Financial and Monetary Affairs | 79
protection and enable credit ratings prepared by Hong Kong-based CRAs to continue to be serviceable in other jurisdictions. In July and August, the SFC consulted the public and obtained overwhelming support for the proposal to establish a regulatory regime for CRAs operating in Hong Kong. It is intended that by June 2011, all Hong Kong-based CRAS and their rating analysts will be required to be licensed and subject to ongoing supervision.
Upgrading of the Quality of Financial Reporting
The Government continues to press ahead with the enhancement of market quality and investor protection in collaboration with stakeholders, including the Financial Reporting Council (FRC), a statutory body established to investigate Hong Kong listed companies' audit irregularities and non-compliance with accounting standards. The FRC started reviewing in July 2008 modified auditor's reports of financial statements of entities listed in Hong Kong. From 2011 onwards, FRC will also take on additional work by reviewing financial reports based on a risk-based approach.
Statistics on FRC's work
2008
2009
2010
No. of complaints received
12
13
9
No. of modified auditors' reports reviewed
28
129
142
No. of investigations initiated
4
4
No. of investigations completed
1
1
1
2
2
1
2
1
No. of enquiries initiated
No. of enquiries completed
A Process Review Panel reviews the FRC's handling of cases to ensure its actions. and decisions comply consistently with established procedures.
Regulation of Over-the-Counter (OTC) Derivatives
The global financial crisis has revealed the risks embedded in the OTC derivatives market. G-20 has recommended that all standardised OTC derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties (CCPs)6 by the end of 2012 at the latest, and that all OTC derivatives contracts be required to be reported to trade repositories (TRs), and non-centrally cleared contracts be subject to higher capital charges.
Building on the current regulatory framework, the Administration will take the necessary steps to implement G-20's commitments. In particular, the Administration intends to require all financial institutions in Hong Kong to clear standardised and
6
A CCP stands between two counterparties, acting as buyer for the seller and seller for the buyer. It will be able to perform multilateral netting and facilitates the reduction of counterparty risks.