How the Commission Operates

All important policies and decisions are discussed and approved by the Board, which meets regularly every month and holds additional meetings as necessary. Divisional staff attend Board meetings to explain policy proposals, report on important operational matters and regulatory issues. Members are also briefed on the financial positions of the Commission and provided with monthly financial statements.

To play an effective oversight role, the Board has delegated most of the regulatory powers and functions to individual EDs, staff or Committees, reserving the critical functions at the Board level. The Commission maintains a detailed delegation list.

All newly appointed Members receive briefings on the work of the Commission and are provided with relevant SFC documents including a copy of the Code of Conduct, which sets out the legal obligations and the Commission's requirements on them. All Members are required to disclose their investment portfolio upon appointment and report any subsequent changes to the Commission.

Members have separate and independent access to the senior management and divisional staff for additional information they may require about any policy proposal. They have access to the Commission Secretary, who is responsible for ensuring the procedures of the Commission are complied with. Members and the Commission Committees can seek independent professional advice at the expense of the Commission as and when necessary.

Commission Committees

The Commission has established the Advisory Committee, Public Shareholders' Group and other consultative and regulatory committees with a largely external membership drawn from the market. These committees provide external input to the Commission on policy matters.

NEDs play an important role in ensuring that the Commission is accountable and transparent by chairing and participating in various Commission committees, which have their respective terms of reference. The Commission committees circulate their minutes and report important issues to the Board regularly.

The NEDs' role is particularly important in several internal committees:

Audit Committee

The Audit Committee comprises only NEDs. Senior staff including EDs are invited to attend meetings where necessary.

The Audit Committee convenes every quarter and additionally if necessary to review quarterly and annual financial statements before their submission to the Commission for approval. It endorses the appointment of external auditors for the Commission's approval every year and plays an important role in the design of the scope of internal and external audits. It reviews audit findings set out in the external auditors' management letters and management's responses to them, and monitors the implementation of agreed improvements.

The Audit Committee also examines management procedures to monitor the effectiveness of the systems of financial and internal control. It considers and approves our annual internal control review programme and cross-divisional audit programme.

For the provision of non-audit services by external auditors, the Audit Committee will critically consider each engagement on a merit basis. To ensure independence and objectivity of the annual audit, two different external auditors are appointed to perform respectively the annual audit and internal control review of the Commission.

Remuneration Committee

The Remuneration Committee comprises all NEDs. Senior staff are invited to attend the meetings where necessary.

The Remuneration Committee reviews policy on the level and structure of staff remuneration and makes recommendations to the Commission. It also considers and approves results of pay surveys. The Remuneration Committee is consulted on the re-appointment of EDs and decisions on senior management.

The HKSAR Chief Executive and the Financial Secretary under the delegated authority of the former determine the remuneration packages of the CEO and EDs taking into consideration recommendations by the Remuneration Committee. The pay packages comprise an annual fixed pay and a performance related variable pay.

The CEO consults the Remuneration Committee on the payment and amount of variable pay to individual EDs as a matter of good corporate governance practice. The recommendations are reported to the Administration for information.

Budget Committee

The Budget Committee examines and approves the proposed parameters and basis for annual budget compilation, including the estimates of our income and expenditure for the next financial year, which will then be submitted to the full Commission for approval.

Executive Committee

The Executive Committee, chaired by the CEO, comprises all EDs, Senior Directors and the Chief Counsel. It performs administrative, financial and management functions as delegated by the Commission.

Code of Conducts

The Commission requires the highest standards of integrity and conduct from its staff. It sets out in the Code of Conduct its requirements and the relevant legal obligations. In particular, all Commission staff should be aware of potential conflicts of interest and ensure that their work is carried out properly, impartially and free from any suggestion of improper influence. All Commission staff are required to keep confidential information acquired in the course of duties.

The Code sets a clear policy for staff on personal dealings in securities and futures contracts and various statutory requirements relating to personal dealings. The Code requires staff to declare their investment in securities and futures contracts upon commencement of employment and report all subsequent transactions.

Public Interest Grievances

The Personnel Manual comprises major human resources policies and procedures as approved by the Commission, which include the Equal Employment Opportunities policy, grievances procedures and disciplinary procedures. These procedures ensure that personnel matters are handled in a fair and impartial process with adequate checks and balances.

The Grievance Procedures - Public Interest Grievances is published on our website to assist those who believe that they have discovered improper practices or misconduct relating to the running of the Commission or work related activities of Commission employees, to report these to the Commission in a constructive manner. The procedures enable the following persons to report confidentially: any person who has an employment contract with the Commission, is on secondment to the Commission, is engaged as an independent consultant by the Commission or is a contractor or supplier of services to the Commission.

Complaints against Commission Staff

The Commission has a policy of transparency and accountability. It takes seriously any dissatisfaction regarding the way in which Commission staff have carried out or failed to carry out their duties. The Procedures for Handling Complaints against Commission Staff ensures prompt handling of any complaints from members of the public against our staff and facilitates effective follow-up action. We have published the procedures on our website to enhance transparency and provide clear guidance to the public.

