guide (HK Exchanges & Clearing)

"Submission for Public Consultation on the Review of the Environmental, Social and Governance Guide"
Farzana Aslam
Centre for Comparative and Public Law
September 2015

Introduction: The Centre for Comparative and Public Law (CCPL) at the University of Hong Kong welcomes the opportunity to comment on the Hong Kong Exchange (HKEx) Consultation Paper on the Review of the Environmental, Social and Governance Reporting Guide (‘the Consultation Paper’). CCPL commends the HKEx’s desire to improve the quality, sustainability and reputation of the Hong Kong market, and to align Hong Kong with international best practice related to sustainability and environmental, social and governance (ESG) reporting. CCPL broadly supports most of the proposals put forward by the HKEx in its Consultation Paper including the need to upgrade many of the environmental and social disclosure requirements to require issuers to report on a ‘comply and explain’ basis... Click here to download the full submission.