HONG KONG: PROFESSIONAL SERVICES

Hong Kong Professional Services

Hong Kong is the most liberal Asian jurisdiction in terms of permitting participation in the market by foreign professionals. The international nature of fund-raising and merger activities requires professional firms to go global. Nevertheless, the legal and accountancy sectors remains relatively restrictive in many parts of the world. Many international professional firms have set up operations in Hong Kong to serve clients in the region.

The mainland will increasingly be an important market for Hong Kong's professionals, particularly in the light of the PRC's accession to the WTO.

The legal services industry consists of two streams of professionals, solicitors and barristers. Solicitors engage in general practice while barristers specialise in advocacy and litigation. Solicitors can only represent clients in lower courts such as the District Courts.

There are 569 law firms in the SAR, 49 of them foreign, employing 4,179 solicitors, and 114 firms of barristers, employing 732.

Turnover of the legal sector exceeds US$1.5bn.

In terms of exports of legal services, customers are mostly regional offices of foreign multinationals, investment banks, developers, construction companies, industrialists, etc., which have substantial business interests in the region and would seek legal advice from time to time to safeguard their interests.

The Chinese Mainland is by far the most important export market for Hong Kong's legal services industry. Demand for Hong Kong's legal services support comes mainly from foreign and Hong Kong companies which have investments or are planning to invest in the Mainland.

Hong Kong's legal sector has however become a victim of its own success, as waiting periods for cases to be heard contuinue to lengthen despite efforts to increase capacity. Although many cases have been shifted to the District Court after its financial jurisdiction was raised to HK$600,000, a surge in bankruptcy petitions has kept the High Court caseload fairly static.

The average waiting time between a request for a court date and the actual hearing is 216 days in the civil court, although time spent on preliminary matters means that the average litigant will have to wait for about 400 days to have a case heard.

A recent paper on civil justice reform said the number of judges in Hong Kong had not changed significantly in the past decade despite sharp increases in workload.

The caseload of the High Court has increased 82% since 1991, so that judges have thus had to cope with higher pressure and bigger workloads. The panel of Masters will deal with work in the High Court that encompasses summary judgments, where a case is instantly disposed of, and interlocutory applications, ie technical queries that don't require a court hearing as such. They will also dealing with so-called 'taxation', meaning the scrutiny of legal bills to allocate costs between litigants.

Accountancy

Rising business opportunities and the use of international standard accounting practices have also attracted the big international accounting firms to Hong Kong. Most of them have set up their regional headquarters in Hong Kong. Smaller-scale local accounting firms will find it increasingly challenging competing with the accounting giants. There are more than 3,000 accounting firms in Hong Kong, and their turnover exceeds US$1bn.

In its bilateral agreement with the United States over WTO accession, China made market access commitments in the accounting sector. Foreigners who have passed the National Accounting Examination will be allowed to form partnerships or incorporated accounting firms in China. Hong Kong accounting professionals should benefit from this development.

The Chinese mainland is the biggest export market for Hong Kong's accounting services. Major export services included: statutory audit services; investment-related advisory services (e.g. due diligence); tax advisory; computer assurance and corporate services.

In 2004, the the Hong Kong Institute of Certified Public Accountants' corporate governance committee released new guidelines designed to help prevent and report fraudulent activities undertaken by companies in the jurisdiction.

In addition, the Government brought forward plans for an 'Independent Investigation Board' (IIB) modelled on the US Public Companies Accounting Oversight Board (PSAOB). Announcing the formation of the IIB, Frederick Ma, secretary for financial services and the treasury, said: "The intention is to improve the independence and transparency of investigation procedures, therefore enhancing public confidence. We issued a consultation paper in September 2003 and have received overwhelming support for the IIB to be established."

In June, 2004, however, the Government came under fire for under-resourcing the IIB. The IIB will have a staff of 10 and will act on references from other regulators, but unlike its US and UK equivalents will not have powers to act on its own or to create regulatory standards. The IIB should start its work in 2005, but many doubt whether it will be successful on such a low budget. "It is obvious that HK$8 million is not going to be enough to set up a good investigation team. With such a low budget, we have to question whether the proposed board is just a hollow gesture," said Chan Kam-lam, economic affairs spokesman for the Democratic Alliance for Betterment of Hong Kong. "It will not benefit the Hong Kong market if we set up an investigation board that does not have enough money to hire experts and fulfil its duties."

The government is thought to have wanted a larger budget for the IIB, but failed to secure sufficient financial backing from HKSA, the the Hong Kong Institute of Certified Public Accountants and HKEx.