3. Discussion and analysis of jurisdictions studied. 3.1.2 Trends in regulating CG standards

The specific means by which CG standards are regulated has developed in quite different ways in the jurisdictions studied. This is both driven and constrained by the approach to developing legal and regulatory infrastructure as well as political, conceptual and cultural factors. This includes the ability as well as the likelihood of enforcement whether by an enforcement agency or by a shareholder and, consequently, the extent to which CG standards are in their application established by the law courts (or statutory tribunals) and behaviour is driven by the perceived risk of liability.

Significant differences arise when considering the approach in the UK compared with that of the United States. In the UK the guiding consideration has been an across the board move in the area of financial regulation toward a statutory basis of regulation. Indicia of this includes the creation of the U.K. Listing Authority (UKLA), which moved regulation of listed issuers from the exchange to a statutory body, and the introduction of a twin peaks model of regulation. The regulator in the UK has significant powers of enforcement that are in general backed by a clear mandate of Parliament and the industry generally.

Whereas in the UK a strong shareholder-centric model drives the approach to CG standard setting, the United States is driven by a different concept of the relationship between company and shareholder that is far more board-centric. A guiding consideration in the United States is the likelihood of challenge in the law courts. This applies not only to shareholders seeking redress but also to the regulators, primarily the SEC, in the exercise of its statutory powers. This will involve both State law/courts and Federal law/courts, respectively. Viewed through the lens of the court, there appears to be significantly less alignment of attitudes toward the proper scope of CG between lawmakers, regulators and the market. This means that while the SEC has considerable power to create regulatory law, often as a result of a direct mandate from Congress in the form of primary legislation, it may encounter difficulties in implementing new rules that the FCA is unlikely to experience owing to the different cultural climate. However, the mandate of the SEC under the 1933 and 1934 Acts in relation to securities offerings and disclosures and its power over the stock exchanges in general remains a more robust source of regulating the disclosure element of CG. The critical intersection in this regard is standards set by the exchanges that are required to be reported on thereby bringing disclosures within the framework of Federal securities law.

In Hong Kong, the CG model is based on a shareholder-centric approach inherited from the UK during its period as a British colony. Development of CG standards revolves around the relationship between The Stock Exchange of Hong Kong Limited (SEHK) and the SFC, the powers of the SFC, and the position of shareholders both culturally and as regards their empowerment under the law. Dealing these in reverse order, although Hong Kong law creates a number of avenues through which shareholders can seek redress, court action is rare as a result of both cultural factors as well as the practical difficulties of bringing cases. Unlike the UK, breaches of disclosure requirements under the listing rules in Hong Kong are incapable of giving shareholders the right to a damages claim, unless some other breach of law is involved. The SFC's enabling legislation gives it the power to introduce subsidiary legislation, however, that power is not used in relation to CG standard setting. This reflects, in comparison to the position in the UK and in some ways more similar to position in the United States, a degree of non¬alignment of attitudes between lawmakers, regulators and the market. The dual responsibilities model of regulatory oversight of listed issuers in fact positions the SEHK as the primary setter of CG standards, subject to the SFC's oversight. However, disclosures in the securities market that may pertain to CG standards are not subject to the same reach of the regulator, as compared to the United States, unless it amounts to an abuse of the market or is relevant to the SFC's powers to suspend, impose conditions on, or cancel a listing under the Securities and Futures (Stock Market Listing) Rules (Cap. 571V) (SMLR). Together, this currently leaves much of the detailed CG standards set by the SEHK subject to the comparatively weak enforcement mechanisms under its listing rules.

While the SFC has over the last several years gradually repositioned itself in the regulatory architecture in relation to the regulation of listed issuers, something that is largely supported by the Government, this has not been successful, again owing to the mis-alignment of attitudes toward CG already referred to. Consequently, the SFC has sought alternative means to impose themselves on the CG standards of listed issuers based on their more general regulatory objectives relating to market integrity and the protection of investors. It has taken as its cue suspicious corporate behaviour such as deep-discounted, highly dilutive rights issues, questionable placings on Growth Enterprise Market (GEM), and over-valued acquisitions. One mechanism is through the SFC's direct regulatory oversight of intermediaries that service the needs of issuers. Here the focus has been on raising the standards of and scope of duties imposed on sponsor work in relation to new listing applications. This includes a significant revision to the sponsor regime in 2013, addressing concerns in relation to new listings, and the duties of financial advisers in relation to valuation matters. A second mechanism is through their investigative and enforcement powers in relation to listed issuers under the Securities and Futures Ordinance (Cap. 571) (SFO). Here the focus is on bringing actions in respect of, for example, corporate fraud, misleading financial statements, conflict of interests, or failure to disclose inside information. However, as compared to its direct administrative powers over licensed intermediaries to impose discipline including fines, the exercise of its powers in relation to listed issuers is resource intensive as an action will need to be brought before an administrative tribunal or the court. In contrast to these derivative approaches to regulating CG standards, the powers of the FCA are much more direct and resource-efficient.

Although Singapore's system may also be described as shareholder-centric and similarly based on the common law tradition, the political dominance of the PAP in Singapore means that it can exercise considerable control over the standards setting and enforcement powers of the industry regulator. Similarly, the dominance of the Chinese Communist Party (CCP) in Mainland China means that there is significant political influence on the regulator. Ironically, even though Mainland China has a civil law tradition, which is very different from the common law tradition, the design of the power structure within its CG regulation is remarkably similar to that of Singapore. In both Singapore and Mainland China, enforcement of CG standards, either by shareholders undertaking shareholder activism in general meeting, by private or regulator-driven litigation is very rare. Thus, in both jurisdictions, regulation of CG has been largely a matter for the regulators in their paternalistic oversight role, rather than a private affair for shareholders to take up with directors - this trend is likely to continue for the time. These features are absent from the UK and the United States, although Hong Kong shareholders largely remain within a framework of regulator paternalism.

In terms of the regulatory design of its securities industry, each of the jurisdictions studied engage different approaches to its overall regulatory architecture including sectoral, twin peaks and super-regulator models. While each of these models has in practice been accompanied by a different means of CG standard-setting and enforcement, it is open to debate to what extent these different models influence the success of CG in a particular market. This is to be distinguished from the debates on whether some or all listing regulatory functions should be transferred to a statutory regulator and to what extent listing rules should themselves have statutory effect, versions of which have been implemented in the UK and Singapore.