The Role of the SFC Chairman - Towards a More Effective
and Efficient Securities Market1
Eddy Fong, Chairman of the Securities and Futures Commission
Introduction The "Non-Executive Chairman"
1. It is my honour to be invited to the Institute 6. T h i s p o s i t i o n w a s c r e a t e d t h r o u g h t h e
luncheon today. As a member of the Institute, introduction of the Securities and Futures
it makes me feel very much at home speaking (Amendment) Ordinance 2006 in June last year.
to my fellow members and such an assembly of With the rapid development of the securities and
distinguished guests. futures markets, the Government saw the need
to continually enhance the internal governance
2. Agreeing to speak is easy, but choosing an
and regulatory structure to ensure the effective
appropriate topic for the occasion requires
functioning of the SFC in order to meet the
careful thoughts. I have been told that I can
future challenges. This is because, as noted by
choose my own topic, provided that it is one
the Government2, the SFC has an important role
of "significance to company directors and the
to play in maintaining Hong Kong's position as
Hong Kong financial market".
an IFC. The Amendment Ordinance provides
3. Having given it some thought, as I am fairly for the separation of the role of the Chairman
new to the job, I believe many of you are here from that of the executive arm, which is now
because you want to find out about the role of headed by a Chief Executive Officer (CEO).
the new SFC Chairman and my views on the
7. The Chairman leads the Board in setting
direction of the Commission. My talk today
the overall directions, policies and strategies
therefore will be in two parts.
of the Commission and in monitoring the
4. First, I would like to talk about my role as a performance of the executive arm. The CEO
"Non-Executive Chairman", a title which is has the executive responsibility for the day-
distinctly different from that of my predecessor, to-day running of the Commission. He is
who was at the time a full time Executive there to implement the objectives set by the
Chairman. I think there could not be a more Board, and facilitate the effective functioning
appropriate occasion to discuss my role as SFC of the Commission. This role model is very
Chairman than a luncheon of the Institute. similar to the best governance practices both in
commercial organisations and public bodies, e.g.
5. Second, I would like to share with you how I MPFA (Mandatory Provident Fund Schemes
intend to lead the SFC in the next three years, Authority), Hong Kong Mortgage Corporation
and how the SFC may contribute to facilitating Ltd, and MTR Corporation Ltd.
Hong Kong's development as an international
financial centre (IFC).
The speech is presented at the luncheon of the Hong Kong Institute of Directors on 26 January 2007.
The Secretary for Financial Services and the Treasury, Mr Frederick Ma, when moving the resumption of the Second Reading of the
Securities and Futures (Amendment) Bill 2006 on June 14, 2006.
SFC QUARTERLY BULLETIN WINTER 2006
8. If you have the opportunity to visit the SFC required and make the SFC the priority of all
website (www.sfc.hk), you will find that the my commitments. You can well imagine that.
respective roles and responsibilities of the
11. So, it was only after some very hard thinking
Chairman and CEO have been clearly set out.
that I finally agreed to take up the appointment.
They have been thoroughly debated in the
And I was deeply honoured to be appointed.
legislature and endorsed by the Commission
Board during the passage of the Bill. Without 12. So much for the time being on my role as
going into details, there are 11 separate items Chairman. I would like to share with you some
of responsibilities for the Chairman and 14 for of the challenges facing the Commission as I see
the CEO. It is only logical that the CEO gets a them, and the way forward.
longer list, as he is a full time executive.
9. The position of a Non-Executive Chairman is My Priorities
a public service appointment, and as Chairman, 13. Many of you may remember that, when I took
I receive a moderate sum of honorarium. Some up this appointment three months ago, I set out
commentators, you may recall, suggested that four of my priorities:
the Government should pay more in order
• to provide leadership to the SFC Board
to attract the right candidate. However,
to ensure that all members participate and
when I was first approached to take on this
contribute fully in setting strategies and
appointment, remuneration was not my prime
directions of the Commission;
consideration. My concerns were focused on
• to ensure that the CEO and I discharge our
the heavy responsibilities of the post, the high
duties in a complementary manner;
expectations of the public and the amount
of time and efforts that are required for the • while carrying out its regulatory duties, the
position. I also recognised the need to make Commission should be mindful that it has
certain sacrifice because I need to perform my another important role to play, which is to
duties impartially and be seen to do so. For facilitate Hong Kong's ongoing development
example, I have to resign from all my previous as a leading international financial centre;
involvement with publicly listed companies and
such as acting as Independent Non-Executive • to maintain close and regular ties with our
Directors. In addition, under the Securities and counterparts in the Mainland.
