Hong Kong Cracks Down on Accounting Scandals with Corporate Fraud Taskforce

Hong Kong's Securities and Futures Commission (SFC) has set up an independent taskforce to detect wrongdoings in listed companies as it cracks down on corporate fraud.

Following a raft of accounting scandals in Hong Kong and in mainland China, the SFC will now tackle an area that only the stock market had previously been responsible for.

Over half of Hong Kong-listed companies are based in mainland China, where a number of huge corporates have been embroiled in accounting scandals over the last few years.

However, there is no extradition treaty between Hong Kong and mainland China, making it hard to take criminal action against suspected fraud.

According to a Hong Kong Exchange report on 30 November, there were 42 companies whose shares had been suspended for more than three months and of those, 17 are under formal investigation for potential irregularities.

The establishment of an independent task force is the latest in a line of measures the SFC has taken to mirror the efforts of the Securities and Exchange Commission (SEC) in the United States.

The SFC has already beefed up its role over the past year and has installed new rules for investment banks and finance firms that sponsor initial public offerings (IPOs), making them liable for the contents of listing prospectuses.

The new corporate regulation group is tasked with combing through stock market announcements, research notes and press articles looking for possible red flags in listed-companies.

"A major priority for the SFC is to take on broader, more proactive oversight of listed companies as a corporate regulator," said SFC Chairman Carlson Tong.

"By actively detecting misconduct and following up on suspicious activity, we hope to identify red flags and enhance the SFC's role in maintaining quality markets and high corporate governance standards, as well as protecting investors."