Our cover story this month explores a thought leadership theme with very practical consequences for our profession – the meaning of compliance and governance in a principles-based regulatory regime.
The principles-based approach is a core component of Hong Kong’s regulatory regime. This is evident not only in the Corporate Governance Code (the Code), which follows the UK-style ‘comply or explain’ approach, but also in the stated regulatory philosophy of our major regulators. As far as regulating corporate governance is concerned, Hong Kong Exchanges and Clearing Ltd (HKEX) adopts a principles-based approach, setting their expectations at a high level backed up by more detailed guidelines and recommendations.
In such an environment, the concepts of ‘compliance’ and ‘governance’ take on a slightly different meaning. The principles-based approach allows for more flexibility in how companies interpret the high-level and broadly stated standards, but this is a double- edged sword since there is less clarity about whether regulators will deem your chosen route to compliance to be in breach of the Code.
For these reasons, members of our profession may be rather daunted by the principles-based ethos. Wouldn’t it be better if we all went back to having a simple, prescriptive set of rules that tell us explicitly what to do in every circumstance? That, of course, is not an option – not because our regulators have taken a liking to principles, but because such a rulebook does not exist. In a business environment as complex and fast-changing as ours, it would be impossible to draft such rules for corporate governance, and, even if it was, they would become outdated before the ink had dried.
What you lose in clarity in a principles- based regime, however, you can more than make up for in competitive advantage gains if you successfully adapt your compliance and governance frameworks to this approach. Our In Profile candidate this month, Paul Lau, Head of Capital Markets and Professional Practice, KPMG China, urges governance professionals not to lose sight of the fact that compliance and governance challenges, no matter how formidable, generally lead to improved performance and resilience. In a sense, what is needed is a different framing of the concept of the ‘compliance burden’ – rules can be springboards to better internal controls, better compliance frameworks and, ultimately, better governance.
Before I go, I would like to bring to your attention our upcoming Annual Corporate and Regulatory Update (ACRU). ACRU 2022 will be held online on Thursday 9 June 2022 and if you haven’t already signed up for this, our most popular CPD event of the year, I would encourage you to do so. Our early bird discount is available until 30 April 2022.
CGj readers will know that our ACRU webinars are a valuable opportunity to hear directly from, and to put questions to, Hong Kong’s major regulators. In order of appearance, HKEX, the Securities and Futures Commission, Companies Registry, Office of the Privacy Commissioner for Personal Data and Hong Kong Business Ethics Development Centre of the Independent Commission Against Corruption, will be presenting this year so don’t miss out on this opportunity to catch up with all the latest issues at the top of the compliance and governance agenda.
I look forward to joining you at this year’s ACRU.
The principles-based approach is a core component of Hong Kong’s regulatory regime. This is evident not only in the Corporate Governance Code (the Code), which follows the UK-style ‘comply or explain’ approach, but also in the stated regulatory philosophy of our major regulators. As far as regulating corporate governance is concerned, Hong Kong Exchanges and Clearing Ltd (HKEX) adopts a principles-based approach, setting their expectations at a high level backed up by more detailed guidelines and recommendations.
In such an environment, the concepts of ‘compliance’ and ‘governance’ take on a slightly different meaning. The principles-based approach allows for more flexibility in how companies interpret the high-level and broadly stated standards, but this is a double- edged sword since there is less clarity about whether regulators will deem your chosen route to compliance to be in breach of the Code.
For these reasons, members of our profession may be rather daunted by the principles-based ethos. Wouldn’t it be better if we all went back to having a simple, prescriptive set of rules that tell us explicitly what to do in every circumstance? That, of course, is not an option – not because our regulators have taken a liking to principles, but because such a rulebook does not exist. In a business environment as complex and fast-changing as ours, it would be impossible to draft such rules for corporate governance, and, even if it was, they would become outdated before the ink had dried.
What you lose in clarity in a principles- based regime, however, you can more than make up for in competitive advantage gains if you successfully adapt your compliance and governance frameworks to this approach. Our In Profile candidate this month, Paul Lau, Head of Capital Markets and Professional Practice, KPMG China, urges governance professionals not to lose sight of the fact that compliance and governance challenges, no matter how formidable, generally lead to improved performance and resilience. In a sense, what is needed is a different framing of the concept of the ‘compliance burden’ – rules can be springboards to better internal controls, better compliance frameworks and, ultimately, better governance.
Before I go, I would like to bring to your attention our upcoming Annual Corporate and Regulatory Update (ACRU). ACRU 2022 will be held online on Thursday 9 June 2022 and if you haven’t already signed up for this, our most popular CPD event of the year, I would encourage you to do so. Our early bird discount is available until 30 April 2022.
CGj readers will know that our ACRU webinars are a valuable opportunity to hear directly from, and to put questions to, Hong Kong’s major regulators. In order of appearance, HKEX, the Securities and Futures Commission, Companies Registry, Office of the Privacy Commissioner for Personal Data and Hong Kong Business Ethics Development Centre of the Independent Commission Against Corruption, will be presenting this year so don’t miss out on this opportunity to catch up with all the latest issues at the top of the compliance and governance agenda.
I look forward to joining you at this year’s ACRU.
