Hong Kong: Law of Offshore
Table of Statutes
This is a non-exhaustive list of the main Hong Kong statutes affecting international business and investors. The statutes are listed in alphabetical order – click on the statute for a fuller description of the statute, the legal regime it forms part of, or in some cases the text of the law.
Banking Ordinance 1964
The Basic Law
The Business Registration Ordinance
The Companies Ordinance 1984
The Drug Trafficking (Recovery of Proceeds Ordinance)
Employees Compensation Ordinance
Estate Duty Ordinance
Factories & Industrial Undertakings Ordinance
The Inland Revenue Ordinance
The Limited Partnership Ordinance
Mandatory Provident Fund Ordinance
Occupational Retirement Schemes Ordinance
Revenue (Abolition of Estate Duty) Ordinance 2005
Revenue (Profits Tax Exemption for Offshore Funds) Ordinance 2005
The Organized and Serious Crimes Ordinance
The Professional Accountants Ordinance
The Rating Ordinance
The Composite Securities and Futures Ordinance 2002
The Securities and Futures Commission Ordinance
The Securities (Insider Dealing) Ordinance
The Stamp Duty Ordinance
The Trustee Ordinance
During a November 2010 speech delivered by the Financial Secretary, John C Tsang, at the First Pan-Asian Regulatory Summit in Hong Kong, he reviewed the advances made by Hong Kong in its regulatory regime.
He said that, while Hong Kong’s positioning as China's global financial centre under the principle of "one country, two systems" gives its markets a distinct edge, Hong Kong has a role to play in safeguarding financial security for the whole country, with Hong Kong maintaining its own legal, taxation and regulatory systems.
Adding that, while the “city has built its reputation on providing a business-friendly environment that is fully integrated with the rest of the world,” he pointed out that “this includes a highly open and internationalized market and a transparent regulatory regime.”
He added that “Hong Kong was one of the few developed markets that did not have to impose new, emergency short selling regulations during the financial crisis because our rules, which were introduced back in 1998, subsequent to the Asian financial crisis, remain applicable under the current situation.”
With regard to future developments, Tsang then confirmed that Hong Kong has “mapped out a multi-pronged strategy to improve our market quality, promote investor protection, facilitate market development, and enhance our regulatory system.”
“To improve market transparency and quality, our aim is to require listed corporations to disclose price sensitive information in a timely manner,” he stated. “This will bring our regulatory regime for listed corporations more in line with overseas jurisdictions. We plan to introduce a bill into our Legislative Council to codify the disclosure requirements in the Securities and Futures Ordinance in this legislative session.”
“Another goal is to introduce a scripless securities market in 2013. Our regulators, led by the Securities and Futures Commission, have outlined details of this proposal. The government will lend support to the initiative by introducing the necessary legislative amendments. Paperless trading will improve the efficiency and competitiveness of our securities market. It will also help to enhance shareholder transparency and promote corporate governance.”
With regard to the insurance industry, Tsang disclosed that Hong Kong is proposing to establish an independent Insurance Authority. “Our aim here is to better protect policyholders and provide effective regulation on a par with international standards,” he said. “A public consultation exercise ended last month. We are now preparing detailed proposals taking into account the views received.”
Hong Kong also plans to establish a Policyholders' Protection Fund. It is expected that this will help improve insurance market stability and safeguard the interest of policyholders in the event of insolvency of an insurer.
Tsang also described measures that are proposed to aid investors, primarily through the relevant regulators stepping up their efforts to educate investors on the risks and strategies involved and through a plan to introduce a financial dispute resolution scheme. The latter would provide an impartial, speedy and affordable way to resolve monetary disputes between investors and financial institutions.
Lastly, he mentioned the action in hand to update Hong Kong’s company and trust laws. Having completed two phases of public consultations on the draft Companies Bill, the present aim is to introduce it into the Legislative Council early next year.
The Trustee Ordinance is also being modernized to strengthen, hopefully, the competitiveness of Hong Kong’s trust services industry. Relevant amendments to the Trustee Ordinance are being prepared and the aim is to introduce an amendment bill into the Legislative Council next year.
Recent Regulatory Developments
Recent regulatory developments in Hong Kong include a new regime governing credit rating agencies (CRAs) operating in the territory, which became effective on June 1, 2011. This regime requires that all CRAs and their rating analysts providing services in Hong Kong to be licensed and subject to supervision by the regulator.
In its 2010-11 Annual Report published on June 8, 2011, the Securities and Futures Commission (SFC) recounts how it introduced regulatory reform to revitalise the markets and responded to challenges both locally and internationally.
The report notes how the disclosure requirements for investment products were modernized and the guidelines governing the sales practices of intermediaries were fine-tuned. As well as expanding the licensing regime to cover credit rating agencies, the SFC is also working to develop regulation for the over-the-counter derivatives market. In the reporting year, the SFC also made breakthroughs not just in the area of enforcement through swift and firm actions but also in the monitoring of listing sponsors by launching a theme inspection.
“Through revitalisation, the SFC restores order to the markets, and confidence in the securities and futures markets,” said SFC Chairman, Dr Eddy Fong. “The SFC also has statutory obligations to safeguard investor interests as well as to facilitate Hong Kong as an international financial centre. The approach of the SFC is always to strike a fine balance between the effectiveness of regulation and market development. The balancing act gets more demanding as investment products and financial markets get more complicated.”
To help foster growth, the SFC continued to expand the scope and depth of the markets through enriching product variety. Collaborative moves were made also to help develop Hong Kong into an offshore renminbi centre, resulting in the first-ever listing of a renminbi-denominated real estate investment trust on the Stock Exchange of Hong Kong Ltd.
The SFC also launched a consultation excercise on May 30 to determine the best approach to a proposed reporting regime for short positions, which would apply to the constituent stocks of the Hang Seng Index, the Hang Seng China Enterprises Index and other financial stocks specified by the SFC. Draft legislation in this area proposes that short positions hitting a threshold of 0.02% of the issued share capital of a listed company or a market value of HKD30m (whichever is lower) would have to be reported to the SFC on a weekly basis.
On April 27, 2011, the Hong Kong Monetary Authority (HKMA) announced that Mainland China’s National Association of Financial Market Institutional Investors (NAFMII) and Hong Kong’s Treasury Markets Association (TMA) had signed a memorandum of understanding (MOU) to establish a formal bilateral co-operative relationship. The signing of the MOU therefore provides a platform on which market practitioners from the Mainland and Hong Kong can interact, paving the way for the members of the two organizations to establish a comprehensive, co-operative relationship and to contribute to the mutual development of the financial markets of the Mainland and Hong Kong. Through the MOU, the NAFMII and the TMA have agreed to strengthen co-operation in a wide range of areas such as market development, establishment of codes, research, visits, exchanges and training.