Regulatory Cooperation between Securities Commissions : A Reflection from Hong Kong

A domestic securities regulator, which is equipped with investigatory and enforcement powers conferred by statutes, should, in theory, be capable of regulating most securities-related activities. However, following from the liberalization of cross-border movements of capital, there has been a growth in the cross-listing of foreign companies on domestic exchanges. In the event of any disputes and/or frauds, the long arm of the law may not be capable of reaching other jurisdictions. This possibility is imminent in the context of Hong Kong, given that there is a high concentration of listed companies domiciled in China. This article seeks to explore how the regulatory cooperation of securities commissions through bilateral and multilateral agreements can be a solution to the cross-border enforcement problem. The regulators in Hong Kong and China have indeed worked very closely together. A notable product of this joint effort is a comprehensive regulatory framework for the Chinese companies listed on the Hong Kong Stock Exchange. In Hong Kong, Chapter 19A of the Rules and Guidance on Listing Matters is used exclusively for Chinese issuers. It reiterates the applicability of general rules to Chinese issuers or provides modifications for them if applicable. In China, the special regulations and the mandatory provisions outline the general principles and specific requirements in relation to overseas listings. Although this comprehensive framework of regulation is arguably a successful one, making Hong Kong a leading fund-raising centre, the concession provided in Chapter 19A can be a concern from an investor-protection perspective. There is a question of whether the Chinese issuers are genuinely committed to high standards. This article aims to examine the cooperation between Hong Kong and China in practice, discuss the problems, and reflect on how the Hong Kong case can be a lesson to other financial centres