Futures Ordinance (SFO), I need to comply
I am pleased to report that progress has been
with strict requirements on the preservation of
made in each of these areas. I will give you
secrecy (section 378) and avoidance of conflicts
of interests (section 379). I am also subject to
the SFC's internal Code of Conduct.
10. Although the position is non-executive, I am
also expected to devote as much time as is
SFC QUARTERLY BULLETIN WINTER 2006
14. At present, the Board is made up of a Non- 17. However, effective governance, whether in a
Executive Chairman, six Executive Directors commercial or public body, in my view requires
and seven Non-Executive Directors. The Board a close working relationship between the
meets once a month and its committees - on Chairman and the CEO which is characterised
audit, remuneration and budget - meet regularly by trust, openness and communication. Here
to discharge their functions. As I previously are a few examples of what needs to be done:
mentioned, the role of the Executive Chairman • First, have regular dialogues with the CEO.
has been changed to a non-executive one which Stay on top but stay out of details. Always
means that the Chairman, in his new capacity, have sufficient knowledge on major issues
would have more time to devote to leading the and be prepared to respond to queries from
Board and to communicate more frequently other Board members and external parties.
with the stakeholders. • Second, be honest and constructive with
the CEO on issues to be addressed. When
15. I b e l i e v e t h a t t h e m o s t v i t a l r o l e o f t h e
an issue comes up, discuss openly how it
Chairman is to call upon all members of the
should be dealt with.
Board to fully participate in the affairs of
• Third, be a sounding board for the CEO.
the Commission, which include not only
Advise him the likely Board opinions on
spending time considering and endorsing
certain issues and the time they should
proposals put forward by the executives, but
come to the Board.
also setting strategies and directions for the
future. Together as a Board we should bring • Fo u r t h , d e f e n d t h e C E O f r o m u n f a i r
"an independent and informed judgment" to or unreasonable criticisms as and when
bear on every matter that comes to the Board necessary.
for decision. I am currently working with • Finally, engage in an ongoing process of
my executive team to put forward an annual performance feedback for the CEO and his
business plan to the Board to ensure that the executive team. Engage on a "no surprise"
objectives for the coming year are fully captured approach and don't delay until the "annual
and will be implemented in a timely manner. review".
Overall, I think it is most important to build
Roles of Chairman and CEO mutual trust between the Chairman and the
16. Another of my priorities concerns the roles of
the Chairman and the CEO. I have at the outset
mentioned the background, so I won't repeat
that here. I have scheduled regular meetings
with the CEO, Mr Martin Wheatley, and I am in
close contact with him and indeed other EDs on
a regular basis.
SFC QUARTERLY BULLETIN WINTER 2006
A More Effective and Efficient
18. I would now turn to the third point, i.e. introduction of new products. They also
how the SFC may enhance its effectiveness wanted us to improve the speed of response
a n d e f f i c i e n c y t o f a c i l i t a t e H o n g Ko n g ' s in certain areas, although you may be aware
development as an IFC. that we already have performance pledges
covering some areas of our work.
