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Techwatch 187

May 2018



Members’ Handbook update 

Handbook update no. 217 

Update no. 217 relates to the Amendments to HKAS 19 Employee Benefits. 

Invitation to comment 

IESBA consultation paper 

The Institute is seeking comments on the International Ethics Standards Board for Accountants Consultation Paper: Proposed Strategy and Work Plan, 2019- 2023. Comments are due by 15 June. 

IASB exposure draft 

The Institute is seeking comments on the International Accounting Standards Board Exposure Draft ED/2018/1 Accounting Policies Changes. Comments are due by 29 June. 

International updates 

IASB Updates 

  • The IASB Vice-Chair discusses IFRS 9 Financial Instruments and explains the board’s thinking behind the accounting requirements for equity investments in IFRS 9. 
  • New supporting materials for the IFRS for SMEs standard. 
  • Webinar on the revised Conceptual Framework for Financial Reporting

 

IESBA Update 

IESBA issued the restructured International Code of Ethics for Professional Accountants. The Institute plans to adopt the restructured code and will update the Members’ Handbook in due course. 

Corporate finance 

HKEX updates Guidance Letter on IPO Vetting and Suitability for Listing 

On 13 April, Hong Kong Exchanges and Clearing (HKEX) published an updated Guidance Letter on Initial Public Offering Vetting and Suitability for Listing. 

The Guidance Letter emphasizes that the focus of HKEX’s suitability review is qualitative and not based on a “checklist.” It reiterates that the characteristics set out therein are not a “checklist” for potential shell companies, and that exhibiting none of those characteristics does not necessarily mean that a listing applicant is suitable. HKEX assesses a listing applicant’s suitability holistically and, in particular, examines whether the use of proceeds and funding needs are consistent with its future objectives and strategies, and whether the listing applicant has a commercial rationale for listing as well as all other relevant information. 

Broadening Hong Kong’s Listing Regime 

On 24 April, HKEX announced that the new rules that cater to companies in emerging and innovative sectors seeking a listing in Hong Kong would take effect on 30 April. Three new chapters in the Main Board Listing Rules (LR) are added to permit listings of: 

(a) Biotech issuers that do not meet any of the LR financial eligibility tests; 

(b) Companies with weighted voting right (WVR) structures; and 

(c) Greater China and international companies that wish to secondary list in Hong Kong under a new concessionary route. 

HKEX has proposed various investor safeguards. These include: detailed criteria for determining the suitability of applicants ((i) new guidance letters on suitability for listing of biotech companies (HKEX-GL92-18), (ii) companies with a WVR structure (HKEX-GL93-18), and (iii) secondary listing as a Qualifying Issuer under Chapter 19C (HKEX-GL94-18)); a higher market capitalization requirement; and enhanced disclosure requirements.

For pre-revenue biotech issuers, measures would be put in place around fundamental changes of principal business and a more streamlined de-listing process to address potential “shell” concerns. For WVR issuers, safeguards include limits on WVR power and rules to protect non-WVR holders’ right to vote, in addition to enhanced corporate governance requirements. 

Other amendments to the LR include: 

  • More guidance on examples of what HKEX would normally consider to be a “Sophisticated Investor” and “meaningful investment” in relation to biotech issuers. 
  • More flexibility on the exclusion of cornerstone investments and subscriptions by existing shareholders from the determination of a public float for pre-profit/pre-revenue biotech issuers. 
  • Corporate Governance Committee to comprise entirely of independent non-executive directors to make recommendations to the board on certain matters. 
  • Measures to facilitate confidential filings by eligible applicants under the new concessionary secondary listing route. 

Read the consultation conclusions paper on a listing regime for companies from emerging and innovative sectors and the relevant presentation materials for further details. 

Codes on Takeovers and Mergers and Share Buy-backs align with new listing regime 

On 27 April, the Securities and Futures Commission (SFC) announced amendments to the Codes on Takeovers and Mergers and Share Buy-backs (the codes), which take effect from 30 April, to bring the codes in line with the new listing regime for companies from emerging and innovative sectors. 

