Top HK market regulator urges city to uphold rule of law

HONG KONG’S status as an international financial centre hinges on ensuring investors have confidence that the city follows the “conventional” rule of law in place in other global hubs and maintaining its special role as a bridge between the world and China, according to Ashley Alder, the outgoing top market regulator.

In an exit interview as he steps down at the end of the year as chief executive officer of the Securities and Futures Commission, Alder said that internationally there recently have been “question marks around Hong Kong” and its status. The key to remaining a “credible host” is to preserve “the confidence that we built up as a regulator in Hong Kong as an IFC, which is fundamentally based on principles and values that should be entirely familiar to someone in another financial centre,” he said.

“It takes a long time to build a reputation,” Alder said. “It doesn’t take very long to lose it.”

The 63-year-old is capping off a tumultuous end as the longest-serving top regulator of one of Asia’s largest markets. The city’s status as a financial centre has been battered over the past years by strict Covid controls and before that sometimes violent pro-democracy protests. To quell protests, Beijing imposed a national security law in 2020 that led to the arrest of hundreds of individuals, including former opposition lawmakers, journalists and pro-democracy activists. The city has also shuttered media organisation, including Next Digital, the firm of jailed tycoon Jimmy Lai.

Alder initially planned to resign from the watchdog in 2019, but the government invited him to stay for another term, citing the need for regulatory clarity during the pandemic. He’s now moving on to become chairman of the UK Financial Conduct Authority, a role in which he will likely be paid 84 per cent less than what he has made in Hong Kong.  

During his tenure, Hong Kong became more intertwined with mainland China as trading links were set up with the Shanghai and Shenzhen bourses. As of the end of November, he oversaw a stock market where more than 88 per cent of the turnover was from mainland Chinese enterprises, according to data from the bourse.

As head of an independent agency, Alder said he “never” got any briefs or instructions from mainland China, while acknowledging that regulators are always exposed to external pressures from politicians, lobbyists and other vested interests.

It’s important to establish personal trust when dealing with mainland China officials but to keep negotiations at “arms length,” Alder said, recalling “pretty intensive negotiations” to set up the Stock Connect programmes that link to the mainland. 

Alder drove a hardline against market misconduct to ensure investor protection, which even sparked angry protests outside the SFC’s offices in central Hong Kong.

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He meted out a total of US$707 million in fines over market misconduct during his 11 years, including US$100 million on four Wall Street banks over negligence in verifying claims in initial public offering prospectuses. 

The watchdog also took action against extreme price swings among thinly-traded small-cap stocks, clamping down on ramp-and-dump schemes. Its most high-profile wins were against two camps of manipulators involving listed company owners, brokerages and online scammers known as “WeChat girls.” 

Alder’s long-time deputy, Julia Leung, was announced as his successor last week and will start on Jan 1, 2023 to oversee, in part, the city’s ambitions to become a hub for crypto. 

“We don’t sacrifice standards for short term market development,” Alder said. “We are quite happy with market development when it makes sense,” he said, referring to the listing regime that supported healthcare and pre-revenue biotechnology companies to raise more than HK$296 billion (S$51.5 billion) to fund early-stage research and development. BLOOMBERG