Financial Secretary Henry Tang welcomed the publication of the third annual report of the Process Review Panel for the Securities & Futures Commission, which covers the panel's work in the calendar year 2003.

"I am thankful to the chairman and members of the Panel for their dedication to enhancing the quality of market regulation in the past year," Mr Tang added.

"In 2003, the panel reviewed 51 completed cases and the commission's procedures covering various areas of its work.The panel has found that in general, adequate safeguards and checks and balances are in place in the commission's internal procedures," panel Chairman Vincent Cheng said.

He added the commission had been adhering to its established internal procedures in their decisions and actions.

"We have identified certain areas where there could be room for improvement and are pleased that the commission has been positive in adopting our recommendations."

Panel's review covered spectrum of SFC functions

In the past year, the panel reviewed the SFC's completed cases and internal procedures which cover the following areas of the SFC's regulatory functions:

* Registration of intermediaries;

* Registration and supervision of registered institutions;

* Performance pledges for processing applications for licence under the new licensing regime;

* Rationalisation of registration procedures of the SFC and the Stock Exchange of Hong Kong;

* Inspection of and prudential visit to intermediaries;

* Appointment of auditor under Section 160 of the Securities & Futures Ordinance;

* Authorisation of collective investment schemes;

* Handling of complaints against intermediaries;

* Investigation and disciplinary action;

* Processing of listing applications under the Dual Filing regime;

* Approval of Approved Lending Agents;

* Handling of takeovers and mergers transactions;

* Standardised procedures on issue of interim replies to complainants and target date for completion of investigation of complaints;

* Disclosure of information on investigation of complaints;

* Mechanism for internal communication among the SFC's divisions and departments; and

* Revised internal procedures on public consultations.

The panel also exchanged views with the industry on the commission's internal procedures with a view to identifying areas for improvement, in particular procedures on licensing, investigation and disciplinary action.

Commission adopts many key panel recommendations

The third annual report from the panel contains recommendations which cover a wide spectrum of the SFC's regulatory work. Specific improvements adopted by the SFC include:

* Expediting the processing of applications for licence to meet the timeframe set out in the performance pledges as far as possible.

* Improving the knowledge of market practitioners on the licensing requirements by issuing a circular on the subject so that employers could realise that their employees need only apply for a licence in respect of the regulated activities they carry on.

* Shortening the time for completion of inspections of intermediaries by designating a larger pool of staff to conduct inspections, allocating more resources to a particular inspection if complex compliance matters are encountered during the inspection and enhancing the computer system for management of inspections.

* Following up the results of prudential visits to intermediaries by issuing a "thank you" letter to the intermediaries concerned if no significant matter was noted.

* Ensuring that the person applying for an audit of the records of a company is aware of the possibility that he may be required to bear the cost of the audit by sending him a copy of the provisions of Section 160 of the ordinance when the SFC acknowledges receipt of his application.

* Improving the knowledge of market practitioners on the nature and classification of formal disciplinary action and its distinction from warning letters by posting relevant information on the SFC's website given the difficulties faced by some recipients of warning letters.

* Conducting a preliminary review of all applications for listing under the Dual Filing regime before deciding whether to comment on any application.

* Improving transparency of the operation of the Dual Filing regime by continuing the practice of describing and explaining the "material deficiencies" of listing applications to which the SFC has objected in the SFC's periodic updates and press briefings on the Dual Filing regime.

* Establishing a regular dialogue with the market on the operation of the Dual Filing regime by continuing the practice of submitting reports to the SFC Advisory Committee, the Shareholders' Group, and the Dual Filing Group, providing periodic updates to the market and the public, and participating in sharing sessions with industry practitioners.

* Setting out in the internal procedures the practice of consulting the Dual Filing Advisory Group on every listing application to which the SFC intends to object.

Panel appreciates commission's co-operation, support

"We appreciate the co-operation and support rendered by the commission to the work of the panel and look forward to continuing to work closely with the commission in future," Mr Cheng said.

"The third annual report contains a comprehensive review of the adequacy of the selected internal procedures of the SFC. The panel has made a number of constructive recommendations to improve the transparency, efficiency, consistency and checks and balances of the SFC's procedures. The PRP, with the full co-operation of the SFC, has made invaluable contributions in further enhancing the quality of the regulation of Hong Kong's securities and futures market," the Financial Secretary said.

In 2004, the panel will examine the commission's internal procedures for the execution of subjects covered by the Memorandum of Understanding governing listing matters between the SFC and the Hong Kong Exchanges & Clearing Limited, including the SFC's regulatory oversight of the HKEx's performance of listing functions and the SFC's performance in administering the Dual Filing regime.

Views from the public welcome

The panel will also review the SFC's internal procedures for the issue of warning letters to intermediaries.

"We welcome views from the public, in particular the market participants affected by these internal procedures, to facilitate our work in 2004," Mr Cheng added.

Members of the public may submit views to the panel by email, to prp@fstb.gov.hk.

The Report and its Executive Summary can be downloaded from the Financial Services & the Treasury Bureau's website (www.info.gov.hk/fstb/fsb/topical/preport03.htm).