The internal control procedures ensure that the Commission achieves its regulatory objectives and performs its regulatory functions in a fair and transparent manner and in accordance with the law. In addition, the Commission's operational procedures help safeguard assets against unauthorised use or disposition, maintain proper accounting records and ensure reliability and integrity of information used within the Commission or for publication.

Accountability and Transparency

Individual divisions and departments of the Commission follow operating manuals in performing functions and exercising powers. The manuals ensure that we comply with relevant legal, regulatory and administrative requirements. They are subject to review by the independent Process Review Panel.

The Commission is accountable for the use of its financial resources and has established detailed financial and budgetary control procedures. For the reporting and disclosure of the Commission's financial statements, we have adopted the International Financial Reporting Standards promulgated by the International Accounting Standards Board since 2000-2001.

The financial statements are considered by the Audit Committee and approved by the Board before the Chairman and the CEO sign them. Each year, the revised and proposed budgets are submitted to the Financial Secretary for approval and laid before the LegCo after consideration by the Commission. By law, the Director of Audit may examine any books, accounts, vouchers, records or documents kept by the Commission.

The Commission has always been fiscally responsible. Despite our expanded functions and workload and the strain on resources, we have always exercised strict controls over our operational expenditure, in particular the personnel expenses.

The Commission is committed to open communication with our stakeholders and the public. We publish our Quarterly Reports and Annual Report within 45 days after the end of the relevant period. We report our operations and activities to the public through periodic newsletters, press releases, publications and press conferences.

Internal Audit

As a relatively small organisation, we do not have a full-time internal audit unit. Instead, we have appointed an independent firm of accountants to conduct internal control review for us annually. The firm's review forms part of the Commission's overall annual internal control review programme, which is approved by the Audit Committee and includes also reviews by our cross-divisional audit teams.

The purpose of the internal control review is to assess whether the systems of internal control as set out in the various Commission's manuals are adhered to, to evaluate the adequacy of the controls in place, to safeguard assets and ensure reliability and integrity of information, and to identify enhancements to current procedures and controls to improve operating efficiency. The internal controls are designed to provide reasonable, but not absolute, assurance that errors and irregularities will not occur, and that procedures are performed in accordance with management's intentions.

Risk Management and Contingency Plans

The operational divisions of the Commission closely monitor and assess risks in their respective regulatory areas. They regularly report their risk analysis and make recommendations in managing the risks to the Board. We have a market contingency plan, which details procedures for dealing with emergency situations that may affect Hong Kong's securities and futures markets.

We also have prepared an internal contingency plan to deal with emergency situations that may affect the Commission's operations, such as fire, flooding or other disasters that may affect the Commission's offices. The plan details the contingency measures from all operational and supporting divisions in recovering and resuming their business during and after any emergencies.

The Commission is subject to various external checks and balances designed to ensure fairness and observance of due process. These include statutory rights of appeal, judicial review, and scrutiny by independent bodies such as the Process Review Panel, the Ombudsman and the Independent Commission Against Corruption.

An Independent Review Panel

The Commission's internal procedures for regulating the markets, including procedures for ensuring consistency and fairness, are reviewed on an on-going basis by the Process Review Panel (PRP). The PRP is an independent, non-statutory panel established by the HKSAR Chief Executive in November 2000. The Commission is the first securities regulator in the world to introduce such an external review system on its internal operations.

The PRP currently comprises 12 members, including nine members from the financial sector, academia and the legal and accountancy professions, and three ex-officio members including the Secretary for Justice (or her representative), the Commission's Chairman and an NED of the Commission.

Securities and Futures Appeals Panel/Tribunal

A wide range of the regulatory decisions of the Commission are subject to a full review by the Securities and Futures Appeals Tribunal (SFAT), which is chaired by a High Court judge and comprises two other members appointed by the HKSAR Chief Executive.

Before the establishment of the SFAT, the independent Securities and Futures Appeals Panel (SFAP) heard appeals against decisions made by the SFC relating to the registration, regulation and discipline of intermediaries.

ICAC Reviews

The Independent Commission Against Corruption (ICAC) has conducted periodic corruption prevention reviews on the procedures and practices of the Commission since 1990.

Reporting to the Government

The Commission is an independent regulatory body but is subject to regular reporting and furnishing of information to the Financial Secretary and the Financial Services and the Treasury Bureau regarding our operations and important issues. We are required to consult the Financial Secretary before exercising certain powers. After consultation with the CEO of the Commission, the Chief Executive may, upon being satisfied that it is in the public interest to do so, give the Commission written directions as to the furtherance of any of its regulatory objectives or the performance of any of its functions.

Public Redress Mechanism

Members of the public can complain to the Ombudsman against the Commission and its staff if they believe that we have been guilty of maladministration in the performance of our functions.

Anyone who is dissatisfied with a Commission decision may appeal to the SFAT. Where this remedy is not available, they may take civil action in the Courts against the Commission, by either applying for judicial review of the Commission's decisions or seeking remedies.