XN000022-1996-12-11 — Page 28

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Securities and Futures Commission (Amendment)(No.3) Bill

Following is the speech by the Secretary for Financial Services, Mr Rafael Hui, in moving the second reading of the Securities and Futures Commission (Amendment)(No.3) Bill in the Legislative Council today (Wednesday):

Mr President, I move that the Securities and Futures Commission (Amendment) (No.3) Bill 1996 be read a second time.

The Bill seeks to provide statutory protection to auditors of listed companies who report in good faith to the Securities and Futures Commission (Commission) or the Stock Exchange of Hong Kong (Stock Exchange) any suspected fraud or misconduct discovered in their capacity as auditors. The Bill does not seek to impose any duty on an auditor to communicate any such information or opinion to the Commission or the Stock Exchange, nor does the Bill seek to confer any power on the Commission or the Stock Exchange to require an auditor to communicate such information or opinion to either of them. The Bill does not have any regulatory objective. No additional regulation will be introduced. Without the statutory protection, auditors making reports could face possible civil liabilities for breach of auditor-client confidentiality.

Under section 61 of the Banking Ordinance (Cap. 155), section 53D of the Insurance Companies Ordinance (Cap. 41), section 89A of the Securities Ordinance (Cap. 333) and section 51A of the Commodities Trading Ordinance (Cap. 250), an auditor is granted statutory protection and immunity when reporting in good faith to the appropriate regulatory authority reasonable suspicion of fraud or wrongdoing which he comes across in his capacity as an auditor of a company in the regulated sector. Our aim is to introduce amendments to the law which mirrors these provisions to enable auditors of listed companies to report reasonable suspicions to the Commission or the Stock Exchange. However, whereas auditors of companies in the regulated sectors are required to report suspicions of fraud to the authorities under certain circumstances, we are not seeking the same treatment for auditors of listed companies. There will be no mandatory requirements to report.

The Bill is the result of very long consultation between Government, the regulators and the Hong Kong Society of Accountants (HKSA). We are grateful to the various parties for their advice, and in particular for their participation in a Working Group set up in May this year to study how best to refine our proposal, and to try to address the concerns and reservations on the part of those who did not support the proposed legislation. The Working Group comprises representatives from HKSA, the Hong Kong General Chamber of Commerce, the Chinese General Chamber of Commerce, the Institute of Directors, the Hong Kong Institute of Company Secretaries and the Law Society of Hong Kong, the Commission, the Stock Exchange, the Commercial Crime Bureau of the Police, the ICAC, the Attorney General's Chambers and Financial Services Branch.