19. When I took office in October last year, I
recognised that the SFC, like any public body, 21. The message is very clear: our stakeholders
has to not only be accountable to the public, have high expectations. Their comments should
but also measure itself up to the stakeholders' not be taken lightly. The Commission, within
expectations. the regulatory objectives set down in law 3 ,
should strive to explore how it may contribute
20. But what are the expectations of the SFC
to making Hong Kong a competitive IFC. We
s t a k e h o l d e r s ? We h a v e j u s t r e l e a s e d a
have to ask ourselves some critical questions
Stakeholder Survey report, and I would like to
such as the following:-
share with you some of the findings:
• Can the SFC move in tandem with the
• The survey, conducted by an independent
changes in the globalised marketplace
market research firm, interviewed
and respond promptly to the needs of the
stakeholders including market practitioners
market with a pro-business approach, so as
and other professionals - and company
to ensure Hong Kong's continued success?
directors too. The survey found that the
SFC was generally highly regarded and • Can we conduct our regulatory activities
viewed to have conducted its regulatory more effectively and efficiently by
activities impartially and to have effectively streamlining our processes?
enforced the Hong Kong market. • Can we maintain an active, open dialogue
• Stakeholders regarded the SFC as with the industry at the senior level, and
approachable and overall, the best securities at the same time ensure that our frontline
regulator in Asia. staff are capable and adequately resourced
to handle matters raised by market
• On t h e other hand, stakeholders also
expressed their expectations about the SFC,
including that the SFC should support 22. I am an optimist, so I think the answers to all
Hong Kong's competitiveness in a global these questions must be "yes". It is a matter
market. of "how" we may achieve that, "how" we can
• For instance, stakeholders would like the better ourselves and "how" we benchmark
SFC to be more proactive in developing ourselves against similar institutions in terms
Hong Kong as a major financial centre and of performances and pledges. These are what
the Commission should carefully consider as a
be less conservative in its approach to the
matter of utmost importance.
Section 4 of the SFO.
SFC QUARTERLY BULLETIN WINTER 2006
On the Mainland What is the Way Forward for the SFC?
23. It goes without saying that the Hong Kong 27. The SFC has a core mission to protect the
market's continued growth and prosperity interest of investors. We must therefore set
depends to a large extent on the development high regulatory standards for the market and
of the Mainland market. The influence of encourage the use of best practices. We must
Mainland enterprises on our market has been continue to enforce against misconduct and
increasing rapidly. At the end of 2006, 47% illegal practices in the market firmly and fairly.
of the market capitalisation in HKEx was This cannot be compromised.
accounted for by PRC enterprises 4 . The 28. But our rules and regulations must be effective
comparative percentage was 37% a year ago. without creating unnecessary or undue
PRC enterprises accounted for 43% of the total compliance burdens, and our processes must be
turnover in 2006. efficient and user friendly.
24. And hence our need to continue strengthening 29. The SFC has a key role to play in supporting
our relationship with our counterparts in Hong Kong's conti nued development a s a
the Mainland such as the China Securities lead ing I FC . We w ill join hands w ith our
Regulatory Commission (CSRC), the People's stakeholders, such as HK Ex, and the Hong
Bank of China and the State Administration of Kong SA R Gover nment to leverage on the
Foreign Exchange. My colleagues and I visit existing strengths of Hong Kong as a financial
the Mainland regularly and meet senior officials centre.
of the various authorities. In addition, we
30. Last but not least, the SFC will continue to
work closely with the CSRC on international
educate investors - but everyone, including each
regulatory issues at meetings of the IOSCO,
and every member of the Institute, has a role to
or the International Organization of Securities
play in this.
Commissions - of which both the CSRC and
SFC are members.
25. Maintaining regular dialogue and exchanges
31. Fellow members and guests, overall I have only
of personnel are essential to fostering the link
one simple message to deliver. I consider that
between the two places which in the long run
it is essential for the SFC as a regulator to find
will help to yield win-win results.
the right balance between investor protection
26. Some of you may have read the Report on and facilitation of market development. I regard
Economic Summit in response to China's 11th this a major challenge, and possibly the biggest
Five-Year Plan last week. There are some 80 challenge, for the Commission. However, I
initiatives for the financial sector, many of cannot do this by myself. I shall work closely
which the SFC is closely associated with. The with my SFC colleagues and, of course, our
SFC should study what role we can play and stakeholders in the financial community like
respond positively to the Action Agenda. you.
32. Thank you.
These include H shares and red chips.
SFC QUARTERLY BULLETIN WINTER 2006