[HONG KONG] Moody's Investor Services said on Thursday it was appealing against a tribunal decision that partly upheld regulatory action imposed for a report on Chinese companies, a rare move that could ultimately redefine the boundaries of public research reports.
A spokesman for Moody's Corp said the credit-rating firm had served notice with the Hong Kong Court of Appeal this week to overturn a March 31 ruling by the Securities and Futures Appeals Tribunal (SFAT) upholding the securities regulator's claim that Moody's broke rules governing how regulated firms should behave.
Any ruling by the Hong Kong court could redefine the limits around what can be written in research reports on public companies, potentially curtailing the activities of research firms in the financial centre.
The SFAT determined last month that Moody's breached the Securities and Futures Commission (SFC) code of conduct through the publication of the July 2011 report that raised corporate governance concerns over 49 Chinese companies, contributing to a fall in their Hong Kong share prices.
The SFC alleged that Moody's had failed to ensure the accuracy of the report which it said painted a misleading picture of the companies. It was the first time the SFC had taken action against a credit-rating firm since it started regulating rating activities in June 2011.
The tribunal did not uphold all of the SFC's claims against Moody's, more than halving the regulator's proposed HK$23 million (S$4 million) fine to HK$11 million. It also directed the SFC to re-draft its public reprimand against the agency.
Only a handful of SFAT decisions have ever been appealed in the Hong Kong courts, according to lawyers. Moody's did not elaborate on the grounds for appeal, but appeals must typically make the case that the law was wrongly applied in the first instance, the lawyers said.
One of the arguments Moody's made in its defence was that the report did not constitute a credit rating and was therefore not subject to the SFC's jurisdiction, but the SFAT did not accept this.
Hong Kong investor and corporate governance activist David Webb in a blog last month said SFAT's ruling imposed "deeply disturbing" restrictions on free speech and set too high a threshold for accuracy in research reports.
The ruling "will have a chilling effect on negative criticism of companies in Hong Kong," he said.