The new listing regime provides a concessionary route to secondary listing for Grandfathered Greater China Issuers, i.e. qualifying companies with a “centre of gravity” in Greater China which were primary listed on the New York Stock Exchange, Nasdaq or the Main Market of the London Stock Exchange (and belonging to the United Kingdom Financial Conduct Authority’s “Premium Listing” segment) on or before 15 December 2017. Under the amendments, the codes do not apply to these secondary-listed companies unless and until the bulk of trading of these companies has moved to Hong Kong and the company is treated as having a dual-primary listing in Hong Kong under the Listing Rules. 

Proposed enhancements to Investor Compensation Regime 

On 27 April, SFC launched a two-month consultation on proposed enhancements to the Investor Compensation Regime. Comments are requested by 27 June. 

Key proposals include increasing the compensation limit from HK$150,000 to HK$500,000 per investor per default and covering northbound trading under Mainland-Hong Kong Stock Connect. In addition, the trigger levels for suspending and reinstating the Investor Compensation Fund levies are proposed to be raised from HK$1.4 billion to HK$3 billion and from HK$1 billion to HK$2 billion, respectively. Another proposal is to empower the SFC to make interim compensation payments in exceptional circumstances where delays may raise or increase systemic concerns. 

Corporate governance 

Institute publishes major report on improving Hong Kong’s corporate governance 

The Institute conducted a media briefing and published a substantial report reflecting the findings of a comparative study of corporate governance in Hong Kong and four other relevant markets – the United States, the United Kingdom, Mainland China and Singapore. The aim of the study, which was conducted by Syren Johnstone and Prof. Say H. Goo of Hong Kong University’s Asian Institute of International Financial Law, was to make recommendations for the future development of Hong Kong’s corporate governance to enhance the long-term competitiveness and attractiveness of the capital market. The report makes wide-ranging recommendations under the broad headings of “The Board,” “Enforcement” and “Architecture and Policy.” The Institute has issued copies of the report to, among others, the Hong Kong SAR Government, the SFC and HKEX. 

The media briefing was hosted by the Institute’s Chief Executive, Raphael Ding, and co-author of the report, Syren Johnstone. The project was overseen the Institute’s Corporate Governance Working Group, chaired by K.M. Wong. 

Taxation 

Announcements by the Inland Revenue Department 

Members may wish to note the following matters: 

  • Gazettal of the Stamp Duty (Amendment) (No. 2) Ordinance, referring to Stamping Circulars Nos. 04/2018 and 05/2018 for the new stamping arrangements. The FAQs and the illustrative examples for AVD - Scale 1 and Scale 2 have also been updated. 
  • Inland Revenue (Amendment) (No. 3) Bill 2018, enhancing tax deduction for expenditure incurred by enterprises on qualifying research and development (R&D) activities to encourage more enterprises to conduct R&D activities in Hong Kong. 
  • A speech by the Commissioner of Inland Revenue regarding the issue of tax returns and other updates and statistics. 
  • A speech on public finance at LegCo Finance Committee special meeting, by the Secretary for Financial Services and the Treasury, James Lau. 
  • A notification of the issues of Employer’s Returns of Remuneration and Pensions (Form BIR56A). 
  • Stamp Duty statistics (March 2018). 
  • List of Qualifying Debt Instruments (as at 31 March).

 

Anti-money laundering notices 

Members should read the following notices and publications in relation to anti-money laundering and counter-terrorist financing: 

  • Government notice 2684: An updated list of terrorists and terrorist associates has been specified under the United Nations (Anti-Terrorism Measures) Ordinance. 
  • Government notice 2537: An updated list of terrorists and terrorist associates has been specified under the United Nations (Anti-Terrorism Measures) Ordinance. 
  • Legal notice 66: The United Nations Sanctions (Somalia) (Amendment) Regulation 2018 has been published in the Gazette. 
  • Hong Kong’s Money Laundering and Terrorist Financing Risk Assessment Report was issued by the Government on 30 April. 
  • Specially designated nationals and blocked persons list, published by the U.S. Treasury’s Office of Foreign Assets Control. 

Please refer to the full version of TechWatch 187