ENG-2011 — Page 118

82 Financial and Monetary Affairs

establishment of a Policyholders' Protection Fund in Hong Kong. A three-month public consultation on the proposal was conducted from March to June 2011.

Regulation of Credit Rating Agencies

Following the G-20's consensus on the need to subject credit rating agencies. (CRAs) to a regulatory oversight regime, the European Union, the United States, Japan and Australia announced regulatory measures to strengthen oversight of the CRAS. Hong Kong also established such a regulatory regime to strengthen investor protection and enable credit ratings, prepared by Hong Kong-based CRAS to continue to be serviceable in other jurisdictions. With the enactment of new legislation, all Hong Kong-based CRAS and their rating analysts were required to be licensed and subject to ongoing supervision from June 1, 2011 onwards. At the end of 2011, five CRAS were licenced by the SFC.

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. The FRC stepped up its work in 2011 by reviewing financial reports based on a risk-based approach.

Statistics on FRC's work

2009

2010 2011

Number of complaints received

13

9

7

Number of modified auditors' reports reviewed

129

142

131

Number of investigations initiated

4

4

6

Number of investigations completed

1

LO

5

Number of enquiries initiated

Number of enquiries completed

2

2

2

1

1

2

A Process Review Panel reviews the FRC's handling of cases to ensure its actions and decisions comply consistently with established procedures.

Regulation of OTC Derivatives

The global financial crisis has revealed the risks embedded in the OTC derivatives market. The 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), and that all OTC

6

A CCP stands between two counterparties, acting as buyer for the seller and seller for the buyer. It is able to perform multilateral netting and facilitates the reduction of counterparty risks.