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Hong Kong launches Principles for Responsible Ownership to address engagement “void”

Seven-point voluntary guidance unveiled after consultation

Hong Kong’s Securities and Futures Commission (SFC), the regulator for Hong Kong’s financial markets, has today launched its Principles for Responsible Ownership, which provides guidance on how investors should exercise stewardship at listed companies.

It follows a 12-month consultation on the launch of the new non-binding, comply-or-explain, UK-style stewardship code.

The seven-point Principles include monitoring and engaging with investee companies, having clear policies on voting; and when investing on behalf of clients, having policies on managing conflicts of interest.

In a document introducing the Principles, the SFC says: “There is little initiative in the Hong Kong market to promote investor engagement…the new Principles will address the void.

“Active monitoring and engagement by investors will lead to improved corporate governance and will benefit the Hong Kong market as a whole.”

The Principles will be voluntary for now, however the SFC says that investors who do not think that the Principles are suitable for them are encouraged to provide their stakeholders with disclosure which explains why, and if alternatives measures are in place.

The SFC says that once the principles are introduced it would review whether there should be requirements for specified institutions to disclose whether they have adopted the principles, and if not, explain why.Also a topic for debate will be whether fund managers should have to disclose their engagement policies, by the adopting the new principles or an equivalent overseas stewardship code. The SFC will also review whether intermediaries which hold investments for individual investors should explain whether ownership responsibility rest with the intermediaries or individuals.

The SFC will also consider reviewing other corporate governance issues, after consultation respondents flagged them up. These include independent directors being elected by independent shareholders and the introductions of class action rights.

Ashley Alder, the SFC’s Chief Executive Officer, said: “The Principles of Responsible Ownership describe what we perceive as best practices for share ownership and we encourage investors to adopt them.

“This can encourage an investment culture where engagement with investee companies is seen as paramount and fundamental and which in turn strengthens corporate governance.”

The new principles received strong support from stakeholders with 56 respondents including well-known listed Hong Kong companies, and global investors such as BlackRock, Mercer and F&C Investments.

Last month index firm MSCI said it would will exclude from its global indices Hong Kong companies that have been warned over their high concentration of shareholders. It came amid concerns over market manipulation of stocks in the territory.