ENG-2002 — Page 117

FINANCIAL AND MONETARY AFFAIRS

Securities and Futures Commission

The Securities and Futures Commission (SFC) was established in May 1989 following enactment of the Securities and Futures Commission Ordinance (SFCO). This represented the first important phase in the overhaul of the regulation of securities and futures markets in Hong Kong, and the implementation of one of the most important recommendations made by the Securities Review Committee in May 1988. The regulatory objectives of the SFC, as set out in the Securities and Futures Ordinance (SFO) enacted in March, include:-

• to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;

• to promote the understanding by the public of the operation and functioning of the securities and futures industry;

•

⚫ to provide protection for members of the public investing in or holding financial

products;

• to minimise crime and misconduct in the securities and futures industry;

• to reduce systemic risks in the securities and futures industry; and

•

⚫ to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the securities and futures industry. Established as an autonomous statutory body outside the Civil Service, the SFC is responsible for regulating the securities and futures markets in Hong Kong. The SFC at present has 11 directors (five of them executive) appointed by the Chief Executive. It is required by law to present its annual report, budget and an audited statement of its accounts to the Financial Secretary who will then lay these before the legislature. The Government is not involved in the day-to-day regulation of the securities and futures industry.

The SFC is funded largely by the market and partly by the Government, although no funding has been sought from the latter since 1993. The revised estimate of its operating expenditure budget for 2002-03 was $383 million.

The SFC seeks advice on policy matters from its Advisory Committee, which comprises three executive directors of the SFC and 12 independent members. The independent members are appointed by the Chief Executive and are broadly based and representative of market participants and relevant professions.

Exercise of powers by the SFC is subject to a range of checks and balances. For instance, 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 (SFAP), the members of which are independently appointed by the Chief Executive. Upon the commencement of the newly enacted SFO, the SFAP will be replaced by an independent full-time Securities and Futures Appeals Tribunal (SFAT). A much wider range of the SFC's decisions will be subject to appeal to the tribunal. In November 2000, a Process Review Panel (PRP) was established to undertake an ongoing review of the fairness and consistency of the SFC's internal operational procedures. Members of the PRP are appointed by the Chief Executive.

Broadly speaking, the SFC's work involves licensing, supervision and monitoring of intermediaries, regulation of the public marketing of unit trusts, mutual funds and other collective investment products, regulation of takeovers, mergers and other

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