The Securities and Futures Commission (SFC) said it is liaising with the relevant mainland financial regulatory bodies to clarify the notion of "state secret" in auditing corporate business accounts in order to maintain a high degree of transparency in the local financial market.

"Being a high quality regulatory regime, the element of transparency is very vital in Hong Kong. Dealing with the issue of disclosure is our priority," outgoing SFC Chairman Eddy Fong said at a press conference on Wednesday. He said the matter was being discussed with various mainland regulatory bodies so that "we can have a clear definition of what constitutes state secrets."

"We take the view that state secrets exist but they (state secrets) should not be abused. If the state secret issue is still lingering, this will have a long term effect on the mainland and local share markets," Fong reckoned.

The local securities market watchdog ordered China High Precision Automation Group (China High Precision) to suspend its share trading in mid-August less than two weeks after the Exchanges and Clearing Ltd (HKEx) approved its share trading resumption.

The mainland automation instrument and technology products provider in last October halted its share trading when it announced that it could not furnish its former auditor KPMG with all the financial information that the SFC sought because some of its businesses were related to "state secrets". KPMG resigned as the company's auditor in last November.

Then China High Precision said in early August this year that it had won the HKEx's approval to resume share trading as there were no irregularities in the company's turnover and business transactions after the company carried out an independent review and investigation of the company's accounts.

However, the SFC ordered China High Precision to halt share trading again in mid-August as it disagreed with the company using "state secret" as a shield to withhold information related its business accounts.

"As an international fund-raising platform, maintaining a high quality (transparency) is very crucial for Hong Kong. If the high quality standard cannot be maintained, then other companies may not utilize the Hong Kong fund-raising platform when the market loses confidence toward the local platform," Fong noted.

oswald@chinadailyhk.com

(HK Edition 10/18/2012 page2)