The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today (Friday) published a consultation paper on proposed changes to the section of its Corporate Governance Code and Corporate Governance Report (the Code) relating to internal controls.  The Code is Appendix 14 of the Main Board Listing Rules and Appendix 15 of the Growth Enterprise Market (GEM) Listing Rules.

The Exchange is of the view that the internal controls section of the Code should place greater emphasis on risk management. Further, the Exchange considers that the Code should better delineate the roles and responsibilities of an issuer's board, management and internal audit function in relation to its risk management and internal control systems, and set out the minimum specific disclosures that an issuer should make in its Corporate Governance Report so as to enhance the transparency of its systems.

To achieve these aims, the consultation paper published today seeks views on proposals to update the internal controls section of the Code.  In summary, the proposals set out in the consultation paper are intended to:

• emphasise that internal controls are an integral part of risk management;
• enhance accountability of the board, board committees and management by clearly defining their roles and responsibilities in relation to risk management and internal controls;
• improve transparency of the issuer's risk management and internal controls by upgrading the recommendation for issuers to disclose their policies and processes along with details of their annual review of the effectiveness of their risk management and internal control systems; and
• strengthen oversight of issuers' risk management and internal control systems by upgrading the recommendation for issuers to have an internal audit function.

"Effective risk management and internal control is a core element of good corporate governance.  We have conducted a comprehensive review of the internal controls section of the Exchange's Corporate Governance Code to ensure that it is adequate in view of the changing business environment and evolving international regulatory landscape," said David Graham, HKEx's Chief Regulatory Officer and Head of Listing.  "This consultation paper is part of our ongoing efforts to ensure that the Code remains up-to-date and reflects international best practices."

The consultation paper can be downloaded from the HKEx website.  Interested parties are encouraged to respond to the consultation paper by completing and submitting the questionnaire.  The deadline for replies to the consultation paper is 31 August 2014.

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