HONG KONG (Reuters) - A bill giving the Financial Reporting Council (FRC) full responsibility for auditors will be put to Hong Kong’s Legislative Council (LegCo) before the end of 2017, the regulator’s chief executive said on Tuesday.
The move is among the measures being taken by Hong Kong to lure more foreign investors to the Asian financial hub and bring it up to speed with regulations in more developed markets.
The proposal seeks to make the FRC the independent oversight body for auditors of listed companies in Hong Kong, widening its existing mandate to investigate complaints against them.
“We will see it before the end of the year in terms of being introduced to LegCo,” FRC CEO Paul Winkelmann told the Reuters Financial Regulation Summit. “So we are very, very keen to see this come through and we are anxiously waiting.”
If the bill becomes law, the FRC will get direct powers of inspection, investigation and discipline for auditors of listed entities.
Hong Kong lost out to Singapore in brokerage CLSA’s Corporate Governance Watch rankings, a survey of regional corporate governance standards, in 2016 because it did not have an independent audit regulator.
The FRC chief said it could take up to two years to implement the new regime from the time the bill was presented in the LegCo, but said it could be finalised as soon as July 2018.
The new regime would make Hong Kong’s FRC eligible for membership of the global watchdog the International Forum of Independent Audit Regulators (IFIAR), Winkelmann said.
“Investors are demanding it, they are expecting Hong Kong to fall in line with international norms,” he added.
Analysts have said Hong Kong’s ever-closer relationship with mainland China, whose companies dominate the Hong Kong market but remain beyond its legal reach, was a concern for the corporate governance practices in the former British colony.
Winkelmann said that the FRC had been in talks with China’s finance ministry on getting access to the working papers of auditors who audit companies listed in Hong Kong from China.
“Those discussions are ongoing and we have made great strides in those discussions. That’s an important move forward. That will help the situation,” he said, adding auditing frauds involving Chinese listed companies in Hong Kong were very few.
The new auditing regime would also make it easier for the FRC to work with other overseas regulators to have an oversight over foreign auditing firms working in Hong Kong.
“The days of self regulation are long gone and therefore the need to have an independent body (such) as the FRC to oversee the auditors is absolutely vital for Hong Kong,” he said.
Reporting by Sumeet Chatterjee, Umesh Desai, Elzio Barreto and Kane Wu; editing by Alexander Smith