ENG-1997 — Page 116

FINANCIAL AND MONETARY AFFAIRS

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properness of management; financial soundness; adequate accounting systems and systems of control; and prudence and competence in business conduct.

The Securities and Futures Commission (SFC)

The SFC was established in May 1989 following enactment of the Securities and Futures Commission Ordinance (SFCO). This represented a first important phase in the overhaul of the securities legislation in Hong Kong and the implementation of some of the major recommendations made by the Securities Review Committee in May 1988.

The SFCO transfers to the SFC the functions of the former Securities Commission, the Commodities Trading Commission and the Office of the Commissioner for Securities and Commodities Trading. It provides a general regulatory framework for the securities and futures industries, leaving certain elements to be covered by regulations, administrative procedures and guidelines developed by the commission. The SFC exercises prudential supervision over the securities, financial investment and commodities futures industry in Hong Kong. It administers the Securities and Futures Commission Ordinance, the Securities Ordinance, the Protection of Investors Ordinance, the Commodities Trading Ordinance, the Stock Exchange Unification Ordinance, the Commodities Exchanges (Prohibition) Ordinance, the Securities (Clearing Houses) Ordinance, the Securities (Disclosure of Interests) Ordinance, the Securities (Insider Dealing) Ordinance, the Leveraged Foreign Exchange Trading Ordinance, and part of the Companies Ordinance in so far as it relates to prospectuses and purchases by a company of its own shares. These ordinances provide a regulatory framework within which the securities, futures and investment industries operate. Checks and balances are also in place in these ordinances providing for the investigation of malpractices as well as compensation arrangements for investors.

The SFC, established as an autonomous statutory body outside the civil service, has 10 directors (half of them executive) appointed by the Chief Executive of the HKSAR. It must present the Financial Secretary with an annual report and an audited statement of its accounts, which are laid before the legislature.

The SFC seeks advice on policy matters from its advisory committee, the 12 independent members of which are appointed by the HKSAR Chief Executive and are broadly representative of market participants and relevant professions. Decisions relating to matters concerning the registration of persons and intervention in their business are subject to appeal to the Securities and Futures Appeals Panel, the members of which are also independently appointed by the Chief Executive.

The SFC is funded largely by the market and partly by the government, although no funding has been sought from the latter in the past five years. The market contribution is in the form of fees and charges for specific services and functions performed, plus a statutory levy on transactions recorded on the stock and futures exchanges. Its budget for 1997-98 was $296 million and it had an establishment of 289 at year's end.

The SFC has developed a framework of securities and futures regulation that brings Hong Kong in line with internationally-accepted standards. In addition, it has published various codes of conduct and guidelines regulating market conduct and criteria for approval of investment products and licensing of market intermediaries.