Hong Kong's Public Enforcement Model of Investor Protection

47 Pages Posted: 20 Jan 2017 Last revised: 30 Jan 2017

See all articles by David C. Donald

David C. Donald

Chinese University of Hong Kong - Faculty of Law

Paul W.H. Cheuk

Chinese University of Hong Kong - Faculty of Law

Date Written: January 26, 2017

Abstract

The market of a successful financial center must be efficient, orderly and fair, which requires that investor protection rules be enforced effectively. While a substantial literature exists promoting privately driven enforcement of investor protection rules, there is a growing consensus that enforcement action by public bodies is likely to be more important for most markets than privately initiated litigation. Hong Kong exemplifies this point. In Hong Kong, public authorities carry almost the entire burden of enforcing corporate and securities laws. Yet Hong Kong functions at a high level of quality globally despite operating a market in which most companies are foreign-incorporated – often originating from jurisdictions with reputations for governance that are middling at best – and trading takes place in multiple currencies.

To revisit the debate on the determinants of effective corporate and securities law enforcement, this paper evaluates the enforcement of investor protection laws in Hong Kong. The paper first examines the institutional context, presenting key corporate and securities regulation and explaining avenues for private and public actions. It looks at the powers and competencies of the relevant supervisory authorities, including the stock exchange, which has a quasi-public role in regulating the market. Then, using publicly available data supplemented through interviews with agency staff, the paper presents Hong Kong’s enforcement “inputs” (funding and staffing) and “outputs” (actions and sanctions) for the main public enforcers. We find evidence that the Hong Kong public enforcement model effectively disciplines even its dangerous environment of foreign companies, controlling shareholders, and complex, international groups, and might be able better to do so exactly because of a focus on public, rather than private, enforcement.

Keywords: corporate law, securities law, derivative actions, unfair prejudice actions, enforcement

JEL Classification: K22, K41

Suggested Citation

Donald, David C. and Cheuk, Paul W.H., Hong Kong's Public Enforcement Model of Investor Protection (January 26, 2017). The Chinese University of Hong Kong Faculty of Law Research Paper No. 2017-01, Available at SSRN: https://ssrn.com/abstract=2902020 or http://dx.doi.org/10.2139/ssrn.2902020

David C. Donald (Contact Author)

Chinese University of Hong Kong - Faculty of Law ( email )

Faculty of Law
6/F, Lee Shau Kee Building
Shatin, New Territories
Hong Kong
852 3943 1042 (Phone)
852 2696 1040 (Fax)

HOME PAGE: http://www.law.cuhk.edu.hk/en/people/info.php?id=10

Paul W.H. Cheuk

Chinese University of Hong Kong - Faculty of Law ( email )

Faculty of Law
6/F, Lee Shau Kee Building
Shatin, New Terrirtories
Hong Kong

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